Auditing Financial Statements Quiz

Questions and Answers

Who does internal auditing primarily provide assistance to?

Government

External auditors

Stockholders

Management and the board of directors (correct)

To whom should internal auditors report to enhance their independence?

The head of the finance department

The president of the Company

The external auditors

The audit committee of the board of directors (correct)

Which group is least likely to be involved in an operational audit?

External auditors

Internal auditors

Government auditors

None of the above (correct)

Which statement is not a distinction between external and internal auditors?

Internal auditors focus more on financial auditing than operational and performance auditing. Signup and view all the answers

What is the primary objective of an independent auditor's examination?

The fairness of the financial statements Signup and view all the answers

Why do auditors accumulate evidence?

To reach conclusions about the fairness of the financial statements Signup and view all the answers

Who is primarily responsible for the preparation of financial statements?

The management Signup and view all the answers

How can independent auditing best be described?

A professional activity that measures and communicates financial accounting data Signup and view all the answers

What is the auditor's main responsibility regarding audited financial statements?

The auditor's responsibility is limited to the date of the audit report. Signup and view all the answers

What are the three generally accepted auditing standards classified as general standards focused on?

Criteria for competence, independence, and professional care Signup and view all the answers

Which statement about management's responsibility for financial statements is incorrect?

The auditor's task includes full responsibility for the financial statements. Signup and view all the answers

Which standard does not relate to the standards of fieldwork in auditing?

Conducting external surveys Signup and view all the answers

What aspect of independent financial statement audit is incorrect?

The auditor's opinion does not enhance financial statements' credibility. Signup and view all the answers

What level of care is expected from professional accountants while performing audit services?

Reasonable care Signup and view all the answers

Which option does not accurately describe a limitation of an audit?

The auditor fully understands all evidence obtained without misinterpretation. Signup and view all the answers

What does the standard of due audit care require of the auditor?

Apply judgment in a conscientious manner Signup and view all the answers

What is one recognized limitation of an audit?

Restricting the scope due to entity-imposed limitations. Signup and view all the answers

Which aspect is most likely unique to CPAs in comparison to other professions?

Complex body of knowledge Signup and view all the answers

Which of the following correctly identifies the assumption underlying an audit of financial statements?

Financial statements will be used by outside stakeholders for decision-making. Signup and view all the answers

How is the standard of due care in auditing traditionally interpreted?

Critical review of judgment exercised at supervision levels Signup and view all the answers

Which statement about auditing procedures is true?

Auditors apply various procedures based on specific audit circumstances. Signup and view all the answers

What is the focus of the three generally accepted auditing standards classified as standards of field work?

Criteria for audit planning and evidence gathering Signup and view all the answers

Which of the following is NOT considered a requirement for the planning of the audit?

Critical review of audit team interactions Signup and view all the answers

What is a key element of an auditor's responsibility regarding financial statements?

The auditor provides an opinion about the fair presentation of the financial statements. Signup and view all the answers

What must the CPA express regarding the financial statements for an engagement to apply agreed-upon procedures to be accepted?

The CPA has expressed an opinion on the financial statements taken as a whole. Signup and view all the answers

Which responsibility does the CPA assume in an agreed-upon procedure engagement?

The adequacy of the procedures to be performed. Signup and view all the answers

Who is responsible for the adequacy of the procedures performed in an agreed-upon procedure engagement?

The client takes full responsibility. Signup and view all the answers

What is a key characteristic of the report based on agreed-upon procedures?

It is restricted to those parties who have agreed to the procedures performed. Signup and view all the answers

Which ethical principle is least applicable to an agreed-upon procedure engagement?

Financial savvy Signup and view all the answers

What will be issued in an agreed-upon procedures engagement instead of assurance?

A summary of findings Signup and view all the answers

How should users of the report assess the procedures and findings reported by the auditor?

They should assess based on their own judgments. Signup and view all the answers

When conducting an agreed-upon procedures engagement, what guidelines must be followed?

The guidelines of PSRS and the terms of the engagement. Signup and view all the answers

What is the primary objective of the fourth standard?

To prevent misinterpretations regarding the auditor's responsibility Signup and view all the answers

Which statement reflects the auditor's liability to their client?

An auditor is never liable for fraud Signup and view all the answers

What do the Philippine Standards on Auditing (PSAs) represent?

Criteria for fair presentation of financial statements Signup and view all the answers

According to the Philippine Standards on Auditing, how does an auditor view their role regarding financial statement accuracy?

The auditor is neither a guarantor nor an insurer of the financial statements Signup and view all the answers

When can an auditor disregard a specific requirement of the PSA?

If the amount is deemed insignificant by the auditor Signup and view all the answers

How can the Philippine Standards on Auditing best be characterized?

They set the minimum standards for auditor performance Signup and view all the answers

What is the primary function of the Auditing and Assurance Standards Council (AASC)?

To provide a framework for establishing auditing standards Signup and view all the answers

What statement is FALSE regarding auditor's responsibilities according to the PSA?

An auditor must ensure absolute accuracy in the client's financial statements Signup and view all the answers

Study Notes

Auditor Responsibilities

Auditor's responsibility is to express an opinion on the financial statements audited.
Management holds the primary responsibility for the preparation and fair presentation of financial statements.
Auditors do not guarantee financial statements are free from errors or misstatements but provide reasonable assurance.

Limitations of Auditing

Audits use sampling, which means many conclusions are based on examining a subset of evidence.
Auditor's work requires judgement and may involve misinterpretation of evidence.
Auditors face inherent limitations such as nature of evidence, inadequacy of records, confidentiality issues, and scope limitations imposed by the entity.

Independence and Internal Auditing

Internal auditors must report to the audit committee for greater independence.
Internal auditors evaluate organizational activities, but external auditors operate independently of the entity's management.

Auditing Process and Standards

Objective of the audit is to express an opinion on the fairness of financial statements.
Auditors gather evidence to support their conclusions regarding the financial statements' fairness.
There are generally accepted auditing standards that include criteria for competence, independence, and professional care of auditors.

Professional Standards of Field Work

Standards of fieldwork require adequate planning, supervision, and evaluation of internal controls.
Auditors must exercise due care and ensure all relevant factors are considered before reaching conclusions.

Philippine Standards on Auditing (PSA)

PSAs provide guidelines that are mandatory for auditors to ensure minimum performance standards.
Auditors cannot fully detect all material misstatements but must provide reasonable assurance of accuracy.
Auditors can forgo specific PSA requirements if deemed insignificant or impractical, but must document their rationale.

Agreed-Upon Procedures Engagement

Reports based on agreed-upon procedures provide limited assurance and are restricted to the parties involved.
Users assess the findings and draw their own conclusions rather than relying solely on the auditor’s opinion.

Ethical Considerations

Independence, confidentiality, professional behavior, and due care are critical ethical principles for auditors.
Agreed-upon procedures require the auditor to maintain independence and ensure they are competent throughout the engagement.

Auditor Liabilities

Auditors are not liable for errors in judgment or negligence if they have adhered to professional standards.
Standard of due audit care requires auditors to demonstrate reasonable judgment rather than perfection in their work.

Key Stakeholders in Auditing

Audits support management, boards of directors, and external stakeholders like stockholders and government entities by providing credible financial information.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge on the responsibilities of auditors in relation to financial statements. This quiz covers key concepts around the accuracy and presentation of financial information. Are you ready to see how well you understand auditing practices?