Audit - Assessment - TRUE OR False and MCQ

BS Accountancy (BSA)

INSTRUCTION: TYPE A IF YOUR ANSWER IS TRUE OR B IF YOUR ANSWER IS FALSE

TRUE OR FALSE

1. Auditing is the process of attesting to assertions about economic actions and events.
A
2. The internal auditor is a primary provider of operational audits.
A
3. The objectives of internal auditors are considerably broader than the objectives of
external auditors.
A
4. Program audits are primarily focused on inefficient uses of government funds in
sponsored programs.
B
5. To help them remain independent of the operations they audit, internal auditors should
report directly to the controller.
B
6. Independent financial statements audit is an example of reasonable level abut direct
reporting assurance engagement.
B
7. The auditor would ordinarily expect to find evidence to support management
representations and assume they are necessarily correct.
B
8. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the
audits are those who rely on the financial statements.
A
9. The auditor has no responsibility to plan and perform the audit to obtain reasonable
assurance that misstatements, whether caused by errors or fraud, that are not material
to the financial statements are detected.
A
10. Assertions are relevant to the audit process because they are the representations of
management embodied in the financial statements.
A

MULTIPLE CHOICE

1. Auditing is a systematic process that includes all of the following except:

a. Communicating results to users
b. Procuring and evaluating evidence
c. Providing important managerial decisions for a client
d. Comparing evidence regarding assertions to certain established criteria

2. Broadly defined, the subject matter of any audit consist of

a. Financial statements

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b. Assertions
c. Economic data
d. Operating data

3. Operational auditing is primarily oriented toward

a. Future improvements to accomplish the goals of management
b. The accuracy of data reflected in management’s financial records
c. The verification that a company’s financial statements are fairly presented
d. Past protection provided by existing internal control

4. 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. Financial-related audit
b. Program results audit
c. Efficiency audit
d. Economy audit

5. Which one of the following is more difficult to evaluate objectively?

a. Presentation of financial statements in accordance with generally accepted
accounting principles
b. Compliance with government regulations
c. Efficiency and effectiveness of operations
d. All three of the above are equally difficult

6. Government auditing often extends beyond expressing an opinion on the fairness of the
financial presentation and includes audits of efficiency, effectiveness and
a. Internal control
b. Efficiency
c. Accuracy
d. Compliance

7. Which of the following types of audits are most similar?

a. Operational audits and compliance audits
b. Independent financial statement audits and operational audits
c. Compliance audits and independent financial statements audits
d. Internal audits and independent financial statement audits

8. Results of compliance audits are typically reported to someone within the organizational
unit being audited rather than to a broad spectrum of outside users. Which of the
following audits can be regarded as generally being a compliance audit?
a. BIR agent’s examinations of taxpayers return.
b. COA auditor’s evaluation of the computer operations of governmental units
c. An internal auditor’s review of a company’s payroll authorization procedures
d. A CPA firm’s audit of the local school district.

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9. Which of the following types of auditing is performed most commonly by CPAs for more
than one client and on a contractual basis?
a. Internal auditing
b. Income tax auditing
c. External auditing
d. Government auditing

10. Internal auditing relates to an

a. Audit which is performed by professional practitioner as an independent
contractor
b. Audit which is incidentally concerned with the detection and prevention of fraud
c. Audit wherein the auditor should be independent of management both in fact
and in mental attitude
d. Audit which serves the needs of management for them to effectively discharge
their responsibilities

11. Internal auditing often extends beyond examinations leading to the expression of an
opinion on the fairness of financial presentation and includes audits of efficiency,
effectiveness, and
a. Internal control
b. Evaluation
c. Accuracy
d. Compliance

12. To maximize independence, the director of internal auditing should report to the
a. Audit committee
b. Controller
c. Chief financial officer
d. Director of information systems

13. For an internal auditor to render impartial and unbiased judgments, he or she must be
independent of the entity’s
a. Stockholders
b. The line functions of the organization
c. Independent auditors
d. Board of directors

14. Which of the following statements relating to internal and external audits is false?
a. The execution of solutions to issued brought to light by internal auditors are the
responsibility of management of the organization.
b. The objectives of internal auditors are considerably broader than the objectives
of external auditors
c. For financial auditing, the audit report typically goes to many users of financial

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statements, whereas operational audit reports are intended primarily for
management
d. Independence is fundamental ethical principle for internal auditors

15. Which of the following statements comparing external auditing to internal auditing is
true?
a. Both produce reports addressed to the company’s management and board of
directors
b. They have the same concern with the company’s day-to-day operations
c. They are paid in the same way
d. They have different scopes of work

16. Which of the following best describes the fundamental, underlying reason for why there
Is there a demand for an independent auditor to report on financial statements?
a. A management fraud may exist and it is more likely to be detected by auditors
if they are independent.
b. Different interests may exist between the company preparing the statements
and the parties using the statements.
c. A misstatement of account balances may exist and it is the independent auditor’s
responsibility to ensure the financial statements are not misstated.
d. A poorly designed internal control system may be in place

17. PRTC Corporation’s stock is listed on a national stock exchange and registered with the
Securities and Exchange Commission. PRTC’s management hires a CPA to perform an
independent audit of PRTC’s financial statements. The primary objective of this audit
is to provide assurance to the
a. Investors in PRTC Corporation’s stock
b. Stock exchange
c. Securities and Exchange Commission
d. Management of PRTC Corporation

18. Which of the following are sources of procedures to be considered by the auditor to
conduct an audit in accordance with PSAs?
PSA Legislation Terms of
Engagement
Type of
Opinion
a. Yes No No No
b. No No Yes Yes
c. No Yes Yes No
d. Yes Yes Yes No

19. Assertions are

a. Audited by the auditors

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b. Declarations made by management
c. Declarations made by the auditor
d. Both a and b

20. Which of the following are assertions about classes of transactions and events in the
financial statements?
a. Occurrence, cut-off, classification, completeness and accuracy
b. Existence, rights and obligations, completeness and valuation and allocation
c. Occurrence and rights and obligations completeness, classification and
understandability and accuracy and valuation
d. All of the above

21. Which of the following is an assertion?

a. A statement made by management regarding the collectability of accounts
receivable
b. The audit firm/s estimation of the client’s inventory obsolescence
c. The statement by management regarding the appointment of auditors
d. The statement by management that the firm will close its branch office because
of snow

22. Assertions are representations of management that are embodied in financial statement
components. They can be either explicit or implicit. Which of these assertions is not
about valuation or allocation?
a. Property is recorded at historical cost
b. Trade accounts receivable in the balance sheet are stated at net realizable value
c. Notes payable in the balance sheet include all such obligations of the entity
d. Property cost is systematically allocated to the appropriate accounting period.

23. The auditor has considerable responsibility for notifying users as to whether or not the
statements are properly stated. This imposes upon the auditor a duty to:
a. Provide reasonable assurance that material misstatements will be detected
b. Be a guarantor of the fairness in the statements
c. Be equally responsible with management for the preparation of the financial
statements
d. Be an insurer of the fairness in the statements

24. An auditor is unable to obtain absolute assurance that misstatements due to fraud will
be detected for all the following except
a. Employee collusion
b. Falsified documentation
c. Need to apply professional judgment in evaluating fraud risk factors
d. Professional skepticism

25. Which of the following least likely limits the auditor’s ability to detect material

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misstatement?
a. Most audit evidence is conclusive rather than being persuasive.
b. The inherent limitations of any accounting and internal control system
c. Audit is based on testing
d. Audit procedures that are effective in detecting ordinary misstatements are
ineffective in detecting intentional misstatements

26. The existence of audit risk is recognized by the statement in the auditor’s standard
report that the auditor
a. Obtains reasonable about whether the financial statements are free of material
misstatement
b. Assesses the accounting principles used and also evaluates the overall financial
statement presentation
c. Realizes some matters, either individually or in the aggregate, are important
while other matters are not important
d. Is responsible for expressing an opinion on the financial statements, which are
the responsibility of management

27. Which of the following equations represents the audit risk model where AR is audit risk,
RMM is the risk of material misstatement, and DR is detection risk?
a. AR = RMM + DR
b. AR = RMM – DR
c. AR = RMM X DR
d. AR = RMM/DR

28. Which of the following is not a distinguishing feature of risk-based auditing?

a. Identifying areas posing the highest risk of financial statement errors
b. Analysis of internal control
c. Collecting and evaluating evidence
d. Concentrating audit resources in those areas presenting the highest risk of
financial statement errors

29. Results of the financial statement audit are communicated to users through a(n)
a. Financial statement
b. Written management assertion
c. Audit report
d. None of the above

30. A “clean” audit report state that:

a. There are no material misstatements in the financial statements
b. The internal control environment is operating well
c. The auditors evaluated all evidence
d. All of the above

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31. When an auditor issues a qualified opinion, the implication is that the auditor
a. Does not know if the financial statements are presented fairly
b. Does not believe the financial statements are fairly presented
c. Is satisfied that the financial statements are presented fairly except for an
specific aspect of them
D. Is satisfied that the FS are presented fairly

32. The “hallmark” of auditing is

a. Available audit technology
b. Generally accepted auditing standards
c. Professional judgment
d. Materiality and audit risk

33. Professional judgment is essential to the proper conduct of an audit because it enables
the auditor to perform the following, except?
a. Interpret relevant ethical requirements
b. Understand relevant, applicable auditing standards to the engagement
c. Make informed decisions in the circumstances of the audit
d. Avoid audit risk

34. In which of the following circumstances the auditor’s professional judgment is

unnecessary?
a. Determining materiality and audit risk level
b. Nature, timing and extent of audit procedures, and evaluating whether
sufficiency and appropriateness of evidence obtained
c. Evaluating management’s judgments in applying the applicable GAAP
d. Making accounting estimates of the financial statements

35. According to international auditing standards, professional skepticism includes being

alert to all of the following except
a. Audit evidence that contradicts other audit evidence obtained
b. Long-standing relationships with management that should be used as a basis to
trust the information they provide
c. Information that brings into question the reliability of documents and responses
to inquiries to be used as audit evidence
d. Conditions that may indicate possible fraud

36. An auditor who is professionally skeptical will do which of the following?

a. Critically question contradictory audit evidence
b. Carefully evaluate the reliability of audit evidence, especially in situations in
which fraud risk is high
c. Reasonably question the authenticity of documentation
d. All of the above

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37. Professional skepticism requires that an auditor assume that management is
a. Honest, in the absence of fraud risk factors
b. Dishonest until completion of audit tests
c. Neither honest nor dishonest
d. Offering reasonable assurance of honesty

38. Two overriding considerations affect the many ways an auditor can accumulate
evidence:
I. Sufficient appropriate evidence must be accumulated to meet the auditor’s
professional responsibility
II. Cost of accumulating evidence should be minimized
In evaluating these considerations:
a. The first is more important than the second
b. The second is more important than the first
c. They are equally important
d. It is impossible to prioritize them

39. Which of the following is most likely to be unique to the audit work of CPAs compared
to work performed by practitioners of other professions?
a. Due professional care
b. Competence
c. Independence
d. Complex body of knowledge

40. Which of the following attributes most clearly differentiates a CPA who audits
management’s financial statements as contrasted to management?
a. Integrity
b. Competence
c. Independence
d. Keeping informed on current professional development

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