Auditing and Assurance Principles

Quiz 1

1. An audit involves ascertaining the degree of correspondence between assertions and established criteria.
In the case of financial statements audit, which of the following is not a valid criterion?
a. Accounting standards generally accepted in the Philippines
b. International Accounting Standard
c. Authoritative financial reporting framework
d. Philippines Standards on Auditing

2. The primary purpose of an independent audit of financial statements is to

a. Provide a basis for assessing management’s performance
b. Comply with laws and regulations
c. Assure management that the financial statements are unbiased and free from material
misstatements
d. Provide users with an unbiased opinion about the fairness of information presented in the financial
statements

3. Which of the following types of audit uses laws and regulations as its criteria?
a. Operational Audit
b. Financial Statements Audit
c. Compliance Audit
d. Financial Audit

4. An independent audit is important to the readers of financial statements because it

a. Provides a measure of management’s stewardship function (walang management’s function) di
sinusukat
b. Measures and communicates financial data included in the financial statements (masyadong general)
c. Objectively examines and reports on management’s financial statements
d. Reports on the accuracy of information in the financial statements

5. Which of the following types of audit is performed in order to determine whether an entity’s financial
statements are fairly stated, in all material respects, in conformity with the generally accepted accounting
principles?
a. Operational Audit
b. Financial Statements Audit
c. Compliance Audit
d. Performance Audit

6. Which of the follow is responsible for an entity’s financial statements?

a. The entity’s management
b. The entity’s audit committee
c. The entity’s internal auditors
d. The entity’s board of directors

7. Which of the following best describes the main reason why the independent auditor reports on an entity’s
financial statements?
a. A management fraud may exist, and it is likely to be detected by independent auditors
b. The management that prepares the statements and the persons who use the statements may have
conflicting interests
c. Misstated account balances may be corrected as a result of an independent audit work
d. The management that prepares the statements may have overlooked a poorly designed system of
internal control
8. As guidance for measuring the quality of the performance if an auditor, the auditor should refer to:
a. Statements of Financial Accounting Standards Board
b. Philippine Standards on Auditing
c. Interpretations of Rules of Conduct
d. Statements on Quality Control Standards

9. Auditors focus on
a. Areas where the risk of material errors and irregularities is least
b. Areas where the risk of material errors and irregularities is greatest (RISK BASED PARATI)
c. All areas equally
d. A random selection of all areas

10. The reason an independent auditor gathers evidence is to

a. Form an opinion on the financial statements
b. Detect fraud
c. Evaluate management
d. Evaluate internal controls

11. Which of the following is not one of the limitations of an audit? INHERENT
a. The use of testing DEPENDEDNT – HUMAN ERROR - NAGKAKAMALI
b. Limitations imposed by client NAKAY CLIENT/ ACCESSIBLE pervasive
c. Human error
d. Nature of evidence obtained PERSUASIVE

12. The independent audit is important to readers of financial statements because it:
a. Determines the future stewardship of the management whose financial statements are audited
b. Measures and communicates financial and business data involved in financial statements
c. Involves objective examination of and reporting on management prepared statements /
d. Reports on the accuracy of all information in the financial statements

13. Fraudulent financial reporting is often called

a. Management fraud /
b. Misappropriation of assets
c. Defalcation
d. Employee fraud

14. Which of the following statements is true?

a. It is usually easier for the auditor to uncover fraud than errors
b. It is usually easier for the auditor to uncover errors (UNINTENTIONAL MISTAKE) than fraud /ANG
FRAUD AY PWEDE MAGING CONCEALED /
c. It is usually equally difficult for the auditor to uncover errors and fraud
d. Usually the auditor does not design procedures to uncover fraud or errors

15. The risk of not detecting material misstatement resulting from fraud is greater than the risk of not
detecting a material misstatement arising from error because:
a. The auditor designs only procedures to detect material error but no procedures are designed to
detect material fraud
b. Fraud ordinarily involves acts designed to conceal it, such as collusion, forgery or deliberate failure to
record transactions
c. The professional standards do not require the auditor to discover information that is indicative of
fraud
 d. It is the responsibility of management to detect fraud and the auditor’s responsibility is confined only
to the detection of material errors

16. Which of the following statements about fraud or error is incorrect?

a. The auditor is not and cannot be held responsible for the prevention of fraud and error
b. The responsibility for the prevention and detection of fraud and error rests with management
CORRECT KASI NAKAY MANAGEMENT ANG PREVENTION AND DETECTION – HINDI SI AUDITOR
c. The auditor should plan and perform the audit with an attitude of professional skepticism,
recognizing that conditions or events may be found that fraud or error exist
d. The likelihood of detecting fraud is ordinarily higher than that of detecting error FRAUD THAN ERROR

17. Which of the following conditions or events increases the risk of error or fraud?
a. Management is dominated by several individuals
b. There are frequent changes of auditors or legal counsel
c. There is a significantly low turnover of senior accounting personnel
d. The entity does not correct internal control weaknesses that it knows about /

18. If the auditor believes that the fraud or error has a material effect on the financial statements but the
client is not willing to correct the misstatement, the auditor would most likely issue
a. Standard audit report
b. Qualified or adverse opinion
c. Qualified or disclaimer of an opinion
d. Unqualified opinion with explanatory paragraph

19. When the auditor believes a misstatement is or may be the result of fraud but the effect of the
misstatements is not material to the financial statements, which of the following steps is required?
a. Consider the implication for other aspects of the audit /
b. Resign from the audit
c. Commence fraud examination
d. Contact regulatory authorities

20. Which of the following statements about noncompliance is incorrect?

a. An audit in accordance with PSA cannot be expected to detect noncompliance with all laws and
regulations
b. It is management’s responsibility to ensure that entity’s operations are conducted in accordance with
laws and regulations
c. An auditor cannot be held responsible for preventing noncompliance
d. The determination as to whether a particular act constitutes noncompliance is ultimately based on
judgment of the auditor
BAKIT JUDGMENT AY MAY BATAS NAMAN NA DAPAT PAG BASEHAN