AT Quizzer 1 - Overview of Auditing (2TAY1718)
AT Quizzer 1 - Overview of Auditing (2TAY1718)
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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.
10. The Philippine Framework for Assurance Engagements identifies two types of assurance engagement
a practitioner is permitted to perform: a reasonable assurance engagement and a limited assurance
engagement. Which of the following is the objective of a reasonable assurance engagement?
a. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a negative form of expression of the practitioner’s conclusion.
b. A reduction in assurance engagement risk to a very low level in the circumstances of the
engagement as a basis for a disclaimer of the practitioner’s conclusion.
c. A reduction in assurance engagement risk to an acceptably low level that is acceptable in the
circumstances of the engagement as a basis for a positive form of expression of the practitioner’s
conclusion.
d. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a qualified form of the practitioner’s conclusion.
11. How many members of AASC are needed to approve the exposed draft as Philippine Standards on
Auditing?
a. Majority of the regular members
b. At least eight
c. At least ten
d. At least twelve
12. It refers to the level of satisfaction as to the reliability of an assertion being made by one party for use
by another party
a. Confidence level
b. Assurance level
c. Reasonableness level
d. Tolerable level
14. When performing an assurance service, professional accountants use standards or benchmarks to
evaluate or measure the subject matter of an assurance engagement. This element of an assurance
engagement is called:
a. Criteria.
b. Conclusion.
c. GAAP.
d. Assertion.
16. In an assurance engagement, the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose is the:
a. Intended user.
b. Responsible party.
c. Management.
d. Client.
18. The suitability of the criteria to which the professional accountant will base his evaluation of the
subject matter partly depends on:
a. b. c. d.
Relevance Yes Yes Yes No
Reliability Yes Yes Yes Yes
Understandability Yes No Yes No
Neutrality NO No Yes Yes
21. An audit in accordance with PSAs is performed on the premise that management and, where
appropriate, those charged with governance have responsibilities that are fundamental to the conduct
of the audit. Which of the following is not one of those responsibilities?
a. To comply with all relevant PSAs in the preparation and presentation of the entity’s financial
statements
b. To provide the auditor with all information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial statements
c. To provide unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence
d. To design, implement, and maintain internal control relevant to the preparation and presentation
of financial statements that are free from material misstatement, whether caused by fraud or error
22. The auditor is required to maintain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a. A belief that management and those charged with governance are honest and have integrity
relieves the auditor of the need to maintain professional skepticism
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating
the results thereof
c. Professional skepticism is necessary to the critical assessment of audit evidence
d. Professional skepticism is an attitude that includes questioning contradictory
AT Quizzer 1 “Fundamentals of Auditing and Assurance Services 4
23. Every independent audit engagement involves both auditing standards and auditing procedures. The
relationship between the two may be illustrated by how they apply from engagement to engagement.
The best representation of this application is that, from one audit engagement to the next
a. Both auditing standards and auditing procedures are applied uniformly
b. Auditing standards are applied uniformly but auditing procedures may vary
c. Auditing standards may vary but auditing procedures are applied uniformly
d. Auditing standards are applied uniformly but auditing procedures are optional
24. Generally accepted accounting principles (GAAP) are distinguished from generally auditing standards
(GAAS) in that
a. GAAP are the principles for presentation of financial statements and underlying transactions,
while GAAS are the standards that the auditors should follow when conducting an audit
b. GAAP are the principles auditors follow when conducting an audit, while GAAS are the standards
for presentation of financial statements and underlying transactions
c. GAAP are promulgated by the SEC, while GAAS are promulgated by the FRSC
d. When GAAP are violated, sufficiently strong GAAS may make up for most GAAP deficiencies
27. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any fraudulent activity has been corrected.
28. 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.
29. 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.
30. 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.
32. The purpose of a compliance audit for a governmental entity is to determine whether
a. Financial statements comply with GAAP and whether the entity is operating efficiently.
b. Financial statements comply with GAAP and the entity has complied with applicable laws and
regulations.
c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP.
33. Government auditing often extends beyond examinations leading to the expression of opinion on the
fairness of financial presentation and includes audits of efficiency, effectiveness, and
a. Internal control
b. Evaluation
c. Accuracy
d. Compliance
34. In government auditing, the three elements of expanded scope auditing are
a. Goal analysis, audit of operations, audit of systems
b. Financial and compliance, economy and efficiency, program results
c. pre-audit, post audit, internal audit
d. national government audit, local government audit, corporation audit
37. For the purpose of expressing negative assurance in the review report, the practitioner should obtain
sufficient appropriate evidence primarily through
a. Inquiry and confirmation
b. Analytical procedures and substantive tests of details of transactions and account balances
c. Confirmation and tests of controls
d. Inquiry and analytical procedures
c. Users of the compiled financial information derive some benefit as a result of the accountant’s
involvement because the service has been performed with due professional skill and care.
d. A compilation engagement ordinarily entails reducing detailed data to a manageable and
understandable for without a requirement to test the assertions underlying that information.
41. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to
auditing expertise to collect, classify, and summarize financial institution. What type of assurance is
provided by the accountant when he/she performs this engagement?
a. Positive assurance
b. Negative assurance
c. No assurance
d. Limited assurance
43. Which of the following engagements require compliance with the requirements of the Code of Ethics
for Professional Accountants in the Philippines?
Compilation Review Agreed-upon Procedures
a. No Yes No
b. No No No
c. Yes No Ye
d. Yes Yes Yes
44. Which of the following statements is correct concerning an auditor’s responsibilities regarding
financial statements?
a. An auditor’s responsibilities for audited financial statements are confined to the expression of the
auditor’s opinion.
b. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of
the auditor’s responsibilities.
c. Making suggestions that are adopted about the form and content of an entity’s financial
statements impairs an auditor’s independence.
d. The auditor’s report should provide an assurance as to the future viability of the entity.
45. Which of the following best describes why an independent auditor is asked to express an opinion on
the fair presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company’s financial position, cash
flow, and operations without the expertise of an independent auditor
b. It is management’s responsibility to seek available independent aid in the appraisal of the
financial information shown in its financial statements
c. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements
d. It is customary courtesy that all stockholders of a company receive an independent report on
management’s stewardship in managing the affairs of the business
46. When a CPA expresses an opinion on financial statements, his or her responsibilities extend to
a. The underlying wisdom of the client’s management decisions.
b. Whether the results of the client’s operating decisions are fairly presented in the financial
statements.
c. Active participation in the implementation of the advice given to the client.
d. A ongoing responsibility for the client’s solvency.
47. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of
the following factors, except
a. The use of selective testing
b. The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive
c. The practitioner may not have the required assurance knowledge and skills to gather and
evaluate evidence
d. The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence
AT Quizzer 1 “Fundamentals of Auditing and Assurance Services 7
49. Although a CPA does not guarantee his findings, his opinion is nevertheless valuable to various third
parties. The value of the CPA’s opinion lies in the fact that
a. He has the qualifications required by law to be a CPA.
b. He is under the supervision of the Professional Regulatory Board of Accountancy.
c. He has gathered sufficient, competent, evidential matter to support his opinion.
d. He has followed generally accepted auditing standards.
50. Which of the following statements best describes the primary purpose of Philippine Standards on
Auditing?
a. They are guides intended to set forth auditing procedures that are applicable to a variety of
situations
b. They are procedural outlines which are intended to narrow the areas of inconsistency and
divergence of auditor opinion
c. They are authoritative statements, enforced through the Code of Professional Conduct, that are
intended to limit the degree of auditor’s judgment
d. They are interpretations which are intended to clarify the meaning of “generally accepted auditing
standards”
51. 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.
52. The exposure period allowed for each exposure draft of PSA to be considered by the organizations
and persons to whom it is sent for comment is generally
a. Four months
b. Three months
c. Two months
d. Six months
54. The financial reporting framework adopted by management and, where appropriate, those charged
with governance in the preparation of the financial statements that is in acceptable in view of the
nature of the entity and the objective of the financial statements, or that is required by law or
regulation.
a. Generally accepted auditing standards.
b. Financial reporting standards
c. Applicable financial reporting framework.
d. Philippine Standards in Auditing.
58. In determining the primary responsibility of the external auditor for an audit of a company’s financial
statements, the auditor owes primary allegiance to
a. Shareholders, creditors and the investing public.
b. The management of the audit client because the auditor is hired and paid by management.
c. The Auditing and Assurance Standards Council, because it determines auditing standards and
auditor’s responsibility.
d. The audit committee of the audit client because the committee is responsible for coordinating and
reviewing all audit activities within the company.
59. An audit involves ascertaining the degree of correspondence between assertions and established
criteria. In the case of an audit of financial statements, which of the following would not be a valid
criterion?
a. International Accounting Standards
b. Philippine Financial Reporting Standards (PFRS)
c. Generally accepted auditing standards
d. PFRS for SMEs
60. 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
63. 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
67. This assurance engagement provides a limited level of assurance about the client’s historical financial
statements:
a. Financial statements audit
b. Review of historical financial statements
c. Forecasts and projections
d. Agreed-upon procedures
70. In government auditing, the three elements of expanded scope auditing are:
a. Goal analysis, audit of operations, audit of systems
b. Financial and compliance, economy and efficiency, program results
c. Pre-audit, post audit, internal audit
d. National government audit, local government audit, corporation audit
71. An audit designed to determine the extent to which the desired results of an activity established by
the legislative or other authorizing body are being achieved.
a. Economy audit
b. Efficiency audit
c. Program results audit
d. Financial-related audit
73. Which of the following best describes the reason why independent auditors report on financial
statements?
a. A management fraud may exist and it is more likely to be detected by independent auditors
b. A poorly designed internal control structure may be in existence
c. A misstatement of account balances may exist and is generally corrected as the result of the
independent auditor’s work
d. Different interest may exist between the company preparing the statements and the persons
using the statements.
74. The best statement of the responsibility of the auditor with respect to audited financial statements 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 his expression of opinion about the audited financial
statements.
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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.
75. The general principles for conducting financial statement audits include which of the following?
a. Compliance with the Code of Ethics for CPAs.
b. Compliance with Philippine Standards on Auditing.
c. Planning and performing the audit with professional skepticism.
d. All of the choices apply.
76. Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as:
a. Ideals to strive for, but which are not achievable.
b. Maximum standards which denote excellent work.
c. Benchmark to be used in all audits, reviews and compilations.
d. Minimum standards of performance which must be achieved on each audit engagement.
77. An auditor needs not abide by a Philippines Standard on Auditing if the auditor believes that
a. The amount is insignificant
b. The requirement of the PSA is impractical to perform
c. The requirement of the PSA is impossible to perform
d. Any of the given three choices is correct
78. Ultimately, the decision about whether or not an auditor is independent must be made by the
a. Auditor
b. Audit committee
c. Client
d. Public
79. Which of the following attributes is required of an auditor in relation to audit clients?
a. Rationalization
b. Bias
c. Loyalty
d. Independence
80. 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
c. Become independent in fact
d. Maintain public confidence in the profession
81. Which of the following best describes why publicly-traded corporations follow the practice of having
the outside auditor appointed by the board of directors or elected by the stockholders?
a. To comply with the regulations of the Financial Accounting Standards Board
b. To emphasize auditor independence from the management of the corporation
c. To encourage a policy of rotation of the independent auditor
d. To provide the corporate owners with an opportunity to voice their opinion concerning the
quality of the auditing firm selected by the directors
83. An audit committee must be comprised of independent director. Which of the following is
considered an independent director?
a. A member of company management.
b. A retired executive from another company.
c. The company’s independent auditor.
d. A consultant to the company.
84. Theoretically, it is possible to provide an infinite range of assurance from a very low level of
assurance to an absolute level of assurance. In practice, the professional accountants cannot
provide absolute assurance because of the following except,
a. The internal control has its inherent limitations.
b. The professional accountants employ testing process.
c. The lack of expertise of the professional accountants in doing a systematic engagement process.
d. The use of judgment in gathering evidence and drawing conclusions based on that evidence.
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86. 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.
89. Auditing is based on the assumption that financial data and statements are
a. In conformity with applicable reporting framework.
b. Verifiable
c. Presented fairly
d. Consistently applied
90. The decision of whether the criteria are suitable involves considering whether the subject matter of
the assurance engagement is capable of reasonably consistent evaluation or measurement using
such criteria. Which of the following characteristics is not considered necessary in determining
whether the criteria are suitable?
a. Relevance
b. Neutrality
c. Reliability
d. Sufficiency
91. Choose one of the following which would describe best the phrase “Philippine Standards on Auditing
(PSAs)”.
a. They identify the policies and procedures for the conduct of the audit
b. They define the nature and extent of the auditor’s responsibilities
c. They provide guidance to the auditor with respect to planning the audit and writing the audit
report
d. They set forth a measure of the quality of the performance of audit procedures
93. On every audit engagement, the CPA should comply with applicable PSA
a. Without exception.
b. Except in examinations that result 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.
94. One of the requirements of the Philippine Standards on Auditing is “sufficient and appropriate
evidential matter should be obtained.” The term “appropriate” refers primarily to
a. Relevance of the evidence.
b. Measurability of the evidence.
c. Consistency of the evidence.
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96. In general, internal auditor’s independence will be greatest when they report directly to the:
a. financial vice-president
b. corporate controller
c. audit committee of the board of directors
d. corporate stockholders
98. An audit designed to detect violation of laws and regulations would be referred to as
a. A financial statement audit
b. A compliance audit
c. A performance audit
d. An operational audit
99. Which of the following attributes is more closely associated with attestation services performed by a
CPA firm than with other lines of professional work?
a. Integrity
b. Competence
c. Independence
d. Keeping informed on current professional developments
100. Professional skepticism dictates that when management makes a statement to the auditors, the
auditors should
a. Disregard the statement because it ranks low of the evidence quality scale.
b. Corroborate the evidence with other supporting documentation whenever possible.
c. Require that the statement be put in writing.
d. Believe the statement in order to maintain the professional client-auditor relationship.
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