Auditing Fundamentals Quiz

The Latin word "audire" means "to hear", which is the origin of the term "auditing".

The key difference between an auditor and an accountant is that auditors examine financial statements to confirm their accuracy, while accountants are responsible for creating and maintaining financial records.

An operational audit involves analyzing an organization's processes to evaluate efficiency, identify areas for improvement, and suggest solutions to enhance performance.

A compliance audit assesses whether an organization has adhered to relevant laws and regulations.

A financial statement audit verifies that an entity's financial statements are accurately presented in accordance with generally accepted accounting principles.

The primary objective of a financial statement audit is to express an opinion on the accuracy of financial statements based on generally accepted accounting principles.

An operational audit analyzes operational processes to identify inefficiencies and suggest improvements to optimize performance.

An operational audit is not about financial reporting, but about evaluating the effectiveness and efficiency of an organization's operations and processes.

A CPA whose certificate has been revoked may be reinstated after a certain period of good conduct. This period is at least five years and depends on the severity of the offense.

The Philippine Accountancy Act of 2004 outlines the goals of the accounting profession in the Philippines. These goals include setting standards for accounting practices, regulating and supervising accounting education, and examining aspiring CPAs for registration.

CPAs must continually update their knowledge and skills to maintain their professional standing. They are required to earn 120 CPD units over three years, consisting of 40 units for specific areas and 80 flexible units.

To renew their PRC license, CPAs need to earn at least 15 CPD units through training or learning seminars. The CPD points are validated by the CPD Accreditation System (CPDAS).

A CPA may be penalized by suspending or revoking their certificate for various reasons, including immoral or dishonorable conduct, gross negligence or incompetence in practice, and conduct discreditable to the profession. Refusal to accept an audit engagement with a government corporation is not a grounds for suspension or revocation.

The auditor's attest function requires the auditor to be independent of the client, objective in their assessments, and uphold the principles of integrity throughout the audit process.

Assurance engagements aim to provide a reasonable level of assurance that the subject matter aligns with specific criteria.

A Practice of Accountancy involves the use of professional accounting knowledge in various situations, including decision making, representation, and teaching.

A CPA can practice public accountancy as a sole proprietor, in a partnership comprised solely of CPAs, or in a corporation with all shareholders being CPAs.

An assurance engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the circumstances is referred to as a review engagement.

An engagement conducted to provide an absolute level of assurance that the subject matter conforms in all material respects with identified suitable criteria is referred to as an audit engagement.

An engagement to prepare a report to collate information in accordance with Philippine Financial Reporting Standards issued by FSRSC as approved by the Board of Accountancy is not considered an assurance engagement.

An engagement to determine that a client conforms with certain laws,rules and regulations is not considered as assurance enagement.

A process that helps ensure that all entry-level employees have the required knowledge to perform their assigned responsibilities.

An objective evaluation of the significant judgments made and conclusions reached by the engagement team before the auditor's report is issued.

The engagement team is allowed to consult outside resources when internal resources are inadequate. However, they cannot seek advisory services from firms or bodies that provide quality control services.

The process of gathering, generating, and using information about the quality management system, both internally and externally.

It is a part of ISQM1 that focuses on ensuring that relevant ethical requirements are communicated to personnel.

The process of deciding whether to accept or continue a client relationship, taking into account factors like risks and the firm's resources.

It refers to the firm's ability to effectively manage its own quality management system and address any violations.

It establishes the framework for the firm's quality management system, including its leadership, commitment, and responsibilities.

An ethical principle that requires accountants to be honest and truthful in their professional conduct, avoiding conflicts of interest and acting in a manner that upholds public trust.

An auditor's assessment of the likelihood that a company's internal controls might fail to prevent or detect material misstatements in its financial statements.

The CEO's desire to present a favorable financial performance might have motivated him to ask Antea to overlook the unsupported revenue entries. This would make the company look more successful and could potentially benefit the CEO personally.

When an accountant acts in accordance with professional standards, they are demonstrating professional competence and due care. This involves possessing the necessary knowledge and skills, exercising professional judgment, and maintaining an appropriate level of care in carrying out their duties.

Independent auditors play a vital role in providing assurance to users of financial statements that financial statements are reliable and free from material misstatements. This is crucial as different parties may have conflicting interests regarding the company's financials.

Engagements performed by professional accountants that do not involve providing assurance on financial information. These engagements focus on providing services like compiling financial data, performing agreed-upon procedures, or consulting on management issues.

A threat to an auditor's objectivity that arises when the auditor takes on a role that is essentially advocating for the client's interests, potentially compromising their independence. This can occur when the auditor endorses financial projections or makes public statements on behalf of the client.

A threat arising when the auditor has a close or personal relationship with the client, potentially impacting their objectivity. This can occur when the auditor has worked for the client in the past or has close family ties to the client's management.

A threat that arises when the auditor has a financial interest in the client, potentially influencing their judgment. This could involve the auditor owning shares in the client's company, having a loan from the client, or having a close business relationship with the client.

A threat that arises when the auditor has previously performed non-assurance services for the client, potentially impacting their objectivity. This can occur when the auditor is asked to review their own work or has significant influence over the subject matter of the audit.

A threat that arises when an auditor faces intimidation or pressure from the client, potentially compromising their independence and objectivity. This can occur when the client threatens to withhold fees, change auditors, or take legal action against the auditor.

A threat that arises when an auditor is overly sympathetic to the client's interests due to a close relationship. This can lead to the auditor neglecting their professional skepticism and potentially overlooking red flags.