Which of the following statements does not describe a condition that creates a demand for auditing

75% found this document useful (24 votes)

88K views13 pages

MCQ - Intro To Audit

Original Title:

MCQ - intro to audit

Jump to Page

You are on page 1of 13

You're Reading a Free Preview
Pages 6 to 12 are not shown in this preview.

Reward Your Curiosity

Everything you want to read.

Anytime. Anywhere. Any device.

No Commitment. Cancel anytime.

0% found this document useful (0 votes)

2K views20 pages

Chapter 1 Salosagcol

Uploaded by

gingeroot

Description:

AUDITING THEORY 2014 SALOSAGCOL CH 1 SOLUTIONS

Full description

CHAPTER 1

1. Broadly defined, the subject matter of any audit consist of a. Financial statements b. Economic data c. Assertions d. Operating data

2. An audit of financial statements is conducted to determine if the a. Organization is operating efficiency and effectively b. Auditee is following specific procedures or rules set down by some higher authority c. Overall financial statement statements are stated in accordance with the applicable financial reporting framework d. Client’s internal control is functioning as intended

3. Most of the independent auditor’s work in formulating an opinion on financial statement consist of a. Studying and evaluating internal control b. Obtaining and examining evidential matter c. Examining cash transaction d. Comparing recorded accountability with assets

4. In financial statement audits, the audit process should be conducted in accordance with a. The audit program b. Philippine standard on auditing c. Philippine accounting standards d. Philippine Financial Reporting Standards

5. Which of the following best describe 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. In 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.

6. The auditor communicates the results of his or her work through the medium if the a. Engagement letter b. Audit report c. Management letter d. Financial statement

7. Which of the following types of auditing is performed most commonly by CPA’s on a contractual basis? a. Internal Auditing

b. Income tax auditing c. Government auditing d. External auditing

1. Independent auditing can best be describe as a a. Professional activity that measures and communicates financial accounting data b. subset accounting c. Professional activity that attest to the fair presentation of financial statement d. Regulatory activity that prevents the issuance of improper financial information

2. Which of the following statements is not a distinction between independent auditors and internal auditors? 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.

10 of the following has the primary responsibility for the fairness of the representations made in the financial statements? a. Client’s management b. Audit Committee c. Independent auditor d. Board of Accountancy

11 audit of the financial statements of KIA Corporation is being conducted by an external auditor. The external auditor is expected to a. express an opinion as to the fairness of KIA’s financial statements. b. express an opinion as to the attractiveness of KIA for investment purposes. c. certify the correctness of KIA’s Financial Statements. d. examine all evidence supporting KIA’s financial statements.

12 of the following statements about independent financial statements audit is correct? a. The audit of financial statements relieves management of its responsibilities for the financial statement b. An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement c. The procedures required to conduct an audit in accordance with PSAs should be determined by the client who engaged the services of the auditor.

19 of the following statements does not describe a condition that creates a demand for auditing? a. Conflict between an information preparer and a user can result in biased information. b. Information can have substantial economic consequence for a decision- maker. c. Expertise is often required for information preparation and verification. d. Users can directly assess the quality of information.

20 of the following statements does not properly describe an element of theoretical framework of auditing? a. The data to be audited can be verified. b. Short-term conflicts may exist between mangers who prepare the data and auditors who examine the data. c. Auditors act on behalf of the management. d. An audit benefits the public

CHAPTER 2

1. An intentional act by one more individuals among management, employees, or third parties which results in misrepresentation of financial statement refers to a. Error b. Noncompliance c. Fraud d. Illegal acts

2. The responsibility for the detection and prevention of errors, fraud and noncompliance with laws and regulations rests with a. Auditor b. Client’s legal counsel c. Fraud d. Illegal acts

3. The auditor’s best defense when material misstatements in the financial statements are not uncovered in the audit is that a. The audit was conducted in accordance with generally accepted accounting principles b. Client is guilty of contributory negligence c. The audit was conducted in accordance with PSAs d. Issuing a representation letter to the auditor

4. The following statements relate to the auditor’s responsibility for the detection of errors and fraud. Identify the correct statements. I. Due to the inherent limitation of the audit, there is a possibility that material misstatements in the financial statements may not be detected. II. The subsequent discovery of material misstatement of the financial information resulting from fraud or error does not, in itself, indicate that the auditor failed to follow the basic principles and essential procedures of an audit. a. I only b. Both Statements are true c. II only d. Both statements are false

5. What primarily differentiates fraud from an error a. Materiality b. Effect on misstatements c. Intent d. Frequency of occurrence

6. The term “error” refers to unintentional misrepresentation of financial information. Examples of errors are when I. Assets have been misappropriated II. Transactions without substance have been recorded III. Records and documents have been manipulated and falsified IV. The effects of the transaction have been omitted from the records

b. The non-recording of transactions c. Recorded transactions in subsidiaries d. Related party receivable

1. If an auditor was engaged to discover errors or fraud and the auditor performed extensive detail work, which of the following could the auditor be expected to detect?

a. Misposting if recorded transactions b. Unrecorded transaction c. Counterfeit signatures on paid checks d. Collusive fraud

1. Which of the following statements is incorrect?

a. The responsibility for the prevention and detection of fraud and error rests with management. b. The auditor is not and cannot be held responsible for the detection of fraud or error. c. In planning an audit, the auditor should assess the risk that fraud or error may cause the financial statements to contain material misstatement. d. The risk of not detecting material fraud is higher than the risk of not detecting a material misstatement arising from error.

1. Which of the following statement about fraud or error is incorrect?

a. The auditor is not and cannot be held responsible for the prevention of fraud and error. b. The responsibility for the prevention and detection of fraud and error rests with management. c. The auditor should plan and perform the audit with an attitude of professional skepticism, recognizing that conditions or events may be found that fraud or error may exist. d. The likelihood of detecting fraud is ordinarily higher than that of detecting error.

1. Which of the following is not an assurance that the auditors give to the parties who rely on the financial statements?

a. Auditors know how the amounts and disclosures in the financial statements were produced. b. Auditor’s give assurance that the financial statements are accurate. c. Auditors gathered enough evidence to provide a reasonable basis for forming an opinion. d. If the evidence allows the auditors to do so, auditors give assurance in the form of opinion, as to whether the financial statements as a whole are fairly presented in conformity with GAAP.

1. Which of the following is most likely to be presumed to represent fraud risk on an audit?

a. Capitalization of repairs and maintenance into the property, plant and equipment asset account. b. Improper revenue recognition c. Improper interest expense accrual d. Introduction of significant new products

1. Which of the following conditions or events would least likely increase risk of fraud or error?

a. Questions with respect to competence or integrity of management b. Unusual pressures within the entity c. Unusual transactions d. Lack of transaction trail

1. Which of the following would be least likely to suggest to an auditor that the client’s financial statement are materially misstated?

a. There are numerous delays in preparing timely internal financial reports. b. Management does not correct internal control structure weaknesses that it knows about. c. Differences are reflected in the customer’s confirmation replies. d. There have nee two new controllers this year.

1. Which of the following circumstances would least likely cause auditor to consider whether a material misstatement exists?

a. The turnover of senior accounting personnel exceptionally low. b. Management places substantial emphasis on meeting, earning projections. c. There are significant unusual transactions near year-end. d. Operating and financing decisions are dominated by one person.

1. Which of the following conditions would not normally cause the auditor to question whether material errors or possible fraud exists?

a. The accounting department is overstaffed. b. Differences exist between control accounts and supporting subsidiary records. c. Transactions are not supported by proper documentation. d. There are frequent changes of auditors lawyers.

1. In evaluating the design of the entity’s internal control environment, the auditor

considers the certain subcomponents of control environment and how they have been incorporated into the entity’s processes. Subcomponents of control environment would include a. Integrity and ethical values b. Commitment to competence c. Organizational structure d. Information and communications systems

1. Which of the following components of an entity’s internal control structure

includes the development of employee promotion and training policies? a. Control activities b. Control environment c. Information and communication d. Quality control system

10 of the following subcomponents of the control environment define the existing lines of responsibility and authority? a. Organizational structure b. Management philosophy and operating style c. Human resource policies and practices d. Management integrity and ethical values

11 of the following is not one of the subcomponents of the control

environment? a. Management philosophy and operating style b. Organizational structure c. Adequate separation of duties d. Commitment to competence

12 of the following deal with ongoing or periodic assessment of quality of internal control by management? a. Quality control activities b. Monitoring activities c. Oversight activities d. Management activities

13 policies and procedures that help ensure that management directives are

carried out are referred to as the: a. Control environment b. Control activities c. Monitoring of controls d. Information systems

14 of the following is not one of the specific control activities that are

relevant to financial statement audit? a. Performance reviews b. Physical controls

c. Segregation of duties d. Monitoring

15 segregation of functional responsibilities in an effective structure of internal control calls for separation of functions of a. Authorization, execution, and payment b. Authorization, recording, and custody c. Custody, execution, and reporting d. Authorization, payment, and recording

16 of the following best describes the purpose of the control activities? a. The actions, policies and procedures that reflect the overall attitudes of the management b. The identification and analysis of risks and relevant to the preparation of the financial statements c. The policies and procedures that help ensure that necessary actions are taken in order to achieve the entity’s objectives d. Activities that deal with the ongoing assessment of the quality of internal control by management

17 the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be: a. Tracing b. Vouching c. Performing a walk through d. Testing controls

18 of the following is not a medium that can normally be used by an auditor

to record information concerning a client’s internal control policies and procedures? a. Narrative memorandum b. Flowchart c. Procedures manual d. Questionnaire

19 auditor uses the knowledge provided by the understanding of internal control

and the final assessed level of control risk primarily to determine the nature, timing and extent of the a. Attribute tests b. Tests of controls c. Compliance tests d. Substantive tests 20 on the requirement of PSA 3330, how frequently must an auditor test

operating effectiveness of controls that appear to functions as they have in past years and on which the auditor wishes to rely in the current year? a. Monthly b. Each audit

1. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles. The fundamental principles include the following except a. Objectivity b. Professional competence and due care c. Technical standards d. Confidence

2. The principle of professional competence and due care imposes certain obligations on professional accountants. Which of the following is not one of those obligations required by this principle? a. To act diligently in accordance with applicable technical and professional standards b. To be fair, intellectually honest and free of conflict of interest c. To become aware and understand relevant technical, professional and business developments d. To obtain professional knowledge and experience to enable them to fulfil their responsibilities

3. The phase of professional competence that requires a professional accountant to adopt a program designed to ensure quality control in the performance of professional services consistent with technical and professional standards is: a. Attainment of professional competence b. Maintenance of professional competence c. Application of professional competence d. Review of professional competence

4. The essence of the due care principle is that the auditor should not be guilty of: a. Bias b. Errors in judgement c. Fraud d. Negligence

5. The principle of confidentiality applies to: a. Professional accountants in public practice b. Professional accountants in commerce and industry c. Professional accountants in government d. All professional accountants

6. The principle of confidentiality imposes an obligation on professional accountants to refrain from: a. Disclosing confidential information to another party even if client authorizes the disclosure b. Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of the third parties c. Disclosing information to defend themselves in case of litigation d. Responding to an inquiry or investigation conducted by the Professional Regulatory Board of Accountancy

7. A CPA should not disclose confidential information obtained during an audit engagement in which one of the following situations? a. When the security of the state requires b. With the consent of the client c. In defense of himself when sued by his client d. To a successor auditor without the client’s permission

8. Which of the following is considered a violation of rules on confidentiality? a. The CPA discloses information to protect his own interest in the course of legal proceedings b. The CPA discloses information to a successor auditor after obtaining the client’s permission c. The CPA discloses information to another CPA in compliance with a quality control review conducted by the BOA d. The CPA divulges information disclosed to him by a prospective client.

10 which of the following circumstances would a CPA be bound by the ethics to refrain from disclosing any confidential information obtained during course of a professional engagement? a. The CPA is issued summon enforceable by the court order which orders the CPA to present confidential information b. A major stockholder of a client company seeks accounting information from CPA after the management declined to disclose the requested information c. Confidential client information is made available with the client’s permission d. An inquiry by the PRC and the CPA needs the disclosure to defend himself

11 principle of professional behaviour requires a professional accountant to a. Be straightforward and honest in performing professional services b. Be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity c. Perform professional services with due care, competence and diligence d. Act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to profession

12 of the following most accurately states how objectivity has been defined by the Code of Ethics? a. Being honest and straight forward in all professional and business relationships. b. A state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgement c. A combination of impartiality, intellectual honesty and a freedom from conflict of interest d. Avoiding facts and circumstances that could reduce the public confidence in the professional accountant’s report

13 fundamental principle is seriously threatened by an engagement that is compensated based on the net proceeds on loans received by the client from a commercials bank?

20 the same senior personnel on an assurance engagement over a long period of time would most likely create a. Intimidation threat b. Advocacy threat c. Familiarity threat d. Self-interest threat

CHAPTER 5

1. This consists of checking the mathematical accuracy of documents of records. a. Reperformance b. Confirmation c. Recalculation d. Inspection

2. Which of the following assertions does not relate to balances at period end? a. Existence b. Occurrence c. Valuation or allocation d. Rights and obligations

3. Which of the following assertions does not relate to classes of transactions and

events for the period? a. Completeness b. Valuation c. Cut-off d. Accuracy

1. An assertion that transactions are recorded in the proper accounting period is: a. Classification b. Occurrence c. Accuracy d. Cut-off

2. Which of the following is not normally performed in the preplanning or pre- engagement phase? a. Deciding whether to accept or reject an audit engagement b. Inquiring from predecessor auditor c. Preparing an engagement letter d. Making a preliminary estimate of materiality

3. Before accepting an engagement to audit a new client, a CPA is required to

obtain a. A preliminary understanding of the prospective client’s industry and business b. The prospective client’s signature to the engagement letter c. An understanding of the prospective client’s control environment d. A representation letter from the prospective client

1. Preliminary knowledge about the client’s business and industry must be obtained

prior to the acceptance of the engagement primarily to a. Determine the degree of knowledge and expertise required by the engagement b. Determine the integrity of management c. Determine whether the firm is independent with the client

b. A request for the client to confirm the terms of engagement c. A description of the auditor’s method of sample selection d. The risk that material misstatements may remain undiscovered

15 of the following would be least likely to be included in the auditor’s

engagement letter a. Forms of the report b. Extent of his responsibilities c. Objectives and scope of the audit d. Type of opinion to be issued

16 to PSA 210, the auditor and the client should agree on the terms of

engagement. The agreed terms would need to be recorded in a(n) a. Memorandum to be placed in the permanent section of the auditing working papers b. Engagement letter c. Client representation letter d. Comfort letter

17 of the following factors most likely would influence an auditor’s

determination of the auditability of the entity’s financial statements a. The complexity of the accounting systems b. The existence of related party transactions c. The adequacy of the accounting records d. The operating effectiveness of control procedures

18 of the following factors most likely would cause an auditor not to accept a new audit engagement? a. An inadequate understanding of the entity’s interval control structure b. The close proximity to the end of the entity’s fiscal year c. Concluding that the entity’s management probably lacks integrity d. An inability to perform preliminary analytical procedures before assessing control risk

19 of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement a. Analysis of balance short accounts b. Analysis of income statements accounts c. All matters of continuing accounting significance d. Facts that might bear on the integrity of management

20 incoming auditor most likely would make specific inquiries of the predecessor

auditor regarding a. Specialized accounting principles of the client’s industry b. The competency of the client’s internal audit staff c. The uncertainty inherent in applying sampling procedures d. Disagreements with management as to auditing procedures

CHAPTER 6:

1. Which of the following statements is most correct regarding the primary purpose of audit procedures? a. To detect all errors or fraudulent activities as well as illegal activities b. To comply with the SEC c. To gather corroborative audit evidence about management’s assertions regarding the client’s financial statements d. To determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual

Which of the following is not an underlying condition that creates a demand by users for reliable information?

Which of the following is not related to auditing?

Which of the following is not a characteristic of audit?

Which of the following is not the responsibility of the auditor?