BANKING UNIVERSITY OF HO CHI MINH CITY

FACULTY OF ACCOUNTING - AUDITING

ĐỀ 3

MIDTERM: FUNDAMENTALS OF AUDITING

Fullname Class Mark

A DEFINITION AND DESCRIPTION OF THE PHRASES LISTED BELOW:

1 3 Fundamental Concepts of F/S Audit

2 Materiality

3 Audit RIsk

4 Reasonable Assurance

5 Sufficiency

6 Evidence

7 Appropriateness

8 Relevance

9 Reliability

10 3 steps of the audit process

11 if the auditor assesses the controls and

accounting system as relatively effective,
the mix will involve _____ ToC and _____
Substantive tests
12 Types of evidence produced from:
Procedures to obtain and understanding of
internal control
13 Types of evidence produced from: ToC

14 Types of evidence produced from:

ToT
15 Types of evidence produced from:
Analytical procedures
16 Types of evidence produced from: ToB

B MULTIPLE CHOICE
STT COMMENTARY ANSWER
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1 A “walkthrough” can best be described as
A. the auditor physically observes the transaction paper trail
from thepoint of origination to the transaction being entered into
the financialrecords
B. the auditor takes a tour of the accounting department and
then observesall departments where a transaction may originate
and subsequently be enteredinto the financial records
C. the auditorfollows a transaction from its origination, through
the company’s processes,including information systems, until it
is reflected in the financial records
D. the auditor observes theIT department and reviews the
programs that process the transaction fromorigination to the
financial records
2 If there is a material weakness in internalcontrol, the auditor
A. expresses a qualified opinion on the effectiveness of internal
controlover financial reporting
B. considers the effect of compensating controls and whether
thecompensating control prevents or detects a material
misstatement in thefinancial statements
C. expresses a subject to opinion on the effectiveness of internal
controlover financial reporting
D. expresses an adverseopinion on the effectiveness of internal
control over financial reporting
3 What role do internal controls play in thecorporate governance
process?
A. they make managementresponsible for the procedures used
in financial reporting
B. they make sure the financial statements are fairly stated
C. they allow the auditor to gather sufficient information
aboutsignificant accounts
D. they make management take responsibility to establish and
test internalcontrols
4 The main object of vouching is :
(A) To prepare trial balance.
B) Conduct routine checking.
(C) Verify authenticity & authority of transactions.
(D) Checking of vouchers
5 Which of the following is notan element of a computerized
information system?
A. hardware
B. e-mail
C. documentation
D. personnel
E. data
6 Valuation is the base of:
(A) Verification.
(B) Marketing.

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 (C) Internal checking.
(D) Vouching
7 Which of the following is not a type of data anauditor might use
to perform statistical analysis on data in the clientfiles?
A. live data
B. simulated data
C. historical data
D. forecasted data
8 1) Shown below (1 through 5) are the five types of tests which
auditors use to determine whether financial statements are
fairly stated. Which three are substantive tests?
1. risk assessment procedures
2. tests of controls
3. substantive tests of transactions
4. substantive analytical procedures
5. tests of details of balances
A) 1, 2, and 3
B) 3, 4, and 5
C) 2, 3, and 5
D) 2, 3, and 4
9 The first auditor or auditors are appointed by :
(A) Central Government.
(B) Company Law Board.
(C) Board of Directors.
(D) Shareholders.
10 Internal check is meant for :
(A) Prevention of frauds.
(B) Detection of frauds.
(C) Helping audit in depth.
(D) Detection of errors.
11 Collectively, procedures performed to obtain an understanding
of the entity and its environment, including internal controls,
represent the auditor's
A) audit strategy.
B) tests of controls.
C) risk assessment procedures.
D) tests of transactions.
12 Which of the following would not be considered further audit
procedures?
A) tests of controls
B) analytical procedures
C) tests of details of balances

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 D) risk assessment procedures
13 Which of the following procedures would most likely be
performed in response to the auditor's assessment of the risk of
monetary misstatements in the financial statements?
A) ratio analysis
B) tests of controls
C) tests of details of balances
D) risk assessment procedures
14 Which of the following further audit procedures are used to
determine whether all six transaction-related audit objectives
have been achieved for each class of transactions?
A) tests of controls
B) risk assessment procedures
C) substantive tests of transactions
D) preliminary analytical procedures
15 You are auditing Rodgers and Company. After performing
substantive analytical procedures you conclude that, for the
accounts tested, the client's balance appears reasonable. This
may indicate that
A) details test of balances can be eliminated for those
accounts.
B) certain tests of details of balances may be eliminated for
those accounts.
C) control tests may be eliminated for those accounts.
D) control tests may be reduced for those accounts.
16 The purpose of tests of controls is to provide reasonable
assurance that the
A) accounting treatment of transactions and balances is valid
and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.
17 In the context of an audit of financial statements, substantive
tests are audit procedures that
A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor's reliance on
internal control.
18 Which of the following is true?
A) Tests of details of balances focus on the ending general
ledger balances for both balance sheet and income statement
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 accounts.
B) Tests of details of balances focus on the transactions during
the period for both balance sheet and income statement
accounts.
C) Tests of details of balances focus on the auditor's
understanding of internal controls.
D) Tests of details of balances focus on comparisons of
recorded amounts to expectations developed by the auditor.
19 A system walkthrough is primarily used to help the auditor
A) test the ending account balances.
B) test the details of transactions.
C) determine whether internal controls have been properly
implemented.
D) determine whether the audit engagement should be
accepted.
20 Which of the following differs between assurance services and
consulting services when exercising due professional care?
a. Costs and benefits. Incorrect. Costs and benefits are the
same when exercising due professional care in assurance
services and consulting services.
b. Complexity of work. Incorrect. Complexity of work is the
same when exercising due professional care is assurance
services and consulting services.
c. Extent of work. Incorrect. Extent of work is the same when
exercising due professional care in assurance services and
consulting services.
d. Materiality.
21 Which of the following is driving the need for assurance
maps?
a. Risk managers. Incorrect. Risk managers do not deal with
assurance maps.
b. Board members.
Correct. The chief audit executive, senior management, and
the board need assurance maps to ensure proper coordination
among diverse risk activities. Assurance maps are usually
driven by the board due to its oversight responsibility.
Assurance maps are organization-wide and coordinated
exercises involving mapping assurance coverage provided by
multiple parties against the key risks facing the organization so
that duplicate efforts, missed risks, and potential gaps can be
identified and monitored.
c. Internal auditors.
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 Incorrect. Internal auditors do not deal with assurance maps.
d. Compliance practitioners. Incorrect. Compliance
practitioners do not deal with assurance maps
22 Risk registers describe direct links between which of the
following?
a. Risk acceptance and risk avoidance.
Incorrect. Risk acceptance and risk avoidance are not related
to risk registers.
b. Risk categories and risk aspects.
Correct. Risk registers provide direct links among risk
categories, risk aspects, audit universe, and internal controls.
c. Risk assignment and risk sharing. Incorrect.
Risk assignment and risk sharing are not related to risk
registers.
d. Risk limitation and risk spreading.
Incorrect. Risk limitation and risk spreading are not related to
risk registers
23 The chief audit executive establishes a method for prioritizing
all of the following except:
a. Business units with low risk levels.
Incorrect. See correct answer (d).
b. Branch or field office with low risk levels. Incorrect. See
correct answer (d).
c. Outstanding risk areas.
Incorrect. See correct answer (d). d. Low inherent risk areas.
Correct. Audits of lower risk level business units, branch
types, or field office types need to be periodically included in
the internal audit activity’s plan to give them coverage and
confirm that their risks have not changed. Also, the internal
audit activity establishes a method for prioritizing outstanding
risks not yet subject to an internal audit. High inherent risk
areas, not low inherent risk areas, are prioritized.
24 According to the IIA Planning Standard, residual risk is also
known as which of the following?
a. Audit risk.
Incorrect. Audit risk results when an auditor fails to detect a
material error or event, and an auditor may fail to detect
significant error or weakness during an examination.
b. Pure risk.
Incorrect. Pure risks are those in which there is a chance of
loss or no loss only.
c. Current risk.
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 Correct. Residual risk is current risk, which is the risk
remaining after management takes action to reduce the impact
and likelihood of an adverse event, including control activities
in responding to a risk. Current risk is often defined as the risk
managed within existing controls or control systems. Current
risk cannot be ignored; instead, it should be managed well so it
can become a managed risk. d. Inherent risk.
Incorrect. Inherent risk is a built-in risk; an example is the
susceptibility of information or data to a material
misstatement.
25 Which of the following risk concepts can be assumed to have
no mitigating controls?
a. Business risk.
Incorrect. Business risk is total risk facing an organization.
b. Residual risk.
Incorrect. Residual risk is current risk.
c. Inherent risk.
Correct. Two fundamental risk concepts are inherent risk and
residual risk (also known as current risk). Inherent risk is a
built-in risk. To financial/external auditors, inherent risk can
be summarized as the susceptibility of information or data to a
material misstatement, assuming that there are no related
mitigating controls. d. Current risk.
Incorrect. Inherent risk is the susceptibility of a management
assertion to a material misstatement.
26 Internal auditors would be more likely to detect fraud if they
developed/strengthened their ability to:
a. Recognize and question changes which occur in
organizations.
Correct. The recognition and questioning of change is critical
to the detection of fraud.
b. Interrogate fraud perpetrators to discover why the fraud was
committed.
Incorrect. Interrogation of fraud perpetrators occurs after
detection.
c. Develop internal controls to prevent the occurrence of fraud.
Incorrect. The controls mentioned are preventive, not
detective.
d. Document computerized operating system programs.
Incorrect. Documentation of operating systems is not within
the scope of internal auditing and would do little to enhance
fraud detection skills
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27 Which of the following statements describes an internal
control questionnaire? It:
a. Provides detailed evidence regarding the substance of the
control system.
Incorrect. “Yes” and “no” answers may be very general and
not specific as to degree.
b. Takes less of the auditee’s time to complete than other
control evaluation devices.
Incorrect. Such questionnaires are tiring for auditees to
complete due to their length.
c. Requires that the auditor be in attendance to properly
administer it.
Incorrect. The structured questionnaire asks for specific “yes”
or “no” answers plus brief explanations.
d. Provides indirect audit evidence that might need
corroboration.
Correct. The evidence provided is indirect and therefore could
require corroboration in some way.
28 Sample size:
a. Increases with the use of higher confidence levels.
Correct. In its simplest form, the sample-size formula shows
that sample size is equal to [(Confidence level factor squared ×
Estimated standard deviation squared)/(Precision squared)];
thus any increase in confidence level would be accompanied
by an increase in sample size.
b. Decreases with the use of higher confidence levels.
). c. Remains unchanged with changes in confidence levels.
d. Increases with the use of lower confidence levels.
29 During an audit, the internal auditor should consider the
following factor(s) in determining the extent to which
analytical procedures should be used:
a. Adequacy of the system of internal control.
Incorrect. Adequacy of the system of internal control would be
used to determine the extent of analytical audit procedures to
be completed.
b. Significance of the area being examined.
Incorrect. The significance of the area being examined would
be a factor in determining the extent of the analytical audit
procedures to be used.
c. Precision with which the results of analytical audit
procedures can be predicted.
Incorrect. The precision of the prediction of the internal audit
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 results would be a factor in determining the extent of
analytical audit procedures to be used.
d. All of the above.
Correct. All of the listed factors would be considered in
determining the extent of analytical audit procedures to be
used
30 Which of the following audit procedures provides the best
evidence about the collectibility of notes receivable?
a. Confirmation of note receivable balances with the debtors.
Incorrect. Confirmation establishes existence, not
collectibility.
b. Examination of notes for appropriate debtors’ signatures.
Incorrect. Inspection helps verify the validity (not
collectibility) of the notes.
c. Reconciliation of the detail of notes receivable and the
provision for uncollectible amounts to the general ledger
control.
Incorrect. This merely tests bookkeeping procedures.
d. Examination of cash receipts records to determine
promptness of interest and principal payments.
Correct. This procedure provides the best evidence of the
collectibility of notes receivable.

C. FILLING THE …. : (Điền câu trả lời vào phần Đáp án ở trang đầu tiên của đề thi)
Question 21: Auditing is the accumulation and evaluation of ……………. about
information to determine and report on the degree of correspondence between the information and
established criteria. Auditing should be done by a competent, independent person.
Question 22: Three main legal documents that create a legal framework for audit
operations are: Law on Independent audit, ……… …….…, and professional ethics.
Question 23: Five components of internal control are: control environment, ……….. ……..
…., control activities, information & communication, and monitoring.
Question 24: An effective internal control can only provide a reasonable assurance in
achieving an organization’s objectives. This is due to the ………. limitations of IC.
Question 25: Most …..…. risks will eventually have financial consequences and, therefore,
an effect on the financial statements.
Question 26: There are two types of audit documentation that are…………. file and current
file.
Question 27: The auditor shall design and perform audit procedures that are appropriate in
the circumstances for the purpose of obtaining sufficient appropriate ……….. …..............
Question 28: ………. ….……. is the risk that the auditor’s conclusion based on a sample
may be different from the conclusion if the entire population was subjected to the same audit
procedure?

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 Question 29: ……… …..….. is a written opinion of an auditor regarding an entity's
financial statements or other subject matters in accordance with the terms of the audit
engagement.
Question 30: ……… …….. are events occurring between the date of the financial
statements and the date of the auditor’s report, and facts that become known to the auditor after
the date of the auditor’s report.

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