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Audit- Theory-Assignment

Accountancy (Notre Dame University)

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AUDIT THEORY: Review Questions (Assignment) a. The report is restricted to those parties who
have agreed to the procedures to be
1. Certain fundamental beliefs called performed.
"postulates" underlie b. The CPA provides the recipients of the report
auditing theory. Which of the following is not a limited assurance as to reasonableness of the
postulate of auditing? assertion(s) presented in the financial
a. No long-term conflict exists between the information.
auditor and c. The report states that the auditor has not
the management of the enterprise under audit. recognized any basis that requires
b. Economic assertions can be verified. revision of financial statements.
c. The auditor acts exclusively as an auditor. d. The report should state that the procedures
d. An audit has a benefit only to the owners. performed are limited to analytical procedures
and inquiry.
2. In all cases, audit reports must
a. Be signed by the individual who performed the 6. According to Philippine Standard on Auditing,
audit the procedures employed in doing compilation
procedures. are:
b. Certify the accuracy of the quantitative a. Designed to enable the accountant to express a
information limited assurance.
which was audited. b. Designed to enable the accountant to express a
c. Communicate the auditor’s finding to the negative assurance.
general c. Not designed to enable the accountant to
public. express any form of assurance.
d. Inform readers of the degree of d. Less extensive than review procedures but
correspondence more extensive than agreed-upon procedures.
between the quantifiable information and the
established criteria. 7. The three types of attestation services are:
a. Audits, review, and compilations
3. As used in auditing, which of the following b. Audits, compilations, and other attestation
statements best describes "assertions"? services
a. Assertions are the representations of c. Reviews, compilations, and other attestation
management as to services
the reliability of the information system. d. Audits, reviews, and other attestation
b. Assertions are the auditor's findings to be services
communicated
in the audit report. 8. Which of the following is not primary category
c. Assertions are the representations of of attestation report?
management as to a. Compilation report
the fairness of the financial statements. b. Review report
d. Assertions are found only in the footnotes to c. Audit report
the financial d. Special audit report based on a basis of
statements. accounting other than generally accepted
accounting principles.
4. The expertise that distinguishes auditors from
accountants is in the 9. The primary goal of the CPA in performing the
a. Ability to interpret generally accepted attest function is to
accounting principles. a. Detect fraud
b. Requirement to possess education beyond the b. Examine individual transactions so that the
Bachelor’s auditor may certify as to their validity
degree. c. Determine whether the client's assertions
c. Accumulation and interpretation of are fairly stated
evidence. d. Assure the consistent application of correct
d. Ability to interpret ASC Statements. accounting
procedures
5. Which of the following is true of the report
based on 10. The criteria for evaluating quantitative
agreed-upon-procedures? information vary. For example, in the audit of
historical financial statements by CPA firms, the
criteria are usually

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a. Generally accepted auditing standards. b. Time budget for the various audit areas
b. Generally accepted accounting principles. c. Set of planned audit procedures
c. Regulations of the Internal Revenue Service. d. The combined assessed level of inherent and
d. Regulations of the Securities and Exchange control
Commission. risk
16. Which of the following will most likely help
11. Because an external auditor is paid a fee by a the auditor
client to identify and understand the events,
company, he or she transactions and practices of his audit client?
a. Is absolutely independent and may conduct an a. Obtaining a sufficient knowledge of the
audit business of
b. May be sufficiently independent to conduct his client.
an audit b. Understanding of accounting and internal
c. Is never considered to be independent control.
d. Must receive approval of the Securities and c. Testing control policies and procedures.
Exchange Commission before conducting an audit d. Obtaining a representation letter from the
client
12. Adequate planning of the audit work helps management.
the auditor
of accomplishing the following objectives, 17. Understanding the business and using this
except: information appropriately assists the auditor in,
a. Gathering of all corroborating audit except:
evidence. a. Deciding whether to do tests of controls.
b. Ensuring that appropriate attention is devoted b. Evaluating audit evidence.
to c. Assessing risks and identifying potential
important areas of the audit. problems.
c. Identifying the areas that need a service of an d. Planning and performing the audit effectively
expert. and
d. The audit work is completed efficiently. efficiently.

13. The extent of planning will vary according to 18. Which of the following is the ultimate
any of the concern of the
following, except: knowledge about the business?
a. Size of the audit client. a. Consideration of how it affects the financial
b. Auditor’s experience with the entity and statements taken as a whole.
knowledge b. Assists the auditor in enforcing quality control
of the business. procedures.
c. The nature and complexity of the audit c. To assure that sufficient audit evidence is
engagement obtained.
d. The assessed level of control risk. d. It assists in determining the type of audit
report to be
issued.
14. Which of the following is least likely
considered by the 19. The development of a general strategy and a
auditor in developing the overall audit plan? detailed
a. Understanding of the accounting and internal approach for the expected nature, timing, and
control extent of audit refers to :
systems. a. Supervision
b. Relevant risk and materiality. b. Audit procedures
c. The involvement of other auditors in the audit c. Directing
of d. Planning
major component of financial statements
d. The general level of competence of audit 20. Which of the following would a successor
assistants. auditor
normally perform after acceptance of an audit
15. The audit program should contain the client?
following, a. Inquiry of predecessor auditor regarding the
except: client.
a. Audit objective b. Review the SEC filings of the client.

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c. Inquiry of bankers regarding the client.

d. Review of predecessor auditor working
papers.

21. Analytical procedures used in planning an

audit should
focus on
a. Reducing the scope of tests of controls and
substantive tests.
b. Providing assurance that potential material
misstatements will be identified.
c. Enhancing the auditor’s understanding of the
client’s business.
d. Assessing the adequacy of the available
evidential matter.

22. In evaluating an entity's accounting estimates,

one of
the auditor's objectives is to determine whether
the
estimates are
a. Prepared in a satisfactory control environment.
b. Consistent with industry guidelines.
c. Based on verifiable objective assumptions.
d. Reasonable in the circumstances.

23. Assertions with high inherent risk are least

likely to
involve:
a. Complex calculations.
b. Difficult accounting issues.
c. Routine transactions.
d. Significant judgment by management.

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