Quiz #1 Auditing Theory Chapter 1-3

Independent auditing can best be describe as a

 

• Professional activity that measures and communicates financial accounting data

• subset accounting

• Professional activity that attest to the fair presentation of financial statement

• Regulatory activity that prevents the issuance of improper financial information

The following statements relate to the auditor’s responsibility for the detection of errors and fraud. Identify the correct statements.

I. Due to the inherent limitation of the audit, there is a possibility

that material misstatements in the financial statements may not be detected.

II.  The subsequent discovery of material misstatement of the

financial information resulting from fraud or error does not, in itself, indicate that the auditor failed to follow the basic principles and essential procedures of an audit.

• I only

• Both Statements are true

• II only

• Both statements are false

Which of the following statements is not a distinction between independent auditors and internal auditors?

• Independent auditors represent third party users external to the auditee entity, whereas internal auditors report directly to management.

• Although independent auditors strive for both validity and relevance of evidence, internal auditors are concerned almost exclusively with validity.

• Internal auditors are employees of the auditee, whereas independent auditors are independent contractors.

• The internal auditor’s span of coverage goes beyond financial auditing to encompass operational and performance auditing.

Which of the following best describe the operational audit?

• It requires the constant review by internal auditors of the administrative controls as they relate to operations of the company.

• It concentrates on implementing financial and accounting control in a newly organized company.

• In attempts and is designed to verify the fair presentation of a company’s results of operations.

• It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls.

Jack has been retained as auditor of EVC Company. The function of Jack’s opinion on financial statements of EVC Company is to

• Improve financial decisions of company management

• Lend Credibility to management’s representation

• Detect fraud and abuse in management operations

• Serve requirements of BIR, SEC, or Central Bank

The term “error” refers to unintentional misrepresentation of financial information. Examples of errors are when

I.                     Assets have been misappropriated

II.                   Transactions without substance have been recorded

III.                 Records and documents have been manipulated and falsified

IV.                 The effects of the transaction have been omitted from the records

• all of the above statements are true

• only statements I and III are true

• all of the above statements are false

• only statement II and IV are true

Which of the following statements best describe an auditor’s responsibility to detect errors and fraud?

• An auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

• An auditor is responsible to detect material errors, but has no responsibility to detect material fraud that are concealed through employee collusion or management override of the internal control structure.

• An auditor has no responsibility to detect errors and fraud unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated.

• An auditor has no responsibility to detect errors and fraud because an auditor is not an insurer and an audit does not constitute a guarantee.

Which of the following statement is true?

• It is usually easier for the auditor to uncover fraud than errors.

• It is usually easier for the auditor to uncover errors than fraud.

• It is usually equally difficult for the auditor to uncover errors or fraud.

• Usually, the auditor does not design procedures to uncover fraud or

The most difficult type of misstatement to detect is fraud based on

• The over recording of transaction

• The non-recording of transactions

• Recorded transactions in subsidiaries

• Related party receivable error

Which of the following statements is incorrect?

• The responsibility for the prevention and detection of fraud and error rests with management.

• The auditor is not and cannot be held responsible for the detection of fraud or error.

• In planning an audit, the auditor should assess the risk that fraud or error may cause the financial statements to contain material misstatement.

• The risk of not detecting material fraud is higher than the risk of not detecting a material misstatement arising from error.