AUDITING THEORY QUIZ 1

QUIZZERS

1.        Which of the following is an incorrect phrase?

a.   Auditing is a systematic process.

b.   Auditing subjectively obtains and evaluates evidence.

c.   Auditing evaluates evidence regarding assertions.

d.   Auditing communicates results to interested users.

2.        Which of the following is a correct statement relating to the theoretical framework of auditing?

a.    The financial data to be audited can be verified.

b.    Short-term conflicts do not exist between managers who prepare data and auditors who examine data.

c.    Auditors do not necessarily need independence.

d.    An audit has a benefit only to the owners.

3.        The essence of the attest function is to

a.    Detect fraud

b.    Examine individual transactions so that the auditor can certify as to their validity

c.    Determine whether the client’s financial statements are fairly stated

d.    Ensure the consistent application of correct accounting procedures

4.        In “auditing” accounting data, the concern is with

a.    Determining whether recorded information properly reflects the economic events that occurred during the accounting period.

b.    Determining if fraud has occurred.

c.    Determining if taxable income has been calculated correctly.

d.    Analyzing the financial information to be sure that it complies with government requirements.

5.        Users of financial statements demand independent audit because

a.    Users demand assurance that fraud does not exist

b.    Management may not be objective in reporting.

c.    Users expect auditors to correct management errors.

d.    Management relies on the auditor to improve internal control.

6.        Which of the following types of audits is performed to determine whether an entity’s financial statements are fairly stated in conformity with generally accepted accounting principles?

a.    Operational audit                                          c.   Financial statement audit

b.    Compliance audit                                         d.   Performance audit

7.        Which of the following types of auditing is performed most commonly by CPAs on a contractual basis?

a.    Internal auditing                                            c.   Government auditing

b.    BIR auditing                                                 d.   External auditing

PSA 100 – Assurance engagements

8.        Which of the following is incorrect regarding the Philippine Standards on Assurance Engagements (PSAE)?

a.    It provides an overall framework for assurance engagements intended to provide either a high or moderate level of assurance.

b.    It provides basic principles and essential procedures for engagements intended to provide a moderate level of assurance.

c.    When a professional accountant is engaged to perform an assurance engagement for which specific standards exist, those standards apply.

d.    If no specific standards exist for an assurance engagement, PSAE apply.

9.        An assurance engagement should exhibit the following elements except

a.    A three party relationship                             c.   Appropriate professional fee

b.    A conclusion                                                            d.   A subject matter

10.      Which of the following is incorrect regarding the “three-party relationship” element of assurance engagements?

a.    Professional accountants as those persons who are members of an IFAC member body, which should be in public practice.

b.    The responsible party and the intended user will often be from separate organizations but need not be.

c.    The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for the subject matter.

d.    The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose.

11.      The following are assurance engagements except

a.    Financial statements audit                           c.   Review of financial statements

b.    Information system reliability services        d.   Tax consulting

12.      Engagements frequently performed by professional accountants that are not assurance engagements include the following except

a.    Agreed-upon procedures.                            c.   Compilation

b.    Compliance audit                                         d.   Management consulting.

13.      The subject matter of an assurance engagement may take many forms, including

a.   Data             b.   Systems and processes               c.   Behavior                d.   All of these

14.      The decision as to whether the criteria are suitable involves considering whether the subject matter is capable of reasonably consistent evaluation against or measurement using such criteria.  The characteristics for determining whether criteria are suitable include the following, except

a.   Relevance                b.   Reliability:              c.   Understandability:             d.   Sufficiency

15.      When the professional accountant has obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria, he or she can provide what level of assurance?

a.   None                                    b.   High                       c.   Moderate                           d.   Absolute

16.      Absolute assurance is generally not attainable as a result of such factors as:

	a	b	c	d
·         the use of selective testing,	Yes	Yes	Yes	No
·         the inherent limitations of control systems	Yes	Yes	Yes	Yes
·         the fact that much of the evidence available to the professional accountant is persuasive rather than conclusive	Yes	Yes	No	Yes
·         the use of judgment in gathering evidence and drawing conclusions based on that evidence	Yes	No	No	No

PSA 120 – Framework of PSA

17.      The Framework of PSA applies to

a.   Taxation                   b.   Consultancy          c.   Accounting advice                        d.   Compilation

18.      Agreed-upon procedures provides what level of assurance?

a.   None                                    b.   High                       c.   Moderate                           d.   Absolute

19.      Which of the following procedures ordinarily performed during an audit are also performed in review?

a.    Assessment of accounting and internal control systems

b.    Test of controls

c.    Tests of records and of responses to inquiries

d.    Inquiry and analytical procedures

20.      The objective of a review of financial statements

a.    Is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

b.    Is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework.

c.    Is to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

d.    Is to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

21.      An auditor is associated with financial information when

	a	b	c	d
·         the auditor attaches a report to that information	Yes	No	Yes	No
·         consents to the use of the auditor’s name in a professional connection	Yes	Yes	No	No

PSA 200 – Objective and general principles governing an audit of FS

22.      The auditor’s opinion

a.    Enhances the credibility of the financial statements.

b.    Is an assurance as to the future viability of the entity.

c.    Is an assurance as to the efficiency with which management has conducted the affairs of the entity, but not effectiveness.

d.    Certifies the correctness of the financial statements.

23.      Which of the following is incorrect regarding the general principles of an audit?

a.    The auditor should comply with the “Code of Ethics for Professional Ethics for Certified Public Accountants” promulgated by the Philippine Professional Regulation Commission.

b.    The auditor should conduct an audit in accordance with PSAs.

c.    The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated.

d.    The auditor would ordinarily expect to find evidence to support management representations and assume they are necessarily correct.

24.      It refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit.

a.    Scope of an audit                                                     c.   Objective of an audit

b.    Audit program                                                          d.   Reasonable assurance

25.      Which of the following are sources of procedures to be considered by the auditor to conduct an audit in accordance with PSAs?

PSA	Legislation	Terms of Audit Engagement	Type of Opinion
a.      Yes	No	No	No
b.      No	No	Yes	Yes
c.      No	Yes	Yes	No
d.      Yes	Yes	Yes	No