AUDITING & ASSURANCE PRINCPLES SCORE

QUIZ # 2
TOPIC(s) COVERED: AT 02 – INTRODUCTION TO FINANCIAL STATEMENTS AUDIT

NAME:__________________________ YEAR & SECTION:__________ DATE:____________

INSTRUCTIONS: FROM THE FOLLOWING MULTIPLE CHOICE QUESTIONS BELOW, CHOOSE THE LETTER OF
THE BEST ANSWER BY SHADING IT TO A SEPARATE ANSWER SHEET PROVIDED.

1. An external auditor is conducting an audit of the financial statements of Camden

Corporation under PSAs. The external auditor is expected to
A. Express an opinion as to the attractiveness of Camden for investment
purposes.
B. Critique the wisdom and legality of Camden’s business decisions
C. Express an opinion as to the fairness of Camden’ financial statements
D. Certify the correctness of Camden’s financial statements

2. The term refers to the risk that the client’s financial statements may be
materially false and/or misleading
A. Business risk C. Client risk
B. Information risk D. Risk assessment

3. The primary reason for an audit by an external audit firm is

A. To satisfy governmental regulatory requirements.
B. To guarantee that there are no misstatements in the financial statements.
C. To provide increased assurance to users as to the fairness of the financial
statements.
D. To ensure that any fraud will be discovered.

4. Which of the following is not part of the Theoretical Framework for Auditing?
I. The use of testing
II. Short-term conflicts may arise between the auditors and preparers of
Financials Statements
III. Audit benefits the Public
A. I only C. II only
B. I and II D. I, II and III

5. Absolute assurance is not possible because of: K

Sampling risks Employment of Judgment Conclusive nature of evidence
A. Yes Yes Yes
B. No Yes Yes
C. Yes No Yes
D. No No No
E. Yes Yes No

6. I. Assertions about account balances at the period end includes completeness,

rights and obligation and accuracy
II. If the company is auditing an expense account, an auditor mainly considers
the occurrence of transactions rather than completeness, in designing its
audit procedures.
A. True, true C. False, true
B. True, false D. False, false

7. Professional judgment is not used in decisions regarding:

I. Materiality
II. Nature, timing and extent of clients accounting works
III. Audit risk and its components
A. I only D. I and II
B. II only E. II and III
C. III only

8. In performing a financial statement audit, which of the following would an auditor

least likely consider?
A. Internal control.
B. Compliance with GAAP.
C. Quality of managements' business decisions.
D. Fairness of the financial statement amounts.

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9. Assumptions of an effective conduct of an audit include all of the following,
except:
I. An audit benefits those charged with governance
II. Not all data to be audited is verifiable
III. Short-term conflicts between the auditor and responsible party may arise
during the audit
A. I and II D. I, II and III
B. II and III E. None from A, B, C and D K
C. I and III

10. Which one of the following is not a part of the attest process?
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicating the conclusions reached

11. I. Assertions does not guide the auditor in the performance of auditor
procedures in obtaining audit evidence, it is professional judgment.
II. If an auditor is auditing the accrued expense account, the assertion that he
is primarily concerned to its completeness rather than existence.
A. True, true C. False, true
B. True, false D. False, false

12. Which of the following best describes the reason why independent auditors reports
on financial statements?
A. A management fraud may exist and it is more likely to be detected by
independent auditors.
B. Different interests may exist between the company preparing the statements
and the persons using the statements.
C. A misstatement of account balances may exist and is generally corrected as
the result of the independent auditor’s work.
D. Poorly designed internal control may be in existence.

13. Management is not responsible for

A. Preparing spreadsheets for the auditor
B. The auditor’s report
C. Compliance with laws and regulations
D. The audited financial statements

14. The independent auditor’s opinion helps establish the credibility of the financial
statements

The independent auditor’s opinion is an assurance as to the efficiency or

effectiveness with which management has conducted the affairs of the entity
A. The first statement is false, the second statement is true.
B. The first statement is true, the second statement is true.
C. The first statement is false, the second statement is false.
D. The first statement is true, the second statement is false.

15. Auditing is important in a free market society because

A. The public requires CPAs functioning as divisions of regulatory bodies
B. Auditors detect all errors and fraud made by company employees
C. It provides reliable information based upon which to judge economic
performance
D. The auditor is an amiable insurance policy for investors

16. Auditors cannot usually provide absolute assurance because:

I. Often, the auditor examines only a sample of the items constituting the
entire population.
II. Of the inherent limitations of internal controls.
III. Evidence is conclusive rather than persuasive.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

17. Which of the following criteria is unique to the independent auditor's attest
function?
A. General competence.
B. Familiarity with the particular industry of each client.
C. Due professional care.
D. Independence.

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18. Which of the following best describes an auditor's professional skepticism?
A. Auditors must remember that they will be responsible for the financial
statements once they are audited.
B. Auditors should treat all management representations with suspicion until
they are proven.
C. Auditors should make a critical assessment, with an inquisitive mind, of the
sufficiency and appropriateness of audit evidence obtained.
D. Auditors should expect that there will be material misstatements in the
financial records being audited.

19. The highest level of assurance that may be provided by the practitioner is
reasonable assurance (less than absolute) as a result of the following factors,
except:
A. Less than 100% testing C. Conclusive evidence
B. Human error D. Imperfect internal control

20. Which of the following is included within the “Theoretical Framework of Auditing”?
I. All data are verifiable.
II. Short-term conflicts between the auditor and the client may arise.
III. An audit benefits a specified group of persons.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

21. Professional skepticism is known as the hallmark of auditing.

Professional judgment is known as the best method in detecting fraud and error.
A. True, false C. False, false
B. False, true D. True, true

22. Assertions about classes of transactions and events do not include:

A. Completeness C. Valuation and allocation
B. Classification D. Accuracy

23. Assertions are representations of management that are embodied in financial

statement components. They can be either explicit or implicit. Which of these
assertions is not about valuation or allocation?
A. Property is recorded at historical cost.
B. Trade accounts receivable in the balance sheet are stated at net realizable
value’
C. Notes payable in the balance sheet include all such obligations of the
entity.
D. Property cost is systematically allocated to appropriate accounting period.

24. Minimizing the risk of being associated to clients with questioned integrity are
done under which stage of the audit process?
A. Evidence gathering stage. C. Preliminary engagement stage
B. Reporting stage D. Post-audit stage

25. Professional judgment is necessary in

I. Establishing materiality
II. Evaluation of evidence gathered
A. I only C. Both I and II
B. II only D. Neither I nor II

`- END OF EXAMINATION -

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