CHAPTER 1
The internal auditor’s span of coverage goes beyond
1. Broadly defined, the subject matter of any audit consist of
a. Financial statements
b. Economic data
c. Assertions
d. Operating data
2. An audit of financial statements is conducted to determine if the
a. Organization is operating efficiency and effectively
b. Auditee is following specific procedures or rules set
down by some higher authority
c. Overall financial statement statements are stated in
accordance with the applicable financial reporting
framework
d. Client’s internal control is functioning as intended
3. Most of the independent auditor’s work in formulating an
opinion on financial statement consist of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transaction
d. Comparing recorded accountability with assets
4. In financial statement audits, the audit process should be
conducted in accordance with
a. The audit program
b. Philippine standard on auditing
c. Philippine accounting standards
d. Philippine Financial Reporting Standards
5. Which of the following best describe the operational audit?
a. It requires the constant review by internal auditors of
the administrative controls as they relate to operations
of the company.
b. It concentrates on implementing financial and
accounting control in a newly organized company.
c. In attempts and is designed to verify the fair
presentation of a company’s results of operations.
d. It concentrates on seeking out aspects of operations in
which waste would be reduced by the introduction of
controls.
6. The auditor communicates the results of his or her work through
the medium if the
a. Engagement letter
b. Audit report
c. Management letter
d. Financial statement
7. Which of the following types of auditing is performed most
commonly by CPA’s on a contractual basis?
a. Internal Auditing
b. Income tax auditing
c. Government auditing
d. External auditing
8. Independent auditing can best be describe as a
a. Professional activity that measures and communicates
financial accounting data
b. subset accounting
c. Professional activity that attest to the fair presentation
of financial statement
d. Regulatory activity that prevents the issuance of
improper financial information
9. Which of the following statements is not a distinction between
independent auditors and internal auditors?
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.
financial auditing to encompass operational and
performance auditing.
10. Which of the following has the primary responsibility for the
fairness of the representations made in the financial statements?
a. Client’s management
b. Audit Committee
c. Independent auditor
d. Board of Accountancy
11. An audit of the financial statements of KIA Corporation is being
conducted by an external auditor. The external auditor is
expected to
a. express an opinion as to the fairness of KIA’s
financial statements.
b. express an opinion as to the attractiveness of KIA for
investment purposes.
c. certify the correctness of KIA’s Financial Statements.
d. examine all evidence supporting KIA’s financial
statements.
12. Which of the following statements about independent financial
statements audit is correct?
a. The audit of financial statements relieves management
of its responsibilities for the financial statement
b. An audit is designed to provide limited assurance that
the financial statements taken as a whole are free from
material misstatement
c. The procedures required to conduct an audit in
accordance with PSAs should be determined by the
client who engaged the services of the auditor.
d. 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.
13. 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
14. An attitude that includes a questioning mind and critical
assessment of audit evidence is referred to as
a. Due professional care
b. Professional skepticism
c. Reasonable assurance
d. Supervision
15. Jack has been retained as auditor of EVC Company. The
function of Jack’s opinion on financial statements of EVC
Company is to
a. Improve financial decisions of company management
b. Lend Credibility to management’s representation
c. Detect fraud and abuse in management operations
d. Serve requirements of BIR, SEC, or Central Bank
16. Which of the following is not one of the limitations of an audit?
a. The use of testing
b. Limitations imposed by client
c. Human error
d. Nature of evidence that the auditor obtains
17. Which of the following statements does not properly describe a
limitation of an audit?
a. Many audit conclusions are made on the basis of
examining a sample of evidence.
b. Some evidence supporting peso representation in the
financial statement must be obtained by oral or written
representation of management.
c. Fatigue can cause auditors to overlook pertinent
evidence.
d. Many financial statement assertions cannot be audited.
18. Which of the following is not one of the general principles
governing the audit of financial statements?
a. The auditor should plan and perform the audit with an
attitude of professional skepticism.
b. The auditor should obtain sufficient appropriate
evidence primarily through inquiry and analytical
procedure to be able to draw reasonable conclusions.
c. The auditor should conduct the audit in accordance
with PSA.
d. The auditor should comply with the Philippine Code
of Professional Ethics.

19. Which of the following statements does not describe a condition

that creates a demand for auditing?
a. Conflict between an information preparer and a user
can result in biased information.
b. Information can have substantial economic
consequence for a decision-maker.
c. Expertise is often required for information preparation
and verification.
d. Users can directly assess the quality of information.

20. Which of the following statements does not properly describe an

element of theoretical framework of auditing?
a. The data to be audited can be verified.
b. Short-term conflicts may exist between mangers who
prepare the data and auditors who examine the data.
c. Auditors act on behalf of the management.
d. An audit benefits the public