Jose Rizal University

College ob Business Administration and Accountancy

Exercises on Fundamentals of Auditing and c. The intended user(s) may not be the
Assurance with PSA 120 addressee of the professional accountant’s
report
1. When a CPA represents his/her client before d. All of the above
government agencies on tax matters related to
accounting, the CPA is engaged in what sector? 9. An independent audit aids in the communication
a. Practice in public accountancy of economic data because the audit
b. Practice in commerce and industry a. Confirms the accuracy of management's
c. Practice in academe financial representations.
d. Practice in government b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly
2. A certificate under seal issued to an individual, by presented.
the PRC, upon recommendation by the BOA, d. Assures the readers of financial statements
signifying that the individual has complied with all that any fraudulent activity has been
the legal and procedural requirements for such corrected.
issuance including, in appropriate cases, having
successfully passed the CPA licensure 10. An independent audit is important to readers of
examination. financial statements because it
a. Certificate of Accreditation a. Provides a measure of management's
b. Certificate of Registration stewardship function.
c. Certificate of Renewal b. Measures and communicates the financial
d. Professional Identification Card data included in financial statements.
c. Objectively examines and reports on
3. The decision of whether the criteria are suitable management's financial statements.
involves considering whether the subject matter d. Reports on the accuracy of information in the
of the assurance engagement is capable of financial statements.
reasonably consistent evaluation or measurement
using such criteria. Which of the following 11. The trait that distinguishes auditors from
characteristics is not considered necessary in accountants is the:
determining whether the criteria are suitable? a. auditor’s ability to interpret accounting
a. Relevance c. Reliability principles generally accepted in the Philippines
b. Neutrality d. Verifiability b. auditor’s education beyond the Bachelor’s
degree.
4. The framework for auditing, review and related c. auditor’s ability to interpret FRSC Statements.
services as addressed by PSA excludes d. auditor’s accumulation and interpretation of
a. Review evidence related to a company’s financial
b. Compilation statements.
c. MAS
d. Agreed upon procedures 12. Management of an organization has the
responsibility for all of the following except:
5. It refers to the level of satisfaction as to the a. accounting principles used in financial
reliability of an assertion being made by one party reporting
for use by another party b. engagement of a qualified auditor
a. confidence level c. internal control over financial reporting
b. assurance level d. financial statements and disclosures
c. reasonableness level
d. tolerable level 13. The primary reason for an audit by an
independent, external audit firm is to
6. Which of the following is least likely a subject a. Satisfy government regulatory requirements
matter of an assurance engagement? b. Guarantee that there are no misstatements in
a. Data the financial statements and ensure that any
b. Systems and Processes fraud will be discovered
c. Compliance with regulations c. Relieve management of responsibility for the
d. Degree of loyalty of employees to their financial statements
employer d. Provide increased assurance to users as to the
fairness of the financial statements
7. The characteristics for determining whether
criteria are suitable include: 14. Which of the following statements does not
a B c d properly describe an element of the theoretical
Consistency Yes Yes Yes No framework of auditing?
Reliability Yes Yes Yes Yes a. The data to be audited can be verified
Understandability Yes Yes No Yes b. Short-term conflicts may exist between
Comparability Yes No No No managers who prepare the data and auditors
who examine the data
8. Which is true of the intended user? c. Auditors act on behalf of management
a. The intended user is the person or class of d. An audit benefits the public
persons for whom the professional accountant
prepares the report for a specific use or 15. A typical objective of an operational audit is to
purpose. determine whether an entity’s:
b. The responsible party may also be one of the a. internal control is adequately operating as
intended users designed.
 Jose Rizal University
College ob Business Administration and Accountancy
b. financial statements present fairly the results
of operations.
c. specific operating units are functioning
efficiently and effectively.
b. operational information is in accordance with
generally accepted government auditing
standards.
16. 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.
ASSURANCE SERVICES
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.AUDITING
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. REVIEW
ENGANGEMENTS
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.
17. Which of the following services is the broadest
and most inclusive?
a. Audit c. Assurance
b. Attestation d. Compliance
18. Any service that requires a CPA firm to issue a
report about the reliability of an assertion that is
made by another party is a(n):
a. Accounting and bookkeeping service.
b. Attestation service (Assertion-based
assurance).
c. Assurance service.
d. Tax service.
19. Which of the following services would be most
likely to be structured as an assurance
engagement?
a. Advocating a client’s position in tax matter.
b. A consulting engagement to develop a new
data base system for the revenue cycle.
c. An engagement to issue a report addressing
an entity’s compliance with requirements of
specified laws.
d. The compilation of a client’s forecast
information.
20. Engagements frequently performed by
professional accountants that are not assurance
engagements include the following except
a. Agreed-upon procedures.
b. Compliance audit
c. Compilation
d. Management consulting.
21. Which of the following is incorrect regarding the
three party relationship element of assurance
engagement?
a. The responsible party is generally the
addressee of the professional accountant’s
report.
b. The responsible party and the intended user
will often be from separate organizations.
c. The responsible party may not be the party
who engages the professional accountant.
d. The responsible party may also be one of the
intended users.
22. The auditor’s responsibility in an audit
engagement is limited to:
a. Expression of an opinion on the FSs
b. Expression of an opinion on the FSs and
adequacy of the notes to FSs
c. Opinion issued and fairness of presentation of
FSs
d. Expression of opinion and inclusion of
supplementary information, if necessary
23. What is the criteria used in a compliance audit?
a. Effectiveness and efficiency
b. Rules and regulations
c. Company policies
d. Both B and C
24. A financial statement audit is designed to
a. Provide assurance on internal control and to
identify reportable conditions.
b. Detect error or fraud in the FSs, regardless of
whether or not the error or fraud is material.
c. Obtain reasonable assurance about whether
the FSs are free of material misstatement,
whether caused by error or fraud.
d. Obtain absolute assurance on the FSs and
express an opinion on the FSs.
25. Which of the following best describes why an
independent auditor reports on the financial
statements?
a. Independent auditors are likely to detect
fraud
b. Conflicting 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