Name:_____________________ Schedule:__________________

Score:______________

AUDITING THEORY
QUIZ 2:
1. _______ is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic events to ascertain the degree
of correspondence between these assertions and criteria and communicating
the results to interested parties.
a. Accounting c. Auditing
b. Attestation d. Management Accounting

2. The purpose of an audit of financial statements is to:

a. Enhance the understanding of the stakeholders of the company
b. Provide government agencies, such as BIR with basis for assessments
c. Enhance the degree of confidence of intended users of the financial
statements.
d. Enhance the knowledge and skills of external auditors.

3. This is the term used to refer to the person or persons conducting the
audit, usually the engagement partner or other members of the engagement
team, or, as applicable, to the firm.
a. Intended Users c. Management
b. Auditor d. Practitioner

4. Representations by management, explicit or otherwise, that are embodied in

the financial statements, as used by the auditor to consider the different
types of potential misstatements that may occur.
a. Financial statement assertions
b. Disclosure requirements
c. Notes to Financial statements
d. Audit Evidence

5. Financial statements need to be prepared in accordance with one, or a

combination of:
a. Philippine Financial Reporting Standards (PFRS)
b. Identified Financial Reporting Framework
c. Other authoritative Basis
d. All of the answers

6. The auditor communicates the results of his or her work through the medium
of the:
a. Audit Engagement Letter
b. Audit Report
c. Management Letter
d. Notes to Financial Statements

7. ________ refers to the gathering of evidence on the assertions embodied in

the financial statements of an entity and using the evidence to determine
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 whether the assertions adhere to the generally accepted accounting
principles (GAAP) or another comprehensive and authoritative financial
reporting framework and this type of audit requires a CPA.
a. Financial Statements Audit c. Compliance audit
b. Operational Audits d. Government Audits

8. ________ involves “a systematic review of an organization’s activities in

relation to specified objectives for the purposes of assessing the
efficiency and effectiveness of operations, identifying opportunities for
improvement, and developing recommendations for improvement or further
action.
a. Financial Statements Audit c. Compliance audit
b. Operational Audits d. Government Audits

9. ________ is a type of audit used to determine whether a person or entity

ad adhered to laws and regulations.
a. Financial Statements Audit c. Compliance audit
b. Operational Audits d. Government Audits

10. ________ involves the determination of whether government funds are being
handle properly and in compliance with existing laws and whether the
government programs of a particular agency are being conducted efficiently
and economically.
a. Financial Statements Audit c. Compliance audit
b. Operational Audits d. Government Audits

11. ________ is recognized as the Supreme Audit Institution in the Republic

of the Philippines.
a. Commission on Audit c. Court of Tax Appeals
b. Commission on Elections d. BIR

12. 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

13. An audit designed to determine the extent to which the desired results
of an activity established by the legislative or other body are being
achieved.
a. Economy Audit c. Program results audit
b. Efficiency Audit d. Financial – related audit

14. The objective of an audit of financial statements is:

a. The expression of an opinion on the fairness of such financial
statements
b. To detect management fraud
c. To issue several legal requirements
d. To issue an opinion about the operating effectiveness of management
operations.
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15. The risk that information is misstated or misleading is known as:
a. Audit risk c. Operation risk
b. Business risk d. Information risk

16. Several factors contribute to the existence of information risk includes

the following:
I. Remoteness of information users from information provider.
II. Potential bias and motives of information provider.
III. Voluminous Data
IV. Complex exchange transactions
a. I, II and III only c. I, II and IV only
b. II, III and IV only d. I, II, III and IV

17. Statement I: An audit is not a guarantee of the exactness of accuracy of

assertions in the financial statements.
Statement II: An audit is not intended to, and cannot, provide a guarantee
or absolute assurance that the financial statements are free from
material misstatement due to fraud and error.

a. Only statement I is true c. Both statements are true

b. Only Statement II is true d. Both statements are false

18. Inherent limitations of an audit arise from the following:

I. Nature of financial reporting
II. Nature of audit procedures
III. Need for the audit to be conducted within a reasonable period of
time and at a reasonable cost

a. I only c. I and II only

b. I, II, and III d. II and III only

19. The auditor does not express an opinion on such matters as:
I. Future viability of the entity
II. Efficiency or effectiveness of internal control
III. Extent of compliance with laws and regulations that may be
applicable to the entity.
a. I only c. I and II only
b. I, II, and III d. II and III only

20. The primary responsibility for the prevention and detection of fraud and
error rests with:
a. The external auditor, the company’s management, and those charged
with governance
b. The company’s management
c. Those charged with governance
d. The company’s management and those charged with governance

21. A financial statement audit aids in the communication of economic data

because of the audit
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 a. Assures the reader of financial statements that any fraudulent
activity has been corrected.
b. Guarantees that financial data are fairly presented.
c. Lends credibility to the financial statements.
d. Confirms the accuracy of management’s financial representations.

22. Which of the following elements does not relate to audit quality?
a. Audit Competence
b. Audit Fees
c. Independence
d. Due Diligence

23. The following statements relate to internal auditing? Which is incorrect?

a. Internal auditing is carried out within an entity by employees of the
entity or by personnel contracted for the purpose.
b. Internal auditing has become a function that evaluates and improves
an organization’s risk management, control and governance processes
to add value to the organization.
c. The internal auditor’s judgments are subordinated to those of
management.
d. Internal auditing has evolved into a highly professional activity that
extends beyond the appraisal of the efficiency and effectiveness of
an entity’s operations.

24. Internal auditors review the adequacy of the company’s internal control
system primarily to
a. Help determine the nature, timing, and extent of tests necessary to
achieve audit objectives.
b. Determine whether the internal control system provides reasonable
assurance that the company’s objectives and goals are met efficiently
and economically.
c. Ensure that material weaknesses in the system of internal control are
corrected.
d. Determine whether the internal control system ensures that financial
statements are fairly presented.

25. The internal auditing department’s responsibility for determining fraud

is to
a. Establish an effective internal control system.
b. Maintain internal control.
c. Examine and evaluate the system of internal control.
d. Exercise operating authority over fraud prevention activities.

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