WESTMEAD INTERNATIONAL SCHOOL

Batangas City

Assignment in Auditing Theory

Multiple choice

1. The single feature that most clearly distinguishes

auditing, attestation, and assurance is
a. Type of service.
b. Training required to perform the service.
c. Scope of services.
d. CPA’s approach to the service.

2. The primary goal of the CPA in performing the attest

function is to
a. Detect fraud.
b. Examine individual transactions so that the auditor
may certify as to their validity.
c. Determine whether the client's assertions are fairly
stated.
d. Assure the consistent application of correct
accounting procedures.

3. Internal auditing often extends beyond examinations

leading to the expression of an opinion on the fairness of
financial presentation and includes audits of efficiency,
effectiveness, and
a. Internal control.
b. Evaluation.
c. Accuracy.
d. Compliance.

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. The auditor's judgment concerning the overall fairness of

the presentation of financial position, results of
operations, and changes in financial position is applied
within the framework of
a. Generally accepted accounting principles.
b. Generally accepted auditing standards.
c. Internal control.
d. Information systems control.
6. Which of the following is not considered an assertion as
formulated by the Auditing Standards Board?
a. Valuation or allocation.
b. Mathematical accuracy.
c. Rights and obligations.
d. Presentation and disclosure.

7. Which of the following is not a distinguishing feature of

risk-based auditing?
a. Identifying areas posing the highest risk of financial
statement errors.
b. Analysis of internal control.
c. Collecting and evaluating evidence.
d. Concentrating audit resources in those areas
presenting the highest risk of financial statement
errors.

8. To maximize independence, the director of internal

auditing should report to the
a. Audit committee.
b. Controller.
c. Chief financial officer.
d. Director of information systems.

9. The auditor communicates the results of his or her work

through the medium of the
a. Engagement letter.
b. Management letter.
c. Audit report.
d. Financial statements.

10. The best description of the scope of internal auditing is

that it encompasses
a. Primarily operational auditing.
b. Both financial and operational auditing.
c. Primarily the safeguarding of assets and verifying the
existence of such assets.
d. Primarily financial auditing.

11. A typical objective of an operational audit is to determine

whether an entity's
a. Financial statements fairly present financial position
and cash flows.
b. Financial statements present fairly the results of
operations.
c. Financial statements fairly present financial
position, results of operations, and cash flows.
d. Specific operating units are functioning efficiently
and effectively.

12. The scope and nature of an auditor's contractual obligation

to a client is ordinarily set forth in the
a. Scope paragraph of the auditor’s report.
b. Opinion paragraph of the auditor’s report.
c. Management letter.
d. Engagement letter.

13. The four major steps in conducting an audit are:

 a. Testing internal controls
b. Audit report
c. Planning
d. Testing transactions and balances

The proper sequence in applying the above steps is:

a. cadb
b. cdab
c. bcda
d. adcb

14. Which of the following statements is not true regarding

the competence of audit evidence?
a. Relevance is enhanced by an effective information
system.
b. To be competent, evidence must be both valid and
relevant.
c. Validity is related to the quality of the client’s
information system.
d. Relevance must always relate to audit objectives.

15. As used in auditing, which of the following statements best

describes "assertions"?
a. Assertions are the representations of management as to
the reliability of the information system.
b. Assertions are the auditor's findings to be
communicated in the audit report.
c. Assertions are the representations of management as to
the fairness of the financial statements.
d. Assertions are found only in the footnotes to the
financial statements.

16. Which of the following statements is not a distinction

between independent auditing and internal auditing?
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. Competence as a certified public accountant includes all of

the following except
a. Having the technical qualifications to perform an
engagement.
b. Possessing the ability to supervise and evaluate the
quality of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information
is needed.
18. Which of the following is mandatory if the auditor is to
comply with generally accepted auditing standards?
a. Possession by the auditor of adequate technical
training.
b. Use of analytical review on audit engagements.
c. Use of statistical sampling whenever feasible on an
audit engagement.
d. Confirmation by the auditor of material accounts
receivable balances.

19. As a guidance for measuring the quality of the performance

of an auditor, the auditor should refer to
a. Statements of the Financial Accounting Standards
Board.
b. Generally Accepted Auditing Standards.
c. Interpretations of the Statements on Auditing
Standards.
d. Statements on Quality Control Standards.

20. Which of the following statements best describes why the

CPA profession has deemed it essential to promulgate
ethical standards and to establish means for ensuring their
observance?
a. A requirement for a profession is the establishment
of ethical standards that stress primarily a
responsibility to clients and colleagues.
b. A requirement of most state laws calls for the
profession to establish a code of ethics.
c. An essential means of self-protection for the
profession is the establishment of flexible ethical
standards by the profession.
d. A distinguishing mark of a profession is its
acceptance of responsibility to the public.

21 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. Procedures to be used to gather evidence to support
financial statements.

22. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Pronouncements issued by the Auditing Standards Board.
b. Procedures to be used to gather evidence to support
financial statements.
c. Rules acknowledged by the accounting profession
because of their universal compliance.
d. Measures of the quality of the auditor's performance.

23. Under which of the following circumstances may a CPA agree

with a departure from an accounting principle promulgated
by that body designated by PICPA Council to formulate such
principles?
 a. When the principle was one formulated by the
Accounting Principles Board in as much as the APB is
no longer the body so designated by Council.
b. When the CPA can demonstrate that application of the
principle in question would make the financial
statements materially misleading.
c. When the disputed principle is contrary to industry
practice.
d. When adoption of the principle would cause the
financial statements to be inconsistent with prior
years.

24. Which of the following factors is most important concerning

an auditor's responsibility to detect errors and fraud?
a. The susceptibility of the accounting records to
intentional manipulations, alterations, and the
misapplication of accounting principles.
b. The probability that unreasonable accounting
estimates result from unintentional bias or
intentional attempts to misstate the financial
statements.
c. The possibility that management fraud, defalcations,
and misappropriation of assets may indicate the
existence of illegal acts.
d. The risk that mistakes, falsifications, and omissions
may cause the financial statements to contain
material misstatements.

25. The standard of due audit care requires the auditor to

a. Apply judgment in a conscientious manner, carefully
weighing the relevant factors before reaching a
decision.
b. Ensure that the financial statements are free from
error.
c. Make perfect judgment decisions in all cases.
d. Possess skills clearly above the average for the
profession.

26. The exercise of due professional care requires that an

auditor
a. Examine all available corroborating evidence.
b. Critically review the judgment exercised at every
level of supervision.
c. Reduce control risk below the maximum.
d. Attain the proper balance of professional experience
and formal education.

27. The first general standard recognizes that regardless of

how capable an individual may be in other fields, the
individual cannot meet the requirements of the auditing
standards without the proper
a. Business and finance courses.
b. Quality control and peer review.
c. Education and experience in auditing.
d. Supervision and review skills.

28. In determining estimates of fees, an auditor may take into

account each of the following, except the
 a. Value of the service to the client.
b. Degree of responsibility assumed by undertaking the
engagement.
c. Skills required to perform the service.
d. Attainment of specific findings.

29. A CPA, while performing an audit, strives to achieve

independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of field
work.
b. Become independent in fact.
c. Maintain public confidence in the profession.

30. The third general standard states that due care is to be

exercised in the performance of the examination. This
standard means that a CPA who undertakes an engagement
assumes a duty to perform each audit
a. As a professional possessing the degree of skill
commonly possessed by others in the field.
b. In conformity with generally accepted accounting
principles.
c. With reasonable diligence and without fault or error.
d. To the satisfaction of governmental agencies and
investors who rely upon the audit.

“PUSH – Pray until something happens.”

Prepared by:

Robert John R. Perez, CPA, MBA