SAINT FERDINAND COLLEGE

COLLEGE OF ACCOUNTANCY
ACCOUNTING 12
(AUDITING AND ASSURANCE PRINCIPLES)
QUIZ # 1

NAME: _________________________________________ SCORE:___________

YEAR & SECTION: ________________________________ DATE: ____________

1. An assurance engagement should involve three separate parties: a practitioner, a responsible party and
intended users. Which of the following statements concerning these parties is incorrect?
a. The responsible party and intended users may be from different entities or the same entity.
b. The term “practitioner” as used in the framework for Assurance Engagement is broader than the term
“auditor” as used in PSAs and PSREs.
c. In an assertion-based engagement the responsible party is responsible for the subject matter
information (the assertion), and may be responsible for the subject matter.
d. An entity’s senior management (the responsible party) may engage a practitioner to perform
an assurance engagement on a particular aspect of the entity’s activities that is the immediate
responsibility of a lower level of management (the intended user).

2. An audit is conducted on the premise that management and, where appropriate, those charged with
governance, have acknowledge and understand that they have responsibilities that are fundamental to the
conduct of an audit in accordance with PSAs. Which of the following is not one of those responsibilities?
a. The establishment and maintenance of an adequate internal control system that is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud
or error
b. To provide the auditor with access to all information that is relevant to the preparation of the financial
statements such as records, documentation, and other matters.
c. The preparation of financial statements in accordance with relevant pronouncements issued
by the AASC.
d. To provide the auditor with unrestricted access to persons within the entity from which the auditor
determines it necessary to obtain audit evidence.

3. Which of the following statements concerning analytical procedures is true?

a. Analytical procedures are more efficient, but not more effective, than test of details of transactions
b. Analytical procedures can replace test of controls in gathering audit evidence to support the assessed
level of control risk
c. Analytical procedures usually involve comparisons of ratios developed from recorded amounts with
ratios developed by management
d. Analytical procedures used as risk assessment procedures use data aggregated at a high level

4. The auditor’s risk assessment procedures

a. Should not consider information obtained from the auditor’s previous experience with the entity
b. By themselves, do not provide sufficient appropriate audit evidence on which to base the audit
opinion
c. Are designed to detect material misstatement at the assertion level for classes of transaction, account
balances and disclosures
d. Are designed to test the effectiveness of the entity’s controls

5. The auditor should obtain an understanding of the entity’s objectives and strategies, and those business
risks that may result in risk of material misstatement. Which of the following statements concerning the
entity’s business risk is incorrect?
a. The auditor has a responsibility to identify or assess all business risk
b. Business risk is broader that the risk of material misstatement of the financial statements, through it
includes the latter
c. An understanding of the business risks facing the entity increases the likelihood of identifying risk of
material misstatement
d. Business risk may arise from the development of new products or services that may fall
6. An auditor should design the written audit program so that
a. The audit procedures selected will achieve specific audit objectives
b. All material transactions will be selected for substantive testing
c. Substantive test prior to the balance sheet date will be minimized
d. Each account balance will be tested under either test of controls or tests of transactions

7. An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor.
Which of the following would be the most useful source of information for the auditor during the
preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems
that might be encountered?
a. Client manuals of accounts and charts of accounts
b. Prior year documentation of the predecessor auditor
c. Latest annual and interim financial statements issued by the client
d. Industry audit guides

8. An entity’s management is responsible for the preparation and fair presentation of the financial
statements. Its responsibility includes the following except
a. Designing, implementing, and maintaining internal control relevant to the preparation and
presentation of financial statements
b. Assessing the risk of material misstatement of the financial statement
c. Making accounting estimates that are reasonable in the circumstances
d. Selecting and applying appropriate accounting policies

9. Which of the following fundamentals ethical principles prohibits association of professional accountants
with report, returns, communications or other information that is believed to contain a materially false
or misleading statement?
a. Objectivity
b. Professional competence and due care
c. Confidentiality
d. Integrity

10. If the fee quoted for a professional service is so low, it may be difficult for the CPA to perform the
engagement in accordance with technical and professional standards for that price. This situation may
create self-interest treat to
a. Professional competence and due care
b. Integrity
c. Professional behavior
d. Objectivity

11. Which of the following matters would an auditor most likely consider when establishing the scope of the
audit?
a. The entity’s timetable for reporting, such as at interim and final stages
b. The discussion with the entity’s management concerning the expected communications on the status
of audit work throughout the engagement and the expected deliverables resulting from the audit
procedures
c. The expected audit coverage, including the number and locations of the entity’s components
to be included
d. Audit areas where there is a higher risk of material misstatement
12. Assurance engagement risk is the risk
a. Of expressing an inappropriate conclusion when the subject matter information is not materially
misstated
b. Through loss from litigation, adverse publicity, or other events arising in connection with a subject
matter reported on
c. Of expressing an inappropriate conclusion when the subject matter information is either materially
misstated or not materially misstated
d. That the practitioner expresses an inappropriate conclusion when the subject matter
information is materially misstated

13. The following statement relate to the performance of an assurance engagement other than audit or
review of historical financial information covered by PSAs and PSREs. Which is incorrect?
a. The practitioner is not allowed to use the work of persons from other professional disciples.
b. Those persons who are to perform the engagement should collectively possess the necessary
professional competence
c. The practitioner should consider materially and assurance engagement risk when planning and
performing an assurance engagement
d. The assurance report should be in writing and should contain a clear expression of the practitioner’s
conclusion about the subject matter information

14. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the
following factors, except
a. The use of selective testing
b. The practitioner may not have the required assurance knowledge and skills to gather and
evaluate evidence
c. The fact that much of the evidence available to the practitioner is persuasive rather than conclusive
d. The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence

15. The following relate to a review of interim financial information performed by the entity’s independence
auditor. Which is incorrect?
a. A review of interim financial information does not provide a basis for expressing an opinion whether
the financial statement information is presented fairly, in all material respects, in accordance with an
applicable financial reporting framework
b. In a review of interim financial information, the auditor should have an understanding of the entity
and its environment, including its internal control, as it relates to the preparation of both annual and
interim financial information, sufficient to plan and conduct the engagement
c. A review of interim financial information may bring significant matters affecting the interim financial
information to the auditor’s attention, but it does not provide all of the evidence that would be
required in an audit
d. Similar to a financial statement audit, a review of interim financial information is designed to
obtain reasonable assurance that the interim financial information is free from material
misstatement

16. Professional Judgment

a. Is necessary in the evaluation of management judgments in applying the entity’s applicable
financial reporting framework
b. Should be exercise in planning and performing an audit of financial statements but need not be
documented
c. Can be used as the justification for the decisions made by the auditor that are not supported by the
facts and circumstances of the engagement
d. Is not used in making decisions about materiality and audit risk
17. Which of the following statements concerning the auditor’s use of assertions is correct?
a. In every audit engagement, the auditor should use the assertion’s use as described in PSA 500, i.e.,
the assertions should always fall into three categories: assertions about classes of transactions and
events, account balances, and presentation and disclosures
b. There should always be separate assertion related to cutoff of transactions and events
c. The auditor may combine the assertions about transactions and events with the assertions
about account balances
d. The completeness assertion deals only with whether all transactions and events that should have
been recorded have been recorded

18. Which of the following elements ultimately determines the specific auditing procedures that are
necessary in the circumstances to afford a reasonable basis for an opinion
a. Materiality c. Audit Risk
b. Auditor Judgment d. Reasonable assurance

19. Which of the following terms is used in the standard to describe the effects on the financial statements of
misstatements or the possible effects on the financial statements, if any, that are undetected due to an
inability to obtain sufficient appropriate audit evidence?
a. Persuasive c. Pervasive
b. Material d. Extensive

20. Assurance services are best described as

a. Independent professional services that improves the quality of information, or its context for
decision makers
b. Services designed for the improvement of operations, resulting in better outcomes
c. The assembly of financial statements based on assumptions of reasonable party
d. Services designed to express an opinion on historical financial statements based on the results of an
audit

21. Which of the following best describes why an independent auditor is asked to express an opinion on fair
presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company’s financial position and
changes in financial position and operations without the expertise of an independent auditor.
b. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements
c. It is management responsibility to make available independent aid in the preparation of the
financial information shown in the financial statements
d. It is a customary courtesy that shareholders of a company receive an independent report on
management’s status in managing the affairs of the business

22. Which of the following type of audit is most similar?

a. Compliance audits and independent financial statement audit
b. Operational audit and compliance audit
c. Independent financial statement audits and operational audit
d. Internal audits and independent financial statement audits

23. Government effectiveness (program) auditing seeks to determine whether the desired results are being
achieved and objectiveness are being met. The first step in the performance of such an audit would be;
a. Evaluate the system used to measure results
b. Identify the legislative intent of the program being audited.
c. Determine the sampling frame to use in studying the system
d. Collect and analyze quantifiable date

24. A study, appraisal, or review by the BOA or its duly authorized representatives, of the quality of audit of
financial statements through a review of the quality control measures instituted by an individual CPA,
firm or partnership of CPAs engaged in the practice of public accountancy
a. Peer review c. Analytical Procedures
b. Administrative review d. Quality Review
25. An auditor should recognized that the application of auditing procedures may produce evidential matter
indicating the possibility of errors and irregularities and therefore should
a. Design audit tests to detect unrecorded transaction
b. Plan and perform the engagement with an attitude of professional skepticism
c. Extent the work to audit most recorded transactions and records of the entity
d. Not depend on internal accounting control features that are designed to prevent or detect errors or
irregularities

26. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
a. An inadequate understanding of the entity’s internal control
b. Concluding that the entity’s management probably lacks integrity
c. The close proximity to the end of the entity’s fiscal year
d. An inability to perform preliminary analytical procedures before assessing control risk.

27. An auditor obtains knowledge about a new client’s business and its industry to
a. Make constructive suggestions concerning improvements to the client’s internal control
b. Understand the events and transactions that may have an effect on the clients financial
statements
c. Developing an attitude of professional skepticism concerning management’s financial statement
assertions
d. Evaluate whether the aggregation of known misstatements causes the financial statements takes as a
whole to be materially misstated

28. Audit information is usually considered relevant when it is

a. Derived through valid statistical sampling
b. Consistent with audit objectives
c. Objective and unbiased
d. Factual, adequate, and convincing

29. Which of the following should the auditor perform in a review engagement?
a. Understand the entity’s internal control system
b. Understanding matters that are relevant to the financial statements
c. Observe physical count of inventory
d. Inquire of legal counsel of pending litigation

30. Matters to be agreed in an agreed upon procedures engagement include the following, except
a. Stated purpose of the engagement
b. Limitations on distribution of the report of factual findings
c. Nature, timing, and extent of the specific procedures to be applied.
d. Anticipated form of the report and the level of assurance to be provided

31. Which of the following is least likely done by the auditor in conducting a review of financial statements
a. Study if the relationship of the elements of the financial statements
b. Comparison of inventory listing with physical inventory count
c. Comparison of the financial statements with statements for prior period
d. Comparison of the financial statements with anticipated results and financial position

32. The auditor should perform which of the following as risk assessment procedure?
a. Confirmation
b. Recalculation
c. Analytical procedures
d. Performance
33. The auditor should determine overall responses to address the risks of material misstatement at the
financial statement level. Such responses most likely include
a. Emphasizing to the audit team the need to maintain professional skepticism in gathering and
evaluating audit evidence.
b. Assigning less experience staff
c. Performing predictable further audit procedures
d. Performing substantive procedures at an interim date instead of at period end

34. Assertions used by the auditor fall into three categories, existence is included under
a. Assertions about account balances at the period end
b. Assertions about classes of transactions and events for the period under audit
c. Assertions about presentation and disclosure
d. All of the above

35. The following statements relate to operational audit. Which statement is false?
a. An operational audit is more in the nature of a systematic review than an examination in
accordance with professional standards.
b. Third party reliance on audit result is a common characteristic of operational audit and
financial audit
c. The identification and development of performance standards in an important aspect of every
operational audit
d. Operational audits may be performed by internal auditors, government auditors, or independent
public accountants

36. An audit designed to determine the extent to which the desired results or benefits of an activity
established by the legislative or other authorizing body are being achieve is a(an)
a. Program audit
b. Economy audit
c. Efficiency audit
d. Financial related audit

37. Before accepting an engagement to audit a new client, an auditor is required to

a. Obtain the prospective client’s signature to the engagement letter
b. Prepare a memorandum setting forth the staffing requirements and documenting the
preliminary audit plan
c. Make inquiries of the predecessor auditor after obtaining the consent of the of the
prospective client
d. Discuss the management representation letter with the prospective client’s audit committee.

38. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
a. Analysis of balance sheet accounts
b. Facts that might bear on the integrity of management
c. Analysis of income statement accounts
d. All matters of continuing according to significance

39. Penggot, CPA is succeeding Erwin, CPA on the audit engagement of Millits Corporation. Penggot plans to
consult Erwin and to review Erwin’s prior year working papers. Penggot may do so if
a. Milits Consents c. Erwin and Milits consent
b. Erwin Consents d. Erwin and Penggot Consent

40. Which of the following statements does not describe a condition that creates a demand for audit
a. Users can directly assess the quality of information
b. Conflict between an information preparer and a user can result in biased information
c. Information can have substantial economic consequences for a decision maker
d. Expertise is often required for information preparation and verification
41. 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. Many financial statement assertion cannot be audited
c. Some evidence supporting peso representations in the financial statements must be obtained by
oral or written representation of management
d. Fatigue and carelessness can cause auditor to overlooked pertinent evidence

42. The auditor should consider the nature, extent, and timing of the work to be performed and should
prepare a written audit program for every audit. Which audit standard is most closely related to this
requirement?
a. The work is to be adequately planned and assistants, if any, are to be properly supervised.
b. The audit is to be performed by a person or persons having adequate technical training and
proficiency as an auditor.
c. In all matters relating to the assignment, an independent mental attitude is to be maintained by the
auditor(s).
d. Due professional care is to be exercised in the planning and performance of the audit and
preparation of the report.

43. Which of the following statements is incorrect?

a. The auditor’s report must state whether the financial statements were prepared with GAAP.
b. The auditor’s report must imply whether the client has provided adequate disclosure on the financial
statements and in the accompanying notes.
c. The auditor’s report must state whether GAAP was consistently followed from the prior
period to the current period.
d. The auditor’s report must express an opinion on the financial statements taken as a whole, or explain
why there is no opinion provided.

44. With respect to the auditor’s planning of a year-end audit, which of the following statements is always
true?
a. An engagement should not be accepted after the fiscal year-end.
b. It is an acceptable practice to carry out part of the audit at interim dates.
c. An inventory count must be observed at the balance sheet date.
d. The client’s audit committee should not be told of the specific audit procedures that were performed.

45. The first standard of fieldwork, which states that the work is to be adequately planned, and assistants, if
any, are to be properly supervised, recognizes that
a. Acceptance of an audit engagement after the close of the client's fiscal year is generally not
permissible.
b. Early appointment of the auditor is advantageous both to the auditor and to the client.
c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of
opinion.
d. Performance of substantial parts of the engagement is necessary at interim dates.

46. An auditor who accepts an audit engagement and does not possess the industry expertise of the business
entity, should
a. Obtain a knowledge of matters that relate to the nature of the entity's business.
b. Engage financial experts familiar with the nature of the business entity.
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. First inform management that an unqualified opinion cannot be issued.

47. The amount of audit fees depend largely on the

a. Size and capitalization of the company under audit.
b. Volume of audit work and degree of competence and responsibilities involved.
c. Amount of profit for the year.
d. Availability of cash.
48. Under this method of billing a client, the external auditors charges on the basis of time spent by
principals/partners, supervisors, seniors and juniors at predetermined rates agreed upon with the client
a. Maximum fee basis
b. Retainer basis
c. Flat sum basis
d. Per diem basis

49. Identify the following as financial audit (FA), compliance audit (CA), and operational audit (OA).
• A supervisor is not carrying out his assigned responsibilities.
• A company’s tax return does not conform to income tax laws and regulations.
• A municipality’s financial statements correctly show actual cash receipts and disbursements.
• A company’s receiving department is inefficient.
a. CA, CA, FA, OA
b. OA, CA, CA, OA
c. CA, CA, FA, CA
d. OA, CA, FA, OA

50. Which of the following statements is not a distinction between independent auditing and internal
auditing?
a. Independent auditors represent third party users external to the auditee entity, whereas internal
auditors report directly to management.
b. Internal auditors are employees of the auditee, whereas independent auditors are independent
contractors.
c. The internal auditor's span of coverage goes beyond financial auditing to encompass operational and
performance auditing.
d. Although independent auditors strive for both validity and relevance of evidence, internal
auditors are concerned almost exclusively with validity.