Mountain Province State Polytechnic College

Bachelor of Science in Accountancy

Principles of Auditing and Assurance Services

Review Questions for Auditing Theory

Name: __________________________________ Score: ___________

Schedule: _______________________________ Date: ____________

The following pertains to selected principles in “Audit Theory”. Read and

analyze each item carefully and answer each with a brief explanation. Your
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God bless you on your journey and praying that you will pass through the
ladder ascending to the next level.

True or False

1. Accounting data alone may be considered sufficient appropriate audit evidence to

issue an unmodified opinion on financial statements.
2. External evidence, such as communications from banks, is generally regarded as
more reliable than answers obtained from inquiries of the client.
3. Accounting data developed under satisfactory conditions of internal control are
more relevant than data developed under unsatisfactory internal control
conditions.
4. Information obtained indirectly from independent outside sources is more
persuasive than the auditor’s direct personal knowledge obtained through
observation and inspection.
5. A practical and effective audit procedure for the detection of lapping is preparing a
proof of cash.
6. To test the existence assertion for recorded receivables, an auditor would select a
sample from the shipping documents file.
7. In verifying debits to perpetual inventory records of a non-manufacturing firm, the
auditor would be interested in examining the vendors’ invoices.
8. In testing for unrecorded retirements of equipment an auditor might trace
equipment items observed during the plant tour to the equipment subsidiary
ledger.
9. Auditors may choose not to confirm accounts payable because other reliable
external evidence to support the balances is likely to be available.
10. An example of an external document that provides reliable information for the
auditor is purchase order for company purchases.
11. A primary purpose of audit working papers is to support the financial statements.
12. In some instances, other types of evidence may be reduced when analytical
procedures indicate that an account balance appears reasonable.
13. Although the quantity, type, and content of working papers will vary with the
circumstances, the working papers generally would include the auditing
procedures followed and the testing performed in obtaining audit evidence.
14. Audit documents may be regarded as a substitute for the client’s accounting
records.
15. In evaluating an entity’s accounting estimates, one of the auditor’s objectives is to
determine whether the estimates are reasonable in the circumstances.
16. Audit documents should be kept on the client’s premises so that the client can
have access to them for reference purposes.
17. A client’s accounting data cannot be considered sufficient audit evidence to
support the financial statements.
18. The permanent audit file usually includes working trial balance.
19. Significant unexpected fluctuations identified by analytical procedures will usually
necessitate an audit report modification.
20. Where no independent stock transfer agents are employed and the corporation
issues its own stocks and maintains stock records, cancelled stock certificates
should be defaced to prevent reissuance and attached to their corresponding stubs.