DMC COLLEGE FOUNDATION

BACHELOR OF SCIENCE IN ACCOUNTANCY

AUDITING THEORY
QUIZ -I SY: 2016-2017

NAME:____________________________________________________________ DATE:__________________________

MULTIPLE CHOICE (1 point each)

INSTRUCTION: Encircle the letter of your best choice. Strictly no erasures. Use ballpen only.

1. The criteria for evaluating quantitative information vary. For example, in the case of an
independent audit of financial statements by a CPA firm, the criteria are usually the
a. Philippine Standards on Auditing c. National Internal Revenue Code
b. Philippine Financial Reporting Standards d. Regulation of the SEC

2. Most of the independent auditor’s work in formulating an opinion on financial statements

consists of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transactions
d. Comparing recorded accountability with assets

3. Which of the following types of audit uses laws and regulations as its criteria?
a. Operational audit c. Compliance audit
b. Financial statement audit d. Performance audit

4. Which of the following best describes the operational audit?

a. It requires the constant review by internal auditors of the administrative controls as
they relate to operations of the company.
b. It concentrates on implementing financial and accounting control in a newly organized
company.
c. It attempts and is designed to verify the fair presentation of a company’s results of
operations.
d. It concentrates on seeking out aspects of operations in which waste would be reduced by
the introduction of controls.

5. Internal auditing is an independent appraisal function established within an organization to

examine and evaluate its activities. To that end, internal auditing provides assistance to
a. External auditors c. Management and the board of directors
b. Stockholders d. Government

6. Which of the following statements is not a distinction between independent auditors and
internal auditors?
a. Independent auditors represent third party users external to the auditee entity,
whereas internal auditors report directly to management.
b. Although independent auditors strive for both validity and relevance of evidence,
internal auditors are concerned almost exclusively with validity.
c. Internal auditors are employees of the auditee, whereas independent auditors are
independent contractors.
d. The internal auditor’s span of coverage goes beyond financial auditing to encompass
operational and performance auditing.

7. The best statement of the responsibility of the auditors with respect to audited financial
statement is:
a. The auditor’s responsibility is confined to the expression of opinion on the financial
statements audited.
b. The auditor’s responsibility on fair presentation of financial statements is limited
only up to the date of the audit report.
c. The responsibility over the financial statements rests with the management and the
auditors assumes responsibility with to the notes of financial statements.
d. The auditor is responsible only to his qualified opinion but not for any other type of
opinion.

8. Which of the following statements about independent financial statement audit is incorrect?
a. The term “scope of the audit” refers to audit procedures deemed necessary in the
circumstances to achieve the objective of the audit.
b. The auditor’s opinion enhances the credibility of the financial statements.
c. The phrase used to express the auditor’s opinion is “present fairly, in all material
respects”.
d. The risk that the auditor will fail to uncover material misstatement is eliminated when
the auditor conducts the audit in accordance with PSAs.
Prepared by: Angevin Bagalanon Acaylar, CPA Page 1
 9. Which of the following best describes what is meant by generally accepted auditing standards?
a. Audit objectives generally determined on audit engagements.
b. Acts to be performed by the auditor.
c. Measures of the quality of the auditor’s performance.
d. Procedure to be used to gather evidence to support financial statements.

10. The person responsible for the audit engagement and its performance and for the auditor’s
report that is issued in behalf of the firm is the
a. Quality control reviewer c. client’s management
b. Engagement partner d. those charged with governance

11. Which of the following is an element of a CPA firm’s quality control system that should be
considered in establishing its quality control policies and procedures?
a. Complying with laws and regulations c. Independence
b. Using statistical sampling techniques d. Considering audit risk and materiality

12. Which of the following quality control policies and procedures does not relate to human
resources and assignment?
a. Emphasize independence of mental attitude in training programs and in supervision and
review of the audits.
b. Monitor the effectiveness of recruiting programs.
c. Identify criteria which will be considered in evaluating individual performance and
expected proficiency.
d. Identify on a timely basis the staffing requirements of specific audits.

13. Which of the following quality control objectives would be least important to the auditor?
a. Engagement performance c. Determination of audit fee
b. Human resources d. Independence

14. The primary purpose establishing quality control policies and procedures for deciding whether
to accept a new client is to
a. Enable the CPA firm to attest to the integrity of the client management.
b. Satisfy the CPA firm’s duty to the public concerning the acceptance of new clients.
c. Minimize the likelihood of association with clients whose management lacks integrity.
d. Anticipate before performing any field work whether an unqualified opinion can be
expressed.

15. In making a decision to accept or retain a client, the firm should consider
a. Its competence
b. Its ability to comply with ethical requirements
c. The integrity of the client’s management
d. All of the above

16. An attitude that includes a questioning mind and a critical assessment of audit is referred
to as
a. due professional care c. reasonable assurance
b. professional skepticism d. supervision

17. It involves the theft of an entity’s assets and is often perpetrated by in relatively small
and immaterial amounts.
a. Fraudulent financial reporting c. Management fraud
b. Misappropriation of assets d. Employee fraud

18. Management has the responsibility to detect and prevent misstatement due to fraud and error.
This responsibility is accomplished through
a. Implementing adequate quality control systems
b. Having an annual audit of financial statements
c. Implanting adequate accounting and internal control systems
d. Issuing a representation letter to the auditor

19. Professional skepticism requires that an auditor assumes that management is

a. Honest, in the absence of fraud risk factors
b. Dishonest until completion of audit tests
c. Neither honest nor dishonest
d. Offering reasonable assurance of honesty.

20. It involves intentional misstatements including omissions of amounts or disclosures in

financial statements to deceive financial statements users.
a. Fraudulent financial reporting c. Management fraud
b. Misappropriation of assets d. Employee fraud

Prepared by: Angevin Bagalanon Acaylar, CPA Page 2