NAME:__________________________________ Yr.

& Course: __________ Date:__________ Score: __________

Introduction to Auditing
Select the best answer for each of the following questions.

1. Which of the following best describes the objective of an audit of financial statements?
a. To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.
b. To express an assurance as to the future viability of the entity whose financial statements are being audited.
c. To express an assurance about the managements efficiency or effectiveness in conducting the operations of
entity.
d. To express an opinion whether the financial statements are prepared, in all material respect, in
accordance with an identified financial reporting framework.
2. Certain fundamental beliefs called "postulates" underlie auditing theory. Which of the following is not a postulate of
auditing?
a. No long-term conflict exists between the auditor and the management of the enterprise under audit.
b. Economic assertions can be verified.
c. The auditor acts exclusively as an auditor.
d. An audit has a benefit only to the owners.
3. 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
4. Which of the following is explicitly included in the Auditors responsibility section of the auditor's report?
a. Reason for modification of opinion.
b. Philippine Financial Reporting Standards.
c. Philippines Standards on Auditing.
d. Division of responsibility with another audit.
5. Identify the following as financial audit (FA), compliance audit (CA), and operational audit (OA).
1) A supervisor is not carrying out his assigned responsibilities.
2) A company's tax return does not conform to income tax laws and regulations.
3) A municipality's financial statements correctly show actual cash receipts and disbursements.
4) A company's receiving department is inefficient.
a.
b.

CA, CA, FA, OA

OA, CA, CA, OA

c. OA, CA, FA, OA

d. CA, CA, FA, CA

6. A review of any part of an organizations procedures and methods for the purpose of evaluating efficiency and
effectiveness is classified as a (n)________.
a. Audit of financial statements
c. Operational audit
b. Compliance audit
d. Production audit
7. The best description of the auditors responsibility with respect to audited financial statement is:
a. The auditor's responsibility on fair presentation of financial statements is limited only up to the date of the audit
report.
b. The auditor is responsible for detecting misstatements on the financial statements.
c. The responsibility over the financial statements rests with the management.
d. The auditor's responsibility is limited to the expression of opinion on the financial statements
8. Which of the following best describes what is meant by the term PSA?
a. Rules acknowledged by the accounting profession because of their universal application.
b. Pronouncements issued by the Auditing Standards Board.
c. Measures of the quality of the auditor's performance.
d. Procedures to be used to gather evidence to support financial statements.
9. In relation to auditing, which of the following is a correct phrase?
a. Auditing communicates results to management.
b. Auditing involves obtaining evidence regarding action and events.
c. Auditing evaluates assertions regarding evidence.
d. Auditing subjectively obtains and evaluates evidence.
10. Philippine Standards on Auditing require auditors to assess the risk of material misstatements due to fraud
a. For first-time audits.

b. Sufficient to find any frauds which may exist.

c. For every audit.
d. Whenever it would be appropriate.

11. The independent auditor lends credibility to clients financial statements by

a. Stating in the auditors management letter that the examination was made in
accordance with generally
accepted auditing standards.
b. Maintaining a clear-cut distinction between managements representations and the
auditors representation
c. Attaching an auditors opinion to the clients financial statements
d. Testifying under oath about clients financial statements
e.
12. Which of the following best describes the reason why an independent auditor reports on financial
statements?
a. A management fraud may exist and 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 exist.

13
.

The independent audit is important to readers of financial statements because it

a. Determines the future stewardship of the management of the company whose financial
statements are audited
b. Measures and communicates financial and business data included in financial
statements
c. Involves the objective audit of and reporting on management-prepared
statements
d. Reports on the accuracy of all information in the financial statements

14. An independent audit aids in the communication of economic data because the audit
A)
Confirms the exact accuracy of managements financial representations.
B)
Lends credibility to the financial statements.
C)
Guarantees that financial data are fairly presented.
D)
Assures the readers of financial statements that any fraudulent activity has been corrected.

15. In auditing accounting data, the concern is with

a. Determining whether recorded information properly reflects the economic events that
occurred during the accounting period.
b. Determining if fraud has occurred.
c. Determining if taxable income has been calculated correctly.
d. Analyzing the financial information to be sure that it complies with government
requirements.
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

18. An audit designed to detect violation of laws and regulations would be referred to as
a. financial statement audit
c. a performance audit

b. Compliance audit

d. operational audit

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