AUDTHEO CH 02

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B

(MCQ) A primary purpose of an operational audit is to provide A. A means of assurance that internal accounting controls are functioning as planned. B. A measure of management performance in meeting organizational goals. C. The results of internal examination of financial and accounting matters to a company's top level management. D. Aid to the independent auditor, who is conducting the examination of the financial statements.

B

(MCQ) A type of audit the purpose of which is to determine whether the client is following specific procedures or rules set down by some higher authority. A. Operational audit B. Compliance audit C. Financial audit D. Detailed audit

A

(MCQ) An audit can have a significant effect on: A. Information risk. B. Business risk. C. The risk-free interest rate. D. All of these.

C

(MCQ) An audit designed to determine the extent to which the desired results of an activity established by the legislative or other authorizing body are being achieved. A. Economy audit. B. Efficiency audit. C. Program results audit. D. Financial-related audit.

C

(MCQ) Auditing includes both a(an): A. Documentation process and an evaluation process. B. Evaluation process and a reporting process. C. Investigative process and a reporting process. D. Documentation process and a reporting process

D

(MCQ) For what reason does an independent auditor gather evidence? A. To detect fraud. B. To appraise the internal control system. C. To assess management performance. D. To form an opinion on the financial statements.

D

(MCQ) Government auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness and A. Internal control. B. Accuracy. C. Evaluation. D. Compliance.

B

(MCQ) In government auditing, the three elements of expanded scope auditing are: A. Goal analysis, audit of operations, audit of systems. B. Financial and compliance, economy and efficiency, program results. C. Pre-audit, post-audit, internal audit. D. National government audit, local government audit, corporation audit.

A

(MCQ) Internal auditing relates to an A. Audit which serves the needs of management B. Audit which is performed by a professional practitioner as an independent contractor. C. Audit which is incidentally concerned with the detection and prevention of fraud. D. Audit wherein the auditor should be independent of management both in fact and in mental attitude.

B

(MCQ) Internal auditors cannot be totally independent A. Since they do not possess the CPA license B. As long as an employer-employee relationship exists C. Because they don't audit financial statements D. Unless their immediate supervisor is a CPA.

B

(MCQ) Management assertions are: A. Stated in the footnotes to the financial statements. B. Implied or express representations about the accounts in the financial statements. C. Explicitly expressed representations about the financial statements. D. Provided to the auditor in the assertions letter, but are not disclosed in the financial statements of the entity.

B

(MCQ) S1 CPA firms have as their primary responsibility the performance of the audit function on published financial statements of all publicly traded corporations. S2 The value of the CPA's opinion lies in the fact that he has gathered sufficient, competent, evidential matter to support his opinion. A. True, false B. False, true C. True, true D. False, false

C

(MCQ) The Constitution of the Philippines requires this Office to "keep the general accounts of the Government and for such period as may be provided by law, preserve the vouchers pertaining thereto." A. National Accounting Office B. Ministry of Finance C. Commission on Audit D. Government accounting units

D

(MCQ) The auditor communicates the results of his/her work through the medium of the: A. Engagement letter. B. Management representation letter. C. Financial statements. D. Audit report.

C

(MCQ) The criteria for evaluating quantitative information vary. For example, in the audit of historical financial statements by CPA firms, the criteria are usually: A. BIR Régulations B. Circulars issued by the Securities and Exchange Commission C. Generally accepted accounting principles D. Generally accepted auditing standards

D

(MCQ) The following phrases relate to the definition of auditing. Which one is INCORRECT? A. Systematic process B. Objectively obtaining and evaluating assertions C. Assertions about economic actions and events D. Degree of correspondence between assertions and PSAs.

C

(MCQ) The independent auditor lends credibility to client financial statements by A. Stating in the auditor's management letter that the examination was made in accordance with GAAS. B. Maintaining a clear-cut distinction between management's representations and the auditor's representations. C. Attaching an auditor's opinion to the client's financial statements. D. Testifying under oath about client financial information.

B

(MCQ) The main objective of operations auditing is A. To evaluate the integrity of accounting information B. To verify fulfillment of plans and sound business requirements C. To measure and evaluate the effectiveness of controls. D. To produce results as desired or directed.

B

(MCQ) 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. D. Congress at the national level and elected legislative bodies at the regional level.

B

(MCQ) The underlying conditions that create demand for users for reliable financial information do not include (the): A. Transactions that are numerous and complex. B. Expression of an opinion on the fairness of the financial statements. C. Users separated from accounting records by distance and time. D. Financial decisions that are important to investors and users.

B

(MCQ) This is an independent appraisal activity established within an entity as a service to the entity: A. Independent auditing B. Internal audit function C. Government auditing D. Compliance audit function

D

(MCQ) This type of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles: A. Operational audit. B. Compliance audit. C. Internal audit. D. Financial statements audit.

A

(MCQ) To operate effectively, an internal auditor must be independent of: A. The line functions of the organization. B. The entity. C. The employer-employee relationship which exists for other employees in the organization. D. All of these.

A

(MCQ) To provide for the greatest degree of independence in performing internal audit functions, an internal auditor most likely should report to: A. Those charged with governance. B. The corporate controller. C. The vice-president for finance. D. The shareholders of the company.

D

(MCQ) Which of the following best describes the operational audit? A. It requires the constant review by internal auditors of the administrative controls as they relate to operations of the company. B. It concentrates on implementing financial and accounting control in a newly organized company. C. It attempts and is designed to verify the fair presentation of a company's results of operations. D. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls.

B

(MCQ) Which of the following best describes the reason why an independent auditor reports financial statements? A. A management fraud may exist and it is more likely to be reported 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 was corrected as the result of the independent auditor's work. D. An excellent internal control system was in existence.

C

(MCQ) Which of the following methods is most commonly used to reduce information risk? A. Allow users to verify information. B. Users share information risk with management. C. Have the financial statements audited. D. Allow all users to prepare the statements.

B

(MCQ) 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 all available evidence. B. Some evidence supporting peso representations in the financial statements must be obtained by oral or written representation of the management. C. Human weakness, such as fatigue and carelessness, can cause auditors to overlook pertinent evidence or cause them to make the wrong conclusions. D. Judgment is used throughout the audit engagement.

B

(MCQ) Which of the following statements is an example of an assertion made by management in an entity's financial statements? A. Financial statements were prepared in an unbiased manner. B. Reported inventory balances reflect all related transactions for the period C. Reported accounts receivable does not include any uncollectible accounts D. The scope of the auditor's investigation was not limited in any way by management.

C

(MCQ) Which of the following types of audits are most similar? A. Operational audits and compliance audits. B. Independent financial statement audits and operational audits. C. Compliance audits and independent financial statement audits. D. Internal audits and independent financial statement audits.

True

(True/False) A typical objective of an operational audit is for the auditor to make recommendations for improving performances.

False

(True/False) After conducting an audit and release of the auditor's report, the primary responsibility on the fairness of the financial statements is shifted to the auditor.

True

(True/False) An audit benefits the public.

False

(True/False) An audit, if properly conducted, ensures that fraud is prevented.

False

(True/False) An independent audit aids in the communication of economic data because the audit guarantees that financial data are fairly presented.

False

(True/False) An independent auditor may participate in preparing financial statements, including accompanying notes.

False

(True/False) An independent auditor need not be a CPA.

False

(True/False) An operational audit conducted by an internal auditor is intended to provide an aid in the independent auditor examining the financial statements.

False

(True/False) Auditing requires that data should be externally-generated.

True

(True/False) Auditors must have independence and freedom from management constraint.

False

(True/False) Compared to the auditor of the past, the auditor of today focuses on the detection of fraud and error.

False

(True/False) Compliance audits are used to determine adherence to rules and regulations set by the auditor.

True

(True/False) External auditing refers to financial statement audits performed by independent auditors.

True

(True/False) Financial statements are assertions by an organization's management and are, therefore, the responsibility of management.

True

(True/False) Information risk is the risk that information provided to users may be materially misstated.

True

(True/False) Internal auditing is a managerial control which functions by measuring and evaluating the effectiveness of other controls.

True

(True/False) One of the primary reasons for an independent audit is the inherent potential conflict between an entity's management and other users of financial statement.

False

(True/False) The essence of an independent audit is to determine whether the client's financial statements complied with generally accepted auditing standards.

True

(True/False) The independent audit is important to readers of financial statements because it involves the objective examination of and reporting on management prepared statements.

False

(True/False) The main difference between auditors and accountants is the auditor's ability to interpret PSAs.

False

(True/False) The major beneficiaries of an internal audit are management and third-party users of the financial statement.

True

(True/False) The person or persons conducting an audit engagement is known as the auditor.

False

(True/False) The primary objective of a financial statement audit is to determine compliance with internal and external requirements, and seek necessary improvements to maximize the reliability of accounting data and company efficiency.

True

(True/False) The use of selective testing is one of the reasons why auditors can provide reasonable (but not absolute) assurance on the fairness of financial statements.

False

(True/False) Today, the most cost-beneficial option to reduce information risk is to have users directly verify the information.


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