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Activity 1

Yellow Paper 1/4


• 1. Broadly defined, the subject matter of any audit consist of
• Financial statements
• Economic data
• Assertions
• Operating data
• 2. An audit of financial statements is conducted to determine if the
• Organization is operating efficiency and effectively
• Auditee is following specific procedures or rules set down by some higher
authority
• Overall financial statement statements are stated in accordance with the
applicable financial reporting framework
• Client’s internal control is functioning as intended
• 3. Most of the independent auditor’s work in formulating an opinion
on financial statement consist of
• Studying and evaluating internal control
• Obtaining and examining evidential matter
• Examining cash transaction
• Comparing recorded accountability with assets
• 4. In financial statement audits, the audit process should be
conducted in accordance with
• The audit program
• Philippine standard on auditing
• Philippine accounting standards
• Philippine Financial Reporting Standards
• 5. Which of the following best describe the operational audit?
• It requires the constant review by internal auditors of the administrative
controls as they relate to operations of the company.
• It concentrates on implementing financial and accounting control in a newly
organized company.
• In attempts and is designed to verify the fair presentation of a company’s
results of operations.
• It concentrates on seeking out aspects of operations in which waste would be
reduced by the introduction of controls.
• 6. The auditor communicates the results of his or her work through
the medium if the
• Engagement letter
• Audit report
• Management letter
• Financial statement
• 7. Which of the following types of auditing is performed most
commonly by CPA’s on a contractual basis?
• Internal Auditing
• Income tax auditing
• Government auditing
• External auditing
• 8. Independent auditing can best be describe as a
• Professional activity that measures and communicates financial accounting
data
• subset accounting
• Professional activity that attest to the fair presentation of financial statement
• Regulatory activity that prevents the issuance of improper financial
information
• 9. Which of the following statements is not a distinction between
independent auditors and internal auditors?
• Independent auditors represent third party users external to the auditee
entity, whereas internal auditors report directly to management.
• Although independent auditors strive for both validity and relevance of
evidence, internal auditors are concerned almost exclusively with validity.
• Internal auditors are employees of the auditee, whereas independent
auditors are independent contractors.
• The internal auditor’s span of coverage goes beyond financial auditing to
encompass operational and performance auditing.
• 10. Which of the following has the primary responsibility for the
fairness of the representations made in the financial statements?
• Client’s management
• Audit Committee
• Independent auditor
• Board of Accountancy
• 11. An audit of the financial statements of KIA Corporation is being
conducted by an external auditor. The external auditor is expected to
• express an opinion as to the fairness of KIA’s financial statements.
• express an opinion as to the attractiveness of KIA for investment purposes.
• certify the correctness of KIA’s Financial Statements.
• examine all evidence supporting KIA’s financial statements.
• 12. Which of the following statements about independent financial
statements audit is correct?
• The audit of financial statements relieves management of its responsibilities
for the financial statement
• An audit is designed to provide limited assurance that the financial
statements taken as a whole are free from material misstatement
• The procedures required to conduct an audit in accordance with PSAs should
be determined by the client who engaged the services of the auditor.
• The auditor’s opinion is not an assurance as to the future viability of the
entity as well as the effectiveness and efficiency with which management has
conducted the affairs of the entity.
• 13. The reason an independent auditor gathers evidence is to
• Form an opinion on the financial statements
• Detect fraud
• Evaluate management
• Evaluate internal controls
• 14. An attitude that includes a questioning mind and critical
assessment of audit evidence is referred to as
• Due professional care
• Professional skepticism
• Reasonable assurance
• Supervision
• 15. Jack has been retained as auditor of EVC Company. The function
of Jack’s opinion on financial statements of EVC Company is to
• Improve financial decisions of company management
• Lend Credibility to management’s representation
• Detect fraud and abuse in management operations
• Serve requirements of BIR, SEC, or Central Bank
• 16. Which of the following is not one of the limitations of an audit?
• The use of testing
• Limitations imposed by client
• Human error
• Nature of evidence that the auditor obtains
• 17. Which of the following statements does not properly describe a
limitation of an audit?
• Many audit conclusions are made on the basis of examining a sample of
evidence.
• Some evidence supporting peso representation in the financial statement
must be obtained by oral or written representation of management.
• Fatigue can cause auditors to overlook pertinent evidence.
• Many financial statement assertions cannot be audited.
• 18. Which of the following is not one of the general principles
governing the audit of financial statements?
• The auditor should plan and perform the audit with an attitude of
professional skepticism.
• The auditor should obtain sufficient appropriate evidence primarily through
inquiry and analytical procedure to be able to draw reasonable conclusions.
• The auditor should conduct the audit in accordance with PSA.
• The auditor should comply with the Philippine Code of Professional Ethics.
• 19. Which of the following statements does not describe a condition
that creates a demand for auditing?
• Conflict between an information preparer and a user can result in biased
information.
• Information can have substantial economic consequence for a decisionmaker.
• Expertise is often required for information preparation and verification.
• Users can directly assess the quality of information.
• 20. Which of the following statements does not properly describe an
element of theoretical framework of auditing?
• The data to be audited can be verified.
• Short-term conflicts may exist between mangers who prepare the data and
auditors who examine the data.
• Auditors act on behalf of the management.
• An audit benefits the public

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