CHAPTER 2

Chapter 2 Multiple Choice Questions

1. Which of the following best describes what is meant by generally accepted auditing
standards?

a. Audit objectives generally determined on audit engagements.

b. Acts to be performed by the auditor

c. Measures of the quality of the auditor's performance.

d. Procedures to be used to gather evidence to support financial statements.

2. In the auditing environment, failure to meet auditing standards is often

a. An accepted practice a

b. Suggestion of negligence

c. Conclusive evidence of negligence

d. Tantamount to criminal behavior

3. Audit standards require the auditor to

a. Perform procedures that are designed to detect all instances of fraud

b. Provide reasonable assurance that the financial statements are not materially
misstated

c. Issue an unmodified opinion only when the auditor is satisfied that no instances
of fraud have occurred.

d. Design the audit program to meet financial statement users’ expectations concerning
fraud.

4. Which of the following underlies the application of generally accepted auditing

standards, particularly the standards of field work and reporting?

a. Element of internal control.

b. Elements of materiality and risk.

c. Element of reasonable assurance.

d. Element of corroborating evidence

5. Requirements for training, independence and due professional care are included in
which group of the generally accepted auditing standards?

a. Fieldwork

b. General

c. Reporting

d. Quality control
6. The general standards of the generally accepted auditing standards include a requirement
that
a. The fieldwork to be adequately planned.

b. The auditor's report to state whether the financial statements are presented in
conformity with PFRS.

c. Due professional care be exercised by the auditor.

d. The auditor to obtain sufficient, competent evidential matter.

7. Which of the following reflects a concept from the general standards of GAAS?

a. The confirmation of accounts receivable.

b. Completing an internal control questionnaire.

c. The initial planning of the audit with the audit partner, manage, senior, staff
and client personnel.

d. The assignment of audit personnel to an engagement where they have no financial

interest

8. What is the general character of the three generally accepted auditing standards
classified as general standards?

a. Criteria for competence, independence, and professional care of individuals

performing the audit.

b. Criteria of evidence gathering.

c. Criteria for the content of the auditors' report on financial statements and related
footnote disclosures.

d. The requirements for the planning of the audit and supervision of assistants, if any.

9. Which of the following does not pertain to the standards of fieldwork?

a. Adequate planning and supervision.

b. Obtaining sufficient competent evidential matter.

c. Proper study and evaluation of internal control as a basis for reliance thereon

d. Training and proficiency

10. While performing audit services for their clients, professional and accountants have a
duty to provide a level of care which is

a. Reasonable

b. Greater than average

c. Superior

d. Guaranteed to be free from error.

11. The standard of due audit care requires the auditor to

a. Make perfect judgment decisions in all cases

b. Ensure that the financial statements are free from error.

c. Possess skills clearly above the average for the profession.

d. Apply judgment in a conscientious manner, carefully weighing the relevant factors

before reaching a decision.

12. Which of the following is most likely to be unique to the audit work of CPAs as
compared to work performed by practitioners of other professions?

a. Due professional care.

b. Competence.

c. Independence.

d. Complex body of knowledge.

13. The third general standard states that due care is to be exercised in the
performance of an audit. This standard is ordinarily interpreted to require

a. Thorough review of the existing safeguards over access to assets and records.

b. Limited review of the indications of employee fraud and illegal acts.

c. Objective review of the adequacy of the technical training and pruriency of firm
personnel

d. Critical review of the judgment exercised at every level of supervision.

14. What is the general character of the three generally accepted auditing standards
classified as standards of field work?

a. The competence of persons performing the audit.

b. Criteria for the content of the auditor's report on financial statements and related
footnote disclosures.

c. The criteria of audit planning and evidence-gathering

d. The need to maintain an independence in mental attitude in all an a matters

relating to the audit

15. The third standard of field work states that sufficient competent evidential matter may
in part be obtained through the following methods except

a. Inspection

b. Confirmation

c. Observation
 d. Reconciliation

16. The generally accepted standards of reporting encompass all of the following except.

a. Consideration of internal control

b. Consistent application of accounting principles

c. Informative disclosures

d. Conformity of financial statements with GAAP

17. The third generally accepted standard of reporting in auditing refers to

a. Whether financial statements are presented in conformity with GAAP.

b. Whether accounting principles have been consistently observed

c. Adequacy of disclosures.

d. An expression of opinion on the financial statements taken as whole

18. The objective of the consistency standard is to provide assurance that

a. There are no variations in the format and presentation of financial statements

b. Substantially different transactions and events are not accounted for on an identical
basis.

c. The auditor is consulted before material changes are made in the application of
accounting principles.

d. The comparability of financial statements between periods in not materially

affected by changes in accounting principles without disclosure.

19. The fourth generally accepted auditing standard of reporting requires an auditor to
render a report whenever an auditor’s name is associated with financial statements.
The overall purpose of the fourth standard of reporting is to require that reports:

a. State that the examination of financial statements has been conducted in

accordance with generally accepted auditing standards.

b. Indicate the character of the auditor s examination and the degree of

responsibility assumed by the auditor.

c. Imply that the auditor is independent in mind as well as in appearance with

respect to the financial statements under examination.

d. Express whether the accounting principles used in preparing the financial

statements have been applied consistently in the period under examination. T

20. The fourth reporting standard requires the auditor's report to an expression of opinion
regarding the financial statements taken as a whole, or an assertion to the effect that
an opinion cannot be expressed. The objective of the fourth standard is to prevent
 a. An auditor from reporting on one basic financial statement and not on the others

b. An auditor from expressing different opinions on each of e basic financial statements

c. Management from reducing its final responsibility for the basic financial statements

d. Misinterpretations regarding the degree of responsibility the auditor is assuming.

21. The auditor is not liable to his client for

a. Negligence

b. Fraud

c. Dishonesty

d. Errors in the application of judgment

22. The Philippine Standards on Auditing (PSA) is issued by the Auditing and Assurance
Standards Council:

a. Are interpretations of the generally accepted auditing standards

b. Are the criteria used in evaluating the fair presentation of the financial statements.

c. Are interpretations of the generally accepted accounting principles.

d. Are optional guidelines which an auditor may choose to follow or not follow
when conducting an audit.

23. According to Philippine Standards on Auditing, because there are inherent limitations in
an audit that affect the auditor's ability to detect material misstatements, the auditor is:

a. A guarantor but not an insurer of the statements.

b. An insurer but not a guarantor of the statements.

c. Neither a guarantor nor an insurer of financial statements.

d. Both a guarantor and an insurer of the financial statements.

24. An auditor does not have to comply with a specific requirement or he PSA if the auditor
believes that:

a. The amount is insignificant.

b. The requirement of the PSA is impractical to perform.

c. The requirement of the PSA is impossible to perform.

d. Any of the given three choices is correct.

25. The Philippine Standards on Auditing can be described as

 a. Providing very specific guidance about the specific activities an auditor must
perform on each engagement.

b. Similar to Philippine Financial Reporting Standards (PFRS).

c. Defining the minimum standards of performance for an auditor.

d. Providing assurance that an auditor will not issue an inappropriate audit opinion

26. Which of the following best describes the function of Auditing and Assurance Standards
Council (AASC)?

a. To establish and promulgate generally accepted accounting auditing

principles in the Philippines.

b. To investigate violations of the Accountancy Law.

c. To promulgate auditing standards, practices and procedures that shall be generally

accepted by the accounting profession in the Philippines.

d. To determine the minimum requirements for admission in the accounting profession.

27. Pronouncements issued by AASC may be in the form of

Philippine Philippine Philippine Philippine

Standards on Standards on Standards on Standards on
Auditing Assurance Review Related Services
Engagements Engagements
a. Yes Yes Yes Ye
s
b. Yes No Yes No
c. Yes Yes Yes No
d. No Yes No Ye
s

28. Which of the following is correct about the Philippine Auditing Practices Statements
(PAPS)?

a. These are issued to resolve issues relating to PSAs.

b. These statements are intended to have the authority of PSAs.

c. These statements are issued to provide practical assistance to auditors in

implementing PSAs or to promote good practice.

d. These statements are forms of interpretations issued by AASC.

29. Which of the following pronouncements 15Sued by the AASC is designed to

resolve issues relating to PSAs?

a. Philippine Auditing Practices Statements

b. Interpretations

c. Statements of Auditing Standards in the Philippines

 d. Generally Accepted Auditing Standards

30. Based on the structure of AASC pronouncements, related services include?

Audit Review Agreed-upon Compilation

procedures s
a. Yes Yes No No
b. No No Yes Yes
c. Yes Yes Yes No
d. No Yes Yes Yes

31. The risk that an auditor will fail to uncover a material misstatement is eliminated

a. If client has good internal control.

b. If auditor observes the Code of Professional Ethics.

c. When the auditor complies with PSA.

d. Under no circumstances.

32. The auditor's best defence when material misstatements are no uncovered is to have
conducted the audit

a. In accordance with PSA

b. As effectively as reasonably possible.

c. In a timely manner.

d. Only after an adequate investigation of the management team

33. The failure of the auditor to meet the requisites of PSA is

a. An accepted practice.

b. A suggestion of negligence.

c. An evidence of negligence.

d. Tantamount to criminal behavior.

34. One of a CPA firm's basic objectives is to provide professional services is that
conform with professional standards. Reasonable assurance of achieving this basic
objective is provided through

a. A system of quality control.

b. A quality assurance review.

c. Continuing professional education.

d. Compliance with generally accepted reporting standards.

35. A firm of independent auditors must establish and follow quality control policies and
procedures because these standards

a. Are necessary to meet increasing requirements of auditors’ liability as insurers.

b. Are required by the SEC tor auditors of all firms.

c. Include formal filing of records of such policies and procedures to a regulatory agency.

d. Give reasonable assurance that the firm as a whole will comply with the
professional standards.

36. The main purpose of implementing a system of quality control is to provide the
firm with reasonable assurance that:

a. Firm and its personnel will comply regulatory and legal requirements.

b. The audit will be performed in accordance with PSA.

c. The firm will issue a report that is appropriate in the circumstances.

d. All of the above

37. The nature and extent of a CPA firm's quality Control policies and procedures depend on

The CPA’s firm The nature of the Cost benefit

CPA Firm’s practice consideration
s
a. Yes Yes Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes
38. Which of the following is not an essential component of quality control?

a. Policies and procedures to ensure that firm personnel are actively engaged in
marketing strategies.

b. Policies and procedures to ensure that the work performed by firm

personnel meet applicable professional standards.

c. Policies to ensure that personnel maintain their independence in fact and in

appearance.

d. Policies that ensure that monitoring activities are effectively applied.

39. The objective of the quality control policies to be adopted by an audit firm will
ordinarily incorporate all of the following except:

a. Risk assessment

b. Leadership responsibilities

c. Engagement performance

d. Human resources
40. The person responsible for the audit engagement and its performance and for the
auditor's report that is issued in behalf of the firm is the

a. Quality control reviewer

b. Engagement partner

c. Client’s management

d. Audit manager

41. Which of the following is an element of a CPA firm’s quality control system that
should be considered in establishing its quality control policies and procedures?

a. Complying with laws and regulations

b. Using statistical sampling techniques

c. Independence

d. Consideration of audit risk and materiality

42. Elements of a CPA firm's quality control that should be considered in establishing its
quality control policies and procedures must include:

Monitoring Ethical Engagement

requirements performance
a. Yes Yes Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes
43. Which of the following is one of the elements of a CPA firm's quality control system?

a. Leadership responsibilities

b. Computer assisted audit techniques

c. Control activities

d. Control environment

44. Which of the following quality control objectives would be least important to the auditor?

a. Engagement performance

b. Human resources

c. Determination of audit fee

d. Independence

45. A quality control policy that requires personnel in the firm to adhere to independence,
integrity, objectivity, confidentiality, and professional behavior, relates to
 a. Ethical Requirements

b. Human resources

c. Assignment

d. Consultation

46. Which of the following quality control policies and procedures does not relate to
human resources and assignment?

a. Emphasize independence of mental attitude in training programs and in

supervision and review of the audits.

b. Monitor the effectiveness of recruiting programs.

c. identify criteria which will be considered in evaluating individual performance and

expected proficiency.

d. Identify on a timely basis the staffing requirements of specific audits.

47. In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records
indicating which partners or employees of the CPA were previously employed by the
CPA firm’s clients. Which quality control element would this be most likely to satisfy?

a. Monitoring

b. Assignment

c. Independence

d. Skills and competence

48. A procedure in which a quality control partner periodically tests the application of
quality control procedures is most directly related to which quality control
element?

a. Engagement performance

b. Independence, integrity, and objectivity

c. Monitoring

d. Personnel management

49. In connection with the element of engagement performance, a CPA firm's system
of quality control should ordinarily provide that all personnel

a. Have the knowledge required to enable them to fulfill responsibilities assigned.

b. Review and test compliance with the firm’s quality control policies and procedures.

c. Seek assistance from persons having appropriate levels of knowledge,

judgment and authority.

d. Appropriately maintain independence e when providing assurance services

50. Maintaining or providing access to adequate reference libraries and other
authoritative sources is a procedure that is most likely performed to comply with the
policy of

a. Monitoring

b. Skills and competence

c. Consultation

d. Assignment

51. Which of the following quality control procedures relates to quality engagement
performance?

a. Hiring

b. Direction

c. Professional development

d. Advancement.

52. Within the context of quality control, the primary purpose of the continuing
professional education and training activities is to enable a CPA firm to provide
its personnel with:

a. Technical training that assures proficiency as a valuation expert

b. Professional education that is required in order to perform with due professional

care.

c. Knowledge required to fulfil assigned responsibilities.