aut 588

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AUDITING THEORY May 1988

1. It is carried out by a contracted CPA who afteradequate examination and investigation oers aprofessional opinion as to whether the concerns!nancial statements present fairly the results of operation and the !nancial condition of the enterprise.a. Internal auditing.b. "pecial investigation.c. Independent auditing.d. #overnment auditing.

$. A comprehensive and constructive examination of theorgani%ation structure of a company& institution orbranch of government of any component thereof& itsplans and ob'ectives& its means of operation and its useof human and physical facilities to reveal defects orirregularities and to indicate possible improvements iscalled (a. )inancial audit.b. *anagement audit.c. #overnment audit.d. +alance sheet audit.

,. -he criteria by which the quality of performance of auditing engagements are measured. -hese indicatelevels of performance which must be attained for thecompletion of a satisfactory audit and these relate tothe personal quali!cations of the auditor and to theexercise of his 'udgment in performing the examinationand in rendering his report. -hese are called the (a. #enerally accepted accounting principles.b. #enerally accepted auditing standards.c. Cost standards.d. "tandards of !eld wor.

/. An independent audit (a. "upports an internal audit.

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b. 0egates an internal audit.c. uplicates an internal audit.d. Complements an internal audit.

2. It comprises the plan of organi%ation and all of thecoordinate methods and measures adopted within abusiness to safeguard its assets& chec the accuracyand reliability of its accounting data& promoteoperational e3ciency and encourage adherence toprescribed managerial policies.a. Internal audit.b. Internal control.c. Cost control.

d. Accounting control.

4. 5hen an independent auditor is not satis!ed with theextent of his audit& the application or interpretation bythe client of an accounting principle& or with any othermatter about his wor and for a reason personallynown to him& provided that& the exceptions of theauditors are not su3ciently material to nullify anopinion on the !nancial statements taen as a whole&the auditor should render a (a. Piecemeal opinion.b. Adverse opinion.

c. enial opinion.d. 6uali!ed opinion.

7. -he process of analy%ing subsidiary ledger accounts of accounts receivable to determine those accounts whichare current& past due& uncollectible& etc.& is called (a. Credit chec.b. Analysis.c. 8econciliation.d. Aging.

9. 5hen based on his examination& an independentauditor thins that the !nancial statements are notfairly presented and he fails to persuade the client tomae the ad'ustments necessary to correct the defect&

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and& when the exception as to fairness to presentationor conformity with generally accepted accountingprinciples are material& the auditor should express (a. An unquali!ed opinion.b. A quali!ed opinion.c. A denial of opinion.d. An adverse opinion.

:. ;rrors arousing suspicion of fraud should be givengreater attention than other errors. -his is an exampleof the application (a. Consistency.b. *ateriality.

c. 8eliability of evidence.d. 8elative ris.

1<. )or eective internal control purposes& the employeesassigned to mail signed checs should be (a. -he secretary.b. -he cashier.c. Accounts payable booeeper.d. Payroll cler.

11. -he date of the management representation lettershould coincide with the (

a. ate the audit was started.b. ate of the audit report.c. ate of the engagement agreement.d. +alance sheet date.

1$. A Corporation submitted its !nancial statements to theauditor on )ebruary 1& 1:97. -he auditor started the!eldwor on )ebruary 9& 1:97 and completed suchwor in the clients o3ce on *arch ,<& 1:97. -he auditreport was !nished on April 1<& 1:97. -he audit reportshould be dated (a. )ebruary 1& 1:97.

b. )ebruary 9& 1:97.c. *arch ,<&1:97.d. April 1<& 1:97.

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1,. -o provide for the greatest degree of independence inthe performance of internal auditing functions& aninternal auditor should report to (a. Corporate stocholders.b. +oard of directors.c. =ice President for )inance.d. Corporate controller.

1/. -he plan of organi%ation and procedures that relate tothe safe guarding of assets and the reliability of recordsare called (

a. Accounting controls.b. Administrative controls.c. Application controls.d. Cost control.

12. -he plan of organi%ation and procedures that areconcerned mainly with the operational e3ciency andadherence to managerial policies (a. Accounting controls.b. Administrative controls.c. Application controls.d. Cost controls.

14. "peci!c tass performed by ;P that providereasonable assurance that the recording& processingand reporting of data are properly performed (a. Accounting controls.b. Application controls.c. Cost control.d. Administrative controls.

17. 5hich of the following criteria is unique to theauditors attest function>a. #eneral competence.

b. )amiliarity with the particular industry of which hisclient is a part.

c. ues professional care.

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d. Independence.

19. Its consists of the !le of evidence obtained during theengagement& the details of the methods andprocedures the auditor followed and the conclusions hehas reached concerning the ob'ect of the auditengagement (a. "chedules.b. Inventory listing.c. )lowcharts.d. 5oring papers.

1:. A sale is usually recogni%ed for accounting purposes(a. ?pon signing of the contract to sell.b. ?pon receipt of cash from the buyer.c. ?pon the delivery of goods or services.d. As of the date of the sales invoice.

$<. -he board of directors of 6ueens "upermarets

declared a $<@ cash dividend at its meeting on *arch1$& 1:97 payable on *ay 12& 1:97 to stocholders onrecord as of April 12& 1:97. -he dividend declarationshould be taen up in the companys !nancialstatement of (

a. *arch 1$& 1:97.b. *ay 12& 1:97.c. April 12& 1:97.d. ecember ,1& 1:97.

$1. In government auditing& its basic ob'ective is to provideassurance that 1B expenditures are not upon theirface& unreasonable and extravagant& $B su3cientfunds are available to enable encumbrance of theappropriation or payment of the voucher& ,B there hasbeen compliance with budgetary& legal& civil serviceand other requirements (

a. Postaudit.b. Preaudit.c. Performance audit.

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d. Compliance audit.

$$. A practical and useful device for investigation andrecording the auditors inquiries into a system of internal accounting control and internal chec andfurnishes a basis foe measuring the performance of thesystem under review (a. -est of transactions.b. )lowcharts.c. Internal control questionnaire.d. 5oring papers.

$,. A graphic presentation of each part of the companyssystem of internal controls& it provides visual assistancein developing a coordinated plan of organi%ation andprocedures and its use permits simpli!cation of thedescriptive material included in procedures andpractice manuals (a. 5oring papers.b. iagram.c. )lowcharts.d. 6uestionnaires.

$/. -he allocation of authority and wor in such a manner

as to aord checs on the routine transactions of daytoday wor by means of the wor of one person beingproved independently by another& or the wor of aperson being complementary to that of another.a. Preaudit.b. Postaudit.c. Internal audit.d. Internal chec.

$2. *aing the !nancial statements indicate a morefavorable position by giving eect to transactions in aperiod other than that in which these actually occurred

is called (a. #iving eect statement.b. )inancial pro'ections.

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c. Proforma balance sheet.d. 5indow dressing.

$4. It is an exploratory and critical review by anindependent public accountant of the underlyingcontrols an accounting records of a business enterprisethat leads to an opinion of the propriety of the !nancialstatement of that enterprise (a. Dperations audit.b. *anagement audit.c. #overnment auditing.d. )inancial auditing.

$7. A technique for regularly and systematically appraisinga unit or function and its eectiveness againstcorporate and industry standards with the ob'ective of assuring management that its aims are being carriedout andEor identifying conditions capable of beingimproved (a. "ubstantive tests.b. Compliance tests.c. )inancial tests.d. Dperations auditing.

$9. It is done to inFate the cash position or cover the theftof cash by depositing at the end of the accountingperiod a chec drawing on one ban account in anotherban account without maing the necessary deductionin the balance of the !rst ban (a. )orgery.b. Gapping.c. ;mbe%%lement.d. Hiting.

$:. An examination of the underlying evidence in supportof the transaction in order to prove authority&

ownership& existence and accuracy is called (a. -est checing.b. Con!rmation.

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c. =ouching.d. Analysis.

,<. ?nder this method of billing a client& the externalauditors charges on the basis of time spent byprincipals& supervisors& seniors and 'uniors atpredetermined rates agreed upon with the client (a. *aximum fee basis.b. Per diem basis.c. )lat sum basis.d. 8etainership basis.

,1. )rom the standpoint of good procedural control&distributing payroll checs to employees is besthandled by the (a. Personnel dept.b. -reasurers dept.c. Presidents o3ced. Accounting dept.

,$. -he computer process where data processing isperformed concurrently with a particular activity andthe results are available soon enough to inFuence thecourse of action being taen or the decision being

made is called (a. 8andom access sampling.b. Integrated data processing.c. Dnline realtime system.d. +atch processing computer system.

,,. An example of application controls in ;lectronic ataProcessing is (a. Controls over access to equipment.b. Controls over inputoutput data.c. Controls over access to data !les.d. -est ecs.

,/. -he practice of auditing !rms to spread worthroughout the year by carrying out as many auditing

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procedures as practicable before the balance sheetdate& in order to minimi%e the load during the peaperiod. -his is called (a. -est of recorded transactions.b. Con!rmation of receivable and payables.c. Dbservation and testchec of inventories.d. Interim wor.

,2. -he grandfatherfatherson approach to providingprotection for computer !les is a concept that is mostoften found in (a. Dnline& realtime systems.

b. *agnetic tape systems.c. )ortran computer language.d. ata based systems.

,4. A well established CPA !rm establishes quality controlpolicies and procedures for deciding whether or not toaccept or continue serving a client. -he primarypurpose for establishing such quality control is (a. -o enable the auditor to attest to the reliability of a

client.b. -o minimi%e the lielihood of associating with clients

whose management lac integrity.

c. -o comply with standards established within theindustry.

d. -o lessen exposure to litigation for failure to detectfraud or embe%%lement.

,7. A CPA tests sales transaction. Dne step is tracing asample of sales invoices to debits in the accountsreceivable subsidiary ledger. ?pon the basis of thisstep& he can form an opinion as to whether (a. All sales have been recorded.b. All debit entries in the accounts receivable

subsidiary ledger are properly supported by sales

invoices.c. ;ach sales invoice represents bona!de sales.

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d. 8ecorded sales invoices are properly posted tocustomers accounts.

,9. +efore relying on the system of internal control& theauditor obtains a reasonable degree of assurance thatthe internal control procedures are in use and operatingas planned. -he auditor obtains this assurance byperforming (a. "ubstantive tests.b. -ransaction tests.c. Compliance tests.d. Dverview process.

,:. It is a statement of opinion based upon convincingevidence by an independent& competent andauthoritative person concerning the conformance& inmaterial respects& of accounting informationcommunicated by an entity with established criteria (a. Performance auditing.b. Dperations auditing.c. #overnment auditing.d. Attestation.

/<. In view of practicability constraints& dierences in

speci!c audit ob'ective and in other circumstances& thecomprehensive audit is not intended to be applied in itsentirely to all audit engagements. It was devised toinclude one or two combinations of the parts of anaudit to adopt to the particular circumstances exitingduring the engagement. It is called(a. "emicomprehensive audit.b. Compliance audit.c. Authentication audit.d. =ariable scope audit.

/1. -here are landmar legal cases in the ?.". involving theliability of auditors to people for whom an audit wasexplicitly prepared as well as to third parties in case of

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fraud. All the cases mentioned hereunder fall under thisexcept (a. -he ?ltramares case erroneous statement of a

banrupt company.b. -he *cHesson and 8obins case noexistent

receivables and !ctitious inventories.c. Continental =ending *achine Corp. Inappropriate

collaterals not disclosed in the !nancial statements.d. 8hode Island ospital case isclaimer of opinion

by CPA.

/$. uring the course of an audit engagement& the CPA

discovers speci!c circumstances that led him to thebelief that employee fraud may have occurred. In sucha case the CPA should (a. -actfully approach the suspected employee and

attempt to resolve the matter with him.b. ;xtend his audit procedures to determine whether

fraud has in fact occurred.c. Ascertain that the client understand that the

ordinary examination is not primarily designed todisclose fraud& defalcation etc.

d. After advising the client of his !ndings& suggest thatan investigation has to be made to discover whether

fraud has in fact occurred.

/,. A manufacturing company has consistently followedthe policy of valuing inventory at the total of labor&materials and variables cost of manufacturingoverhead. )ixed manufacturing expenses are chargedas period costs in the period they were incurred. -hesemethod of valuation was fully disclosed in thestatements. -he short form report in this situationa. 5ill contain a disclaimer of opinion for non

conformity with generally accepted principles of accounting.

b. 5ill contain an unquali!ed opinion since there wasadequate disclosure.

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c. 5ill contain a unquali!ed opinion because of lacconformity with generally accepted principles of accounting the amount of which is not verymaterial.

d. 5ill contain a disclaimer of opinion because there isinsu3cient competent evidential matter to form anopinion.

//. "ubsequent to the date of the !nancial statements& aCPA learned of a big loss of the company due to a !rewhich will not be compensated by insurance. -he clientdid not disclose the loss caused by the !re even if the

!re was reported in detail in the newspapers. -he CPAin his short form report shoulda. *ae no mention of the !re loss since it happened

after the +alance sheet date was widely publici%edin the newspape2rs.

b. -he !re loss need not be disclosed since it mightcreate doubts as to the cause of the !re.

c. -he CPA should include the information in his reportto comply with the auditing standard of disclosure.

d. If the client is unwilling to disclosed the !re loss& theCPA should withdraw from the engagement.

/2. In auditing the statements of a foreign operation that isintegral to the operations of a parent company in thePhilippines& all monetary except those covered byforward exchange contracts should bea. -ranslated at the closed rate of exchange.b. -ranslated at the spot rate at the beginning of the

business.c. -ranslated at the forward rate agreed upon.d. -ranslated at the rate at time of transaction.

/4. It is a procedures which consists of ban reconciliationat the beginning and the end of the test periods and

reconciliation of the receipts and disbursements perboos with the corresponding ban debits and creditsfor the test period (

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a. Hiting.b. ;xpectation #ap.c. Cash reconciliation.d. Proof of Cash.

/7. 5here appreciation of !xed assets has been recordedon the boos of a business& the CPA auditing thecompany should mae sure that depreciation should bebased on (a. Driginal cost of the !xed assets.b. Appraised value of the !xed assets.c. +oo value of the !xed assets.d. epreciated value of the !xed assets.

/9. -est data& integrated test data and parallel simulationeach require an auditor to prepare data and computerprograms. CPAs who lac either the technical expertiseor time to prepare programs should request from themanufacturers or ;P consultants for (a. -he program Code.b. )lowchart checs.c. #enerali%ed Audit "oftware.d. Application controls.

/:. Information given by a client is shown in writing where

pertinent& it provides evidence& avoidsmisunderstanding and reminds the client of his primaryresponsibility for the correctness of the statements.a. Audit questionnaire.b. Getter of engagement.c. Inventory certi!cate.d. 8epresentation letter.

2<. 5hen auditing in an ;P environment& the study andevaluation of accounting controls by the CPA focus on (a. -he adequacy of controls over transactions.b. -he transactions themselves.

c. -he source documents.d. -he ;P output.

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