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At.02 Introduction To Audit of Historical Financial Information
At.02 Introduction To Audit of Historical Financial Information
MULTIPLE CHOICE
Definition of Auditing
1. Auditing is a systematic process that includes all of the following except:
a. Systematic process
b. Assertions about economic actions and events
c. Objectively obtaining and evaluating assurance
d. Degree of correspondence between assertions and GAAP
5. Which one of the following is a potential problem with management's communication of financial information that
causes third parties to desire the independent auditor's assessment of the financial statement presentation?
a. Complexity of transactions affecting the financial statements
b. Lack of criteria on which to base information
c. Remoteness of the user from the organization
d. A and C
Types of Audit
6. The objective of an operational audit is to
a. Evaluate whether laws have been broken by management
b. Evaluate fairness of presentation of financial statements
c. Evaluate compliances with company rules and regulations
d. Evaluate the effectiveness and efficiency with which resources are employed
8. Before an operational audit for effectiveness can be performed, there must be:
a. a financial audit by an independent auditor.
b. a financial audit by an internal auditor.
c. a review performed by either an independent or an internal auditor.
d. specific criteria developed to define effectiveness.
13. This is an independent appraisal activity established within an entity as a service to the entity:
a. Internal audit function
b. Independent auditing
c. Government auditing
d. Compliance audit function
14. Internal auditors may perform all of the following types of audits except
a. Operational audits
b. Compliance audits
c. Computer system audits
d. All of the above may be performed by internal auditors
16. To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most
likely should report to the
a. Financial vice-president.
b. Corporate controller.
c. Those charged with governance.
d. Corporate stockholders.
17. For an internal auditor to render impartial and unbiased judgments, he or she must be independent of the entity's
a. Stockholders.
b. Personnel and operating activities (line functions of the organization).
c. Independent (external) auditors.
d. Board of directors.
18. Government auditing often extends beyond expressing an opinion on the fairness of the financial presentation and
includes audits of efficiency, effectiveness and
a. Internal control
b. Efficiency
c. Accuracy
d. Compliance
22. Which of the following statements comparing external auditing to internal auditing is true?
a. Both produce reports addressed to the company’s management and board of directors.
b. They have the same concern with the company’s day-to-day operations.
c. They have different scopes of work.
d. They are paid in the same way.
In conducting the audit so as to achieve its objective, the overall objective of the independent auditor is to obtain
reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to report on the financial statements in accordance with the auditor’s findings.
a. True, True c. False, True
b. False, False d. True, False
25. In order to obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to be able to
draw reasonable conclusions on which to base the audit opinion. Reasonable assurance is obtained when the auditor
has thereby reduced audit risk to an acceptably low level.
The objective of an audit cannot be fulfilled unless the auditor achieves the overall objective of the auditor. In all
cases when the overall objective of the auditor cannot be achieved, the PSAs require that the auditor modifies the
auditor’s opinion accordingly or withdraws from the engagement.
a. True, False c. False, False
b. False, True d. True, True
27. The auditor shall plan and perform an audit with an attitude of professional skepticism recognizing that circumstances
may exist that cause the financial statements to be materially misstated.
The auditor shall not represent compliance with PSAs unless the auditor has complied with majority of the PSAs
relevant to the audit.
a. True, True c. False, True
b. False, False d. True, False
28. Which of the following is least likely an application of maintaining an attitude of professional skepticism?
a. The auditor does not consider representations from management as substitute for obtaining sufficient appropriate
audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.
b. In planning and performing an audit, the auditor assumes that management is dishonest.
c. The auditor is alert to audit evidence that contradicts or brings into question the reliability of documents or
management representations.
d. The auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence
30. 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 not confined to the expression of the auditor’s
opinion.
b. Making suggestions that are adopted about the form and content of an entity’s financial statements impairs an
auditor’s independence.
c. An auditor may draft an entity’s financial statements based information from management’s accounting system.
d. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor’s
responsibilities.
33. The independent auditor’s responsibility in a regular audit is to express an opinion on the financial statements. The
auditor’s opinion:
a. Helps the company adopt sound accounting policies.
b. Assists the company in maintaining an adequate and effective system of accounts.
c. Helps establish the credibility of the financial statements.
d. Helps management safeguard the company assets.
34. Third-party users of the audit report expect the auditor to do all of the following except:
a. To evaluate measurements and disclosures made by management
b. To provide a biased evaluation of the financial statements
c. To determine whether financial statements are presented in accordance with GAAP
d. To gather sufficient evidence to support their opinion
35. The following are the general principles governing an audit of FS Audit, except
a. Independence c. Confidentiality
b. Professionalism d. Professional behavior
36. An audit is conducted on the premise that management and, where appropriate, those charged with governance,
have acknowledged and understand that they have responsibilities that are fundamental to the conduct of an audit in
accordance with PSAs. Which of the following is not one of those responsibilities?
a. To provide the auditor unrestricted access to persons within the entity from which the auditor determines it
necessary to obtain audit evidence
b. The preparation and presentation of financial statements in accordance with the pronouncements issued by AASC
c. The establishment and maintenance of internal control relevant to the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error
d. To provide complete information to the auditor.
38. Absolute assurance is generally not attainable as a result of such factors as:
a. b. c. d.
The use of testing Yes Yes Yes No
The inherent limitations of
internal control Yes Yes Yes Yes
The use of judgment Yes No Yes No
Most audit evidence are
persuasive rather than
conclusive No Yes Yes Yes
39. Users of the audit report can reasonably expect the audited financial statements to be
a. Include complete information and contain all financial disclosures
b. Presented fairly according to the substance of GAAP
c. Free from all errors
d. All of the above
40. Results of the financial statement audit are communicated to users through a(n)
a. Financial statement
b. Written management assertion
c. Audit report
d. none of the above