Introduction to Auditing [REDSIRUG] Flashcards
An independent audit is important to readers of financial statements because it
a. Provides a measure of management’s stewardship function
b. Measures and communicates the financial data included in financial statements
c. Objectively examines and reports on management’s financial statements
d. Reports on the accuracy of information in the financial statements
C
An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management’s financial representation.
b. Guarantees that financial data are fairly presented.
c. Assures the readers of financial statements that any fraudulent activity has been corrected.
d. Lends credibility to the financial statements.
D
The purpose of an audit of financial statements is to
a. Obtain an absolute level of assurance that the financial statements as a whole are free from material misstatement.
b. Relieve management or those charged with governance of the responsibility for the preparation and presentation of the financial statements in accordance with the applicable financial reporting framework.
c. Enhance the degree of confidence of intended users in the financial statements.
d. Assure the future viability of the entity by expressing an opinion on the entity’s financial statements.
C
Independent auditing can best be described as
a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A regulatory function that prevents the issuance of improper financial information.
d. A discipline which attests to the results of accounting and other functional operations and data.
D
The primary purpose of an independent financial statement audit is to:
a. Provide a basis for assessing management’s performance
b. Comply with government regulatory requirements
c. Assure management that the financial statements are unbiased and free from material error
d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements
D
The audit process is
a. A special application of the scientific method of inquiry.
b. Regulated by the PICPA.
c. The only service a CPA is allowed to perform by law.
d. Performed only by CPAs.
A
The overall objectives of the auditor in conducting an audit of financial statements are:
I. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence
IV. To detect all misstatements, whether due to fraud or error a. I and II only b. II and IV only c. I, II, and III only d. I, II, III and IV
A
Which of the following is not among the factors that result to limitations of audit?
a. Use of testing
b. Going concern problem of the assurance client
c. Human error
d. Evidence is basically persuasive rather than conclusive
B
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.
B
The independent auditor of the past differs from the auditor of today in that the past auditor was more concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements.
c. Improvement of accounting system.
d. Detection of fraud or irregularities.
D
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. Securities and Exchange Commission Regulations
B
An audit in accordance with PSAs is performed on the premise that management and, where appropriate, those charged with governance have responsibilities that are fundamental to the conduct of the audit. Which of the following is not one of those responsibilities?
a. To provide the auditor with all information, such as records and documentation, and other matters that are relevant to the preparation and presentation of the financial statements.
b. To provide unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence.
c. To comply with all relevant PSAs in the preparation and presentation of the entity’s financial statements.
d. To design, implement, and maintain internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether caused by fraud or error.
C
The auditor is required to maintain professional skepticism throughout the audit. Which of the following statements concerning professional skepticism is false?
a. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism.
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof.
c. Professional skepticism is necessary to the critical assessment of audit evidence.
d. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtained.
A
Professional judgment:
a. Is necessary in the evaluation of management’s judgments in applying the entity’s applicable financial reporting framework.
b. Should be exercised in planning and performing an audit of financial statements but need not be documented.
c. Can be used as the justification for the decisions made by the auditor that are not supported by the facts and circumstances of the engagement.
d. Is not used in making decisions about materiality and audit risk.
A
The primary responsibility for the adequacy of disclosure in the financial statements rests with the:
a. Partner assigned to the audit engagement.
b. Management of the company.
c. Securities and Exchange Commission.
d. Auditor in charge of the field work.
B
Which of the following statements is correct concerning an auditor’s responsibilities regarding financial statements?
a. Making suggestions that are adopted about the form and content of an entity’s financial statements impairs an auditor’s independence.
b. An auditor’s responsibilities for audited financial statements are confined to the expression of the auditor’s opinion.
c. The fair presentation of audited financial statements in accordance with an applicable financial reporting framework is an implicit part of the auditor’s responsibilities.
d. The auditor’s report should provide an assurance as to the future viability of the entity.
B
The auditor’s judgment concerning the overall fairness of presentation of financial position, results of operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality
b. Generally accepted accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control
C
An independent audit is important to readers of financial statements because of the following except:
a. Lends credibility to the financial statements.
b. Objectively examines and reports on management’s financial statements
c. Measures and communicates the financial data included in financial statements d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements
C
The auditor’s judgment concerning the overall fairness of presentation of financial position, results of operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality
b. Generally accepted accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control
C
In financial statement audits, the audit should be conducted in accordance with
a. Philippine Accounting Standards / Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Code of Ethics for CPAs in the Philippines
d. Philippine Standards on Auditing
D
Which of the following statements does not properly describe an element of the theoretical framework of auditing?
a. An audit benefits the public.
b. The data to be audited are verifiable.
c. Auditor should maintain independence with respect to the audit client.
d. Remoteness of users.
D
The auditor is required to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. In all cases when reasonable assurance cannot be obtained, the auditor’s report should contain a/an:
a. Unmodified opinion
b. Qualified or disclaimer of opinion
c. Qualified or adverse opinion
d. Disclaimer of opinion
B
The benefits of an operational audit generally include all of the following except:
a. Decreased costs.
b. Increased revenue
c. Increased reliability of the financial statements.
d. Increased productivity.
C
The auditor is required to comply with all PSAs relevant to the audit of an entity’s financial statements. A PSA is relevant to the audit when:
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist.
a. I only
b. II only
c. Either I or II
d. Both I and II
D
One of the conditions that give rise to a demand for an external audit of financial statements is expertise. Which of the following best describes the meaning of expertise as used in this context? a. Auditors usually rely on the work of an expert as a basis for evaluating some assertions embodied in the financial statements.
b. Users usually lack the necessary expertise to verify the reliability of the financial information.
c. As experts, auditors are expected to detect all material misstatements in the financial statements.
d. The readers of the financial statements must possess the necessary expertise to be able to understand the financial statements.
B
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 a sample of evidence. b. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence. c. Many financial statement assertions cannot be audited. d. The work, under taken by the auditor is permeated by judgment.
B
An audit designed to evaluate the efficiency and effectiveness of an organization or some or part thereof would not come under the title of
a. Performance audit.
b. Compliance audit.
c. Management audit.
d. Operational audit.
B
Inherent limitations in an audit stem from the following factors except
a. Incompetence of the auditor.
b. Most audit evidence is persuasive rather than conclusive.
c. Internal control limitation.
d. Use of testing.
A
Auditing services may include which of the following?
a. Attesting to financial statements
b. Evaluation of a division’s performance for management
c. Examination of the economy and efficiency of governmental operations
d. All of the above
D
Which of the following represents the highest to lowest level of assurance provided by auditors in the performance of the engagement?
a. An audit; a compilation; a review.
b. An audit; a review; a compilation.
c. A review; an audit; a compilation.
d. A compilation; a review; an audit.
B
The statement that the reviewer “is not aware of any material modification that should be made to the financial statements in order for them to be in conformity with GAAP” is known as:
a. Reasonable assurance.
b. Positive assurance.
c. Negative assurance.
d. Negligent performance.
C
Which of the following is a major difference between a review and an audit of the financial statements?
a. The level of knowledge of professional standards needed to perform the procedures.
b. The type of accounting used -reviews are typically on non-GAAP accounting, while audits are based upon GAAP accounting.
c. The scope of the procedures performed and the assurance provided.
d. The type of company involved in reviews may only be publicly-held.
C
The review of unaudited financial statements consists of:
a. Inquiry of management and documentation of internal controls.
b. Inquiry of management and analytical procedures.
c. Analytical procedures and compliance with laws and regulations.
d. Internal control evaluation and management representation.
B
In an assurance engagement, this refers to the information obtained by the practitioner in arriving at the conclusions on which the conclusion is based.
a. Generally accepted auditing standards
b. Assertions
c. Evidence
d. Criteria
C
If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then the information is
a. Significant.
b. Material.
c. Relevant.
d. Pervasive.
B
In performing a financial statement audit, which of the following would an auditor least likely consider?
a. Compliance with GAAP.
b. Quality of managements’ business decisions.
c. Internal control.
d. Fairness of the financial statement amounts.
B
The Philippine Standards on Auditing issued by AASC:
a. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even though such a departure may result to more effective achievement of the objective of an audit.
b. Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion.
c. Need to be applied on all audit related.
d. Must not apply to other related activities of auditors.
B
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. Auditors 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 taken as a whole are fairly presented in conformity with GAAP.
B
The term that describes the role of persons entrusted with the supervision, control and direction of an entity is
a. Management.
b. Administration.
c. Governance.
d. Government.
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 not be a valid criterion?
a. International Accounting Standards
b. Philippine Standards on Auditing
c. Philippine Financial Reporting Standards
d. Philippine Accounting Standards
B
Which of the following statements about independent financial statement audit is correct? a. The audit of financial statements relieves management of its responsibilities for die financial statements. b. The auditor’s opinion is not an assurance as to the future viability of the entity as well as the effectiveness and efficiency with which management has conducted the affairs of the entity. c. An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement. d. The procedures required to conduct an audit in accordance with PSAs should be determined by the client who engaged the services of the auditor.
B
The reason an independent auditor gathers evidence is to a. Detect fraud b. Form an opinion on the financial statements c. Evaluate management d. Evaluate internal controls
B
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. Audited financial statements.
B
The auditor’s judgment concerning the overall fairness of presentation of financial position, results of operation, and changes in cash flow is applied within the framework of
a. Quality control
b. Generally accepted auditing standards which include the concept of materiality
c. The auditor’s evaluation of the audited company’s internal control.
d. Generally accepted accounting principles.
D
The expertise that distinguishes auditors from accountants is in the
a. Ability to interpret generally accepted accounting principles.
b. Requirement to possess education beyond the bachelor’s degree.
c. Accumulation and interpretation of evidence.
d. Ability to interpret PAS/PFRS.
C
The need for independent audits of financial statements can be attributed to all of the following conditions except: a. Validity b. Remoteness c. Consequence d. Complexity of subject matter
A
The underlying conditions that create demand by users for reliable information include the following except:
a. Transactions that are numerous and complex.
b. Users separated from accounting records by distance and time.
c. Financial decisions that are important to investors and users.
d. Decisions are not time-sensitive.
D
Why does a company choose to have an independent auditor report on its financial statements?
a. Independent auditors will always detect management fraud.
b. The company preparing the statements may have a vested interest in reporting certain results.
c. Independent auditors guarantee the accuracy of the financial statements.
d. An independent audit is designed to search for deficiencies in the company’s internal controls.
B