Professional Documents
Culture Documents
Accountancy Department
AUDITING THEORY
Audit An Overview
___1. The following are the objectives of operational or management audit, except
a. It measures and assesses the entitys performance in meeting organizational goals.
b. It determines whether the financial statements of an entity are fairly presented in accordance with
identified financial reporting framework.
c. It identifies areas in an entity which requires improvements and makes recommendation to improve
performance.
d. It desires to improve the efficient use of the companys resources and the effectiveness in
accomplishing its objectives.
___2. What is the responsibility of an auditor who is engaged to audit the financial statements of a
government entity?
a. Assess control risk with respect to each component of internal control.
b. Assume responsibility for assuring that the entity complies with applicable laws and regulations.
c. Obtain an understanding of the possible financial statement effects of laws and regulations having
direct and material effects on amounts reported.
d. Design the audit to provide reasonable assurance that the statements are free of material
misstatements resulting from illegal acts having direct or indirect effects.
___3. The following are the reasons for the need for an independent financial statement audit, except
a. The presence of conflict of interest between management and users of financial statements.
b. Financial information has substantial economic consequences for a decision maker.
c. Users of financial information are usually precluded from directly assessing the reliability of the
information.
d. Financial statements, accounting and auditing principles are simple and easily understandable by
ordinary users.
___4. The following are the general principles governing the audit of financial statements, except
a. The auditor should conduct the audit in accordance with Philippine Accounting Standards.
b. The auditor should comply with the Code of Professional Ethics for Certified Public Accountants
promulgated by the Board of Accountancy.
c. The auditor should plan and perform the audit with an attitude of professional skepticism
recognizing that circumstances may exist which may cause the financial statements to be
materially misstated.
d. The auditor shall exercise professional judgment in planning and performing an audit of financial
statements.
e. The auditor should obtain sufficient appropriate evidence to reduce audit risk to an acceptably low
level to enable to express an opinion on the financial statements.
___5. Which of the following is incorrect as regards to the functions and importance of an independent
audit?
a. It lends credibility to the financial statements of an entity.
b. It enhances the value and usefulness of financial statements of an entity.
c. By attaching a report to the financial statements, the auditor provides guarantees the accuracy of
the financial statements.
d. The financial statement auditor only provides reasonable assurance that the financial statements
are free from material misstatements.
___6. What is the objective of financial statement audit?
a. To enable the auditor to express an opinion whether the financial statements are prepared, in all
materials respects, in accordance with the applicable financial reporting framework.