San Mateo Municipal College Auditing and Assurance – Principles

Guitnang Bayan, San Mateo, Rizal Nilo N. Iglesias, CPA, MBA, REA

Multiple Choice
Topic 1-Audit Overview
Instruction: Select the best answer.

1. Broadly defined, the subject matter of any audit consists of:

a) Financial statements
b) Economic data
c) Assertions
d) Operating data
2. An audit of financial statements is conducted to determine if the
a) Organization is operating efficiently and effectively
b) Auditee is following specific procedures or rules set down by some higher authority
c) Overall financial statements are stated in accordance with the applicable financial reporting framework
d) Client’s internal control is functioning as intended
3. Most of the independent auditor’s work in formulating an opinion on financial statements consists of
a) Studying and evaluating internal control
b) Obtaining and examining evidential matter
c) Examining cash transaction
d) Comparing recorded accountability with assets
4. 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) External Audit
b) Compliance audit
c) Operational audit
d) Financial statement audit
5. Which of the following type of audit uses laws and regulations as its criteria?
a) Operational audit
b) Financial statement audit
c) Compliance audit
d) Performance audit
6. A typical objective of an operational audit is to determine whether an entity’s
a) Internal control structure is adequately operating as designed
b) Operational information is in accordance with generally accepted accounting principles
c) Specific operating units are functioning efficiently and effectively
d) Financial statements present fairly the results of operation
7. The auditor communicates the results of his or her work through the medium of the
a) Engagement letter
b) Audit report
c) Management letter
d) Financial statements
8. Which of the following types of auditing is performed most by CPA’s on contractual basis?
a) Internal auditing
b) Income Tax auditing
c) Government auditing
d) External auditing
9. The overall objective of internal auditing is to
a) Attest to the efficiency with the resources are employed
b) Ascertain that controls are costs justified
c) Provide assurance that financial data have been accurately recorded
d) Assists members of the organization in the effective discharge of their responsibilities
10. Which of the following has the primary responsibility for the fairness of the representations made in the
financial statements?
a) Client’s management
b) Audit committee
c) Independent auditor
d) Board of accountancy
11. By providing high level of assurance on audit reports on financial statement, the auditor
a) Guarantees the fair presentation of the financial statements
b) Confirms the accuracy of the financial statements
c) Enhances the credibility of the financial statements
d) Assures the readers that fraudulent activities of employees have been detected
12. The reason an independent auditor gathers evidence s to
a) Form an opinion on the financial statements
b) Detect fraud
c) Evaluate management
d) Evaluate internal controls
13. Professional skepticism requires that an auditor assume that management is
a) Dishonest until completion of the audit test
b) Neither honest nor dishonest
c) Offering reasonable assurance of honesty
14. The level of assurance provided when an auditor issues and audit report is
a) Low
b) Reasonable
c) Moderate
d) None
15. 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 increase assurance to users as to the fairness of the financial statements
d) To ensure that any will be discovered
16. The need for independent audits of financial statements can be attributed to all the following condition except
a) Remoteness
b) Consequence
c) Complexity of subject matter
d) Validity
17. There are four conditions that give rise to the need of independent audits of financial statements. One of these
conditions is consequence. In this context, consequence means that the:
a) Users of the statements may not fully understand the consequences of their actions
b) Auditor must anticipate all possible consequences of the report issued
c) Impact of using different accounting method may not be fully understood by the users of the statements
d) Financial statements are used for important decisions
18. Which of the following is incorrect about responsibility for financial statements?
a) Management is responsible for fair presentation of the financial statements
b) Auditor is responsible for expressing an opinion on the financial statements
c) Audit of financial statements does not reduce management’s responsibility
d) Fair presentation of financial statements is an implicit part of the auditor’s responsibility
19. Which of the following statements about independent financial statement audit is incorrect?
a) The term “scope of audit” refers to audit procedures deemed necessary in the circumstances to achieve the
objective of audit
b) The auditor’s opinion enhances the credibility of the financial statements
c) The phrase used to express the auditor’s opinion is “present fairly, in all material respects”
d) The risk that the auditor will fail to uncover material misstatement is eliminated when the auditor conducts
the audit in accordance with PSAs.
20. The procedures deemed necessary in the circumstances to achieve the objective of the audit shall be
determined by the
a) Client management
b) Independent auditor
c) Internal auditor
d) Those charged with governance

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