At-mcq-salogsacol - Auditing Theory Multiple Choice PDF

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CHAPTER 1 Broadly defined, the subject matter of any audit consist of a. Financial statements b. Economic data c. Assertions d. Operating data An audit of financial statements is conducted to determine if the a. Organization is operating efficiency and effectively b. Auditee is following specific pr...

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AUDITING THEORY MCQ BY SALOSAGCOL

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

AUDITING THEORY MCQ BY SALOSAGCOL

b. Income tax auditing c. Government auditing d. External auditing 8. 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 9. 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.Which 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.An 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.Which 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.

AUDITING THEORY MCQ BY SALOSAGCOL

d. 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. 13.The reason an independent auditor gathers evidence is to a. Form an opinion on the financial statements b. Detect fraud c. Evaluate management d. Evaluate internal controls 14.An attitude that includes a questioning mind and critical assessment of audit evidence is referred to as a. Due professional care b. Professional skepticism c. Reasonable assurance d. Supervision 15.Jack has been retained as auditor of EVC Company. The function of Jack’s opinion on financial statements of EVC Company is to a. Improve financial decisions of company management b. Lend Credibility to management’s representation c. Detect fraud and abuse in management operations d. Serve requirements of BIR, SEC, or Central Bank 16.Which of the following is not one of the limitations of an audit? a. The use of testing b. Limitations imposed by client c. Human error d. Nature of evidence that the auditor obtains 17.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. Some evidence supporting peso representation in the financial statement must be obtained by oral or written representation of management. c. Fatigue can cause auditors to overlook pertinent evidence. d. Many financial statement assertions cannot be audited. 18.Which of the following is not one of the general principles governing the audit of financial statements? a. The auditor should plan and perform the audit with an attitude of professional skepticism. b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedure to be able to draw reasonable conclusions. c. The auditor should conduct the audit in accordance with PSA. d. The auditor should comply with the Philippine Code of Professional Ethics.

AUDITING THEORY MCQ BY SALOSAGCOL

19.Which 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 decisionmaker. c. Expertise is often required for information preparation and verification. d. Users can directly assess the quality of information. 20.Which 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

AUDITING THEORY MCQ BY SALOSAGCOL

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 a. b. c. d.

primarily differentiates fraud from an error Materiality Effect on misstatements Intent 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

AUDITING THEORY MCQ BY SALOSAGCOL

a. b. c. d.

all of the above statements are true only statements I and III are true all of the above statements are false only statement II and IV are true

7. Which of the following best identifies the two types of fraud? a. b. c. d.

Theft of assets and employee fraud. Misappropriation of asset and defalcation. Management fraud and employee fraud. Fraudulent financial reporting and management fraud.

8. Which of the following statements best describe an auditor’s responsibility to detect errors and fraud? a. An auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements. b. An auditor is responsible to detect material errors, but has no responsibility to detect material fraud that are concealed through employee collusion or management override of the internal control structure. c. An auditor has no responsibility to detect errors and fraud unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated. d. An auditor has no responsibility to detect errors and fraud because an auditor is not an insurer and an audit does not constitute a guarantee. 9. “The auditor would ordinarily expect to find evidence to support management representations and not assume that they necessarily correct”. This is an example of a. b. c. d.

Unprofessional behavior An attitude of professional skepticism Due diligence A rule in code of professional conduct.

10. Which of the following statement is true? a. It is usually easier for the auditor to uncover fraud than errors. b. It is usually easier for the auditor to uncover errors than fraud. c. It is usually equally difficult for the auditor to uncover errors or fraud. d. Usually, the auditor does not design procedures to uncover fraud or errors. 11. The most difficult type of misstatement to detect is fraud based on a. The over recording of transaction

AUDITING THEORY MCQ BY SALOSAGCOL

b. The non-recording of transactions c. Recorded transactions in subsidiaries d. Related party receivable 12. 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 13. 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. 14. 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. 15. 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. 16. Which of the following is most likely to be presumed to represent fraud risk on an audit?

AUDITING THEORY MCQ BY SALOSAGCOL

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 17. Which of the following conditions or events would least likely increase risk of fraud or error? a. b. c. d.

Questions with respect to competence or integrity of management Unusual pressures within the entity Unusual transactions Lack of transaction trail

18. 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. 19. 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. 20. 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.

AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 3: 1. The primary responsibility for establishing and maintaining an internal control rests with a. The external auditors b. The internal auditors c. Management and those charged with governance d. The controller or the treasurer 2. The fundamental purpose of an internal control is to a. Safeguard the resources of the organization b. Provide reasonable assurance that the objectives of the organization are achieved c. Encourage compliance with organization objectives d. Ensure the accuracy, reliability and timeliness of information 3. Which of the following is not one of the three primary objectives of effective internal control? a. Reliability of financial reporting b. Efficiency and effectiveness of operations c. Compliance with laws and regulations d. Assurance of elimination of business risk. 4. Which of the following internal control objectives would be most relevant to the audit? a. Operational objective b. Compliance objective c. Financial reporting objective d. Administrative control objective 5. An act of two or more employee to steal assets and cover their theft by misstating the accounting records would be referred to as: a. Collusion b. A material weakness c. A control deficiency d. A significant deficiency 6. Which of the following is not one of the components of an entity’s internal control? a. Control risk b. Control activities c. Information and communication d. The control environment 7. The overall attitude and awareness of an entity’s board of director concerning the importance of the internal control usually is reflected in its a. Computer-based controls b. System of segregation of duties c. Control environment d. Safeguard over access of assets

AUDITING THEORY MCQ BY SALOSAGCOL

8. 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 9. 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.Which 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.Which 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.Which 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.The 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.Which of the following is not one of the specific control activities that are relevant to financial statement audit? a. Performance reviews b. Physical controls

AUDITING THEORY MCQ BY SALOSAGCOL

c. Segregation of duties d. Monitoring 15.Proper 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.Which 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.When 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.Which 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.An 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.Based 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 t...