BAUDPRIX – SEATWORK 2 (Topic 2)

1. To maximize independence, the director of internal auditing should report to the

Audit committee
Controller
Chief financial officer
Director of information systems

2. Which one of the following is not a major difference between operational and financial auditing?
Purpose of the audit
Distribution of the report
Testing the effectiveness of internal control
Audits of non-financial areas

3. In the audit of the financial statements, the audit process should be conducted in accordance with
PFRSs
PASs
PSAs
Audit program

4. The need for independent audits of financial statements can be attributed to all of the following
conditions except
Validity
Complexity of subject matter
Consequence
Remoteness

5. Which of the following is not one of the assumptions when auditing financial statements?
The auditor should be independent.
Effective internal control system contributes little to the reliability of financial information.
Compliance to PFRS results in fair presentation of financial statements.
The data in the financial statements are verifiable.

6. Statement I: Independent financial statements audit is an example of reasonable level but direct
reporting assurance engagement.
Statement II: Financial statements audit reduces information risk and cost of capital.
Only statement I is correct
Only statement II is correct
Both statements are correct
Both statements are incorrect
7. The primary purpose of an independent financial statement audit is to
Provide a basis for assessing management’s performance.
Comply with state and federal regulatory requirements.
Assure management that the financial statements are unbiased and free from material error.
Provide users with an unbiased opinion about the fairness of information reported in the financial
statements.

8. Which of the following is not one of the reasons that auditors provide reasonable, but not absolute
assurance on the financial statements?
Auditors believe that reasonable assurance is sufficient in the vast majority of cases.
Fraudulently prepared financial statements are often difficult to detect.
Accounting presentations contain complex estimates which inherently involve uncertainty.
The auditor commonly examines a sample, rather than the entire population of transactions.

9. Which of the following statements about independent financial statement audit is correct?
The auditor’s opinion is not an assurance as to the future viability of the entity as well as the effectiveness
and efficiency with which management has conducted the affairs of the entity.
The procedures required to conduct an audit in accordance with PSAs should be determined by the client
who engaged the services of the auditor.
An audit is designed to provide limited assurance that the financial statements taken as a whole are free
from material misstatement.
The audit of financial statements relieves management of its responsibilities for the financial statements.

10. In determining the primary responsibility of the external auditor for an audit of a company’s
financial statements, the auditor owes primary allegiance to
The audit committee of the audit client because that committee is responsible for coordinating and
reviewing all audit activities within the company.
The AASC, because it determines auditing standards and auditor’s responsibility.
The management of the audit client because the auditor is hired and paid by management.
Stockholders, creditors and the investing public.

11. Which one of the following is an example of management expectations from the independent
auditors?
An active participant in management decision making.
An internal source of expertise of financial and other matters.
An expert providing a written communication as the product of the engagement.
Individuals who perform day-to-day accounting functions on behalf of the company.
12. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when two
or more qualified individuals
Working together, can agree upon the accuracy of the data.
Working independently, can prove, beyond reasonable doubt, the truthfulness of the data.
Working independently, each reach essentially similar conclusions.
Working together, can prove, beyond doubt, the accuracy of the data.

13. When an auditor issues a disclaimer of opinion, the implication is that the auditor
Does not know if the financial statements are presented fairly.
Does not believe the financial statements are fairly presented.
Is satisfied that the financial statements are presented fairly except for a specific aspect of them.
Is satisfied that the financial statements are presented fairly.

14. The objective of the ordinary examination by the independent auditor is the expression of an
opinion on
The balance sheet and income statement
The accuracy of the annual report
The accuracy of the financial statements
The fairness of the financial statements

15. When performing an operational audit, the internal audit team must first determine that
Specific criteria are developed to define effectiveness.
A review was performed by either an independent or an internal auditor.
A financial audit has been performed by an internal auditor.
A financial audit has been performed by an independent auditor.

16. Financial statement users often receive unreliable financial information from companies. Which of
the following is not a common reason for this?
Complex exchange transactions.
Voluminous data.
Bias in the preparation of financial statements.
Each of these choices is a common reason for unreliable financial information.

17. Which of the following is not an example of the application of professional skepticism?
Designing additional auditing procedures to obtain more reliable evidence in support of a particular
financial statement assertion.
Obtaining corroboration of management’s explanations through consultation with a specialist.
Inquiring of prior year engagement personnel regarding their assessment of management’s honesty and
integrity.
Using third party confirmations to provide support for management’s representations.
18. Internal auditing is an independent appraisal function established within an organization to
examine and evaluate its activities. To that end, internal auditing provides assistance
Government
Management and the board of directors
Stockholders
External auditors

19. Which of the following statements is an example of an assertion made by management in an

entity’s financial statements?
The financial statements were prepared in an unbiased manner.
All information requested by the auditor has been provided by management.
The scope of the auditor’s investigation was not limited in any way by management.
Reported inventory balances reflect all related transactions for the period.

20. The trait that distinguishes auditors from accountants is the

Auditor’s accumulation and interpretation of evidence related to the company’s financial statements.
Auditor’s ability to interpret PFRS.
Auditor’s education beyond the Bachelor’s degree.
Auditor’s ability to interpret accounting standards.

21. The subject matter of the financial audit is the

Financial statements
Economic data
Assertions
Operating data

22. Which of the following is an assertion?

A statement made by management regarding the collectability of accounts receivable.
The audit firm’s estimation of the client’s inventory obsolescence.
The statement by management regarding the appointment of auditors.
The statement by management that the firm will close its branch office because of snow.

23. Which of the following has the primary responsibility for the fairness of the representations made
in the financial statements?
Board of Accountancy
Independent auditor
Audit committee
Client’s management
24. Statement I: Operational audits are primarily geared toward compliance.
Statement II: Internal and external auditors must be independent, but they define independence
differently.
Only statement I is correct
Only statement II is correct
Both statements are correct
Both statements are incorrect

25. Statement I: Governmental auditors perform operational and financial statements audit.
Statement II: The internal auditor is primary provider of operational audits.
Only statement I is correct
Only statement II is correct
Both statements are correct
Both statements are incorrect

26. Which of the following statements does not properly describe an element of theoretical framework
of auditing?
The data to be audited can be verified.
Short-term conflicts may exist between managers who prepare the data and auditors who examine the
data.
Auditors act on behalf of the management.
An audit benefits the public.

27. Which of the following best describes an operational audit?

It requires a constant review of the administrative controls by internal auditors as they relate to operations
of the company.
It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction
of controls.
It concentrates on implementing financial and accounting, control in a newly organized company.
It attempts of verifying the fair presentation of a company’s results of operations.

28. Which of the following types of auditing is performed most commonly by CPAs for more than one
client and on a contractual basis?
(1/1 Points)
Internal auditing
Income tax auditing
External auditing
Government auditing
29. Which of the following statements about independent financial statement audit is incorrect?
Scope of the audit refers to audit procedures deemed necessary in the circumstances to achieve the
objective of the audit.
The auditor’s opinion enhances the credibility of the financial statements.
The phrase used to express the auditor’s opinion is “present fairly, in all material respects”.
The risk that the auditor will fail to uncover material misstatement is eliminated when the auditor conducts
the audit in accordance with PSAs.

30. Which of the following is one of the limitations of an audit?

The risk that the auditor may not possess the training and proficiency required by the engagement.
The fact that most audit evidence is persuasive rather than conclusive in nature.
The likelihood that the auditor may not be able to detect material misstatements in the financial statements
because the auditor is engaged only after year-end.
The possibility that management may prevent the auditor from performing the necessary audit procedures.