UNIVERSITY OF THE IMMACULATE CONCEPTION

COLLEGE OF ACCOUNTING AND BUSINESS EDUCATION

AUD001-Auditing and Assurance Principles
Midterm Exam

Multiple Choice. Write the letter of your choice. No erasures allowed.

1. The measure of the quality of audit evidence and its relevance to a particular assertion and its reliability.
a. Sufficiency
b. Appropriateness
c. Significance
d. Assurance

2. It serves as a set of instructions to assistants involved in the audit and as a means to control the proper execution of the work.
a. Audit program
b. Overall audit plan
c. Engagement letter
d. Internal control questionnaire

3. They are not presented as complete financial statements capable of standing alone, but are an integral part of the current period.
a. Corresponding figures
b. Comparative financial statements
c. Supplementary report
d. Notes of financial statements

4. Comprises officers and others who also perform senior managerial functions.
a. Management
b. Governance
c. Audit committee
d. Board of directors

5. Refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit.
a. Scope of an audit
b. Scope of a review
c. Audit program
d. Scope limitation

6. Assurance services are best described as

a. Services designed for the improvement of operations, resulting in better outcomes.
b. Independent professional services that improve the quality of information, or its context, for decision makers.
c. The assembly of financial statements based on assumptions of a reasonable party.
d. Services designed to express an opinion on historical financial statements based on the results of an audit.

7. In performing an attestation engagement, a CPA typically

a. Supplies litigation support services.
b. Assesses control risk at a low level.
c. Expresses a conclusion about an assertion.
d. Provides management consulting advice.

8. Independent auditing can be described as

a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A discipline which attests to the results of accounting and other functional operations and data.
d. A regulating function that prevents the issuance of erroneous or improper financial information.

9. A financial statement audit is designed to

a. Provide assurance on internal control and to identify reportable conditions.
b. Detect error or fraud in the financial statements, regardless of whether or not the error or fraud is material.
c. Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or
fraud.
d. Obtain absolute assurance on the financial statements and express an opinion on the financial statements.

10. An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to
a. Express an opinion as to the fairness of Camden's financial statements.
b. Express an opinion as to the attractiveness of Camden for investment purposes.
c. Certify to the correctness of Camden's financial statements.
d. Critique the wisdom and legality of Camden's business decisions.

11. A type of audit the purpose of which is to determine whether the auditee is following specific procedures or rules set down by some higher
authority
a. Operational audit.
b. Compliance audit.
c. Financial audit.
UNIVERSITY OF THE IMMACULATE CONCEPTION
COLLEGE OF ACCOUNTING AND BUSINESS EDUCATION
AUD001-Auditing and Assurance Principles
Midterm Exam
d. Management audit.
12. A technique for regularly and systematically appraising a unit of function and its effectiveness against corporate and industry standards
with the objective of assuring management that its aims are being carried out and/or identifying conditions capable of being improved
a. Financial auditing.
b. Compliance tests.
c. Operations auditing.
d. Management auditing.

13. A detailed examination of the utilization of the resources of the company, including the organization structure to carry out objectives, to
indicate areas of increased efficiency and possible cost reduction is
a. Internal audit.
b. Audit of assets.
c. Management audit.
d. Financial audit.

14. Which of the following types of audits are most similar?

a. Operational audits and compliance audits.
b. Independent financial statement audits and operational audits.
c. Compliance audits and independent financial statement audits.
d. Internal audits and independent financial statement audits.

15. An independent audit

a. Supports an internal audit.
b. Negates an internal audit.
c. Duplicates an internal audit.
d. Complements an internal audit.

16. An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of errors
and
irregularities and therefore should
a. Design audit tests to detect unrecorded transactions.
b. Extend the work to audit most recorded transactions and records of an entity.
c. Plan and perform the engagement with an attitude of professional skepticism.
d. Not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.

17. In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA
firm were previously employed by the CPA firm’s clients. Which quality control objective would this be most likely to satisfy?
a. Professional relationship.
b. Supervision.
c. Independence.
d. Advancement.

18. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate
whether the
a. Auditor’s system of quality control has been maintained at a high level.
b. Results are consistent with the conclusions to be presented in the auditor’s report.
c. Audit procedures performed are approved in the professional standards.
d. Audit has been performed by persons having adequate technical training and proficiency as auditors.

19. Which of the following is the best criterion for evaluating a staff auditor’s work performance?
a. Quantity of deficiency findings.
b. Ability to get along with clients.
c. Working papers appearance.
d. Fulfillment of requirements set forth in the audit programs.

20. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
a. An inadequate understanding of the entity’s internal control.
b. The close proximity to the end of the entity’s fiscal year.
c. Concluding that the entity’s management probably lacks integrity.
d. An inability to perform preliminary analytical procedures before assessing control risk.

21. Which of the following factors most likely would influence an auditor’s determination of the auditability of an entity’s financial statements?
a. The complexity of the accounting system.
b. The existence of related-party transactions.
c. The adequacy of the accounting records.
d. The operating effectiveness of control procedures.

22. Which of the following is least likely a source of information about a potential new audit client?
a. The predecessor auditor.
b. Management.
UNIVERSITY OF THE IMMACULATE CONCEPTION
COLLEGE OF ACCOUNTING AND BUSINESS EDUCATION
AUD001-Auditing and Assurance Principles
Midterm Exam
c. Industry journal.
d. The new auditor’s permanent file.
23. Preliminary arrangements agreed to by the auditor and the client should be reduced to writing by the auditor. The best place to set forth
these arrangements is in
a. A memorandum to be placed in the permanent section of the auditing working papers.
b. An engagement letter.
c. A client representation letter.
d. A confirmation letter attached to the constructive services letter.

24. When an auditor believes that an understanding with the client has not been established, he or she should ordinarily
a. Perform the audit with increased professional skepticism.
b. Decline to accept or perform the audit.
c. Assess control risk at the maximum level and perform a primarily substantive audit.
d. Modify the scope of the audit to reflect an increased risk of material misstatements due to fraud.

25. Assuming a recurring audit, in which of the following situations would the auditor be unlikely to send a new engagement letter to the client?
a. A recent change in partner and/or staff involved in the audit engagement.
b. A change in the terms of engagement.
c. A recent change of client management.
d. A significant change in the nature or size of the client's business.

26. In planning an examination, the auditor would consider all of the following matters, except
a. Anticipated reliance on internal controls.
b. Preliminary judgment about materiality levels for audit purposes.
c. Financial statement items likely to require adjustment.
d. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

27. Which of the following situations would most likely require special audit planning by the auditor?
a. Some items of factory and office equipment do not bear identification numbers.
b. Depreciation methods used on the client’s tax return differ from those used on the books.
c. Assets costing less than P5,000 are expensed even though the expected life exceeds one year.
d. Inventory is comprised of precious stones.

28. This includes distributing assignments among staff assistants and reviewing the progress of such assignments on a periodic basis.
a. Supervision
b. Staff training
c. CPE
d. Planning.

29. The senior auditor responsible for coordinating the fieldwork usually schedules a pre-audit conference with the audit team primarily to
a. Give guidance to the staff regarding both technical and personnel aspects of the audit.
b. Discuss staff suggestions concerning the establishment and maintenance of time budgets.
c. Establish the need for using the work of specialists and internal auditors.
d. Provide an opportunity to document staff disagreements regarding technical issues.

30. A CPA may reduce the audit work on a first-time audit by reviewing the working papers of the predecessor auditor. The predecessor
should permit the successor to review working papers relating to matters of continuing accounting significance such as those that relate to
a. Extent of reliance on the work of specialists.
b. Fee arrangements and summaries of payments.
c. Analysis of contingencies.
d. Staff hours to complete the engagement.

31. Which of the following procedures would an auditor least likely perform in planning a financial statement audit?
a. Coordinating the assistance of entity personnel in data preparation.
b. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.
c. Selecting a sample of vendor’s invoices for comparison to receiving reports.
d. Reading the current year’s interim financial statements.

32. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the
determination of the
a. Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.
b. Procedures to be undertaken to discover litigation, claims and assessments.
c. Pending legal matters to be included in the inquiry of the client’s attorney.
d. Timing of inventory observation procedures to be performed.

33. A basic tool used by the auditor to control the audit work and review the progress of the audit.
a. Audit program
b. Progress flowchart
c. Engagement letter.
d. Time and Expense Summary
UNIVERSITY OF THE IMMACULATE CONCEPTION
COLLEGE OF ACCOUNTING AND BUSINESS EDUCATION
AUD001-Auditing and Assurance Principles
Midterm Exam

34. Those procedures specifically outlined in an audit program are primarily designed to
a. Gather evidence.
b. Detect errors or irregularities.
c. Test internal systems.
d. Protect the auditor in the event of litigation.

35. An audit program provides proof that

a. Sufficient competent evidential matter was obtained.
b. The work was adequately planned.
c. There was compliance with GAAS of reporting.
d. There was a proper study and evaluation of internal control.

36. Audit programs should be designed so that

a. Most of the required procedures can be performed as interim work.
b. Inherent risk is assessed at a sufficiently low level.
c. The auditor can make constructive suggestions to management.
d. The audit evidence gathered supports the auditor’s conclusions.

37. In designing written audit programs, an auditor should establish specific audit objectives that related primarily to the
a. Timing of audit procedures.
b. Cost-benefit of gathering evidence.
c. Selected audit techniques.
d. Financial statement assertions.

38. Which item would not be contained in an audit program?

a. Staff assigned to the audit.
b. List of specific tasks to be performed.
c. Documentation of system being reviewed.
d. Estimated time required to perform each task.

39. The concept of materiality will be least important to the CPA in determining the
a. Scope of his audit of specific accounts.
b. Specific transactions that should be reviewed.
c. Effects of audit exceptions upon his opinion.
d. Effects of his direct financial interest in a client upon his independence.

40. If the independent auditors decide that the work performed by the internal auditor may have a bearing on their own procedures, they
should consider the internal auditor’s
a. Competence and objectivity.
b. Efficiency and experience.
c. Independence and review skills.
d. Training and supervisory skills.

41. When assessing an internal auditor’s objectivity, an independent auditor should

a. Evaluate the adequacy of the internal auditor’s audit programs.
b. Inquire about the internal auditor’s educational background and professional certification.
c. Consider the organizational level to which the internal auditor reports.
d. Review the internal auditor’s working papers.

42. Which of the following is not a specialist upon whose work an auditor may rely?
a. Lawyer.
b. Internal auditor.
c. Actuary.
d. Appraiser.

43. The audit risk against which the auditor and those who rely on his/her opinion require reasonable protection is a combination of three
separate risks at the account-balance or class-of-transactions level. The first risk is inherent risk. The second risk is that material
misstatements will not be prevented or detected by internal control. The third risk is that
a. The auditor will reject a correct account balance as incorrect.
b. Material misstatements that occur will not be detected by the audit.
c. The auditor will apply an inappropriate audit procedure.
d. The auditor will apply an inappropriate measure of audit materiality.

44. After obtaining a sufficient understanding of internal control, the auditor assesses
a. The need to apply GAAS.
b. Detection risk to determine the acceptable level of inherent risk.
c. Detection risk and inherent risk to determine the acceptable level of control risk.
d. Control risk to determine the acceptable level of detection risk.
UNIVERSITY OF THE IMMACULATE CONCEPTION
COLLEGE OF ACCOUNTING AND BUSINESS EDUCATION
AUD001-Auditing and Assurance Principles
Midterm Exam

45. An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believes
a. Control policies and procedures are unlikely to pertain to the assertions.
b. The entity’s control environment, accounting system, and control procedures are interrelated.
c. Sufficient evidential matter to support the assertions is likely to be available.
d. More emphasis on tests of controls than substantive tests is warranted.

46. The auditor faces a risk that the examination will not detect material errors which occur in the accounting process. In regard to minimizing
this risk, the auditor primarily relies on
a. Substantive tests.
b. Compliance tests.
c. Internal control.
d. Statistical analysis.

47. An auditor uses the knowledge provided by the understanding of internal control and the assessed level of control risk primarily to
a. Determine whether procedures and records concerning the safeguarding of assets are reliable.
b. Ascertain whether the opportunities to allow any person to both perpetrate and conceal fraud are minimized.
c. Modify the initial assessments of inherent risk and preliminary judgments about materiality levels.
d. Determine the nature, timing and extent of substantive tests for financial statement assertions.

48. Which of the following is not a component of internal control?

a. Control risk.
b. Monitoring.
c. Information and communication.
d. The control environment.

49. Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not
a factor in providing for competent personnel?
a. Segregation of duties.
b. Hiring practices.
c. Training programs.
d. Performance evaluations.

50. Proper segregation of duties reduces the opportunities to allow persons to be in positions to both
a. Journalize entries and prepare financial statements.
b. Record cash receipts and cash disbursements.
c. Establish internal controls and authorize transactions.
d. Perpetuate and conceal errors and irregularities.

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