Audtheo Part 1

AUDITING THEORY RED SIRUG
INTRODUCTION TO AUDITING
1. An independent audit is important to readers of financial statements because it

a. Provides a measure of management's stewardship function
b. Measures and communicates the financial data included in financial statements
c. Objectively examines and reports on management's financial statements
d. Reports on the accuracy of information in the financial statements
2. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representation.
b. Guarantees that financial data are fairly presented.
c. Assures the readers of financial statements that any fraudulent activity has been corrected.
d. Lends credibility to the financial statements.
3. The purpose of an audit of financial statements is to

a. Obtain an absolute level of assurance that the financial statements as a whole are free from material
misstatement.
b. Relieve management or those charged with governance of the responsibility for the preparation and
presentation of the financial statements in accordance with the applicable financial reporting framework.
c. Enhance the degree of confidence of intended users in the financial statements.
d. Assure the future viability of the entity by expressing an opinion on the entity's financial statements.
4. Independent auditing can best be described as

a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A regulatory function that prevents the issuance of improper financial information.
d. A discipline which attests to the results of accounting and other functional operations and
data.
5. The primary purpose of an independent financial statement audit is to:

a. Provide a basis for assessing management's performance
b. Comply with government regulatory requirements
c. Assure management that the financial statements are unbiased and free from material error
d. Provide users with an unbiased opinion about the fairness of information reported in the
financial statements
6. The audit process is

a. A special application of the scientific method of inquiry.
b. Regulated by the PICPA.
c. The only service a CPA is allowed to perform by law.
d. Performed only by CPAs.
7. 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
a. I and II only
b. II and IV only
c. I, II, and III only
d. I, II, III and IV
8. Which of the following is not among the factors that result to limitations of audit?
a. Use of testing
b. Going concern problem of the assurance client
c. Human error
d. Evidence is basically persuasive rather than conclusive
9. 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.
AT – Introduction to Audit Red Sirug Page 1

d. Congress.
10. The independent auditor of the past differs from the auditor of today in that the past auditor was more
concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements.
c. Improvement of accounting system.
d. Detection of fraud or irregularities.
11. The criteria for evaluating quantitative information vary. For example, in the case of an independent audit of
financial statements by CPA firms, the criteria are usually the:
a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. National Internal Revenue Code
d. Securities and Exchange Commission Regulations
12. An audit in accordance with PSAs is performed on the premise that management and, where appropriate,
those charged with governance have responsibilities that are fundamental to the conduct of the audit. Which
of the following is not one of those responsibilities?
a. To provide the auditor with all information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial statements.
b. To provide unrestricted access to those within the entity from whom the auditor determines it necessary
to obtain audit evidence.
c. To comply with all relevant PSAs in the preparation and presentation of the entity's
financial statements.
d. To design, implement, and maintain internal control relevant to the preparation and presentation
of financial statements that are free from material misstate ment, whether caused by fraud or
error.
13. The auditor is required to maintain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a. A belief that management and those charged with governance are honest and have
integrity relieves the auditor of the need to maintain professional skepticism.
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the
results thereof.
c. Professional skepticism is necessary to the critical assessment of audit evidence.
d. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtained.
14. Professional judgment:

a. Is necessary in the evaluation of management's judgments in applying the entity's
applicable financial reporting framework.
b. Should be exercised in planning and performing an audit of financial statements but need not be
documented.
c. Can be used as the justification for the decisions made by the auditor that are not supported by the
facts and circumstances of the engagement.
d. Is not used in making decisions about materiality and audit risk.
15. The primary responsibility for the adequacy of disclosure in the financial statements rests with the:
a. Partner assigned to the audit engagement.
b. Management of the company.
c. Securities and Exchange Commission.
d. Auditor in charge of the field work.
16. Which of the following statements is correct concerning an auditor's responsibilities regarding financial
statements?
a. Making suggestions that are adopted about the form and content of an entity's financial statements
impairs an auditor's independence.
b. An auditor's responsibilities for audited financial statements are confined to the expression
of the auditor's opinion.
c. The fair presentation of audited financial statements in accordance with an applicable financial
reporting framework is an implicit part of the auditor's responsibilities.
d. The auditor's report should provide an assurance as to the future viability of the entity.
Red Sirug Page 13

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AUDITING THEORY RED SIRUG

1. An independent audit is important to readers of financial statements because it

3. The purpose of an audit of financial statements is to

4. Independent auditing can best be described as

5. The primary purpose of an independent financial statement audit is to:

6. The audit process is

9. The market for auditing services is driven by

AT – Introduction to Audit Red Sirug Page 1

14. Professional judgment:

Red Sirug Page 13

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