Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

MODULE 2

AUDITING STANDARDS

1. As guidance for measuring the quality of the performance of an auditor, the auditor should refer to
a. Statements of Financial Accounting Standards Board
b. Philippine Standards on Auditing
c. Interpretations of Rules of Conduct
d. Statements on Quality Control Standards

2. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be
looked upon by practitioners as
a. Ideals to work for, but which are not achievable
b. Maximum standards which denote excellent work
c. Minimum standards of performance which must be achieved on each audit engagement
d. Benchmarks to be used in all audits, reviews, and compilation

3. The auditor’s responsibility for the detection of client’s noncompliance with laws and regulations is:
a. Greater than for errors or fraud
b. Less than for errors or fraud
c. Restricted to information that comes to his attention
d. The same as it is for errors or fraud

4. Reasonable assurance means:

a. Gathering of all available corroborating evidence for the auditor to conclude that there are no
material misstatements in the financial statements, taken as a whole
b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements,
taken as a whole, are free from any misstatements
c. Gathering of the audit evidence necessary for the auditor t conclude that the financial statements
are free of material unintentional misstatements
d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole

5. Required auditor communication to the Audit Committee concerning noncompliance with laws and
regulations that were detected includes:
a. All material items
b. All those which are not adequately addressed by management
c. All those that constitute management fraud
d. Any of such acts

6. An auditor who accepts an audit engagement but does not possess the industry expertise of the business
entity, should
a. Engage financial experts familiar with the nature of the business entity
b. Obtain a knowledge of matters that relates to the nature of the entity’s business
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor
d. First inform the client management that an unqualified opinion cannot be issued

7. Auditors focus on
a. Areas where the risk of material errors and irregularities is least
b. Areas where the risk of material errors and irregularities is greatest
c. All areas equally
d. A random selection of all areas

8. The decision as to how much evidence to be accumulated for a given act of circumstance is
a. Provided by following the generally accepted accounting principle
b. One requiring professional judgment
c. Determined by statistical analysis
d. Provided in the Philippines Standards on Auditing

9. Which of the following statement best describes the primary purpose of Philippine Standards on Auditing?
a. They are guides untended to set forth auditing procedures that are applicable to a variety of
situations
b. They are procedural outlines which are intended to narrow down the areas of inconsistency and
divergence of auditor’s opinion

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 c. They are authoritative statements, enforce through the Code of Professional Conduct, that are
intended to limit the degree of the auditor’s judgment
d. They are interpretations which are intended to clarify the meaning of “generally accepted auditing
standards”

10. An auditor need not abide by a Philippines Standard on Auditing if the auditor believes that
a. The amount is insignificant
b. The requirement of the PSA is impractical to perform
c. The requirement of the PSA is impossible to perform
d. Any of the given three choices is correct

11. Auditing standards are

a. Statutory in nature
b. Rules imposed by the Securities and Exchange Commission
c. Rules imposed by the PICPA
d. General guidelines to help the auditors

12. Though PSAs do not provide “hard and fast rules”, they provide subjective guidance which allow the
auditors to:
a. Tailor their audit to procedures requested by management
b. Only apply those standards that are important to the audit
c. Accurately interpret the profession’s Code of Professional Conduct
d. Use adequate professional judgment when applying the standards

13. Every independent audit engagement involves both auditing standards and auditing procedures. The
relationship between the two may be illustrated by how they apply from engagement to engagement. The
best representation of this application is that, from one audit engagement to the next.
a. Both auditing standards and auditing procedures are applied uniformly
b. Auditing standards are applied uniformly but auditing procedures may vary
c. Auditing standards may vary but auditing procedures are applied uniformly
d. Auditing standards are applied uniformly but auditing procedures are optional

14. Philippine Financial Reporting Standards (PFRS) are distinguished from generally accepted auditing
standards (GAAS) in that:
a. PFRS are the principles for presentation of financial statements and underlying transactions while
GAAS are the standards that the auditors should follow when conducting an audit
b. PFRS are the principles auditors follow when conducting an audit while GAAS are the standards
for presentation of financial statements and underlying transactions
c. PFRS are promulgated by the SEC, while GAAS are promulgated by the FRSC
d. When PFRS are violated, sufficiently strong GAAS may make up for most PFRS deficiencies

15. The Philippine Standards on Auditing issued by the Auditing and Assurance standards Council (AASC)
a. Are interpretations of generally accepted auditing standards
b. Are the equivalent of laws for audit practitioners
c. Must be followed in all situations
d. Are optional guidelines which an auditor may choose not to follow when conducting an audit

16. Competence as a certified public accountant includes all of the following except
a. Having the technical qualifications to perform an engagement
b. Possessing the ability to supervise and evaluate the quality of staff work
c. Warranting the infallibility of the work performed
d. Consulting others if additional technical information is needed

17. In any case in which the incoming accountant is not qualified to perform the work, a professional
obligation exists to
a. Acquire the required level of knowledge and skills
b. Recommend someone else who is qualified to perform the work
c. Decline the engagement
d. Any of the given choices

18. Ultimately, the decision about whether or not an auditor is independent must be made by the
a. Auditor
b. Audit committee
c. Client
d. Public

19. To be independent, the auditor:

a. Cannot place any reliance on the client’s verbal and written assertions

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 b. Is responsible only to third-party users of the financial statements
c. Cannot perform any other professional services for an audit client
d. Must be impartial when dealing with the client

20. What is the meaning of the generally accepted auditing standard that requires that the auditor by
independent?
a. The auditor must be without bias with respect to the client entity
b. The auditor must adopt a critical attitude during the audit
c. The auditor’s sole obligation is to third parties
d. The auditor may have a direct ownership interest in the client’s business if it is not material

21. A CPA, while performing an audit strives to achieve independence in appearance in order to
a. Reduce risk and liability
b. Comply with the generally accepted standards of field work
c. Become independent in fact
d. Maintain public confidence in the profession

22. Which of the following best describe why publicly traded corporations follow the practice of having the
outside auditor appointed by the board of directors or at least by the stockholders?
a. To comply with the regulations of the Financial Reporting Standards Council
b. To emphasize the auditor’s independence from the management of the client entity
c. To encourage a policy of rotation of the independent auditor
d. To provide the corporate owners with an opportunity to voice their opinion concerning the quality
of the auditing firm selected by the directors

23. Practitioner’s independence:

a. Minimizes risk
b. Helps achieve public confidence
c. Defends against professional liability
d. Achieves compliance with standards of field work

24. If the client refuses to accept an audit report that is qualified due to a known existence of noncompliance to
laws and regulations, the auditor should
a. Issue an adverse opinion if management agrees to fully disclose the matter
b. Withdraw from the engagement and communicate the reasons to the audit commence in writing
c. Withdraw from the engagement and communicate the reasons to the Securities and Exchange
Commission or other regulatory body in writing
d. Issue an unqualified opinion if management agrees to fully disclose the matter

25. Which of the following is not required by the Generally Accepted Auditing Standard that states that due
professional care is to be exercised in the performance of the audit?
a. Observance of the standards of field work and reporting
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession
d. Responsibility for losses because of errors of judgment

26. The standard of due audit care requires the auditor to

a. Apply judgment in a conscientious manner, carefully weighing the relevant facors before reaching
a decision
b. Ensure that the financial statements are free from error
c. Make perfect judgment decisions in all cases
d. Possess skills clearly above the average for the profession

27. Which of the following mostly describes the function of AASC?

a. To promulgate auditing standards, practices and procedures that shall by generally accepted by the
accounting profession in the Philippines
b. To monitor full compliance by all auditors to PSAs
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

28. The exercise of due professional care requires that an auditor

a. Examine all available corroborating evidence
b. Critically review the judgment exercised at every level of supervision
c. Reduce control risk below the maximum
d. Attain the proper balance of professional experience and formal education

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29. Which of the following best describes the reference to the expression “taken as a whole” in the fourth
generally accepted auditing standard of reporting?
a. It applies only to a complete set of financial statement
b. It applies equally to each item in each financial statement
c. It applies equally to each material item in each financial statement
d. It applies equally to a complete set of financial statements and to each individual financial
statement

30. The Philippine standards on Auditing issued by AASC

a. Apply to independent examination of financial statement of any entity when such examination is
conducted for the purpose of expressing an opinion
b. Must not apply to other related activities of auditor
c. Need to be applied on all audit-related engagements
d. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA,
even though such a departure may result to more effective achievement of the objective of an audit

31. Which of the following is not required by the Generally Accepted Auditing Standard that states that due
professional care is to be exercised in the performance of the audit?
a. Observance of the standards of field work and reporting
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession
d. Responsibility for losses because of errors of judgment

32. A CPA who has been retained by ac client that operates in an industry that is totally new to him
a. May not accept such an engagement
b. May accept the engagement only of the accounting firm specializes in the audit of commercial
banks
c. May accept the engagement after attaining a suitable level of understanding of the transactions and
accounting practices unique to commercial banking
d. Mau accept the engagement because his training as a CPA transcends unique industry
characteristics

33. Which of the following is the best statement concerning the concept of materiality?
a. Materiality is determined by reference to PSA matrix
b. Materiality depends only on the peso amounts involved
c. Materiality depends on the nature of an item rather than on the peso amount
d. Materiality is a matter of professional judgment

34. The first standard of field work, which states that the work is to be adequately planned and assistants, if
any, are to be properly supervised, recognizes that
a. Early appointment of the auditor is advantageous, both to the auditor and to the client
b. Acceptance of an audit engagement after the close of the client’s fiscal year is generally not
permissible
c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer
of opinion
d. Performance of substantial parts of the engagement is necessary at interim dates

35. Which of the following underlies the application of generally accepted auditing standards, particularly the
standards of field work ad reporting?
a. Elements of materiality and risk
b. Element of corroborating evidence
c. Element of internal control
d. Element of reasonable assurance

36. Which of the following is not an attestation standard?

a. The engagement shall be performed by a practitioner having adequate knowledge in the subject
matter of the assertion
b. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is
expressed in the report
c. The work shall be adequately planned, and assistants, if any, shall be properly supervised
d. The report shall state whether the financial statements are presented in accordance with generally
accepted accounting principles

37. Which of the following is a conceptual difference between the attestation standards and generally accepted
auditing standards?
a. The attestation standards provide a framework for the attest function beyond historical financial
statements

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 b. The requirement that the practitioner by independent in mental attitude is omitted from the
attestation standard
c. The attestation standards do not permit an attest engagement to be part of a business acquisition
study or a feasibility study
d. None of the standards of fieldwork in generally accepted auditing standards are included in the
attestation standards

38. The auditor’s judgment concerning the overall fairness of the presentation of financial position, results of
operations, and changes in financial position is applied within the framework of
a. Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Internal control
d. Information systems control

39. The auditor communicates the results of his or her work through the issuance of:
a. Engagement letter
b. Management letter
c. Audit report
d. Financial statement

40. The four major steps in conducting an audit are:

i. Testing internal controls
ii. Audit report
iii. Planning
iv. Testing transactions and balances

The proper sequence in applying the above steps is:

a. III, I, IV, II
b. III, IV, I, II
c. II, III, IV, I
d. I, IV, III, II

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