Chapter 1 [Salosagcol] Flashcards
When auditing financial statements, the primary concern is with
a. Determining whether recorded information properly reflects the economic events that occurred during the accounting period
b. Determining if fraud has occurred
c. Determining if taxable income has been calculated correctly
d. Analyzing the financial information to be sure that it complies with government requirements
a
Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called
a. Finance
b. Auditing
c. Accounting
d. Economics
c
The trait that distinguishes auditors from accountants is the
a. Auditor’s ability to interpret accounting standards
b. Auditor’s education beyond the Bachelor’s degree
c. Auditor’s continuing professional development
d. Auditor’s accumulation and interpretation of evidence related to the company’s financial statements
d
The subject matter of any audit consists of
a. Assertions about economic actions and events
b. Economic data
c. Financial statements
d. Operating data
a
An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of a financial statement audit, which of the following is not a valid criterion?
a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. PFRS for Small and Medium-Sized Entities
d. PFRS for Small Entities
a
The criteria for evaluating quantitative information vary. For example, in the case of an independent audit of financial statements by CPA firms, the criteria are usually the
a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. National Internal Revenue Code
d. Regulations of the Securities and Exchange Commission
b
Most of the independent auditor’s work in formulating an opinion on the financial statements consists of
a. Obtaining and examining evidence
b. Examining cash transactions
c. Comparing recorded accountability with assets
d. Studying and evaluating internal control
a
An audit of financial statements is conducted to determine if the
a. Organization is operating efficiently and effectively
b. Client is following specific procedures or rules set down by some higher authority
c. Overall financial statements are stated in accordance with the applicable financial reporting framework
d. Client’s internal control is functioning as intended
c
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 be a valid criterion?
a. International Standards on Auditing
b. Philippine Standards on Auditing
c. Philippine Financial Reporting Standards
d. Quality Control Standards
c
In financial statement audits, the audit process should be conducted in accordance with
a. The audit program
b. The Philippine Standards on Auditing
c. The Philippine Accounting Standards
d. The Philippine Financial Reporting Standards
b
Which of the following types of audit uses laws and regulations as its criteria
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Performance audit
c
An audit designed to provide reasonable assurance of detecting violations of a specific provision of contracts or grant agreements would be called a(n):
a. Performance audit
b. Management audit
c. Operational audit
d. Compliance audit
d
An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity’s operating activities in relation to specified objectives is a(n):
a. External audit
b. Compliance audit
c. Operational audit
d. Financial statement audit
c
Which of the following is more difficult to evaluate objectively
a. Efficiency and effectiveness of operations
b. Compliance with applicable government regulations
c. Presentation of financial statements in accordance with the applicable financial reporting criteria
d. All the given criteria are equally difficult to evaluate objectively
a
Which of the following best describes an operational audit
a. It attempts of verifying the fair presentation of a company’s results of operations
b. It concentrates on implementing financial and accounting control in a newly organized company
c. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls
d. It requires a constant review of the administrative controls by internal auditors as they relate to operations of the company
c
A typical objective of an operational audit is to determine whether an entity’s
a. Internal control structure is adequately operating as designed
b. Operational information is in accordance with generally accepted accounting principles
c. Specific operating units are functioning efficiently and effectively
d. Financial statements present fairly the results of operations
c
One objective of an operational audit is to:
a. Determine whether the financial statements fairly present the entity’s operations
b. Evaluate the feasibility of attaining the entity’s operational objectives
c. Make recommendations for improving performance
d. Report on the entity’s relative success in attaining profit maximization
c
The auditor communicates the results of his or her work through the medium of the
a. Engagement letter
b. Audit report
c. Management letter
d. Financial statements
b
When performing an operation audit, the internal audit team must first determine that
a. A financial audit has been performed by an independent auditor
b. A financial audit has been performed by an internal auditor
c. A review was performed by either an independent or an internal auditor
d. Specific criteria are developed to define effectiveness
d
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
d
An examination of part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
a. Operational audit
b. Compliance audit
c. Financial statement audit
d. Production audit
a
Which of the following is not one of the major differences between financial and operational auditing?
a. The financial audit is oriented to the past, but an operational audit concerns performance for the future
b. The financial audit report has widespread distribution, but the operational audit report has limited distribution
c. Financial audits deal with information on the financial statements, but operational audits are concerned with the information in ledgers and journals
d. Financial audits are limited to matters the directly affect the fairness of the financial statement presentation, but operational audits cover any aspect of efficiency and effectiveness
c
The overall objective of internal auditing is to
a. Attest to the efficiency with which resources are employed
b. Ascertain that controls are costs justified
c. Provide assurance that financial data have been accurately recorded
d. Assist members of the organization in the effective discharge of their responsibilities
d
Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activities. To that end, internal auditing provides assistance to
a. External auditors
b. Stockholders
c. Management and the board of directors
d. Government
c
Internal auditors’ independence is enhanced when they report to
a. The audit committee of the board of directors
b. The head of the finance department
c. The external auditors
d. The president of the Company
a
Which of the following groups could not be involved in an operational audit?
a. External auditors
b. Internal auditors
c. Government auditors
d. All of the above could be involved
d
Which of the following statements is not a distinction between external auditors and internal auditors?
a. External auditors represent third party users, whereas internal auditors report directly to management
b. Although external 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
b
The objective of the ordinary examination by the independent auditor is the expression of an opinion on
a. The fairness of the financial statements
b. The accuracy of the financial statements
c. The accuracy of the annual report
d. The balance sheet and income statement
a
