PrE 1: AUDITING AND ASSURANCE PRINCIPLE | Mae
1. The objective of audit is “to enhance the degree of confidence” of intended users in the financial statements
True
False
2. The knowledge of the business may be general or particular
True
False
3. Establishing whether the preconditions for an audit are present is an essential planning requirement
True
False
4. Inherent risk is a risk that the auditor gives an inappropriate audit opinion
True
False
5. Auditing came from the Greek word “audire” which means “to hear”
True
False
6. Materiality refers to the analysis of significant ratios and trends including the resulting investigation of fluctuations and
relationships that are inconsistent with other relevant information or which deviate from predicted amounts.
True
False
7. Materiality provides a threshold or cut-off point
True
False
8. Enhancing the auditor’s understanding of the client’s business is an analytical procedure performed at the execution stage
True
False
9. The Overall Audit Plan sets out in broad terms the nature, timing, and extent of the audit procedures to be performed.
True
False
10. The risk of material misstatement is composed of Inherent risks. Control risks and Detection risk.
True
False
MARCH 15, 2021
1. When engaged in the practice of public accounting, the most fundamental and cornerstone of the philosophical structure of
auditing is:
Independence
Due professional care
Familiarity with business practice and concept
General competence
2. An independent auditor aids in the communication of economic data because the audit,
Assure the readers of financial statements that any fraudulent activity has been corrected
Lends credibility to the financial statements
Confirms the accuracy of management’s financial representations
Guarantees that financial data are fairly stated
3. A concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no
material misstatements in the financial statements taken as a whole.
Scope of an audit
Reasonable assurance
Absolute assurance
Audit process
PrE 1: AUDITING AND ASSURANCE PRINCIPLE | Mae
4. The financial reporting framework adopted by management and, where appropriate, those charged with governance in the
preparation and presentation of the financial statements that is acceptable in view of the nature of the entity and the
objective of the financial statements, or that is required by law or regulation
Applicable financial reporting framework
Appropriate financial reporting framework
Financial reporting framework
Philippine Financial Reporting Standards
5. The essence of the audit function is to:
Assurance the consistent application of correct accounting procedures
Examine individual transactions so that the auditor may certify as to their validity
Detect fraud
Determine whether the client’s financial statements are fairly stated
6. Which of the following best describes the objective of an audit of financial statements?
To express an assurance as to the future viability of the entity whose financial statements are being audited
To express an opinion whether the financial statements are prepared in all material respects, in accordance with
an applicable financial reporting framework
To express an assurance about the management’s efficiency or effectiveness in conducting the operations of entity
To express an opinion whether the financial statements are prepared in accordance with prescribed criteria
7. It refers to person(s) with executive responsibility for the conduct of the entity’s operations
Board of Trustees
Those charged with governance
Board of directors
Management
8. In conducting an audit of financial statements, the overall objectives of the auditor are:
To obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error
To report on the financial statements, and communicate as required by the PSAs, in accordance with the auditor’s
finding
Both of the above
None of the above
MARCH 26, 2021
1. Which of the following is least likely to be considered a risk assessment procedure?
Confirmation of ending accounts receivable
Analytical procedures
Observation of the performance of certain accounting procedures
Inspection of documents
2. Having evaluated inherent risk and control risk, the auditor determines detection risk
At a level that equates the joint probability of inherent risk, control risk and detection risk with overall audit risk
As a product of further study of the business and industry and application of analytical procedures
By performing substantive audit tests
As a complement of the overall audit risk
3. Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?
Domination of management by top executives
Large amounts of cash processed
Negative cash flows from operations
Small high-peso inventory items
4. The factor that distinguishes constructive fraud from actual fraud is:
Intent
5. It is the ability of the company to anticipate potential business risks and to avoid them.
PrE 1: AUDITING AND ASSURANCE PRINCIPLE | Mae
Entity’s risk assessment process
Control environment
Control activities
Monitoring of activities
6. Which of the following statement is an example of an inherent limitation internal control?
Errors may arise from mistakes in judgments
Computers process large number of transactions
Procedures are designed to assure that transactions are executed as management authorities
The effectiveness of control procedures depends on segregation of duties
7. The probability of an auditor’s procedures leading to the conclusion that a material errors does not exist in an account
balance when, in fact, such error does exist is referred to as:
Detection risk
Prevention risk
Inherent risk
Control risk
8. While assessing the risks of material misstatement, auditors identify risks, relate risk to what could go wrong consider the
magnitude of risks and
Consider the likelihood that the risk could result in material misstatements
Assess the risk of misstatements due to illegal acts
Consider the complexity of the transactions involved
Determine materiality levels
9. Which of the following activities would be least likely to strengthen a company’s internal control?
Maintaining insurance for fire and theft.
Fixing responsibility for the performance of employee duties
Carefully selecting and training employees.
Separating accounting and other financial operations
10. If control risk is at high level, a test of control should be performed.
True
False
