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Auditing Theory > Auditing Theory CH1 > Flashcards

Auditing Theory CH1 Flashcards

1
Q

Which of the following statements best describes assurance services?

a. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user.
b. Services designed to express an opinion on the fairness of historical financial statements based on the results of an audit
c. The preparation of financial statements or the collection, classification, and summarization of other financial information.
d. Services designed for the improvement of operations, resulting in better outcomes.

A

a. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user.

Assurance engagements performed by professional accountants are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user. The level of assurance provided by the professional accountant’s conclusions conveys the degree of confidence that the intended user may place in the credibility of the subject matter.

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2
Q

Which of the following is not an assurance service?

a. Examination of prospective financial information
b. Audit of historical financial statements
c. Review of financial statements
d. Compilation of financial information

A

d. Compilation of financial information

Services performed by professional accountants that are not assurance engagements include the following:
1. Agreed upon procedures
2. Compilation of financial or other information
3. Preparation of tax returns where no conclusion is expressed, and tax consulting
4. Management consulting
5. Other advisory services

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3
Q

Assurance services differ from consulting services in that they
I. Focus on providing advice.
II. Involve monitoring of one party by another.

a. I only
b. II only
c. Both I and II
d. Nether I nor II

A

b. II only

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4
Q

How many separate parties are involved in an assurance engagement?

a. 2
b. 3
c. 4
d. 5

A

b. 3

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5
Q

For assurance engagements regarding historical financial information, reasonable assurance engagements are called

a. Audits
b. Reviews
c. Compilations
d. Examinations

A

a. Audits

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6
Q

When performing an assurance service, professional accountants use standards or benchmarks to evaluate or measure the subject matter of an assurance engagement. These are referred to in the framework as

a. Criteria
b. Norms
c. Conditions
d. Gauges

A

a. Criteria

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7
Q

Relevant criteria contribute to conclusions that are

a. Free from bias
b. Clear and comprehensive
c. Subject to different interpretations
d. Useful for decision-making

A

d. Useful for decision-making

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8
Q

Criteria that are embodied in laws or regulations, or issued by authorized or recognized bodies of experts that follow a transparent due process are called

a. Suitable criteria
b. Established criteria
c. Specifically developed criteria
d. General criteria

A

b. Established Criteria

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9
Q

In an assurance engagement, the person or persons, either as individuals or representatives of an entity, responsible for the subject matter is the

a. Intended user
b. Responsible party
c. Professional accountant
d. Client

A

b. Responsible party

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10
Q

In an assurance engagement, the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose is the

a. Intended user
b. Responsible party
c. Management
d. Client

A

a. Intended user

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11
Q

In an assurance engagement, the outcome of the evaluation or measurement of a subject matter against criteria is called

a. Subject matter information
b. Subject matter
c. Assurance
d. Conclusion

A

a. Subject matter information

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12
Q

In some assurance engagements, the evaluation or measurement of the subject matter is performed by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that is made available to intended users. These engagements are called

a. Direct reporting engagements
b. Assertion based engagements
c. Non-assurance engagements
d. Recurring engagements

A

b. Assertion based engagements

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13
Q

What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?

a. Limited assurance engagement
b. Positive assurance engagement
c. Reasonable assurance engagement
d. Absolute assurance engagement

A

c. Reasonable assurance engagement

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14
Q

What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?

a. Reasonable assurance engagement
b. Negative assurance engagement
c. Assertion based assurance engagement
d. Limited assurance engagement

A

d. Limited assurance engagement

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15
Q

In assertion based assurance engagements, the evaluation or measurement of the subject matter against criteria is performed by the

a. Intended users
b. Responsible party
c. Practitioner
d. AASC

A

b. Responsible party

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16
Q

A practitioners should accept an assurance engagement only if

a. The subject matter is in the form of financial information.
b. The criteria to be used are not available to the intended users.
c. The practitioner’s conclusion is to be contained in a written report.
d. The subject matter is the responsibility of either the intended users or the practitioner.

A

c. The practitioner’s conclusion is to be contained in a written report.

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17
Q

Which of the following statements is true concerning evidence in an assurance engagement?

a. Sufficiency is the measure of the quantity of evidence.
b. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.
c. The reliability of evidence is influence not by its nature but by its source.
d. Obtaining more evidence may compensate for its poor quality.

A

a. Sufficiency is the measure of the quantity of evidence.

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18
Q

The following are components of assurance engagement risk, except

a. Inherent risk
b. Control risk
c. Detection risk
d. Business risk

A

d. Business risk

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19
Q

Which of the following standards are to be applied, as appropriate, in the audit of historical financial information?

a. PSREs
b. PSAEs
c. PSRSs
d. PSAs

A

d. PSAs

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20
Q

Which of the following standards are to be applied to compilation engagements, engagements to apply agreed-upon procedures to information, and other related services engagements as specified by the AASC?

a. PSRSs
b. PSAs
c. PSAEs
d. PSREs

A

a. PSRSs

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21
Q

The Philippine Standards on Review Engagements (PSREs) are to be applied in

A. The audit of historical financial information
B. Assurance engagements dealing with subject matters other than historical financial information
C. The review of historical financial information
D. The review of both historical and prospective financial information

A

C. The review of historical financial information

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22
Q

The Philippine Standards and Quality Control (PSQCs) are to be applied to

A. Assurance engagements only
B. Review engagements only
C. Compilation and review engagements only
D. All services that fall under the AASC’s engagement standards

A

D. All services that fall under the AASC’s engagement standards

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23
Q

These statements are issued by the AASC to provide interpretive guidance and practical assistance to auditors in the implementation of PSAs and to promote good practice.

A. PREPSs
B. PAPSs
C. PAEPs
D. PRSPSs

A

B. PAPSs

24
Q

The auditor’s satisfaction as to the reliability of an assertion being made by one party for use by another party is called

A. Opinion
B. Assurance
C. Examination
D. Verification

A

B. Assurance

25
Q

What level of assurance is provided by the practitioner in a review engagement?

A. No assurance
B. High, but not absolute
C. Reasonable
D. Moderate

A

D. Moderate

26
Q

What level of assurance is provided by the auditor in an audit engagement?

A. Absolute
B. High, but not absolute
C. Moderate
D. No assurance

A

B. High, but not absolute

27
Q

Which of the following is not generally considered a procedure followed by a practitioner in obtaining a reasonable basis for the expression of a review conclusion?

A. Obtain written representations from management
B. Apply analytical procedures
C. Make inquiries of management
D. Assess fraud risk

A

D. Assess fraud risk

28
Q

For the purpose of expressing negative assurance in the review report, the practitioner should obtain sufficient appropriate evidence primarily through

A. Inquiry and confirmation
B. Analytical procedures and substantive tests of details of transactions and account balances
C. Confirmation and tests of controls
D. Inquiry and analytical procedures

A

D. Inquiry and analytical procedures

29
Q

In reviewing a company’s financial statements, a practitioner is required to

A. Send bank confirmations
B. Obtain knowledge of the client’s industry
C. Obtain a signed engagement letter from the client
D. Observe client’s physical inventory

A

B. Obtain knowledge of the client’s industry

30
Q

A compilation engagement

A. Requires the practitioner to verify the accuracy or completeness of the information provided by the management
B. Requires the practitioner to gather evidence to express an opinion on the preparation of the financial information
C. Is not an assurance engagement
D. Involves expression of a review conclusion on the preparation of the financial information

A

C. Is not an assurance engagement

31
Q

PSRS 4410 (Revised), Compilation Engagements, applies to engagements where the practitioner assists management in the preparation and presentation of

I. Historical or prospective financial information
II. Non-financial information

A. I only
B. II only
C. Both I and II
D. Neither I nor II

A

C. Both I and II

32
Q

In a compilation engagement, the practitioner applies accounting and financial reporting expertise to assist management in the preparation and presentation of financial information of an entity in accordance with an acceptable financial reporting framework. What type of assurance is provided by the practitioner when he/she performs this engagement?

A. Positive assurance
B. Negative assurance
C. No assurance
D. Limited assurance

A

C. No assurance

33
Q

When performing a compilation engagement, the practitioner is required to

A. Assess internal controls
B. Make inquiries of management to assess the reliability and completeness of the information provided
C. Verify matters and explanations
D. Obtain a general knowledge of the business and operations of the entity

A

D. Obtain a general knowledge of the business and operations of the entity

34
Q

What assurance is provided by the auditor in an agreed upon procedures engagement?

A. Reasonable
B. Absolute
C. Moderate
D. No assurance

A

D. No assurance

35
Q

An auditor may accept an engagement to perform specified procedures on the specific subject matter of specified elements, accounts, or items of a financial statement if

A. The report does not list the procedures performed
B. The financial statements are prepared in accordance with a special purpose framework
C. Use of the report is restricted
D. The auditor is also the entity’s continuing auditor

A

C. Use of the report is restricted

36
Q

Reports on agreed-upon procedures are intended to be distributed

A. To only the involved parties, who are aware of the reasons for the procedures
B. Only to the stockholders of the entity
C. To any party to whom the client wishes
D. Only to the entity’s management

A

A. To only the involved parties, who are aware of the reasons for the procedures

37
Q

Which of the following engagements does not require compliance with independence requirements?

A. Compilation of financial information
B. Review of financial statements
C. Examination of prospective financial information
D. Audit of financial statements

A

A. Compilation of financial information

38
Q

Which of the following services, if any, may a practitioner who is not independent provide?

A. Compilations but not reviews
B. Reviews but not compilations
C. Reviews but not financial statement audits
D. Agreed upon procedures but not compilations

A

A. Compilations but not reviews

39
Q

A practitioner is associated with financial information when

I. The practitioner attaches a report to that financial information
II. The practitioner consents to the use of his/her name in a professional connection

A. I only
B. II only
C. Either I or II
D. Neither I nor II

A

C. Either I or II

40
Q

The auditor is required to comply with all PSAs relevant to the audit of an entity’s financial statements. A PSA is relevant to the audit when

I. The PSA is in effect
II. The circumstances addressed by the PSA exist

A. I only
B. II only
C. Either I or II
D. Both I and II

A

D. Both I and II

41
Q

The auditor is required to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. In all cases when reasonable assurance cannot be obtained, the auditor’s report should contain a/an

A. Unmodified opinion
B. Qualified or adverse opinion
C. Qualified or disclaimer of opinion
D. Disclaimer of opinion

A

C. Qualified or disclaimer of opinion

42
Q

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 discipline which attests to the results of accounting and other functional operations and data
D. A regulatory function that prevents the issuance of improper financial information

A

C. A discipline which attests to the results of accounting and other functional operations and data

43
Q

A financial statement audit aids in the communication of economic data because the audit

A. Assures the readers 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

A

C. Lends credibility to the financial statements

44
Q

Which of the following best describes the reason why an independent auditor reports on financial statements?

A. A poorly designed internal control system may be in existence
B. Different interests may exist between the company preparing the statements and the persons using the statements
C. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work
D. A management fraud may exist and it is more likely to be detected by independent auditors

A

B. Different interests may exist between the company preparing the statements and the persons using the statements

45
Q

Which of the following can be significantly affected by a financial statement audit?

A. Business risk
B. Information risk
C. Inherent risk
D. The risk-free interest rate

A

B. Information risk

46
Q

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

A

B. Management of the company

47
Q

Which of the following elements does not relate to audit quality?

A. Audit competence
B. Audit fees
C. Independence
D. Due diligence

A

B. Audit fees

48
Q

Which is not one of the three phases in an operational audit?

A. Evidence accumulation and evaluation
B. Planning
C. Reporting and follow-up
D. Training and supervising employees

A

D. Training and supervising employees

49
Q

In performing an operational audit, the auditor primarily relies on which of the following procedures?

A. Physical inspection
B. Analytical procedures
C. Inquiry and observation
D. Tracing and vouching

A

C. Inquiry and observation

50
Q

The form of communication with a client in a consulting services engagement should be

A. Either written or oral
B. Written, and a copy should be sent to management alone
C. Oral, with appropriate documentation in working papers
D. Written, and copies should be sent to both management and the board of directors

A

A. Either written or oral

51
Q

A pervasive characteristic of a CPA’s rule in a consulting services engagement is that of being a(an)

A. Independent practitioner
B. Computer expert
C. Confidential reviewer
D. Objective advisor

A

D. Objective advisor

52
Q

Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also

A. Accuracy
B. Compliance
C. Evaluation
D. Internal control

A

B. Compliance

53
Q

Internal auditors should review the means of physically safeguarding assets from losses arising from

A. Exposure to the elements
B. Underusage of physical facilities
C. Missapplication of accounting principles
D. Procedures that are not cause justified

A

A. Exposure to the elements

54
Q

In conducting an appraisal of the economy and efficiency with which company resources are used, an internal auditor’s responsibility is to

A. Verify the accuracy of asset valuation
B. Review the reliability of operating information
C. Verify the existence of assets
D. Determine whether operating standards have been established

A

D. Determine whether operating standards have been established

55
Q

The internal auditing department’s responsibility for deterring 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

A

C. Examine and evaluate the system of internal control

Auditing Theory (2 decks)

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