ASIAN INSTITUTE OF SCIENCE AND TECHNOLOGY GENERAL EDUCATION DEPT.

Midterm Examination
1st Semester School Year 2024-2025
AUDIT 3: Auditing Assurance Concepts and Applications

NAME: ____________________________ DATE: ___________

SECTION: _________________________ SCORE: __________
Test I: Encircle the letter of the correct answer. Erasures are considered wrong.
1. An independent audit is important to readers of financial statements because it
a. Provides a measure of management's stewardship function
b. Measures and communicates the financial data included in financial statements
c. Objectively examines and reports on management's financial statements
d. Reports on the accuracy of information in the financial statements
2. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representation.
b. Guarantees that financial data are fairly presented.
c. Assures the readers of financial statements that any fraudulent activity has been
corrected.
d. Lends credibility to the financial statements.
3. The purpose of an audit of financial statements is to
a. Obtain an absolute level of assurance that the financial statements as a whole are free
from material misstatement.
b. Relieve management or those charged with governance of the responsibility for the
preparation and presentation of the financial statements in accordance with the
applicable financial reporting framework.
c. Enhance the degree of confidence of intended users in the financial statements.
d. Assure the future viability of the entity by expressing an opinion on the entity's financial
statements.
4. Independent auditing can best be described as
a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A regulatory function that prevents the issuance of improper financial information.
d. A discipline which attests to the results of accounting and other functional operations
and data.
5. The primary purpose of an independent financial statement audit is to:
a. Provide a basis for assessing management's performance
b. Comply with government regulatory requirements
c. Assure management that the financial statements are unbiased and free from material
error
d. Provide users with an unbiased opinion about the fairness of information reported in
the financial statements
6. The audit process is
a. A special application of the scientific method of inquiry.
b. Regulated by the PICPA.
c. The only service a CPA is allowed to perform by law.
d. Performed only by CPAs.
7. Which of the following is not among the factors that result to limitations of audit?
a. Use of testing
b. Going concern problem of the assurance client
c. Human error
d. Evidence is basically persuasive rather than conclusive
8. The market for auditing services is driven by
a. The regulatory authority of the Securities and Exchange Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing and Assurance Standards Council.
d. Congress.
9. The independent auditor of the past differs from the auditor of today in that the past
auditor was more concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements.
c. Improvement of accounting system.
d. Detection of fraud or irregularities.
10. The criteria for evaluating q u a n t i t a t i v e information vary. For example, i n t h e
c a s e o f a n independent audit of financial statements by CPA firms, the criteria are
usually the:

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 a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. National Internal Revenue Code
d. Securities and Exchange Commission Regulations
11. The auditor's judgment concerning the overall fairness of presentation of financial position,
results of
operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality
b. Generally accepted accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control
12. An independent audit is important to readers of financial statements because of the
following except:
a. Lends credibility to the financial statements.
b. Objectively examines and reports on management's financial statements
c. Measures and communicates the financial data included in financial statements
d. Provide users with an unbiased opinion about the fairness of information reported in
the financial statements
13. The auditor's judgment concerning the overall fairness of presentation of financial
position, results of operation, and changes in cash flow is applied within the framework
of
a. Generally accepted auditing standards which include the concept of materiality
b. Generally accepted accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control
14. In financial statement audits, the audit should be conducted in accordance with
a. Philippine Accounting Standards / Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Code of Ethics for CPAs in the Philippines
d. Philippine Standards on Auditing
15. Which of the following statements does not properly describe an element of the theoretical
framework of auditing?
a. An audit benefits the public.
b. The data to be audited are verifiable.
c. Auditor should maintain independence with respect to the audit client.
d. Remoteness of users.
16. The auditor is required to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to fraud or error. In all
cases when reasonable assurance cannot be obtained, the auditor's report should
contain a/an:
a. Unmodified opinion
b. Qualified or disclaimer of opinion
c. Qualified or adverse opinion
d. Disclaimer of opinion
17. The benefits of an operational audit generally include all of the following except:
a. Decreased costs.
b. Increased revenue
c. Increased reliability of the financial statements.
d. Increased productivity.
18. Which of the following statements does not properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of evidence.
b. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.
c. Many financial statement assertions cannot be audited.
d. The work, under taken by the auditor is permeated by judgment.
19. An audit designed to evaluate the efficiency and effectiveness of an organization or some
or part thereof would not come under the title of
a. Performance audit.
b. Compliance audit.
c. Management audit.
d. Operational audit.
20. Inherent limitations in an audit stem from the following factors except
a. Incompetence of the auditor.
b. Most audit evidence is persuasive rather than conclusive.
c. Internal control limitation.
d. Use of testing.
21. Auditing services may include which of the following?
a. Attesting to financial statements
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 b. Evaluation of a division’s performance for management
c. Examination of the economy and efficiency of governmental operations
d. All of the above
22. Which of the following represents the highest to lowest level of assurance provided by
auditors in the performance of the engagement?
a. An audit; a compilation; a review.
b. An audit; a review; a compilation.
c. A review; an audit; a compilation.
d. A compilation; a review; an audit.
23. The statement that the reviewer "is not aware of any material modification that should
be made to the financial statements in order for them to be in conformity with GAAP" is
known as:
a. Reasonable assurance.
b. Positive assurance.
c. Negative assurance.
d. Negligent performance.
24. Which of the following is a major difference between a review and an audit of the financial
statements?
a. The level of knowledge of professional standards needed to perform the procedures.
b. The type of accounting used -reviews are typically on
non-GAAP accounting, while audits are based upon GAAP
accounting.
c. The scope of the procedures performed and the assurance provided.
d. The type of company involved in reviews may only be publicly-held.
25. The review of unaudited financial statements consists of:
a. Inquiry of management and documentation of internal controls.
b. Inquiry of management and analytical procedures.
c. Analytical procedures and compliance with laws and regulations.
d. Internal control evaluation and management representation.
26. In an assurance engagement, this refers to the information obtained by the practitioner in
arriving at the conclusions on which the conclusion is based.
a. Generally accepted auditing standards
b. Assertions
c. Evidence
d. Criteria
27. If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission or misstatement of information, then the information is
a. Significant.
b. Material.
c. Relevant.
d. Pervasive.
28. In performing a financial statement audit, which of the following would an auditor least
likely consider?
a. Compliance with GAAP.
b. Quality of managements' business decisions.
c. Internal control.
d. Fairness of the financial statement amounts.

29. The Philippine Standards on Auditing issued by AASC:

a. 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.
b. Apply to independent examination of financial statements of any entity when such
an examination is conducted for the purpose of expressing an opinion.
c. Need to be applied on all audit related.
d. Must not apply to other related activities of auditors.
30. The term that describes the role of persons entrusted with the supervision, control and
direction of an entity is
a. Management.
b. Administration.
c. Governance.
d. Government.

Test II: Answer the following to the best of your knowledge. (5points each)
1. Why do we need to assess risk when it comes to auditing?

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2. Substantive tests of details are an auditing protocol that's necessary when there's a high
chance of material misstatement. When do material misstatements happen? What
alternative can we do to avoid these?

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