Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

audit 1 > Chapter 2 questions > Flashcards

Chapter 2 questions Flashcards

1
Q

T/F
The person or persons conducting an audit engagement is known as the auditor

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

T/F
The essence of an independent audit is to determine whether the client’s financial statements complied with generally accepted auditing standards.

A

F
complied with generally accepted accounting principles or PFRS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

T/F
The primary objective of a financial statement audit is to determine compliance with internal and external requirements, and seek necessary improvements to maximize the reliability of accounting data and company efficiency.

A

F
This refers to operational audits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

T/F
An independent auditor may participate in preparing financial statements including accompanying notes.

A

F
Preparation of financial statements is the responsibility of management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

T/F
The independent audit is important to readers of financial statements because it involves the objective examination of and reporting on management prepared statements.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

T/F
After conducting an audit and release of the auditor’s report, the primary responsibility on the fairness of the financial statements is shifted to the auditor.

A

F
The financial statements remain management’s responsibility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

T/F
An independent audit aids in the communication of economic data because the audit guarantees that financial data are fairly presented.

A

F
an audit aids in the communication of economic data because it provides reasonable assurance that the financial statements are fairly stated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

T/F
Financial statements are assertions by an organization’s management and are, therefore, the responsibility of management.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

T/F
Information risk is the risk that information provided to users may be materially misstated.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

T/F
One of the primary reasons for an independent audit is the inherent potential conflict between an entity’s management and other users of financial statement.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

T/F
Compared to the auditor of the past, the auditor of today focuses on the detection of fraud and error.

A

F
The auditor of the past focused on detecting fraud, while the auditor of today focused on expressing an opinion on the fairness of financial statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

T/F
Today, the most cost-beneficial option to reduce information risk is to have users directly verify the information.

A

F
The most cost-beneficial option to reduce information risk is to have the financial statements audited.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

T/F
An audit, if properly conducted, ensures that fraud is prevented.

A

F
An audit does not provide assurance regarding the prevention of fraud.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

T/F
The use of selective testing is one of the reasons why auditors can provide reasonable (but not absolute) assurance on the fairness of financial statements.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

T/F
A typical objective of an operational audit is for the auditor to make recommendations for improving performances.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

T/F
Compliance audits are used to determine adherence to rules and regulations set by the auditor.

A

F
The rules and regulations are set by a higher authority (such as legislation).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

T/F
External auditing refers to financial statement audits performed by independent auditors.

A

T
Note however, that external auditing may also refer to operational audits and compliance audits that are performed by independent auditors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

T/F
An operational audit conducted by an internal auditor is intended to provide an aid in the independent auditor examining the financial statements.

A

F
Internal audits are intended to serve the needs of management, not to aid the external auditor.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

T/F
Internal auditing is a managerial control which functions by measuring and evaluating the effectiveness of other controls.

A

T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

T/F
The major beneficiaries of an internal audit are management and third-party users of the financial statement.

A

F
The major beneficiary of internal audits is management.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

T/F
An independent auditor need not be a CPA.

A

F

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

T/F
Auditing requires that data should be externally-generated.

A

F
Auditing requires that data should be verifiable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

T/F
Auditors must have independence and freedom from management constraint.

A

T

21
Q

T/F
An audit benefits the public

A

T

22
Q

The following phrases relate to the definition of auditing. Which one is INCORRECT?

A. Systematic process
B. Objectively obtaining and evaluating assertions
C. Assertions about economic actions and events
D. Degree of correspondence between assertions and PSAs.

A

D
Degree of correspondence between assertions and established criteria

22
Q

T/F
The main difference between auditors and accountants is the auditor’s ability to interpret PSAs.

A

F
The main difference between auditors and accountants is the ability to gather and evaluate evidence.

23
Q

Auditing includes both a(an):

A. Documentation process and an evaluation process.
B. Evaluation process and a reporting process.
C. Investigative process and a reporting process.
D. Documentation process and a reporting process

A

C

24
Q

For what reason does an independent auditor gather evidence?

A. To detect fraud.
B. To appraise the internal control system.
C. To assess management performance.
D. To form an opinion on the financial statements.

A

D

25
Q

This type of audits is-performed to determine whether an entity’s financial statements are
fairly stated in conformity with generally accepted accounting principles:

A. Operational audit.
B. Compliance audit.
C. Internal audit.
D. Financial statements audit.

A

D

26
Q

A primary purpose of an operational audit is to provide:

A. A means of assurance that internal accounting controls are functioning as
planned.
B. A measure of management performance in meeting organizational goals.
C. The results of internal examination of financial and accounting matters to a
company’s top level management.
D. Aid to the independent auditor, who is conducting the examination of the
financial statements.

A

B

26
Q

Which of the following statements is an example of an assertion made by management in an entity’s financial statements?

A. Financial statements were prepared in an unbiased manner.
B. Reported inventory balances reflect all related transactions for the period.
C. Reported accounts receivable does not include any uncollectible accounts.
D. The scope of the auditor’s investigation was not limited in any way by management.

A

B
This refers to the completeness assertion

27
Q

A type of audit the purpose of which is to determine whether the client is following specific procedures or rules set down by some higher authority:

A. Operational audit C. Financial audit
B. Compliance audit D. Detailed audit

A

B

27
Q

The main objective of operations auditing is

A. To evaluate the integrity of accounting information
B. To verify fulfillment of plans and sound business requirements
C. To measure and evaluate the effectiveness of controls.
D. To produce results as desired or directed.

A

B

28
Q

This is an independent appraisal activity established within an entity as a service to the
entity:

A. Independent auditing
B Internal audit function
C. Government auditing
D. Compliance audit function

A

B
Choice A is wrong because independent auditing is not a branch of accounting. Choice C refers to accounting. Choice D is incorrect because auditing cannot assure the accuracy of financial statements.

28
Q

Which of the following best describes 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. It 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.

A

D

28
Q

Which of the following types of audits are most similar?
C
A. Operational audits and compliance audits.
B. Independent financial statement audits and operational audits.
C. Compliance audits and independent financial statement audits.
D. Internal audits and independent financial statement audits.

A

C

29
Q

The independent auditor lends credibility to client financial statements by

A. Stating in the auditor’s management letter that the examination was made in
B, accordance with GAAS.
Maintaining a clear-cut distinction between management’s representations and
C. the auditor’s representations.
D. Attaching an auditor’s opinion to the client’s financial statements.
Testifying under oath about client financial information.

A

C

30
Q
  1. Internal auditing relates to an

A. Audit which serves the needs of management.
B. Audit which is performed by a professional practitioner as an independent
contractor.
C. Audit which is incidentally concerned with the detection and prevention of
fraud.
D. Audit wherein the auditor should be independent of management both in fact
and in mental attitude.

A

A

31
Q

To operate effectively, an internal auditor must be independent of:

A. The line functions of the organization.
B. The entity.
C. The employer-employee relationship which exists for other employees in the
organization.
D. All of these.

A

A
Line functions are positions that exercise decision-making powers or responsibilities.

32
Q
  1. Internal auditors cannot be totally independent

A. Since they do not possess the CPA license
B As long as an employer-employee relationship exists
C Because they don’t audit financial statements
D. Unless their immediate supervisor is a CPA.

A

B

33
Q
  1. To provide for the greatest degree of independence in performing internal audit functions, an internal auditor most likely should report to:

A. Those charged with governance,
B. The corporate controller.
C. The vice-president for finance.
D. The shareholders of the company.

A

A

34
Q
  1. 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. C. Evaluation.
    B. Accuracy. D. Compliance.
A

D

35
Q
  1. 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.

A

B

36
Q

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.

A

C

37
Q

The market for auditing services is driven by

A. The regulatory authority of the Securities and Exchange Commission.
B. A demand by external users of financial statements.
C. Pronouncements issued by the Auditing and Assurance Standards Council.
D. Congress at the national level and elected legislative bodies at the regional level.

A

B

38
Q
  1. The Constitution of the Philippines requires this Office to “keep the general accounts of the Government and for such period as may be provided by law, preserve the vouchers pertaining thereto.”

A. National Accounting Office
B. Ministry of Finance
C Commission on Audit
D Government accounting units

A

C

39
Q

An audit can have a significant effect on:

A. Information risk. rate.
B. Business risk.
C. The risk-free interest
D. All of these.

A

A
Information risk is the likelihood that information presented is false or misleading.

40
Q

Which of the following best describes the reason why an independent auditor reports on
A management fraud may exist and it is more likely to be reported by financial statements?

A. independent auditors.
B. Different interests may exist between the company preparing the statements
and the persons using the statements.
C. A misstatement of account balances was corrected as the result of the
independent auditor’s work.
D. An excellent internal control system was in existence.

A

B
The best reason for audits is the conflict of interest between preparers and users of financial statements.

41
Q

The underlying conditions that create demand for users for reliable financial information do
not include (the):

A Transactions that are numerous and complex.
B. Expression of an opinion on the fairness of the financial statements.
C. Users separated from accounting records by distance and time.
D. Financial decisions that are important to investors and users.

A

B
Choice B refers to the objective of a financial statement audit, not a reason for audits.

42
Q

Which of the following methods is most commonly used to reduce information risk?

A. Allow users to verify information.
B. Users share information risk with management.
C. Have the financial statements audited.
D. Allow all users to prepare the statements.

A

C

43
Q

S1 CPA firms have as their primary responsibility the performance of the audit function on
published financial statements of all publicly traded corporations.
S2 The value of the CPA’s opinion lies in the fact that he has gathered sufficient,
competent, evidential matter to support his opinion.

A. True, false C. True, true
B. False, true D. False, false

A

B
Statement 1 is false because CPAs have as their primary responsibility the performance of the audit function on published financial statements of publicly traded corporations.

44
Q

The criteria for evaluating quantitative information vary. For example, in the audit o
historical financial statements by CPA firms, the criteria are usually:

A. BIR Regulations
B. Circulars issued by the Securities and Exchange Commission
C. Generally accepted accounting principles
D. Generally accepted auditing standards

A

C

44
Q

Management assertions are:

A. Stated in the footnotes to the financial statements.
B. Implied or express representations about the accounts in the financial
statements.
C. Explicitly expressed representations about the financial statements.
D. Provided to the auditor in the assertions letter, but are not disclosed in the
financial statements of the entity.

A

B

45
Q

The auditor communicates the results of his/her work through the medium of the:

A. Engagement letter.
B. Management representation letter.
C. Financial statements.
D. Audit report.

A

D

46
Q
  1. 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 all available
evidence.
B. Some evidence supporting peso representations in the financial statements
must be obtained by oral or written representation of management.
C. Human weakness, such as fatigue and carelessness, can cause auditors to
overlook pertinent evidence or cause them to make the wrong conclusions.
D. Judgment is used throughout the audit engagement.

A

B
Some evidence supporting peso representations in the financial statements must be obtained by oral or written

audit 1 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions