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Quiz No. 1
1. Broadly defined, the subject matter of any audit consists of
a. Financial Statements
b. Economic data
c. Assertions
d. Operating data
4. The criteria for evaluating quantitative information vary. For example, in the case of an
independent audit of financial statements by CPA firms, the criteria are usually the
a. PFRS or PFRS for SMEs
b. Philippine Standards on Auditing
c. National Internal Revenue Code
d. Regulations of the Securities and Exchange Commission
6. An audit that involves obtaining and evaluating evidence about the efficiency and
effectiveness of an entity’s operating activities in relation to specified objectives is a(n):
a. External audit
b. Compliance audit
c. Operational audit
d. Financial statement audit
8. Which of the following types of audit uses laws and regulations as its criteria?
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Performance audit
9. In financial statement audits, the audit process should be conducted in accordance with
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a. The audit program
b. Philippine Standards on Auditing
c. Philippine Accounting Standards
d. Philippine Financial Reporting Standards
10. Which of the following types of auditing is performed most commonly by CPA’s on a
contractual basis?
a. Internal auditing
b. Income tax auditing
c. Government auditing
d. External auditing
13. The auditor communicates the results of his or her work through the medium of the
a. Engagement letter
b. Audit report
c. Management letter
d. Financial statements
16. 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.
17. Which of the following has the primary responsibility for the fairness of the representations
made in the financial statements?
a. Client’s management
b. Audit committee
c. Independent auditor
d. Board of Accountancy
18. Which of the following statements about independent financial audit is correct?
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a. The audit of financial statements relieves management of its responsibilities for
the financial statements.
b. An audit is designed to provide limited assurance that the financial statements
taken as a whole are free from material misstatement.
c. The procedures required to conduct an audit in accordance with PSAs should be
determined by the client who engaged the services of the auditor.
d. The auditor’s opinion is not an assurance as to the future viability of the entity as
well as the effectiveness and efficiency with which management has conducted
the affairs of the entity.
19. An audit of the financial statements of KIA Corporation is being conducted by an external
auditor. The external auditor is expected to
a. Express an opinion as to the fairness of KIA’s financial statements.
b. Express an opinion as to the attractiveness of KIA for investment purposes.
c. Certify the correctness of KIA’s financial statements.
d. Examine all evidence supporting KIA’s financial statements.
22. By providing high level of assurance on audit reports on financial statements, the auditor
a. Guarantees the fair presentation of the financial statements
b. Confirms the accuracy of the financial statements
c. Enhances the credibility of the financial statements
d. Assures the readers that fraudulent activities of employees have been detected
25. An attitude that includes a questioning mind and a critical assessment of audit evidence is
referred to as
a. Due professional care
b. Professional skepticism
c. Reasonable assurance
d. Supervision
26. The level of assurance provided when an auditor issues an audit report is:
a. Low
b. Reasonable
c. Moderate
d. None
27. Jack has been retained as auditor of EVC Company. The function of Jack’s opinion on
financial statements of EVC Company is to
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a. Improve financial decisions of company management
b. Lend credibility to management’s representations
c. Detect fraud and abuse in management operations
d. Serve requirements of BIR, SEC, or Central Bank
28. Which of the following statements does not properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of
evidence
b. Some evidence supporting peso representation in the financial statements must
be obtained by oral or written representation of management.
c. Fatigue can cause auditors to overlook pertinent evidence.
d. Many financial statement assertions cannot be audited.
32. Which of the following is NOT among the conditions that give rise to a demand by external
users for independent audits of financial statements?
a. Remoteness of users
b. Complexity of making economic decisions
c. Potential conflict of interest between users and preparers of the statements
d. Consequence of making decisions
33. Which of the following is NOT one of the general principles governing audit of financial
statements?
a. The auditor should plan and perform the audit with an attitude of professional
skepticism.
b. The auditor should obtain sufficient appropriate evidence primarily through
inquiry and analytical procedures to be able to draw reasonable conclusions.
c. The auditor should conduct the audit in accordance with PSA.
d. The auditor should comply with the Philippine Code of Professional Ethics.
34. The need for independent audits of financial statements can be attributed to all of the
following conditions except:
a. Remoteness
b. Consequence
c. Complexity of subject matter
d. Validity
35. Which of the following best describes the reason why an independent auditor reports on
financial statements?
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a. A management fraud may exist and it is more likely to be detected by
independent auditors.
b. Different interests may exist between the company preparing the statements and
the persons using the statements.
c. A misstatement of account balances may exist and is generally corrected as the
result of the independent auditor’s work.
d. A poorly designed internal control system may be in existence.
36. Auditing is based on the assumption that financial data are verifiable. Data are verifiable
when two or more qualified individuals,
a. working together, can prove, beyond doubt, the accuracy of the data.
b. working independently, each reach essentially similar conclusions.
c. working independently, can prove, beyond reasonable doubt, the truthfulness of
the data.
d. working together, can agree upon the accuracy of the data.
37. Which of the following statements DOES NOT properly describe an element of theoretical
framework of auditing?
a. The data to be audited can be verified.
b. Short-term conflicts may exist between managers who prepare the data and
auditors who examine the data.
c. Auditors act on behalf of the management.
d. An audit benefits the public.
38. Which of the following statements DOES NOT describe a condition that creates a demand
for auditing?
a. Conflict between information preparer and a user can result in biased
information.
b. Information can have substantial economic consequences for a decision-maker.
c. Expertise is often required for information preparation and verification.
d. Users can directly assess the quality of information.
39. There are four conditions that give rise to the need for independent audits of financial
statements. One of these conditions is consequence. In this context, consequence means
that the:
a. users of the statements may not fully understand the consequences of their
actions.
b. auditor must anticipate all possible consequences of the report issued.
c. impact of using different accounting methods may not be fully understood by the
users of the statements.
d. financial statements are used for important decisions.
40. The best statement of the responsibility of the auditor with respect to audited financial
statement is:
a. The auditor’s responsibility on fair presentation of financial statements is limited
only up to the date of the audit report.
b. The auditor’s responsibility is confined to the expression of opinion on the
financial statements audited.
c. The responsibility over the financial statements rests with the management and
the auditor assumes responsibility with respect to the notes of financial
statements.
d. The auditor is responsible only to his qualified opinion but not for any other type
of opinion.
41. Which of the following is INCORRECT about responsibility for financial statements?
a. Management is responsible for fair presentation of the financial statements.
b. Auditor is responsible for expressing an opinion on the financial statements.
c. Audit of financial statements does not reduce management’s responsibility.
d. Fair presentation of financial statements is an implicit part of the auditor’s
responsibility.
42. Which of the following statements DOES NOT properly describe an element of theoretical
framework of auditing?
a. The data to be audited can be verified.
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b. Short-term conflicts may exist between managers who prepare the data and
auditors who examine the data.
c. Auditors act on behalf of the management.
d. An audit benefits the public.
43. 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.
45. Which of the following statements DOES NOT properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of
evidence.
b. The work undertaken by the auditor is permeated by judgment.
c. Fatigue and human weaknesses can cause auditors to overlook pertinent
evidence.
d. Many financial statement assertions cannot be audited
46. The procedures deemed necessary in the circumstances to achieve the objective of the
audit shall be determined by the
a. Client management
b. Independent auditor
c. Internal Auditor
d. Those charged with governance
47. One of the conditions that give rise to a demand for an external audit of financial
statements is expertise. Which of the following best describes the meaning of expertise as
used in this context?
a. Auditors usually rely on the work of an expert as a basis for evaluating some
assertions embodied in the financial statements.
b. The readers of the financial statements must possess the necessary expertise to
be able to understand the financial statements.
c. Users usually lack the necessary expertise to verify the reliability of the financial
information.
d. As experts, auditors are expected to detect all material misstatements in the
financial statements.
-end-
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