AUDITING THEORY INTRODUCTION TO AUDITINGRED SIRUG 1. An independent audit is important to readers of financial statements because it a. Provides a measure of management's stewardship function b. Measures and communicates the financial data included in financial statements c. Objectively examines and reports on management's financial statements d. Reports on the accuracy of information in the financial statements 2. An independent audit aids in the communication of economic data because the audit a. Confirms the accuracy of management's financial representation. b. Guarantees that financial data are fairly presented. c. Assures the readers of financial statements that any fraudulent activity has been corrected. d. Lends credibility to the financial statements. 3. The purpose of an audit of financial statements is to a. Obtain an absolute level of assurance that the financial statements as a whole are free from material misstatement. b. Relieve management or those charged with governance of the responsibility for the preparation and presentation of the financial statements in accordance with the applicable financial reporting framework. c. Enhance the degree of confidence of intended users in the financial statements. d. Assure the future viability of the entity by expressing an opinion on the entity's financial statements. 4. Independent auditing can best be described as a. A branch of accounting. b. A professional activity that measures and communicates financial and business data. c. A regulatory function that prevents the issuance of improper financial information. d. A discipline which attests to the results of accounting and other functional operations and data. 5. The primary purpose of an independent financial statement audit is to: a. Provide a basis for assessing management's performance b. Comply with government regulatory requirements c. Assure management that the financial statements are unbiased and free from material error d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements 6. The audit process is a. A special application of the scientific method of inquiry. b. Regulated by the PICPA. c. The only service a CPA is allowed to perform by law. d. Performed only by CPAs. 7. The overall objectives of the auditor in conducting an audit of financial statements are: I. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether caused by fraud or error. II. To report on the financial statements. III. To obtain conclusive rather than persuasive evidence IV. To detect all misstatements, whether due to fraud or error a. I and II only b. II and IV only c. I, II, and III only d. I, II, III and IV 8. Which of the following is not among the factors that result to limitations of audit? a. Use of testing b. Going concern problem of the assurance client c. Human error d. Evidence is basically persuasive rather than conclusive 9. The market for auditing services is driven by a. The regulatory authority of the Securities and Exchange Commission. b. A demand by external users of financial statements. c. Pronouncements issued by the Auditing and Assurance Standards Council. AT – Introduction to Audit Red Sirug Page 1 An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion. Philippine Standards on Auditing b. such as records and documentation. Should be exercised in planning and performing an audit of financial statements but need not be documented. timing. and maintain internal control relevant to the preparation and presentation of financial statements that are free from material misstate ment. Securities and Exchange Commission. Philippine Financial Reporting Standards c. d. 15. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtained. The primary responsibility for the adequacy of disclosure in the financial statements rests with the: a. To provide the auditor with all information. c. and other matters that are relevant to the preparation and presentation of the financial statements. b. Congress. To design. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism. c. Partner assigned to the audit engagement. those charged with governance have responsibilities that are fundamental to the conduct of the audit. 17. Auditor in charge of the field work. d. c. The auditor is required to maintain professional skepticism throughout the audit. d. The auditor's report should provide an assurance as to the future viability of the entity. c. Securities and Exchange Commission Regulations 12. whether caused by fraud or error. The auditor's judgment concerning the overall fairness of presentation of financial position. 13. d. 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. To comply with all relevant PSAs in the preparation and presentation of the entity's financial statements. Improvement of accounting system. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate assumptions in determining the nature. b. National Internal Revenue Code d. Determination of fair presentation of financial statements. Is not used in making decisions about materiality and audit risk. c. For example. Professional judgment: a. b. b. 11. To provide unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence. in the case of an independent audit of financial statements by CPA firms. 16. Which of the following is not one of those responsibilities? a. where appropriate. results of AT – Introduction to Audit Red Sirug Page 2 . The fair presentation of audited financial statements in accordance with an applicable financial reporting framework is an implicit part of the auditor's responsibilities. Detection of fraud or irregularities. An audit in accordance with PSAs is performed on the premise that management and. 14. d. The independent auditor of the past differs from the auditor of today in that the past auditor was more concerned with the a. b. Is necessary in the evaluation of management's judgments in applying the entity's applicable financial reporting framework. and extent of the audit procedures and evaluating the results thereof. Management of the company. the criteria are usually the: a. Which of the following statements concerning professional skepticism is false? a. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements? a. Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence. The criteria for evaluating quantitative information vary. Professional skepticism is necessary to the critical assessment of audit evidence. Validity of the income statement. implement. c.d. 10. b. the auditor's report should contain a/an: a. Objectively examines and reports on management's financial statements c. Remoteness of users. Either I or II d. Both I and II 25. The auditor's judgment concerning the overall fairness of presentation of financial position. d. results of operation. Unmodified opinion b. d. Lends credibility to the financial statements. d. Qualified or adverse opinion d. The auditor is required to comply with all PSAs relevant to the audit of an entity's financial statements. b. The readers of the financial statements must possess the necessary expertise to be able to understand the financial statements. The auditor is required to obtain reasonable assurance about whether the financial statements are free of material misstatement. c. 22. As experts. Increased revenue c. b. Provide users with an unbiased opinion about the fairn ess of information reported in the financial statements 19. The benefits of an operational audit generally include all of the following except: a. The data to be audited are verifiable. the audit should be conducted in accordance with Philippine Accounting Standards / Philippine Financial Reporting Standards Generally accepted auditing standards Code of Ethics for CPAs in the Philippines Philippine Standards on Auditing 21. financial statement audits. c. An audit benefits the public. Generally accepted auditing standards which include the concept of materiality b. I only b. b. Decreased costs. Auditors usually rely on the work of an expert as a basis for evaluating some assertions embodied in the financial statements. Quality control 20. In a. Philippine Financial Reporting Standards d. One of the conditions that give rise to a demand for an external audit of financial statements is expertise. A PSA is relevant to the audit when: I. II. Which of the following statements does not properly describe an element of the theoretical framework of auditing? a. Which of the following best describes the meaning of expertise as used in this context? a. and changes in cash flow is applied within the framework of a. Measures and communicates the financial data included in financial statements d. c. d. auditors are expected to detect all material misstatements in the financial statements. b. Generally accepted accounting principles. a. Users usually lack the necessary expertise to verify the reliability of the financial information. whether due to fraud or error. Qualified or disclaimer of opinion c. Philippine Financial Reporting Standards d. b. c. II only c. c. Generally accepted auditing standards which include the concept of materiality b. Increased productivity. The circumstances addressed by the PSA exist. and changes in cash flow is applied within the framework of a. An independent audit is important to readers of financial statements because of the following except: a. 24. Auditor should maintain independence with respect to the audit client. The PSA is in effect. Increased reliability of the financial statements. Quality control 18. In all cases when reasonable assurance cannot be obtained. Generally accepted accounting principles.operation. Disclaimer of opinion 23. AT – Introduction to Audit Red Sirug Page 3 . b. The type of accounting used -reviews are typically on non-GAAP accounting. Relevant. Inquiry of management and analytical procedures. Reasonable assurance. An audit. a. Internal control limitation. c. b. Pervasive. c. b. Management audit. 34. 33. Incompetence of the auditor. Positive assurance. 29. b. b. Use of testing.26. An audit. an audit. c. d. d. AT – Introduction to Audit Red Sirug Page 4 . while audits are based upon GAAP accounting. All of the above 30. An audit designed to evaluate the efficiency and effectiveness of an organization or some or part thereof would not come under the title of a. b. Which of the following statements does not properly describe a limitation of an audit? a. c. The level of knowledge of professional standards needed to perform the procedures. a compilation. then the information is a. review of unaudited financial statements consists of: Inquiry of management and documentation of internal controls. Criteria 35. Generally accepted auditing standards b. d. The a. c. 31. b. c. The statement that the reviewer "is not aware of any material modification that should be made to the financial statements in order for them to be in conformity with GAAP" is known as: a. Many financial statement assertions cannot be audited. Compliance audit. a review. Negligent performance. Examination of the economy and efficiency of governmental operations d. a review. Material. Performance audit. 27. Inherent limitations in an audit stem from the following factors except a. Analytical procedures and compliance with laws and regulations. d. a review. Significant. Assertions c. b. The type of company involved in reviews may only be publicly-held. d. Attesting to financial statements b. 32. If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information. Internal control evaluation and management representation. this refers to the information obtained by the practitioner in arriving at the conclusions on which the conclusion is based. Which of the following is a major difference between a review and an audit of the financial statements? a. an audit. A compilation. a compilation. In an assurance engagement. under taken by the auditor is permeated by judgment. 28. The work. c. c. Evaluation of a division’s performance for management c. A review. a compilation. Auditing services may include which of the following? a. Most audit evidence is persuasive rather than conclusive. d. Evidence d. Operational audit. d. Which of the following represents the highest to lowest level of assurance provided by auditors in the performance of the engagement? a. Many audit conclusions are made on the basis of examining a sample of evidence. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence. d. Negative assurance. The scope of the procedures performed and the assurance provided. Audit report. Which of the following statements about independent financial statement audit is correct? a. Auditors gathered enough evidence to provide a reasonable basis for forming an opinion. b. as to whether the financial statements taken as a whole are fairly presented in conformity with GAAP. International Accounting Standards b. The auditor's evaluation of the audited company's internal control. c. 37. 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. d. control and direction of an entity is a. Form an opinion on the financial statements c. Philippine Financial Reporting Standards d. Philippine Accounting Standards 41. auditors give assurance in the form of opinion. Fairness of the financial statement amounts. of financial statements. The term that describes the role of persons entrusted with the supervision. b. Evaluate internal controls 43. AT – Introduction to Audit Red Sirug Page 5 . c. 42. Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion. b. Auditors give assurance that the financial statements are accurate.36. Engagement letter. d. The Philippine Standards on Auditing issued by AASC: a. The auditor communicates the results of his or her work through the medium of the a. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA. The auditor's judgment concerning the overall fairness of presentation of financial position. c. c. which of the following would not be a valid criterion? a. Quality of managements' business decisions. Quality control b. b. results of operation. In performing a financial statement audit. d. Need to be applied on all audit related. Which of the following is not an assurance that the auditors give to the parties who rely on the financial statements? a. and changes in cash flow is applied within the framework of a. c. Must not apply to other related activities of auditors. Government. In the case of an audit. Philippine Standards on Auditing c. d. 39. 38. Management letter. 44. Internal control. The reason an independent auditor gathers evidence is to a. Generally accepted auditing standards which include the concept of materiality c. 40. b. Management. Evaluate management d. d. Compliance with GAAP. The procedures required to conduct an audit in accordance with PSAs should be determined by the client who engaged the services of the auditor. Governance. An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement. which of the following would an auditor least likely consider? a. b. d. even though such a departure may result to more effective achievement of the objective of an audit. Administration. Auditors know how the amounts and disclosures in the financial statements were produced. An audit involves ascertaining the degree of correspondence between assertions and established criteria. c. Audited financial statements. The audit of financial statements relieves management of its responsibilities for die financial statements. Detect fraud b. If the evidence allows the auditors to do so. Short-term conflicts may exist between managers who prepare data and auditors who examine the data.d. d. 46. The client's financial statements may be materially false and misleading. the audit process should be conducted in accordance with Philippine Accounting Standards The audit program Philippine Standards on Auditing Philippine Financial Reporting Standards 53. Auditors act on behalf of management. b. d. The auditor should conduct the audit in accordance with PSA. 51. 52. b. Information risk refers to the risk that a. d. d. The need for independent audits of financial statements can be attributed to all of the following conditions except: a. b. Transactions that are numerous and complex. The company preparing the statements may have a vested interest in reporting certain results. Ability to interpret generally accepted accounting principles. Accumulation and interpretation of evidence. 48. b. Users separated from accounting records by distance and time. The expertise that distinguishes auditors from accountants is in the a. The auditor should plan and perform the audit with an attitude of professional skepticism. Each of the above is a cause of information risk. c. c. Why does a company choose to have an independent auditor report on its financial statements? a. financial statement audits. The client may not be able to remain in business. Decisions are not time-sensitive. Which of the following is not one of the general principles governing the audit of financial statements? a. c. Which of the following statements does not describe a condition that creates a demand for auditing? a. d. AT – Introduction to Audit Red Sirug Page 6 . Errors and frauds would not be detected by the auditor's procedures. Expertise is often required for information preparation and verification. Independent auditors guarantee the accuracy of the financial statements. c. Conflict between an information preparer and a user can result in biased information. c. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusions. Information can have substantial economic consequences for a decision maker. 50. Financial decisions that are important to investors and users. d. The data to be audited can be verified. Consequence d. Voluminous data. d. c. Remoteness c. Complexity of subject matter 47. Which of the following statements does not properly describe an element of the theoretical framework of auditing? a. Which of the following is a cause of information risk? a. Biases and motives of the provider of information. 54. The underlying conditions that create demand by users for reliable information include the following except: a. b. 45. b. 49. b. c. c. Generally accepted accounting principles. c. An independent audit is designed to search for deficiencies in the company's internal controls. Remoteness of the information. The auditor may express an unqualified opinion on financial statements that are material misstated. d. Requirement to possess education beyond the bachelor's degree. Ability to interpret PAS/PFRS. b. In a. The auditor should comply with the Philippine Code of Professional Ethics. Independent auditors will always detect management fraud. Validity b. Users can directly assess the quality of information. b. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements. Scope limitations imposed by the entity 60. Reasonable c. Familiarity with the particular industry of each client. The level of assurance provided by a professional accountant on an audit report is: a. Financial audit b. Working independently. Nature of evidence obtained b. Financial statement audit c. Internal auditing b. Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements. Limitations imposed by client c. Which of the following types of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles? a. can prove. Nature of evidence that the auditor obtains 61. General competence. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements. Data are verifiable when two or more qualified individuals. The use of testing b. Which of the following terms does not belong to the group a. Independent audit 62. 59. Compliance audit AT – Introduction to Audit Red Sirug Page 7 . the truthfulness of the data. Reasonable assurance means: a. b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are free of material unintentional misstatements. each reach essentially similar conclusions. Provide assurance that financial data have been accurately recorded 63. the accuracy of the data. Which of the following types of auditing is performed most commonly by CPA's on a contractual basis? a. 55. Attest to the efficiency with which resources are employed b. b. Which of the following is not one of the limitations of an audit? a. Working together. Working together. The overall objective of forensic auditing is to a. None 58. Moderate d. Auditing is based on the assumption that financial data are verifiable. beyond doubt. beyond reasonable doubt. c. Government auditing d. can agree upon the accuracy of the data.d. can prove. b. 57. d. Human error d. Internal audit c. d. Working independently. d. Income tax auditing c. c. Which of the following criteria is unique to the independent auditor's attest function? a. Independence. Confidentiality of information d. are free from any misstatements. taken as a whole. a. Inadequacy of the accounting records c. Assist members of the organization in the effective discharge of their responsibilities c. External auditing 64. taken as a whole. Unearth the truth and provide evidence in legal and financial disputes d. c. Low b. External audit d. taken as a whole. 56. Which of the following is one of the limitations of an audit? a. Due professional care. Operational audit b. An audit benefits the public. An a. 67. b. One of the conditions that give rise to a demand for an external audit of financial statements is expertise. Obtaining and examining evidential matter c. Confirms the accuracy of the financial statements. Board of Accountancy 66. d. The auditor is responsible only to his qualified opinion but not for any other type of opinion. d. c. Timeliness. Examine individual transactions so that the auditor can certify as to their validity. Detect fraud. One of these conditions is consequence. Examining cash transactions d. In this context. The auditor's responsibility is confined to the expression of opinion on the financial statements audited. d. b. Client's management b. Which of the following best describes the meaning of expertise as used in this context? a. Assures the readers that fraudulent activities of employees have been detected. Users of the statements may not fully understand the consequences of their actions. Most of the independent auditor's work in formulating an opinion on financial statements consists of a. The auditor's responsibility on fair presentation of financial statements is limited only up to the date of the audit report. b. Client's internal control is functioning as intended. The readers of the financial statements must possess the necessary expertise to be able to understand the financial statements. b. Enhances the credibility of the financial statements. Governance.d. Auditors usually rely on the work of an expert as a basis for evaluating some assertions embodied in the financial statements. Audit committee c. audit of financial statements is conducted to determine if the Organization is operating efficiently and effectively Auditee is following specific procedures or rules set down by some higher authority Overall financial statements are stated in accordance with an identified financial reporting framework. There are four conditions that give rise to the need for independent audits of financial statements. c. c. 73. 68. Auditor must anticipate all possible consequences of the report issued. consequence means that the: a. d. Relevance. Determine whether the client's financial statements are fairly stated. Performance audit 65. Audits of financial statements include an expression of a conclusion about which of the following financial statement characteristics? a. Financial statements are used for important decisions. b. 71. 69. Impact of using different accounting methods may not be fully understood by the users of the statements. By a. c. c. The best statement of the responsibility of the auditor with respect to audited financial statement is: a. b. providing high level of assurance on audit reports on financial statements. d. c. d. Comparing recorded accountability with assets 70. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial statements. Users usually lack the necessary expertise to verify the reliability of the financial AT – Introduction to Audit Red Sirug Page 8 . The essence of the attest function is to a. Which of the following has the primary responsibility for the fairness of the representations made in the financial statements? a. 72. b. Studying and evaluating internal control b. the auditor Guarantees the fair presentation of the financial statements. Reliability. c. Ensure the consistent application of correct accounting procedures. Independent auditor d. d. auditors are expected to detect all material misstatements in the financial statements. The general public in making investment decisions. c. c. An a. b. The board of directors as basis of declaring cash dividends. audit can have a significant effect on Information risk. Different groups for different purposes. 75. Financial statements c. Assertions about economic actions and events d. Users demand assurance that fraud does not exist. Because an external auditor is paid a fee by a client company. Assertions are the representations of management as to the fairness of presentation of the financial statements. d. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence. b. Operating data 80. b. c. d. As experts. Assertions are found only in the notes to the financial statements. 79. Users expect auditors to correct management errors. Verifiable b. Must receive approval of the Securities and Exchange Commission before conducting an audit. Broadly defined. 82. Reduce the cost of capital b. under taken by the auditor is permeated by judgment. Many financial statement assertions cannot be audited. Auditing is a systematic process. In relation to auditing. The assumption underlying an audit of financial statements is that they will be used by a. Auditing subjectively obtains and evaluates evidence. The regulatory agencies to verify information that is relevant to their supervisory functions. Presented fairly d. Management may not be objective in reporting. b. b. which of the following statements best describes "assertions”? Assertions are the auditor's findings to be communicated in his audit report. As a. Report on compliance with laws and regulations c. Overlook information risk 78. Users of financial statements demand independent audit because a. b. Assertions are the representations of management as to the reliability of the information system. the subject matter of any audit consists of a. c. All of these. Independent auditors of financial statements perform audits that reduce and control a. Business risk. Auditing communicates results to interested users. Consistently applied 84. c. d. b. 76. Is never considered to be independent. Financial statements audits: a. used in auditing. May be sufficiently independent to conduct an audit. 81. 77. Management relies on the auditor to improve internal control. d. d. 74. d. d. Auditing is based on the assumption that financial data and statements are a. In conformity with the identified applicable financial reporting framework c. Business risk faced by investors AT – Introduction to Audit Red Sirug Page 9 . 83. c. The work. he a.information. which of the following is an incorrect phrase? a. Many audit conclusions are made on the basis of examining a sample of evidence. Is absolutely independent and may conduct an audit. c. Which of the following statements does not properly describe a limitation of an audit? a. Auditing evaluates evidence regarding assertions. Economic data b. Assess management's efficiency d. The risk-free interest rate. b. 92. in all material respects.” d. Operational audits and compliance audit. Consulting engagements b. Assurance engagements performed by professional accountants are intended to enhance the credibility of information. 87. The auditor is alert to audit evidence that contradicts or brings into question the reliability of documents or management representations. In planning and performing an audit. b. if properly conducted. Timeliness of financial statements 85. To gather sufficient. Agreed-upon procedures d.b. Complexity of financial statements d. Which of the following is least likely an application of maintaining an attitude of professional skepticism? a. c. 88. with the identified suitable criteria. c. Preparation of tax returns c. d. 93. The degree or level of assurance that may be provided by the practitioner is inversely related to the scope of procedures performed and their results. To comply with generally accepted auditing standards c. The auditor does not consider representations from management as substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. d. Which of the following best describes the primary purpose of audit procedures? a. When examining financial data for the purpose of expressing an independent opinion thereon. Absolute assurance is attainable owing to the fact that much of the evidence available to the CPA is persuasive rather than conclusive. Assurance engagements do not require independence. To detect errors or fraud b. Independent financial statements audit 91. b. Which of the following statements is true? a. d. After conducting an audit and release of the auditor’s report. Application of generally accepted accounting principles results in a fair presentation of financial statements. with a questioning mind. b. Internal audits and independent financial statement audits. Professional standards prohibit CPAs from performing non-assurance engagements. appropriate evidence d. d. The term “auditor” is broader in scope compared to the term “practitioner. c. the auditor acts exclusively in the capacity of an auditor. 89. Which of the following engagements is covered by the Framework for Assurance Engagements? a. Information risk faced by investors c. An audit. Compliance audits and independent financial statement audits. the primary responsibility on the fairness of the financial statements is shifted to the auditor. The responsible party expresses a conclusion that provides a level of assurance as to whether the subject matter conforms. In collecting evidence. Compliance audits are conducted to determine adherence to rules and regulations set by the auditor. Which of the following types of audits would be intended to determine whether a governmental entity is following sound procurement practices? AT – Introduction to Audit Red Sirug Page 10 . auditors should maintain an attitude of trust about their clients' assertions. c. Independent financial statement audits and operational audits. Which of the following statements is true? a. c. Effective internal control structure reduces the probability of fraud or irregularities in an organization. 86. Which of the following types of audits are most similar? a. d. Which of the following statements is true? a. b. the auditor assumes that management is dishonest. b. ensures that fraud is prevented. of the validity of audit evidence obtained. c. An independent auditor must be a CPA. The CPA’s conclusion provides a level of assurance about the subject matter. To verify the accuracy of account balances 90. Which of the following is an incorrect statement relating to the theoretical framework of auditing? a. The auditor makes a critical assessment. b. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls. Stockholders c. Operational audit d. 96. To serve as an independent. and changes in cash and stockholders' equity. Assist members of the organization in the effective discharge of their responsibilities. b. objective assurance and consulting activity that adds value to operations. c. Pre-audit. External audit b. To ascertain that financial statements present accurately the financial position. What is the proper organizational role of internal auditing? a. b. the three elements of expanded scope auditing are a. Provide assurance that financial data have been accurately recorded. Program audit Compliance audit Financial statement audit Operational audit 94.a. 95. d. An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives is a(n): a. Compliance audit c. 102. Audit of financial statements. a. d. audits of operations. To help members of the organization to effectively discharge their responsibilities. corporation audit. To assist the external auditor in order to reduce external audit fees. Financial and compliance. Attest to the efficiency with which resources are employed. operating results. c. Operational audit. c. d. Goal analysis. Financial statement audit AT – Introduction to Audit Red Sirug Page 11 . An audit which is undertaken in order to determine whether the auditee is following specific procedures or rules set down by some higher authority is classified as a(n) a. It attempts and is designed to verify the fair presentation of a company's results of operations. post-audit. internal auditing provides assistance to a. d. Ascertain that the cost of internal control is justified. Government 99. Ascertain that controls are costs justified. The overall objective of internal auditing is to a. In government auditing. c. Management and the board of directors d. d. economy and efficiency. c. What is the overall objective of internal auditing? To attest to the efficiency with which resources are used. To that end. Compliance audit. b. Which of the following best describes the operational audit? a. a. It requires the constant review by internal auditors of the administrative controls as they relate to operations of the company. c. local government audit. Production audit. program results. b. b. 98. audit of systems. d. b. 97. Which of the following types of audit uses laws and regulations as its criteria? Operational audit Financial statement audit Compliance audit Performance audit 101. To serve as the investigative arm of the audit committee of the board of directors. c. d. To perform studies to assist in the attainment of more efficient operations. d. c. 100. External auditors b. Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activities. internal audit. National government audit. b. It concentrates on implementing financial and accounting control in a newly organized company. c. d. a. d. 106. The usual audit of the financial statement covers four basic statements. Requiring internal auditors to report all significant findings of fraud and illegal activity to the company president. c. b. d. 109. b. The internal auditing profession has advanced primarily as a result of Increased interest by Bachelor of Science in Accountancy (BSA) graduates and experienced auditors. d. b. Which of the following best describes the scope of internal auditing as it has developed to date? a. Financial statements are fairly presented. d. b. Determine whether the internal control system provides reasonable assurance that the company's objectives and goals are met efficiently and economically. Which of the following actions would be an appropriate response by companies to improve the public's perception of their financial reporting? a. Keeping external and internal auditing work separated to maintain independence. Internal auditing has evolved to more of an operational orientation from a strictly financial orientation. and timeliness of financial and operating data used in management's decision making. d. b. timing. c. Internal auditing involves appraising the economy and efficiency with which resources are employed. Determine whether the internal control system ensures that financial statements are fairly presented. Examine and evaluate the system of internal control. State the auditor’s opinion or conclusion. plans. Which of the following is the best example of one of these differences? a. reliability. The limitation of financial statement audit scope. 107. c. Which of the following is considered a primary reason for creating an internal audit department? To safeguard resources entrusted to the organization. and extent of tests necessary to achieve audit objectives. Past protection provided by existing internal control. Ensure that material weaknesses in the system of internal control are corrected. Internal auditors review the adequacy of the company's internal control system primarily to Help determine the nature. The internal auditing department's responsibility for deterring fraud is to Exercise operating authority over fraud prevention activities. a. d. Report findings and recommendations. Operational audit differs in many ways from an audit of financial statements. To relieve management of the responsibility for establishing effective controls. Increased complexity and sophistication of business operations.103. A operational audit is primarily oriented toward Future improvements to accomplish management’s goals. Operational audit do not necessarily result in the preparation of a report. The most important function of operational audit report is to: Direct management to take specified actions. The boundaries of an operational audit are often drawn from an organization chart and are not limited to a single accounting period. 108. Internal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets. 105. Report the objective of the audit. whereas operational audit is usually limited either the statement of financial position or the income statement. b. AT – Introduction to Audit Red Sirug Page 12 . 104. Operational information is in accordance with generally accepted accounting principles. To ensure the accuracy. c. procedures. c. c. a. and regulations. Internal auditing involves evaluating compliance with policies. b. b. 111. d. a. a. c. b. Maintain internal control. None of the above. To evaluate and improve the effectiveness of control processes. Increased adoption of audit committees. 110. d. laws. a. Job qualification specifications that include added emphasis on background knowledge and skills. Establish an effective internal control system. c. The operational audit deals with pre-tax income. Internal auditors should review the means of physically safeguarding assets from losses arising from Procedures that are not cost justified. d. Assume responsibility for assuring that the entity complies with applicable laws and regulations. Underusage of physical facilities. Misapplication of accounting principles. b. Assess control risk with respect to each component of internal control. Collect quantifiable data on the program's success or failure. Determine the time frame to be audited. Compliance d. Financial statements present fairly the results of operations. a. Identify the legislative intent of the program being audited. b. An objective of a performance audit is to determine whether an entity's Operational information is in accordance with government auditing standards. but may be performed by certified public accountants. Evaluate the system used to measure results. d. effectiveness. Evaluate the feasibility of attaining the entity's operational objectives. A typical objective of an operational audit is for the auditor to Determine whether the financial statements fairly present the entity's operations. An auditor should report on the scope of the auditor's testing of internal control. The results of internal examinations of financial and accounting matters to a company's top-level management. A means of assurance that internal accounting controls are functioning as planned. A typical objective of an operational audit is to determine whether an entity's Internal control structure is adequately operating as designed Operational information is in accordance with generally accepted accounting principles. Report on the entity's relative success in maximizing profits. Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported. c. a. An auditor should determine the extent to which the entity's programs achieve the desired level of results. 117. d. 114. b. d. An auditor should briefly describe in the auditor's report the method of statistical sampling used in per forming tests of controls and substantive tests. c. Accuracy b. A primary purpose of an operational audit is to provide: a. b. The objective of governmental effectiveness or program auditing is to determine if the desired results of a program are being achieved. economy. c. c. b. Evaluation c. who is conducting the examination of the financial statements. c. d. a. G ove rn m e n ta l a u d itin g ofte n e xte n d s b e yon d examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency. b. Operational audits generally have been conducted by internal and COA auditors. A measure of management performance in meeting organizational goals. and also: a. d. b. What is the first step in conducting such an audit? a.112. Make recommendation for improving performance. Internal control is adequately operating as designed. An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable. 119. a. c. c. d. 113. Specific operating units are functioning economically and efficiently. 120. b. d. 115. Specific operating units are functioning efficiently and effectively Financial statements present fairly the results of operations 116. Which of the following statements is a standard applicable to financial statement audits in accordance with Government Auditing Standards? a. Aid to the independent-auditor. AT – Introduction to Audit Red Sirug Page 13 . What is the responsibility of an auditor who is engaged to audit the financial statements of a government entity? a. c. Design the audit to provide reasonable assurance that the statements are free of material misstatements resulting from illegal acts having direct or indirect effects. Exposure to the elements. Internal control 118.