Universitas Advent Indonesia

Parongpong, Bandung, Indonesia

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AUDITING I - Unit Test – June 10, 2020

I. Definition of terms. Write the appropriate word.

__________1. The recording, classifying, and summarizing of economic

events in a logical manner for the purpose of providing financial
information for decision making.

__________2. Any information used by the auditor to determine whether the

information being audited is stated in accordance with established
criteria.

__________3. An audit conducted to determine whether the overall financial

statements of an entity are stated in accordance with specified criteria.

__________4. Certified public accountants or accounting firms that perform

audit of commercial and noncommercial financial entities.

__________5. The accumulation and evaluation of evidence about

information to determine and report on the degree of correspondence
between the information established criteria.

__________6. The communication of audit findings to users.

__________7. Independent professional services that improve the quality of

information for decision makers.

__________8. The risk that information upon which a business decision is

made is inaccurate.

__________9. A review of any part of an organization’s operating procedures

and methods for the purpose of evaluating efficiency and effectiveness.

_________10. Auditors employed by a company to audit for the company’s

board of directors and management.

II. Multiple Choice. Choose and encircle the best answer.

1. Which of the following terms does not belong to the group

a. Financial Audit c. External Audit
b. Independent Audit d. Internal Audit

2. An external audit
a. Supports an internal audit c. Overlaps an internal audit
b. Duplicates an internal audit d. Complements an internal
audit
3. Operational audits generally have been conducted by internal auditors and
governmental audit agencies but may be performed by certified public
accountants. A primary purpose of an operational audit is to provide

a. A means of assurance that internal accounting controls are functioning as

planned.
b. A measure of management performance in meeting organizational goals.
c. The result of internal examination of financial and accounting matters to
a company’s top-level management.
d. Aid to independent auditor, who is conducting the examination of the
financial statements.

4. A CPA should reject a management advisory services engagement if

a. It would require him to make management decisions for an audit client.

b. his recommendations are to be subject to review by the client
c. He audits the financial statements of a subsidiary of the prospective
client.
d. The proposed engagement is not accounting-related.

5. The criteria by which the quality of performance of auditing engagements

are measured. These indicate levels of performance which must be
attained for the completion of a satisfactory audit and these relate to the
personal qualifications of the auditor and to exercise of his judgment in
performing the examination and in rendering his report. These are called
the

a. Generally accepted accounting principles.

b. Standards of field work.
c. Generally accepted auditing standards.
d. Standards of reporting.

6. “Generally Accepted Auditing Standards” is best described to mean

a. Acts to be performed by the auditor.

b. Measures the quality of the auditor’s performance.
c. Procedures to be used to gather evidence to support financial statements.
d. Audit objectives generally determined on audit engagements.

7. The quality of performance of auditing engagement are evaluated by these

standards. They relate to personal qualifications of the auditor and the
exercise of his judgment in performing the audit and in rendering his
report. They indicate levels of performance which must be attained for the
completion of a satisfactory audit.

a. Standards of filed work.

b. Standards of reporting.
c. Generally accepted accounting principles.
d. Generally accepted auditing standards.

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8. On every audit engagement, the CPA should comply with applicable
generally accepted auditing standards

a. Without exception.
b. Except in examinations that results in a qualified report.
c. Except in engagements where the CPA is associated with unaudited
financial statements.
d. Except in examinations of interim financial statements.

9. What is the general character of the three (3) generally accepted auditing
standards classified as general standards?

a. Criteria for competence, independence, and professional care of

individuals performing the audit.
b. Criteria for the content of the financial statements and related footnote
disclosures.
c. Criteria for the content of the auditor’s report on financial statements and
related footnote disclosure.
d. The requirements for planning of the audit and supervision of assistant,
if any.

10. Which of the following is mandatory if the auditor is to comply with

generally accepted auditing standards?

a. Use of analytical review on audit work.

b. Confirmation of material accounts receivable balances.
c. Use of statistical sampling, to the extent practicable, on audit
engagements.
d. Possession of adequate technical training.

11. The first general standard in auditing requiring a person or persons to

have adequate technical training and proficiency as an auditor is met by

a. An understanding of the field of business and finance.

b. Education and experience in the field of auditing.
c. Continuing professional education.
d. A thorough knowledge of the statements on auditing standards.

12. The independent auditor lends credibility to client financial statements by

a. Stating in the auditor’s management letter that the examination was

made in accordance with generally accepted auditing standards.
b. Maintaining a clear-cut distinction between management’s
representations and the auditor’s representations.
c. Attaching an auditor’s opinion to the client’s financial statements
d. Testifying under oath about client financial information.

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13. Professional experience is an important aspect of the training and
proficiency of the junior assistant just entering upon an auditing career.
Professional experience should be attained
a. With proper supervision and review of work by a more experienced
supervisor.
b. Through s thorough study of the generally accepted auditing standards.
c. By completing a number of continuing education courses of each year.
d. By taking appropriate professional certification exams.

14. The objective of the ordinary audit of financial statements is

a. To make suggestions as to the form or content of the financial

statements or to draft them in whole or in part.
b. The expression of an opinion on the fairness with which the
statements present financial position, results of operations, and
cash flows in accordance with generally accepted accounting
principles.
c. To assure adoption of sound accounting policies and the
establishment and maintenance of an internal control structure.
d. The expression of an opinion on the accuracy with which the
statements present financial position, results of operations, and
cash flows in accordance with generally accepted accounting
principles.

15. John Honest, CPA was offered the engagement to audit W. Company for
the year ended June 30, 2019. He had serve as director of W. Company
until June 30, 2017, and his wife currently owns 10 of the 10,000
outstanding shares of W. Company. He should

a. Accept the engagement.

b. Let his partner accept and conduct the engagement.
c. Refuse the engagement because he had served as a director.
d. Refuse the engagement because of his wife’s stock ownership.

16. The scope and nature of an auditor’s contractual obligation to a client

ordinarily is set forth in the

a. Management letter.
b. Scope paragraph of the auditor’s report.
c. Engagement letter.
d. Introductory paragraph of the auditor’s report.

17. CPAs should not be liable to any party if they perform their services with

a. Ordinary negligence. c. Due professional care.

b. Regulatory providence. d. Good faith.

18. The following are the major sources of auditor’s legal liability, except

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 a. Client. c. Federal securities laws.
b. Third party. d. CPA firm.

19.The following are legal defenses against clients, except

a. Lack of duty. c. Nonnegligent

performance.
b. Lack of independence. d. Contributory negligence.

20. The primary reason for an audit by an independent, external audit firm is
to

a. Satisfy governmental regulatory requirements.

b. Guarantee that there are no misstatements in the financial
statements and ensure that any fraud will be discovered.
c. Relieve management of responsibility for the financial statements.
d. Provide increased assurance to users as to the fairness of the
financial statements.

21. Which of the following best describes the reason an independent auditor
reports on financial statements?

a. A management fraud may exist, and it is more likely to be detected

by independent auditors.
b. The company preparing the statements and the persons using the
statements may have different interests.
c. A misstatement of account balances may exist and is generally
corrected as the result of the independent auditor’s work.
d. The company preparing the statements may have a poorly designed
internal control structure.

22. An audit of the financial statements of Camden Corporation is being

conducted by an external auditor. The external auditor is expected to

a. Give an opinion as to the fairness of Camden’s financial

statements.
b. Give an opinion as to the attractiveness of Camden for investment
purposes and critique the wisdom and legality of its business
decisions.
c. Certify the correctness of Camden’s financial statements.
d. Make a 100% examination of Camden’s records.

23. The independent auditor lends credibility to client financial statements by

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 a. Stating in the auditor’s communication of internal control structure
related matters that the audit was made in accordance with
generally accepted auditing standards.
b. Maintain a clear-cut distinction between management’s
representations and the auditor’s representations.
c. Attaching an auditor’s opinion to the client’s financial statements.
d. Testifying under oath about client financial information.

24. Which of the following is a false statement about audit objectives?

a. There should be a one-to-one relationship between audit objectives

and procedures.
b. Audit objectives should be developed in light of management
assertions about the financial statement component.
c. Selection of tests to meet audit objectives should depend upon the
understanding of the internal control structure.
d. The auditor should resolve any substantial doubt about any of
management’s material financial statement assertions.

25. Evidential matter, states that management makes certain assertions that are
embodied in financial statement components; for example, two such
categories of assertions are completeness and valuation or allocation.
Which of the following is not such a management assertion?

a. Rights and obligation c. Existence or occurrence

b. Presentation and disclosure d, Errors or irregularities

III. True or False. Write T if the statement is true and F is the

statement in false.

____1. An internal auditor, although on employment status, enjoys some

degree of independence in the performance of his work.

____2. A CPA teaching accounting in a private university is not considered to

be engaged in the professional practice of accountancy.

____3. It is ethical for a CPA to notify his clients by letter regarding the
admission of new partner to his firm.

____4. A CPA while performing an audit strives to achieve independence in

appearance in order to become independent in fact.

____5. A CPA who is not independent may issue a compilation report.

____6. A profession is not primarily motivated by profit.

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 ____7. If during the audit the auditor discovered that the client has not
complied with the regulations of the government with respect to
withholding tax, minimum wages, overtime pay etc., he should report
the matter right away to the government authorities since this duty is
embodied in the oath he has sworn as a CPA.

____8. Auditors are generally in agreement that quotation and collection of a

fee contingent on the results obtained in an income tax case is
considered to be ethical.

____9. Technical competence is a basic ethical principle specifically set forth

in the Code.

____10. A CPA would not be considered independent of a company in which

his wife was a director even if the CPA has no direct financial interests
in the company.

IV. Write the 10 Generally Accepted Auditing Standards (GAAS).

Integrity is My Priority

God bless you.