auditing theory mcqs by salosagcol with answers

7/24/2019 Auditing Theory MCQs by Salosagcol with answers

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AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 1

1. Broadly defned, the subject matter o any audit consist oa. Financial statementsb. Economic datac. Assertions

d. Operating data

2. An audit o fnancial statements is conducted to determine i thea. Organiation is operating e!ciency and e"ecti#elyb. Auditee is ollo$ing specifc procedures or rules set do$n by some higher

authorityc. O#erall fnancial statement statements are stated in accordance $ith the

applicable fnancial reporting rame$or%d. &lient's internal control is unctioning as intended

(. )ost o the independent auditor's $or% in ormulating an opinion on fnancial

statement consist o

a. *tudying and e#aluating internal controlb. Obtaining and e+amining e#idential matterc. E+amining cash transactiond. &omparing recorded accountability $ith assets

. -n fnancial statement audits, the audit process should be conducted in

accordance $itha. he audit programb. /hilippine standard on auditingc. /hilippine accounting standardsd. /hilippine Financial 0eporting *tandards

. hich o the ollo$ing best describe the operational audit3a. -t re4uires the constant re#ie$ by internal auditors o the administrati#e

controls as they relate to operations o the company.b. -t concentrates on implementing fnancial and accounting control in a

ne$ly organied company.c. -n attempts and is designed to #eriy the air presentation o a company's

results o operations.d. -t concentrates on see%ing out aspects o operations in $hich $aste $ould

be reduced by the introduction o controls.

5. he auditor communicates the results o his or her $or% through the medium i

thea. Engagement letterb. Audit reportc. )anagement letterd. Financial statement

6. hich o the ollo$ing types o auditing is perormed most commonly by &/A's

on a contractual basis3a. -nternal Auditing


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b. -ncome ta+ auditingc. 7o#ernment auditingd. E+ternal auditing

8. -ndependent auditing can best be describe as aa. /roessional acti#ity that measures and communicates fnancial

accounting datab. subset accountingc. /roessional acti#ity that attest to the air presentation o fnancial

statementd. 0egulatory acti#ity that pre#ents the issuance o improper fnancial

inormation

9. hich o the ollo$ing statements is not a distinction bet$een independent

auditors and internal auditors3a. -ndependent auditors represent third party users e+ternal to the auditee

entity, $hereas internal auditors report directly to management.

b. Although independent auditors stri#e or both #alidity and rele#ance oe#idence, internal auditors are concerned almost e+clusi#ely $ith #alidity.c. -nternal auditors are employees o the auditee, $hereas independent

auditors are independent contractors.d. he internal auditor's span o co#erage goes beyond fnancial auditing to

encompass operational and perormance auditing.

1:.hich o the ollo$ing has the primary responsibility or the airness o the

representations made in the fnancial statements3a. &lient's managementb. Audit &ommitteec. -ndependent auditor

d. Board o Accountancy

11.An audit o the fnancial statements o ;-A &orporation is being conducted by an

e+ternal auditor. he e+ternal auditor is e+pected toa. e+press an opinion as to the airness o ;-A's fnancial statements.b. e+press an opinion as to the attracti#eness o ;-A or in#estment

purposes.c. certiy the correctness o ;-A's Financial *tatements.d. e+amine all e#idence supporting ;-A's fnancial statements.

12.hich o the ollo$ing statements about independent fnancial statements audit

is correct3

a. he audit o fnancial statements relie#es management o itsresponsibilities or the fnancial statement

b. An audit is designed to pro#ide limited assurance that the fnancial

statements ta%en as a $hole are ree rom material misstatementc. he procedures re4uired to conduct an audit in accordance $ith /*As

should be determined by the client $ho engaged the ser#ices o the

auditor.


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d. he auditor's opinion is not an assurance as to the uture #iability o the

entity as $ell as the e"ecti#eness and e!ciency $ith $hich management

has conducted the a"airs o the entity.

1(.he reason an independent auditor gathers e#idence is toa. Form an opinion on the fnancial statementsb.


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19.hich o the ollo$ing statements does not describe a condition that creates a

demand or auditing3a. &onict bet$een an inormation preparer and a user can result in biased

inormation.b. -normation can ha#e substantial economic conse4uence or a decisionC

ma%er.c. E+pertise is oten re4uired or inormation preparation and #erifcation.d. Dsers can directly assess the 4uality o inormation.

2:.hich o the ollo$ing statements does not properly describe an element o

theoretical rame$or% o auditing3a. he data to be audited can be #erifed.b. *hortCterm conicts may e+ist bet$een mangers $ho prepare the data

and auditors $ho e+amine the data.c. Auditors act on behal o the management.d. An audit benefts the public

CHAPTER 2


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1. An intentional act by one more indi#iduals among management, employees, or

third parties $hich results in misrepresentation o fnancial statement reers toa. Errorb. oncompliancec. Fraudd. -llegal acts

2. he responsibility or the detection and pre#ention o errors, raud and

noncompliance $ith la$s and regulations rests $itha. Auditorb. &lient's legal counselc. Fraudd. -llegal acts

(. he auditor's best deense $hen material misstatements in the fnancial

statements are not unco#ered in the audit is thata. he audit $as conducted in accordance $ith generally accepted

accounting principlesb. &lient is guilty o contributory negligencec. he audit $as conducted in accordance $ith /*Asd. -ssuing a representation letter to the auditor

. he ollo$ing statements relate to the auditor's responsibility or the detection o

errors and raud. -dentiy the correct statements.-. . he e"ects o the transaction ha#e been omitted rom the

records


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a. all o the abo#e statements are trueb. only statements - and --- are truec. all o the abo#e statements are alsed. only statement -- and -> are true

6. hich o the ollo$ing best identifes the t$o types o raud3

a. het o assets and employee raud.b. )isappropriation o asset and dealcation.c. )anagement raud and employee raud.d. Fraudulent fnancial reporting and management raud.

8. hich o the ollo$ing statements best describe an auditor's responsibility

to detect errors and raud3a. An auditor should assess the ris% that errors and raud may cause

the fnancial statements to contain material misstatements and

should design the audit to pro#ide reasonable assurance o

detecting errors and raud that are material to the fnancialstatements.

b. An auditor is responsible to detect material errors, but has no

responsibility to detect material raud that are concealed through

employee collusion or management o#erride o the internal control

structure.c. An auditor has no responsibility to detect errors and raud unless

analytical procedures or tests o transactions identiy conditions

causing a reasonably prudent auditor to suspect that the fnancial

statements $ere materially misstated.d. An auditor has no responsibility to detect errors and raud because

an auditor is not an insurer and an audit does not constitute aguarantee.

9. he auditor $ould ordinarily e+pect to fnd e#idence to support

management representations and not assume that they necessarily correct.

his is an e+ample o

a. Dnproessional beha#iorb. An attitude o proessional s%epticismc.


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b. he nonCrecording o transactions

c. 0ecorded transactions in subsidiaries

d. 0elated party recei#able

12. - an auditor $as engaged to disco#er errors or raud and the auditor

perormed e+tensi#e detail $or%, $hich o the ollo$ing could the auditor be

e+pected to detect3

a. )isposting i recorded transactions

b. Dnrecorded transaction

c. &ountereit signatures on paid chec%s

d. &ollusi#e raud

1(. hich o the ollo$ing statements is incorrect3

a. he responsibility or the pre#ention and detection o raud and

error rests $ith management.b. he auditor is not and cannot be held responsible or the detection

o raud or error.c. -n planning an audit, the auditor should assess the ris% that raud or

error may cause the fnancial statements to contain material

misstatement.d. he ris% o not detecting material raud is higher than the ris% o not

detecting a material misstatement arising rom error.

1. hich o the ollo$ing statement about raud or error is incorrect3

a. he auditor is not and cannot be held responsible or the pre#ention

o raud and error.b. he responsibility or the pre#ention and detection o raud and

error rests $ith management.c. he auditor should plan and perorm the audit $ith an attitude o

proessional s%epticism, recogniing that conditions or e#ents may

be ound that raud or error may e+ist.d. he li%elihood o detecting raud is ordinarily higher than that o

detecting error.

1. hich o the ollo$ing is not an assurance that the auditors gi#e to the

parties $ho rely on the fnancial statements3

a. Auditors %no$ ho$ the amounts and disclosures in the fnancial

statements $ere produced.b. Auditor's gi#e assurance that the fnancial statements are accurate.c. Auditors gathered enough e#idence to pro#ide a reasonable basis

or orming an opinion.d. - the e#idence allo$s the auditors to do so, auditors gi#e assurance

in the orm o opinion, as to $hether the fnancial statements as a

$hole are airly presented in conormity $ith 7AA/.

15. hich o the ollo$ing is most li%ely to be presumed to represent raud

ris% on an audit3


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a. &apitaliation o repairs and maintenance into the property, plant

and e4uipment asset account.b. -mproper re#enue recognitionc. -mproper interest e+pense accruald. -ntroduction o signifcant ne$ products

16. hich o the ollo$ing conditions or e#ents $ould least li%ely increase ris%o raud or error3

a. Guestions $ith respect to competence or integrity o managementb. Dnusual pressures $ithin the entityc. Dnusual transactionsd. ?ac% o transaction trail

18. hich o the ollo$ing $ould be least li%ely to suggest to an auditor that

the client's fnancial statement are materially misstated3

a. here are numerous delays in preparing timely internal fnancial

reports.b. )anagement does not correct internal control structure $ea%nesses

that it %no$s about.c.


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CHAPTER 3:

1. he primary responsibility or establishing and maintaining an internal controlrests $ith

a. he e+ternal auditorsb. he internal auditors

c. )anagement and those charged $ith go#ernanced. he controller or the treasurer

2. he undamental purpose o an internal control is toa. *aeguard the resources o the organiationb. /ro#ide reasonable assurance that the objecti#es o the organiation are

achie#edc. Encourage compliance $ith organiation objecti#esd. Ensure the accuracy, reliability and timeliness o inormation

(. hich o the ollo$ing is not one o the three primary objecti#es o e"ecti#einternal control3

a. 0eliability o fnancial reportingb. E!ciency and e"ecti#eness o operationsc. &ompliance $ith la$s and regulationsd. Assurance o elimination o business ris%.

. hich o the ollo$ing internal control objecti#es $ould be most rele#ant to theaudit3

a. Operational objecti#eb. &ompliance objecti#ec. Financial reporting objecti#ed. Administrati#e control objecti#e

. An act o t$o or more employee to steal assets and co#er their thet bymisstating the accounting records $ould be reerred to asH

a. &ollusionb. A material $ea%nessc. A control defciencyd. A signifcant defciency

5. hich o the ollo$ing is not one o the components o an entity's internalcontrol3

a. &ontrol ris%b. &ontrol acti#itiesc. -normation and communication

d. he control en#ironment

6. he o#erall attitude and a$areness o an entity's board o director concerningthe importance o the internal control usually is reected in its

a. &omputerCbased controlsb. *ystem o segregation o dutiesc. &ontrol en#ironmentd. *aeguard o#er access o assets


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8. -n e#aluating the design o the entity's internal control en#ironment, the auditor

considers the certain subcomponents o control en#ironment and ho$ they ha#e

been incorporated into the entity's processes. *ubcomponents o control

en#ironment $ould includea. -ntegrity and ethical #alues

b. &ommitment to competencec. Organiational structured. -normation and communications systems

9. hich o the ollo$ing components o an entity's internal control structure

includes the de#elopment o employee promotion and training policies3a. &ontrol acti#itiesb. &ontrol en#ironmentc. -normation and communicationd. Guality control system

1:.hich o the ollo$ing subcomponents o the control en#ironment defne the

e+isting lines o responsibility and authority3a. Organiational structureb. )anagement philosophy and operating stylec. @uman resource policies and practicesd. )anagement integrity and ethical #alues

11.hich o the ollo$ing is not one o the subcomponents o the control

en#ironment3a. )anagement philosophy and operating styleb. Organiational structurec. Ade4uate separation o dutiesd. &ommitment to competence

12.hich o the ollo$ing deal $ith ongoing or periodic assessment o 4uality o

internal control by management3a. Guality control acti#itiesb. )onitoring acti#itiesc. O#ersight acti#itiesd. )anagement acti#ities

1(.he policies and procedures that help ensure that management directi#es are

carried out are reerred to as theHa. &ontrol en#ironment

b. &ontrol acti#itiesc. )onitoring o controlsd. -normation systems

1.hich o the ollo$ing is not one o the specifc control acti#ities that are

rele#ant to fnancial statement audit3a. /erormance re#ie$sb. /hysical controls


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c. *egregation o dutiesd. )onitoring

1./roper segregation o unctional responsibilities in an e"ecti#e structure o

internal control calls or separation o unctions oa. Authoriation, e+ecution, and paymentb. Authoriation, recording, and custodyc. &ustody, e+ecution, and reportingd. Authoriation, payment, and recording

15.hich o the ollo$ing best describes the purpose o the control acti#ities3a. he actions, policies and procedures that reect the o#erall attitudes o

the managementb. he identifcation and analysis o ris%s and rele#ant to the preparation o

the fnancial statementsc. he policies and procedures that help ensure that necessary actions are

ta%en in order to achie#e the entity's objecti#es

d. Acti#ities that deal $ith the ongoing assessment o the 4uality o internalcontrol by management

16.hen the auditor attempts to understand the operation o the accounting

system by tracing a e$ transactions through the accounting system, the auditor

is said to beHa. racingb. >ouchingc. /erorming a $al% throughd. esting controls

18.hich o the ollo$ing is not a medium that can normally be used by an auditor

to record inormation concerning a client's internal control policies and

procedures3a. arrati#e memorandumb. Flo$chartc. /rocedures manuald. Guestionnaire

19.An auditor uses the %no$ledge pro#ided by the understanding o internal control

and the fnal assessed le#el o control ris% primarily to determine the nature,

timing and e+tent o thea. Attribute tests

b. ests o controlsc. &ompliance testsd. *ubstanti#e tests

2:.Based on the re4uirement o /*A (((:, ho$ re4uently must an auditor test

operating e"ecti#eness o controls that appear to unctions as they ha#e in past

years and on $hich the auditor $ishes to rely in the current year3a. )onthlyb. Each audit


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c. At least e#ery second auditd. At least e#ery third audit

CHAPTER 4:

1. hese are acts o omission or commission by the entity being audited, eitherintentional or unintentional, $hich are contrary to the pre#ailing la$s andregulations.

a. Fraudb. )isappropriationc. oncomplianced.


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2. -n order to achie#e the objecti#es o the accountancy proession, proessionalaccountants ha#e to obser#e a number o prere4uisites or undamentalprinciples. he undamental principles include the ollo$ing e+cept

a. Objecti#ityb. /roessional competence and due carec. echnical standards

d. &onfdence

(. he principle o proessional competence and due care imposes certainobligations on proessional accountants. hich o the ollo$ing is not one othose obligations re4uired by this principle3

a. o act diligently in accordance $ith applicable technical and proessionalstandards

b. o be air, intellectually honest and ree o conict o interestc. o become a$are and understand rele#ant technical, proessional and

business de#elopmentsd. o obtain proessional %no$ledge and e+perience to enable them to ulfl

their responsibilities

. he phase o proessional competence that re4uires a proessional accountant toadopt a program designed to ensure 4uality control in the perormance oproessional ser#ices consistent $ith technical and proessional standards isH

a. Attainment o proessional competenceb. )aintenance o proessional competencec. Application o proessional competenced. 0e#ie$ o proessional competence

. he essence o the due care principle is that the auditor should not be guilty oHa. Biasb. Errors in judgement

c. Fraudd. egligence

5. he principle o confdentiality applies toHa. /roessional accountants in public practiceb. /roessional accountants in commerce and industryc. /roessional accountants in go#ernmentd. All proessional accountants

6. he principle o confdentiality imposes an obligation on proessionalaccountants to rerain romH

a.


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8. A &/A should not disclose confdential inormation obtained during an auditengagement in $hich one o the ollo$ing situations3

a. hen the security o the state re4uiresb. ith the consent o the clientc. -n deense o himsel $hen sued by his clientd. o a successor auditor $ithout the client's permission

9. hich o the ollo$ing is considered a #iolation o rules on confdentiality3a. he &/A discloses inormation to protect his o$n interest in the course o

legal proceedingsb. he &/A discloses inormation to a successor auditor ater obtaining the

client's permissionc. he &/A discloses inormation to another &/A in compliance $ith a 4uality

control re#ie$ conducted by the BOAd. he &/A di#ulges inormation disclosed to him by a prospecti#e client.

1:.-n $hich o the ollo$ing circumstances $ould a &/A be bound by the ethics torerain rom disclosing any confdential inormation obtained during course o a

proessional engagement3a. he &/A is issued summon enorceable by the court order $hich orders

the &/A to present confdential inormationb. A major stoc%holder o a client company see%s accounting inormation

rom &/A ater the management declined to disclose the re4uestedinormation

c. &onfdential client inormation is made a#ailable $ith the client'spermission

d. An in4uiry by the /0& and the &/A needs the disclosure to deend himsel

11.he principle o proessional beha#iour re4uires a proessional accountant toa. Be straightor$ard and honest in perorming proessional ser#ices

b. Be air and should not allo$ prejudice or bias, conict o interest orinuence o others to o#erride objecti#ity

c. /erorm proessional ser#ices $ith due care, competence and diligenced. Act in a manner consistent $ith the good reputation o the proession and

rerain rom any conduct $hich might bring discredit to proession

12.hich o the ollo$ing most accurately states ho$ objecti#ity has been defnedby the &ode o Ethics3

a. Being honest and straight or$ard in all proessional and businessrelationships.

b. A state o mind that permits the pro#ision o an opinion $ithout beinga"ected by inuences that compromise proessional judgement

c. A combination o impartiality, intellectual honesty and a reedom romconict o interest

d. A#oiding acts and circumstances that could reduce the public confdencein the proessional accountant's report

1(.hich undamental principle is seriously threatened by an engagement that iscompensated based on the net proceeds on loans recei#ed by the client rom acommercials ban%3


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a. -ntegrityb. Objecti#ityc. &onfdentialityd. /roessional beha#iour

1.-ndependence is re4uired $hene#er a proessional accountant perormsH

a. /roessional ser#icesb. Assurance ser#icesc. onCassurance ser#icesd. a+ consultancy ser#ices

1.-t reers to the a#oidance o acts and circumstances that are so signifcant thata reasonable and inormed third party, ha#ing %no$ledge o all rele#antinormation, including saeguards applied, $ould reasonably conclude a frm's ora member o the assurance team's integrity, objecti#ity or proessionalscepticism had been compromised.

a. -ndependence in actb. -ndependence in appearance

c. -ndependence in mindd. -nherent independence

15.his occurs as a result o the fnancial or other interests o a proessionalaccountant or o an immediate or close amily member.

a. *elCinterest threatb. *elCre#ie$ threatc. Ad#ocacy threatd. Familiarity threat

16.Acting or an audit client in the resolution o a dispute or litigation $ould mostli%ely create

a. *elCinterest threatb. -ntimidation threatc. Ad#ocacy threatd. Familiarity threat

18.he preparation o accounting records o fnancial statements or an audit client$ill most li%ely create

a. *elCinterest threatb. *elCre#ie$ threatc. -ntimidation threatd. Familiarity threat

19.Accepting git or undue hospitality rom an assurance client $ould create mostli%ely create

a. Familiarity threatb. *elCre#ie$ threatc. Ad#ocacy threatd. -ntimidation threat


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2:.Dsing the same senior personnel on an assurance engagement o#er a longperiod o time $ould most li%ely create

a. -ntimidation threatb. Ad#ocacy threatc. Familiarity threatd. *elCinterest threat


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CHAPTER 5

1. his consists o chec%ing the mathematical accuracy o documents o records.a. 0eperormance

b. &onfrmationc. 0ecalculationd. -nspection

2. hich o the ollo$ing assertions does not relate to balances at period end3a. E+istenceb. Occurrencec. >aluation or allocationd. 0ights and obligations

(. hich o the ollo$ing assertions does not relate to classes o transactions and

e#ents or the period3

a. &ompletenessb. >aluationc. &utCo"d. Accuracy

. An assertion that transactions are recorded in the proper accounting period isHa. &lassifcationb. Occurrencec. Accuracyd. &utCo"

. hich o the ollo$ing is not normally perormed in the preplanning or preC

engagement phase3a.


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d. 7ather e#idence about the airness o the fnancial statements

8. -n an audit, communication bet$een the predecessor and incoming auditor

should bea. Authoried in an engagement letterb. Ac%no$ledged in a representation letterc. Either $ritten or orald. ritten and included in the $or%ing papers

9. Arnel, &/A, is succeeding >on, &/A, on the audit engagement o Almar

&orporation. Arnel plans to consult >on and to re#ie$ >on's prior year $or%ing

papers. Arnel may do so ia. >on and Almar consentb. Almar consentsc. >on consentsd. >on and Arnel consent

1:.An incoming auditor should re4uest the ne$ client to authorie the predecessorauditor to allo$ a re#ie$ o the predecessor's

Engagement letter Working Paper a. Ies Iesb. Ies oc. o Iesd. o o

11.Engagement letter that documents and confrms the auditor's acceptance o the

engagement $ould normally be sent to the clienta. Beore the audit report is issuedb. Ater the audit report is issued

c. At the end o feld$or%d. Beore the commencement o the engagement

12.hich o the ollo$ing is not one o the principal contents o an engagement

letter3a. Objecti#e o the fnancial statementsb. Dnrestricted access to records and documentsc. ?imitations o the engagementd. )anagement's responsibility or the fnancial statements

1(.Arrangements concerning $hich o the ollo$ing are least li%ely to be included in

engagement letter3a. Auditor's responsibilitiesb. Fees and billingc. &/A in#estment in client securitiesd. Other orms o reports to be issued in addition to the audit report

1.he audit engagement letter should generally include a reerence to each o the

ollo$ing e+cepta. he e+pectation o recei#ing a $ritten management representation letter


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b. A re4uest or the client to confrm the terms o engagementc. A description o the auditor's method o sample selectiond. he ris% that material misstatements may remain undisco#ered

1.hich o the ollo$ing $ould be least li%ely to be included in the auditor's

engagement lettera. Forms o the reportb. E+tent o his responsibilitiesc. Objecti#es and scope o the auditd. ype o opinion to be issued

15.According to /*A 21:, the auditor and the client should agree on the terms o

engagement. he agreed terms $ould need to be recorded in aJnKa. )emorandum to be placed in the permanent section o the auditing

$or%ing papersb. Engagement letterc. &lient representation letter

d. &omort letter

16.hich o the ollo$ing actors most li%ely $ould inuence an auditor's

determination o the auditability o the entity's fnancial statementsa. he comple+ity o the accounting systemsb. he e+istence o related party transactionsc. he ade4uacy o the accounting recordsd. he operating e"ecti#eness o control procedures

18.hich o the ollo$ing actors most li%ely $ould cause an auditor not to accept a

ne$ audit engagement3a. An inade4uate understanding o the entity's inter#al control structure

b. he close pro+imity to the end o the entity's fscal yearc. &oncluding that the entity's management probably lac%s integrityd. An inability to perorm preliminary analytical procedures beore assessing

control ris%

19.hich o the ollo$ing should an auditor obtain rom the predecessor auditor

prior to accepting an audit engagementa. Analysis o balance short accountsb. Analysis o income statements accountsc. All matters o continuing accounting signifcanced. Facts that might bear on the integrity o management

2:.An incoming auditor most li%ely $ould ma%e specifc in4uiries o the predecessor

auditor regardinga. *pecialied accounting principles o the client's industryb. he competency o the client's internal audit sta"c. he uncertainty inherent in applying sampling proceduresd.


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CHAPTER 6:

1. hich o the ollo$ing statements is most correct regarding the primary purpose

o audit procedures3a. o detect all errors or raudulent acti#ities as $ell as illegal acti#itiesb. o comply $ith the *E&c. o gather corroborati#e audit e#idence about management's assertions

regarding the client's fnancial statementsd. o determine the amount o errors in the balance sheet accounts in order

to adjust the accounts to actual


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2. A procedure designed to test or monetary misstatements directly a"ecting the

#alidity o the fnancial statement balances is aHa. est o controlsb. *ubstanti#e testc. est o attributesd. )onetaryCunit sampling test

(. Iou are auditing the company's purchasing process or goods and ser#ices. Iou

are primarily concerned $ith the company not recording all purchase

transactions. hich audit procedure belo$ $ould be the most e"ecti#e audit

procedure in this case3a. >ouching rom the accounts payable account to the #endor in#oices.b. racing #endor in#oices to recorded amounts in the accounts payable

account.c. &onfrmation o accounts payable recorded amounts.d. 0econciling the accounts payable subsidiary ledger to the accounts

payable account.

. he inormation obtained by the auditor in arri#ing at the conclusions on $hich

the audit opinion is based is calledHa. Audit $or%ing papersb. Audit assertionsc. Audit e#idenced. Audit standards

. he major reason an independent auditor gathers e#idence is toa. orm an opinion on the fnancial statements.b. detect raud.c. e#aluate management.

d. e#aluate internal control.

5. hich o the ollo$ing is the best e+ample o a corroborating e#idence3a. 7eneral journalb. or%sheet cost allocationc. >endor's in#oiced. &ash receipts journal

6. hich o the ollo$ing statements about audit e#idence is correct3a. Appropriateness is the measure o the 4uantity o audit e#idence.b. *u!ciency is the measure o the 4uality o audit e#idence and its

rele#ance to a particular assertion and its reliability.

c. Audit e#idence is more persuasi#e $hen items o e#idence rom di"erentsources or o di"erent nature are consistent.

d. here should be a oneCtoCone relationship bet$een audit objecti#e and

audit procedure.

8. E#idence is generally considered appropriate $henHa. it has been obtained by random selection.


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b. there is enough o it to a"ord a reasonable basis or an opinion on

fnancial statements.c. it has the 4ualities o being rele#ant, objecti#e, and ree rom %no$n bias.d. it consists o $ritten statements made by managers o the enterprise

under audit.

9. E#idence are generally considered su!cient $henHa. it is appropriate.b. there is enough o it to a"ord a reasonable basis or an opinion on

fnancial statements.c. it has the 4ualities o being rele#ant, objecti#e and ree rom un%no$n

bias.d. it has been obtained by random selection.

1:.Appropriateness o e#idence is a measure o theHa. 4uantity o e#idence.b. 4uality o e#idence.

c. su!ciency o e#idence.d. meaning o e#idence.

11.he su!ciency and appropriateness o e#idential matter ultimately is based on

thea. a#ailability o corroborating data.b. /hilippine *tandard on Auditing.c. pertinence o the e#idence.d. judgment o the auditor.

12.An e+ample o an e+ternal document that pro#ides reliable inormation or the

auditor isH

a. employees time reports.b. ban% statements.c. purchase order or company purchases.d. carbon copies o chec%s.

1(.An e+ample o a document that the auditor recei#es rom the client, but $hich

$as prepared by someone outside the client's organiation, is aHa. confrmation.b. sales in#oice.c. #endor in#oice.d. ban% reconciliation.

1.o be considered reliable e#idence, confrmations must be controlled byH

a. a client employee responsible or accounts recei#able.b. a fnancial statement auditor.c. a client's internal audit department.d. a client's controller or &FO.

1.7i#en the economic and time constraints in $hich auditors can collect e#idence

about management assertions about the fnancial statements, the auditor

normally gathers e#idence that isH


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a. irreutable.b. conclusi#e.c. persuasi#e.d. completely con#incing.

15.-t reers to the material J$or%ing papersK prepared by and or, or obtained and

retained by the auditor in connection $ith the perormance o the audit.a.


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CHAPTER 7

1. his in#ol#es de#eloping an o#erall strategy or the e+pected conduct and scope

o the e+aminationL the nature, e+tent, and timing o $hich #ary $ith the sie

and comple+ity, and e+perience $ith and %no$ledge o the entity.a. Audit planningb. Audit procedurec. Audit programd. Audit $or%ing papers

2. -nitial planning in#ol#es our matters. hich o the ollo$ing is not one o these3a.


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c. *chedule engagement sta" and audit specialistsd. -dentiy the client's reason or the audit

(. A &/A is conducting the frst e+amination o a client's fnancial statements. he

&/A hopes to reduce the audit $or% by consulting $ith the predecessor auditor

and re#ie$ing the predecessor's $or%ing papers. his procedure isa. Acceptable i the client and the predecessor auditor agree to it.b. Acceptable i the &/A reers in the audit report to reliance upon the

predecessor auditor's $or%.c. 0e4uired i the &/A is to render an unmodifed opinion.d. Dnacceptable because the &/A should bring an independent #ie$point

to a ne$ engagement.

. he preliminary judgment about materiality and the amount o audit e#idence

accumulated are related.a. directlyb. indirectly

c. notd. in#ersely

. According to /*A (2:, materiality should be considered by the auditor $henHDetermining the nature, timing Evaluating the efectsand extent o audit procedures. o misstatements

a. IE* IE*b. IE* Oc. O Od. O IE*

5. hich o the ollo$ing statements is not correct about materiality3

a. he concept o materiality recognies that some matters are importantor air presentation o fnancial statements in conormity $ith the

applicable fnancial reporting rame$or%, $hile other matters are not

important.b. An auditor considers materiality or planning purposes in terms o the

largest aggregate le#el o misstatements that could be material to any

one o the fnancial statements.c. )ateriality judgments are made in light o surrounding circumstances

and necessarily in#ol#e both 4uantitati#e and 4ualitati#e judgmentsd. An auditor's consideration o materiality is inuenced by the auditor's

perception o the needs o a reasonable person $ho $ill rely on the

fnancial statements.

6. /erormance materiality is the term used to indicate materiality at theHa. balance sheet le#elb. account balance le#elc. income statement le#eld. companyC$ide le#el


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8. hen comparing le#el o materiality used or planning purposes and the le#el o

materiality used or e#aluating e#idence, one $ould most li%ely e+pecta. he le#el o materiality to be al$ays similar.b. he le#el o materiality or planning purposes to be similar.c. he le#el o materiality or planning purposes to be higher.d. he le#el o materiality or planning purposes to be based on total

assets $hile the le#el o materiality or e#aluating purposes to be

based on net income.

9. Gualitati#e actors can a"ect an auditor's assessment o materiality. hich o

the ollo$ing 4ualitati#e actors could inuence the assessment o materiality3-. )isstatements that are other$ise immaterial may be material i a"ect

earnings trends.--. )inor misstatements resulting rom the conse4uences o contractual

obligations.a. - onlyb. -- only

c. - and --d. neither - or --

1:. Auditors re4uently reer to the terms audit assurance, o#erall assurance, ad

le#el o assurance to reer to .a. detection ris%b. audit report ris%c. acceptable audit ris%d. inherent ris%

11.he ris% that fnancial statements are li%ely to be misstated materially $ithout

regard to the e"ecti#eness o internal control is theLa. -nherent ris%b. Audit ris%c. &lient ris%d. &ontrol ris%

12.hen planning a fnancial statement audit, the auditor should assess inherent

ris% at the

Financial statement level Account balance or transaction class level

a. IE* IE*b. IE* O

c. O Od. O IE*

1(.hich o the ollo$ing is an incorrect statement3a.


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c. he greater the inherent and control ris% the auditor belie#es e+ist, the

less detection ris% that can be accepted.d. he auditor might ma%e separate or combines assessments o inherent

ris% and control ris%.

1.0elationship bet$een control ris% and detection ris% is ordinarilya. /arallelb.


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b. *ubstanti#e tests prior to the balance sheet date $ill be minimied.c. he audit procedures selected $ill achie#e specifc audit objecti#es.d. Each account balance $ill be tested under either tests o controls or

tests o transactions.

2:. hich o the ollo$ing matters $ould least li%ely appear in the audit program3a. *pecifc procedures that $ill be perormed.b. *pecifc audit objecti#es.c. Estimated time that $ill be spent in perorming certain procedures.d.


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. -n a sampling application, the group o items about $hich the auditor $ants to

estimate some characteristic is called thea. /opulation c. Attribute o interestb. *ample d. *ampling unit

. onCsampling error occur $hen the audit tests do not unco#er e+isting

e+ceptions in thea. /opulationb. /lanning stagec. *ampled. Financial statement

5. /*A (: identifes t$o general approaches to audit sampling. hey area. 0andom N nonrandomb. *tatistical N nonstatisticalc. /recision N reliabilityd. 0is% and nonris%

6. he relationship bet$een sample sie and the allo$able sampling ris%s isa. ariable samplingb. *tratifed samplingc. Attribute sampling


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d. alueC$eighted samplingc. *e4uential samplingd. >ariables sampling

1.>alue $eighted sampling is most appropriate $hen the auditora. Anticipates understatement errorsb. E+pects no errorsc. Anticipate o#erstatement errorsd. @as assessed control ris% at high le#el

1.he ma+imum amount o error in a population that the auditor is $illing to

accept is reerred to as thea. Acceptable ris%b. olerable errorc. E+pected errord. olerable materiality

15.he de#iation rate the auditor e+pects to fnd in the population, beore testing

begins, is called thea. olerable de#iation rateb. &omputer upper de#iation ratec. *ample de#iation rated. E+pected de#iation rate

16.hich o the ollo$ing sampling methods $ould be most appropriate in

perorming tests o controls o#er authoriation o cash disbursementsa. Attributesb. >ariables

c. 0atiod. *tratifed

18.-n assessing sample ris%, alpha ris% relate to thea. E!ciency o the auditb. *election o the samplec. E"ecti#eness o the auditd. Audit 4uality controls


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19.hich o the ollo$ing sampling plans $ould be designed to estimate a

numerical measurement o a population such as peso #alue3a. umerical samplingb. *ampling attributesc.

auditing theory mcqs by salosagcol with answers

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