Quiz No. 1 in Auditing and Assurance PDF

## Quiz No. 1 in Auditing and Assurance ### Which of the following best describes the objective of an audit of financial statements? 2 points * To express an opinion whether the financial statements are prepared in accordance with prescribed criteria. * To express an assurance as to the future via...

## Quiz No. 1 in Auditing and Assurance ### Which of the following best describes the objective of an audit of financial statements? 2 points * To express an opinion whether the financial statements are prepared in accordance with prescribed criteria. * To express an assurance as to the future viability of the entity whose financial statements are being audited. * To express an assurance about the management's efficiency or effectiveness in conducting the operations of entity. * **To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an identified financial reporting framework.** ### According to Philippine Standard on Auditing, the procedures employed in doing compilation are 2 points * Designed to enable the accountant to express a limited assurance. * Not designed to enable the accountant to express any form of assurance. * **Designed to enable the accountant to express a negative assurance.** * Less extensive than review procedures but more extensive than agreed-upon procedures. ### Because an external auditor is paid a fee by a client company, he or she 2 points * Is absolutely independent and may conduct an audit * **May be sufficiently independent to conduct an audit** * Is never considered to be independent * Must receive approval of the Securities and Exchange Commission before conducting an audit ### The main way(s) to reduce information risk is to have 2 points * The user verify the information * The user share the information risk with management * Audited financial statements provided * **All of the above** ### Which of the following is not primary category of attestation report? 2 points * **Compilation report** * Review report * Audit report * Special audit report based on a basis of accounting other than generally accepted accounting principles. ### In all cases, audit reports must 2 points * **Communicate the auditor's finding to the general public.** * Certify the accuracy of the quantitative information which was audited. * Be signed by the individual who performed the audit procedures. * Inform readers of the degree of correspondence between the quantifiable information and the established criteria. ### An operational audit is designed to 2 points * **Assess the efficiency and effectiveness of management's operating procedures** * Assess the presentation of management's financial statements in accordance with generally accepted accounting principles * Determine whether management has complied with applicable laws and regulations * Determine whether the audit committee of the board of directors is effectively discharging its responsibility to oversee management's operations ### A review of any part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a (n) 2 points * Audit of financial statements * **Operational audit** * Production audit * Compliance audit ### Which of the following criteria is unique to the independent auditor's attest function? 2 points * General competence * Familiarity with the particular industry of each client * Due professional care * **Independence** ### As used in auditing, which of the following statements best describes "assertions"? 2 points * Assertions are the representations of management as to the reliability of the information system. * **Assertions are the representations of management as to the fairness of the financial statements.** * Assertions are the auditor's findings to be communicated in the audit report. * Assertions are found only in the footnotes to the financial statements. ### Which of the following is an appraisal activity established within an entity as a service to the entity? 2 points * External auditing * **Internal auditing** * Financial auditing * Compliance auditing ### To operate effectively, an internal auditor must be independent of 2 points * The line functions of the organizations * The entity * **The employer-employee relationship which exists for other employees in the organization** * All of the above ### The best statement of the responsibility of the auditor with respect to audited financial statement is: 2 points * The audit of the financial statements relieves management of its responsibilities * The auditor's responsibility is confined to his expression of opinion about the audited financial statements. * The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial statements. * **The auditor is responsible only to his unqualified opinion but not for any other type of opinion.** ### All three of the above are equally difficult 2 points * Branch of accounting * **Discipline that attests to the results of accounting and other operations and data** * Professional activity that measures and communicates financial and business data * Regulatory function that prevents the issuance of improper financial information ### The criteria for evaluating quantitative information vary. For example, in the audit of historical financial statements by CPA firms, the criteria are usually 2 points * **Generally accepted auditing standards.** * Generally accepted accounting principles. * Regulations of the Internal Revenue Service. * Regulations of the Securities and Exchange Commission. ### Certain fundamental beliefs called "postulates" underlie auditing theory. Which of the following is not a postulate of auditing? 2 points * **No long-term conflict exists between the auditor and the management of the enterprise under audit.** * An audit has a benefit only to the owners. * Economic assertions can be verified. * The auditor acts exclusively as an auditor. ### Audit came from the Latin Word "AUDIRE" which means? 2 points * to see * **to hear** * to smell * to feel ### The single feature that most clearly distinguishes auditing, attestation, and assurance is 2 points * Type of service. * **Scope of services.** * Training required to perform the service * CPA's approach to the service ### It refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit. 2 points * Audit program * **Scope of an audit** * Objective of an audit * Reasonable assurance ### Identify the following as financial audit (FA), compliance audit (CA), and operational audit (OA). A supervisor is not carrying out his assigned responsibilities.. A company's tax return does not conform to income tax laws and regulations.. A municipality's financial statements correctly show actual cash receipts and disbursements.. A company's receiving department is inefficient. 2 points * **OA, CA, FA, OA** * CA, CA, FA, OA * CA, CA, FA, CСА * OA, CA, FA, CA ### Internal auditors cannot be independent 2 points * Since they do not possess the CPA license. * Because they don't audit financial statements. * **As long as an employer-employee relationship exists.** * Unless their immediate supervisor is a CPA. ### The three types of attestation services are: 2 points * **Audits, reviews, and other attestation services** * Audits, review, and compilations * Audits, compilations, and other attestation services * Reviews, compilations, and other attestation services ### 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 2 points * **Professional skepticism** * Professional responsiveness * Conservative advocacy * Objective judgment ### The primary goal of the CPA in performing the attest function is to 2 points * Detect fraud * Examine individual transactions so that the auditor may certify as to their validity * Assure the consistent application of correct accounting procedures * **Determine whether the client's assertions are fairly stated** ### The expertise that distinguishes auditors from accountants is in the 2 points * **Ability to interpret generally accepted accounting principles.** * Requirement to possess education beyond the Bachelor's degree. * Accumulation and interpretation of evidence. * Ability to interpret ASC Statements. ### An audit can have a significant effect on 2 points * **Information Risk** * The risk-free interest rate * Business Risk * All of these ### Which of the following types of audit uses as its criteria laws and regulations? 2 points * **Compliance audit** * Operational audit * Financial statement audit * Financial audit ### Any services in which the CPA firm issues a written communication that express a conclusion with respect to the reliability of a written assertion that is the responsibility of another party is a (n) 2 points * Accounting and bookkeeping service * Management advisory service * **Attestation service** * Tax service ### The framework for auditing and related services as addressed by PSA excludes 2 points * Review * Tax services * Compilation * **Agreed upon procedure** ### Which of the following is an objective of a review engagement? 2 points * Reporting whether material modifications should be made to such financial statements to make them conform with generally accepted accounting principles. * Expressing a positive opinion that the financial information is presented in conformity with generally accepted accounting principles. * Expressing a limited assurance to users who have agreed as to procedures that will be performed by the CPA. * **Reporting that the financial statements, in all materials respects, fairly present the financial position and operating results of the client.** ### The auditor communicates the results of his or her work through the medium of the 2 points * Engagement letter * **Audit report** * Management letter * Financial statements ### Which of the following best describes why an independent auditor reports on financial statements? 2 points * Independent auditors are likely to detect fraud * **Competing interests may exist between management and the users of the statements** * Misstated account balances are generally corrected by an independent audit. * Ineffective internal controls may exist. ### Which of the following is responsible for an entity's financial statements? 2 points * **The entity's management** * The entity's internal auditors * The entity's audit committee * The entity's board of directors ### Which statement is correct regarding the relationship between internal auditing and the external auditor? 2 points * Some judgments relating to the audit of the financial statements are those of the internal auditor. * The external audit function's objectives vary according to management's requirements. * **Certain aspects of internal auditing may be useful in determining the nature, timing and extend of external audit procedures** * The external auditor is responsible for the audit opinion expressed, however that responsibility may be reduced by any use made of internal auditing. ### It refers to the level of auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party. 2 points * **Assurance level** * Confidence level * Reasonableness level * Tolerable level ### To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to 2 points * **Board of Directors** * Vice-President for Finance. * Corporate Stockholders. * Corporate Controller. ### A financial statement audit: 2 points * **Lends credibility to the financial statements.** * Confirms that financial statement assertion are accurate. * Guarantees that financial statements are presented fairly. * Assures that fraud had been detected. ### Which one of the following is more difficult to evaluate objectively? 2 points * Compliance with government regulations. * **Efficiency and effectiveness of operations.** * Presentation of financial statements in accordance with generally accepted accounting principles. * All three of the above are equally difficult