LA PATRIA COLLEGE

Santiago City

College of Accountancy and Management

Auditing and Assurance Principles (ACC110)

MULTIPLE CHOICE: Choose the letter of the correct/best answer. Use CAPITAL letters in writing your answers.
1. Assurance engagement
A. Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that
expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.
B. Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence between those assertions and established criteria
and communicating the results to interested users.
C. Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the
engagement is free of material misstatement.
D. Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether
the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the
information will meet the needs of an intended user.

2. Independent auditing can best be described as

A. A subset of accounting.
B. A professional activity that attests to the fair presentation of financial statements.
C. A professional activity that measures and communicates financial accounting data.
D. A regulatory activity that prevents the issuance of improper financial information.

3. Which of the following types of audits are most similar? A. Operational audits and compliance audits.
B. Independent financial statement audits and operational audits.
C. Compliance audits and independent financial statement audits.
D. Internal audits and independent financial statement audits.

4. Which of the following is not primary category of attestation report?

A. Compilation report
B. Review report C. Audit report
D. Special audit report based on a basis of accounting other than generally accepted accounting principles.

5. In all cases, audit reports must

A. Be signed by the individual who performed the audit procedures.
B. Certify the accuracy of the quantitative information which was audited.
C. Communicate the auditor’s finding to the general public.
D. Inform readers of the degree of correspondence between the quantifiable information and the established criteria.

6. 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

7. Which of the following criteria is unique to the independent auditor’s attest function?
A. General competence
B. Familiarity with the particular industry of each client
C. Due professional care
D. Independence

8. 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.

9. 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

10. 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

11. 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.

12. Which of the following least likely limits the auditor’s 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.

13. 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

14. Which of the following best describes why an independent auditor reports on financial statements?
A. Independent auditors are likely to detect fraud
B. Competing interests may exist between management and the users of the statements
C. Misstated account balances are generally corrected by an independent audit.
D. Ineffective internal controls may exist.

15. An audit can have a significant effect on

A. Information Risk C. Business Risk
B. The risk-free interest rate D. All of these

16. The main way(s) to reduce information risk is to have

A. The user verify the information
B. The user share the information risk with management
C. Audited financial statements provided
D. All of the above

17. Which of the following is an appraisal activity established within an entity as a service to the entity?
 A. External auditing C. Financial auditing
B. Internal auditing D. Compliance auditing

18. To operate effectively, an internal auditor must be independent of

A. The line functions of the organizations
B. The entity
C. The employer-employee relationship which exists for other employees in the organization
D. All of the above

19. Internal auditors cannot be independent

A. Since they do not possess the CPA license.
B. Because they don’t audit financial statements.
C. Unless their immediate supervisor is a CPA.
D. As long as an employer-employee relationship exists.

20. To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most
likely should report to
A. Board of Directors. C. Corporate Controller.
B. Vice-President for Finance. D. Corporate Stockholders.

21. Which statement is correct regarding the relationship between internal auditing and the external auditor?
A. Some judgments relating to the audit of the financial statements are those of the internal auditor.
B. The external audit function's objectives vary according to management's requirements.
C. Certain aspects of internal auditing may be useful in determining the nature, timing and extent of external audit
procedures.
D. The external auditor is responsible for the audit opinion expressed, however that responsibility may be reduced by
any use made of internal auditing.

22. Which of the following is not one of the duties of the Commission on Audit
A. Define the scope of its audit and examination
B. Assume fiscal responsibility for the government and its instrumentalities
C. Keep the general accounts of the government
D. Promulgate accounting rules and regulations

23. Which of the following is an incorrect phrase?

A. Auditing is a systematic process.
B. Auditing subjectively obtains and evaluates evidence.
C. Auditing evaluates evidence regarding assertions.
D. Auditing communicates results to interested users.

24. Which of the following is a correct statement relating to the theoretical framework of auditing?
A. The financial data to be audited can be verified.
B. Short-term conflicts do not exist between managers who prepare data and auditors who examine data.
C. Auditors do not necessarily need independence.
D. An audit has a benefit only to the owners.

25. An operational audit is designed to

A. Assess the efficiency and effectiveness of management’s operating procedures
B. Assess the presentation of management’s financial statements in accordance with generally accepted accounting
principles
C. Determine whether management has complied with applicable laws and regulations
D. Determine whether the audit committee of the board of directors is effectively discharging its responsibility to
oversee management’s operations
26. The essence of the attest function is to
A. Detect fraud
B. Examine individual transactions so that the auditor can certify as to their validity
C. Determine whether the client’s financial statements are fairly stated
D. Ensure the consistent application of correct accounting procedures

27. Which of the following statements is not a distinction between independent auditing and internal auditing?
A. Independent auditors represent third party users external to the auditee entity, whereas internal auditors report
directly to management.
B. Although independent auditors strive for both validity and relevance of evidence, internal auditors are concerned
almost exclusively with validity.
C. Internal auditors are employees of the auditee, whereas independent auditors are independent contractors.
D. The internal auditor's span of coverage goes beyond financial auditing to encompass operational and
performance auditing.

28. Which of the following statements is an example of an assertion made by management in an entity's financial
statements?

A. The financial statements were prepared in an unbiased manner.

B. Reported inventory balances reflect all related transactions for the period.
C. Reported accounts receivable does not include any uncollectible accounts.
D. The scope of the auditors' investigation was not limited in any way by management.

29. In “auditing” accounting data, the concern is with

A. Determining whether recorded information properly reflects the economic events that occurred during the
accounting period.
B. Determining if fraud has occurred.
C. Determining if taxable income has been calculated correctly.
D. Analyzing the financial information to be sure that it complies with government requirements.

30. The purpose of a compliance audit for a governmental entity is to determine whether
A. Financial statements comply with GAAP and whether the entity is operating efficiently.
B. Financial statements comply with GAAP and the entity has complied with applicable laws and regulations.
C. The entity has complied with applicable laws and regulations.
D. Financial statements comply with GAAP

31. 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)
A. Audit of financial statements
B. Compliance audit
C. Operational audit
D. Production audit

32. Users of financial statements demand independent audit because

A. Users demand assurance that fraud does not exist
B. Management may not be objective in reporting.
C. Users expect auditors to correct management errors.
D. Management relies on the auditor to improve internal control.

33. Which of the following types of audits is performed to determine whether an entity’s financial statements are fairly
stated in conformity with generally accepted accounting principles?
A. Operational audit C. Financial statement audit
B. Compliance audit D. Performance audit
34. Which one of the following is more difficult to evaluate objectively?
A. Efficiency and effectiveness of operations.
B. Compliance with government regulations.
C. Presentation of financial statements in accordance with generally accepted accounting principles.
D. All three of the above are equally difficult.

35. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis?
A. Internal auditing C. Government auditing
B. BIR auditing D. External auditing

Prepared by:

AIZA P. RUMAUAC, CPA

Instructor

Reviewed/ Approved:

LILY MAE M. KIMAYONG, MBA

Vice President for Academics