Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Name: _________________________________ Score:___________

Auditing and Assurance Principle (ACP102) W.E. Peralta
Encircle the best answer.
1. Independent auditing can best be described as a
A. Branch of accounting
B. Discipline that attests to the results of accounting and other operations and data
C. Professional activity that measures and communicates financial and business data
D. Regulatory function that prevents the issuance of improper financial information

2. A financial statement audit:

A. Confirms that financial statement assertion are accurate.
B. Lends credibility to the financial statements.
C. Guarantees that financial statements are presented fairly.
D. Assures that fraud had been detected.

3. Which of the following best describes the objective of an audit of financial statements?
A. To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.
B. To express an assurance as to the future viability of the entity whose financial statements are being audited.
C. To express an assurance about the management’s efficiency or effectiveness in conducting the operations of entity.
D. To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an
identified financial reporting framework.

4. Because an external auditor is paid a fee by a client company, he or she

A. Is absolutely independent and may conduct an audit
B. May be sufficiently independent to conduct an audit
C. Is never considered to be independent
D. Must receive approval of the Securities and Exchange Commission before conducting an audit

5. Which of the following is responsible for an entity’s financial statements?

A. The entity’s management C. The entity’s audit committee
B. The entity’s internal auditors D. The entity’s board of directors

6. The best statement of the responsibility of the auditor with respect to audited financial statement is:
A. The audit of the financial statements relieves management of its responsibilities
B. The auditor’s responsibility is confined to his expression of opinion about the audited financial statements.
C. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with
respect to the notes of financial statements.
D. The auditor is responsible only to his unqualified opinion but not for any other type of opinion.

7. Which of the following least likely limits the auditors’ ability to detect material misstatement?
A. Most audit evidences are 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.

8. Because an examination in accordance with generally accepted auditing standards is influenced by the possibility of material
errors, the auditor should conduct the examination with an attitude of
A. Professional responsiveness C. Objective judgment
B. Conservative advocacy D. Professional skepticism

9. The development of a general strategy and a detailed approach for the expected nature, timing, and extent of audit refers
to :
A. Supervision B. Audit procedures C. Directing D. Planning

10. The auditor should consider the nature, extent, and timing of the work to be performed and should prepare a written audit
program for every audit. Which audit standard is most closely related to this requirement?
A. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.
B. In all matters relating to the assignment, an independent mental attitude is to be maintained by the auditor(s).
C. Due professional care is to be exercised in the planning and performance of the audit and preparation of the report.
D. The work is to be adequately planned and assistants, if any, are to be properly supervised.

11. Which of the following would a successor auditor normally perform after acceptance of an audit client?
A. Inquiry of predecessor auditor regarding the client.
B. Review the SEC filings of the client.
C. Inquiry of bankers regarding the client.
D. Review of predecessor auditor working papers.
12. To obtain an understanding of a `continuing client’s business in planning an audit, an auditor most likely would
A. Perform tests of details of transactions and balances.
B. Review prior-year working papers and the permanent file for the client.
C. Read specialized industry journals.
D. Reevaluate client’s internal control environment.

13. Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?
A. A flowchart or narrative of the information system describing the recording and classification of transactions for financial
reporting.
B. An audit program setting forth in detail the procedures necessary to accomplish the engagement’s objectives.
C. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity
personnel.
D. An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved.

14. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
A. Inquiring of the client’s legal counsel concerning pending litigation.
B. Comparing the financial statements to anticipated results.
C. Examining computer generated exception reports to verify the effectiveness of internal controls.
D. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

15. Analytical procedures used in planning an audit should focus on

A. Reducing the scope of tests of controls and substantive tests.
B. Providing assurance that potential material misstatements will be identified.
C. Enhancing the auditor’s understanding of the client’s business.
D. Assessing the adequacy of the available evidential matter.

16. Analytical procedures, which means the analysis of significant ratios and trends including the resulting investigation of
fluctuations and relationships that are inconsistent with other relevant information or which deviate from predicted amounts,
are not required to be applied
A. At the planning stage of the audit C. As substantive procedures
B. Overall review stage of the audit D. None of the above

17. Which of the following statements is correct concerning analytical procedures?

A. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to assertions developed
by management.
B. Analytical procedures used in planning an audit generally use data aggregated at a high level.
C. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level of control risk.
D. Analytical procedures are more efficient, but not more effective, than tests of details and transactions.

18. Which of the following is an effective audit planning and control procedures that helps prevent misunderstandings and
inefficient use of audit personnel?
A. Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor.
B. Provide the client with copies of the audit programs to be used during the audit.
C. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
D. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.

19. Which of the following is an aspect of scheduling and controlling the audit engagement?
A. Including in the audit program a column for estimated and actual time.
B. Performing audit work only after the client’s books of account have been closed for the period under examination.
C. Writing a conclusion in individual working papers indicating how the results of the audit will affect the auditor’s report.
D. Including in the engagement letter an estimate of the minimum and maximum audit fee.

20. Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic
form without any paper documentation?
A. Discrete phases of planning, interim, and year-end field work.
B. Increased effort to search for evidence of management fraud.
C. Performance of audit tests on a continuous basis.
D. Increased emphasis on the completeness assertion.

21. Which of the following statements is not correct about materiality?

A. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in
conformity with GAAP, while other matters are not important.
B. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that
could be material to any one of the financial statements.
C. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and
qualitative judgments.
D. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person
who will rely on the financial statements.

22. The risk that the assertion contains material misstatements that, when aggregated with misstatements in other assertions,
could make the entire financial statements materially misstated is:
A. Individual audit risk B. Inherent risk C. Control risk D. Detection risk
23. Incremental risk is the increased risk that errors may not be detected at the balance sheet date because:
A. Audit procedures were performed at an interim date
B. Inherent risk was assessed too low.
C. Analytical procedures were not performed.
D. Detection risk was set too high a level.

24. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except:
A. Gathering of all corroborating audit evidence.
B. Ensuring that appropriate attention is devoted to important areas of the audit.
C. Identifying the areas that need a service of an expert.
D. The audit work is completed efficiently.

25. The extent of planning will vary according to any of the following, except:
A. Size of the audit client.
B. Auditor’s experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. The assessed level of control risk.

26. Which of the following is least likely considered by the auditor in developing the overall audit plan?
A. Understanding of the accounting and internal control systems.
B. Relevant risk and materiality.
C. The involvement of other auditors in the audit of major component of financial statements
D. The general level of competence of audit assistants.

27. Which of the following is not considered by the CPA when he makes an overall audit plan?
A. Identification of complex accounting areas including those involving accounting estimates.
B. The information technology used by the client.
C. The content of the representation letters.
D. The nature and timing of reports or other communication with the entity that are expected under the engagement.

28. Which of the following least likely affect the form and content of the overall audit plan?
A. Complexity of the audit engagement.
B. Methodology and technology used by the auditor.
C. The entity’s form of business organization.
D. The size of the entity.

29. The audit program should contain the following, except:

A. Audit objective
B. Time budget for the various audit areas
C. Set of planned audit procedures
D. The combined assessed level of inherent and control risk

30. Which statement is incorrect regarding audit evidence?

A. Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is
based.
B. Audit evidence includes the information contained in the accounting records underlying the financial statements and
other information.
C. Audit evidence is cumulative in nature.
D. Auditors are expected to address all information that may exist.

31. Accounting records least likely include

A. The records of initial entries and supporting records.
B. The general and subsidiary ledgers.
C. Work sheets and spreadsheets supporting cost allocations.
D. Comparable data about competitors (benchmarking).

32. Other information that the auditor may use as audit evidence least likely includes
A. Minutes of meetings.
B. Confirmations from third parties.
C. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
D. Adjustments to the financial statements that are not reflected in formal journal entries.

33. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
A. Sufficiency is the measure of the quality of audit evidence.
B. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its reliability in providing
support for, or detecting misstatements in, the classes of transactions, account balances, and disclosures and related
assertions.
C. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the more audit
evidence is likely to be required) and also by the quality of such audit evidence (the higher the quality, the less may be
required).
D. Merely obtaining more audit evidence may compensate for its poor quality.
34. Which of the following statements is incorrect regarding relevance of audit evidence?
A. A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others.
B. The auditor often obtains audit evidence from different sources or of a different nature that is relevant to the same
assertion.
C. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding another
assertion.
D. None of the above.

35. Which of the following generalizations in assessing the reliability of audit evidence is incorrect?
A. Audit evidence is more reliable when it is obtained from independent sources outside the entity.
B. Audit evidence that is generated internally is not affected by the effectiveness of the controls imposed by the entity.
C. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference.
D. Audit evidence is more reliable when it exists in documentary form.

36. Which statement is incorrect regarding audit evidence?

A. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to
base the audit opinion.
B. Accounting records alone do not provide sufficient audit evidence.
C. The auditor uses professional judgment and exercises professional skepticism in evaluating the quantity and quality of
audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion.
D. The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for which there is no
alternative.

37. The auditor uses assertions in assessing risks by considering the different types of potential misstatements that may occur,
and thereby designing audit procedures that are responsive to the assessed risks. Assertions used by the auditor fall into
the following categories:
I. Assertions about classes of transactions and events for the period under audit.
II. Assertions about account balances at the period end.
III. Assertions about presentation and disclosure.
A. I, II and III B. I and II only C. II and III only D. II only

38. Assertions about classes of transactions and events for the period under audit least likely include
A. Transactions and events that have been recorded have occurred and pertain to the entity.
B. All transactions and events that should have been recorded have been recorded.
C. Transactions and events have been recorded in the correct accounting period.
D. All assets, liabilities and equity interests that should have been recorded have been recorded.

39. Assertion about account balances at period end which means assets, liabilities, and equity interests are included in the
financial statements at appropriate amounts is
A. Existence C. Completeness
B. Rights and obligations D. Valuation and allocation

40. Accuracy and valuation assertions about presentation and disclosure means
A. Disclosed events, transactions, and other matters have occurred and pertain to the entity.
B. All disclosures that should have been included in the financial statements have been included.
C. Financial information is appropriately presented and described, and disclosures are clearly expressed.
D. Financial and other information are disclosed fairly and at appropriate amounts.

41. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion by performing audit
procedures to:
A. Obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material
misstatement at the financial statement and assertion levels.
B. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the
assertion level.
C. Detect material misstatements at the assertion level.
D. All of the above.

42. The auditor is not always required to perform

A. Risk assessment procedures. C. Test of controls.
B. Substantive procedures. D. Both a and c

43. Tests of controls are necessary

A. When the auditor’s risk assessment includes an expectation of the operating effectiveness of controls.
B. When substantive procedures alone provide sufficient appropriate audit evidence.
C. When risk assessment procedures by themselves do not provide sufficient appropriate audit evidence.
D. Under no circumstances.
44. Which statement is incorrect regarding Inspection as an audit procedure?
A. Inspection consists of examining records or documents or physical examination of assets.
B. Inspection of tangible assets may provide reliable audit evidence with respect to their existence and about the entity’s
rights and obligations on the assets.
C. Inspection of individual inventory items ordinarily accompanies the observation of inventory counting.
D. Some documents represent direct audit evidence of the existence of an asset.

45. Which of the following audit procedures is used extensively throughout the audit and often is complementary to performing
other audit procedures?
A. Inspection B. Observation C. Inquiry D. Confirmation

46. Which statement is incorrect regarding Inquiry?

A. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit
evidence.
B. Responses to inquiries might provide information that differs significantly from other information that the auditor has
obtained.
C. Responses to inquiries may provide a basis for the auditor to modify or perform additional audit procedures.
D. Inquiry alone is sufficient to test the operating effectiveness of controls.

47. Observation
A. Consists of looking at a process or procedure being performed by others.
B. Consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or
outside the entity.
C. Is the process of obtaining a representation of information or of an existing condition directly from a third party.
D. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s
internal control.

48. This consists of checking the mathematical accuracy of documents or records.

A. Reperformance B. Recalculation C. Confirmation D. Inspection

49. Which of the following is a false statement about audit objectives?

A. Audit objectives should be developed in light of management assertions about the financial statement components.
B. Selection of tests to meet audit objectives should depend upon the understanding of internal control.
C. The auditor should resolve any substantial doubt about any of management’s material financial statement assertions
D. There should be a one-to-one relationship between audit objectives and procedures.

50. It means the materials prepared by and for, or obtained and retained by the auditor in connection with the performance of
the audit.
A. Documentation C. Engagement letter
B. Audit evidence D. Audit report

51. Which of the following is not a purpose of working papers?

A. Assist in the planning and performance of the audit.
B. Assist in the supervision and review of the audit work.
C. Record the audit evidence resulting from the audit work performed to support the auditor’s opinion.
D. Support the client’s financial statements.

52. Why does an auditor document audit evidence?

A. To comply with the requirements of gathering all available evidence.
B. To provide client reference for all account balances and correcting entries.
C. To support audit opinion and to provide evidence that the audit was carried out in accordance with PSA.
D. To document all records of misstatements noted in the financial statements.

53. Working papers that record the procedures used by the auditor to gather evidence should be
A. Considered the primary support for the financial statements being audited.
B. Viewed as the connecting link between the books of accounts and the financial statements.
C. Designed to meet the circumstances of the particular engagement.
D. Destroyed when the audited entity ceases to be a client.

54. Which of the following conditions constitutes inappropriate working paper preparation?
A. Flowcharts are included in the working papers.
B. Findings are cross-referenced to supporting documentation.
C. Tick marks are explained in working papers.
D. All forms and directives used by the auditee department are included in the working papers.

55. Which of the following is usually included or shown in the auditor’s working papers?
A. The procedures used by the auditor to verify the personal financial status of members of the client’s management team
B. Analyses that are designed to be a part of, or a substitute for, the client’s accounting records
C. Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used
in preparing the financial statements
D. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated
56. The form and content of working papers are affected by matters such as the:
I. Nature of the engagement.
II. Form of the auditor’s report.
III. Nature and complexity of the business.
IV. Nature and condition of the entity’s accounting and internal control systems.
V. Needs in the particular circumstances for direction, supervision and review of work performed by
assistants.
VI. Specific audit methodology and technology used in the course of the audit.
A. All of the above C. I, II and III only
B. All except V and VI D. All except VI

57. Which of the following is not generally included in the working papers file?
A. An indication as to who performed the audit procedures and when they were performed.
B. Documentation of the auditor’s understanding of the accounting and internal control systems.
C. Copy of the internal audit’s audit program.
D. Analyses of significant ratios and trends.

58. An auditor’s working papers will ordinarily be least likely to include documentation showing how the
A. Client’s schedules were prepared.
B. Engagement was planned.
C. Understanding of the client’s internal control was obtained and control risk was assessed.
D. Unusual matters were resolved.

59. In designing written audit programs, an auditor should establish specific audit objectives that related primarily to the

A. Timing of audit procedures. C. Selected audit techniques.

B. Cost-benefit of gathering evidence. D. Financial statement assertions.

60. Which item would not be contained in an audit program?

A. Staff assigned to the audit.
B. List of specific tasks to be performed.
C. Documentation of system being reviewed.
D. Estimated time required to perform each task.

61. When planning an examination, an auditor should

A. Consider whether the extent of substantive tests may be reduced based on the results of the internal control
questionnaire.
B. Make preliminary judgments about materiality levels for audit purposes.
C. Conclude whether changes in compliance with prescribed control procedures justifies reliance on them
D. Prepare a preliminary draft of the management representation letter.

62. The concept of materiality will be least important to the CPA in determining the
A. Scope of his audit of specific accounts.
B. Specific transactions that should be reviewed.
C. Effects of audit exceptions upon his opinion.
D. Effects of his direct financial interest in a client upon his independence.

63. In considering materiality for planning purposes, an auditor believes that misstatements aggregating P100,000 would have
a material effect on an entity’s income statement, but the misstatements would have to aggregate P200,000 to materially
affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect
misstatements that aggregate
A. P100,000 B. P200,000 C. 150,000 D. P300,000

64. The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the
following is true?
A. Audit risk is the risk that the auditor may unknowingly express a modified opinion when in fact the financial statements
are fairly stated.
B. The phrase in the auditor's standard report "present fairly, in all material respects, in conformity with generally
accepted accounting principles" indicates the auditor's belief that the financial statements taken as a whole are not
materially misstated.
C. If misstatements are not important individually but are important in the aggregate, the concept of materiality does not
apply.
D. Material fraud but not material errors cause financial statements to be materially misstated.

65. Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?
A. Obtaining a written representation letter from the client’s management.
B. Examining documents to detect illegal acts having a material effect on the financial statements.
C. Consider whether the client’s accounting estimates are reasonable in the circumstances.
D. Determining the extent of involvement of the client’s internal auditors.
66. If the independent auditors decide that the work performed by the internal auditor may have a bearing on their own
procedures, they should consider the internal auditor’s
A. Competence and objectivity. C. Independence and review skills.
B. Efficiency and experience. D. Training and supervisory skills.

67. When assessing an internal auditor’s objectivity, an independent auditor should

A. Evaluate the adequacy of the internal auditor’s audit programs.
B. Inquire about the internal auditor’s educational background and professional certification.
C. Consider the organizational level to which the internal auditor reports.
D. Review the internal auditor’s working papers.

68. For which of the following judgments may an independent auditor share responsibility with an entity’s internal auditor who is
assessed to be both competent and objective?
A B C D
Materiality of misstatements Yes No No Yes
Evaluation of accounting estimates No Yes No Yes

69. Which of the following is not a specialist upon whose work an auditor may rely?
A. Lawyer. B. Internal auditor. C. Actuary. D. Appraiser.

70. Which of the following statements is correct concerning an auditor’s use of the work of a specialist?
A. The auditor need not obtain an understanding of the methods and assumptions used by the specialist.
B. The auditor may not use the work of a specialist in matters material to the fair presentation of the financial statements.
C. The reasonableness of the specialist’s assumptions and their applications are strictly the auditor’s responsibility.
D. The work of a specialist who has a contractual relationship with the client may be acceptable under certain
circumstances.

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wep/ACP102