AUDITING THEORY- 2nd WEEKEND EXERCISE

NAME: _____________________________
PROFESSOR: _______(acctg12 prof)______

MULTIPLE CHOICE QUESTIONS

CHOOSE THE CORRECT ANSWER. 😊

1. The following statements relate to the accounting profession:

I. To merit public trust and confidence, the professional person must convince the public that he will place public
service ahead of personal reward.
II. A CPA certificate is evidence of basic competence in the discipline of accounting at the time the certificate is
granted.
III. A code of professional conduct is one of the most important distinguishing characteristics of a profession.
State whether the foregoing statements are true or false.
a. All of the statements are true. b. Only one of the statements is true.
c. Only two of the statements are true. d. All of the statements are false.

2. Which of the following is not normally a service rendered by public accountants?

a. Management consultation service b. Attest function
c. Internal auditing d. Taxation

3. A CPA firm offers management advisory services to clients. Its primary purpose is to
a. Furnish professional advice and assistance which will enable the client to improve operations.
b. Keep the CPA firm competitive with other firms.
c. Establish the firm as a consultant, thus ensuring its future expansion and growth.
d. Permit the firm’s staff members to acquire expertise in other areas of practice.

4. The government agency tasked by law of implementing and enforcing the regulatory policies of the national
government with respect to the regulation and licensing of the various professions and occupations under its
jurisdiction is
a. PRC b. BOA c. COA d. SEC

5. Which of the following mostly describes the function of ASPC?

a. To monitor full compliance by auditors to PSAs.
b. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting
profession in the Philippines.
c. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice.
d. To undertake continuing research on both auditing and financial accounting in order to make them responsive to
the needs of the public.

6. In the absence of pronouncements issued by the ASPC and the PICPA, published statements and guidelines issued
by other authoritative bodies like AICPA, IAASB and AFA are the bases of determining generally accepted auditing
standards (GAAS). What effect do these pronouncements provide in determining the GAAS?
a. Authoritative b. Persuasive c. Parallel d. Alternative

7. Which of the following illustrates a perceived opportunity to commit fraud?

a. Individuals are living beyond their means.
b. Management is under pressure, from sources outside or inside the entity, to achieve an expected (and perhaps
unrealistic) earnings target.
c. An individual believes internal control could be circumvented because the individual is in a position of trust or has
knowledge of specific weaknesses in the internal control system.
d. All of the above.
8. Which statement is incorrect regarding the auditor’s responsibility to consider fraud and error in an audit of
financial statements?
a. The auditor is not and cannot be held responsible for the prevention of fraud and error.
b. In planning the audit, the auditor should discuss with other members of the audit team the susceptibility of the
entity to material misstatements in the financial statements resulting from fraud or error.
c. The auditor should design test of controls to reduce to an acceptably low level the risk that misstatements
resulting from fraud and error that are material to the financial statements taken as a whole will not be detected.
d. When the auditor encounters circumstances that may indicate that there is a material misstatement in the
financial statements resulting from fraud or error, the auditor should perform procedures to determine whether the
financial statements are materially misstated.

9. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a
material misstatement resulting from error because
a. The effect of fraudulent act is likely omitted in the accounting records.
b. Fraud is ordinarily accompanied by acts specifically designed to conceal its existence.
c. Fraud is always a result of connivance between or among employees.
d. The auditor is responsible to detect errors but not fraud.

10. Which of the following statements describes why a properly designed and executed audit may not detect a
material fraud?
a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an
intentional misstatement that is concealed through collusion.
b. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar
responsibility concerning material fraud.
c. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a
low risk of unintentional errors in the financial statements.
d. The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the
financial statements taken as a whole.

11. The auditor’s ability to detect a fraud depends on factors such as

I. The skillfulness of the perpetrator.
II. The frequency and extent of manipulation.
III. The degree of collusion involved.
IV. The relative size of individual amounts manipulated.
V. The seniority of those involved.
a. All of the above b. I, III and V only c. I, II, III and V only d. III and V only

12. Which of the following is an engagement attribute for an audit of an entity that processes most of its financial
data in electronic form without any paper documentation?
a. Discrete phases of planning, interim, and year-end field work.
b. Increased effort to search for evidence of management fraud.
c. Performance of audit tests on a continuous basis.
d. Increased emphasis on the completeness assertion.

13. Which of the following statements is not correct about materiality?

a. The concept of materiality recognizes that some matters are important for fair presentation of financial
statements in conformity with GAAP, while other matters are not important.
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements
that could be material to any one of the financial statements.
c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative
and qualitative judgments.
d. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable
person who will rely on the financial statements.

14. The risk that the assertion contains material misstatements that, when aggregated with misstatements in other
assertions, could make the entire financial statements materially misstated is:
a. Individual audit risk b. Inherent risk c. Control risk d. Detection risk
15. Incremental risk is the increased risk that errors may not be detected at the balance sheet date because:
a. Audit procedures were performed at an interim date
b. Inherent risk was assessed too low.
c. Analytical procedures were not performed.
d. Detection risk was set too high a level.