Far Eastern University

ACCOUNTING 1.1

Chapter 5: PROFESSIONAL AUDITING STANDARDS AND THE AUDIT FORMULATION PROCESS

1)When planning and performing audit procedures and evaluating and reporting the results thereof, the auditor should

1. 1. Search for errors that would have a material effect and for fraud that would have either material or immaterial effect on the financial statements.
   2. Consider the risk of misstatements in the financial statements resulting from fraud or error.
   3. Search for fraud that would have a material effect and for errors that would have either material or immaterial effect on the financial statements.

1. 4. Consider the risk of material misstatements in the financial statements resulting from fraud or error.

2. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be looked upon by practitioners as:
   1. Ideals to work towards, but which are not achievable
   2. Maximum standards which denote excellent work.
   3. Minimum standards of performance which must be achieved on each audit engagement.
   4. Benchmark to be used on all audits, reviews, and compilations.

3. Which of the following best describes what is meant by Generally Accepted Auditing Standards?
   1. Pronouncements issued by the Auditing Standards and Practices Council.
   2. Procedure to be used to gather evidence to support financial statements.
   3. Rules acknowledged by the accounting profession because of their universal compliance.
   4. Measures of the quality of the auditor’s performance

4. A CPA should comply with applicable generally accepted auditing standards on every engagement
   1. Without exception
   2. Except in examinations that result in a qualified report
   3. Except in engagements where the CPA is associated with unaudited financial statements.
   4. Except in examinations of interim financial statements.

5. The general standards stress the importance of
   1. The personal qualities which the auditor should have
   2. Evidence accumulation
   3. Communicating the auditor’s finding to the reader
   4. All of the above

6. The Audit Standard which requires “adequate technical training and proficiency” is normally interpreted as requiring the auditor to have
   1. Formal education in auditing and accounting
   2. Adequate practical experience for the work being performed
   3. Continuing professional education
   4. All of the above

7. Which of the following is not required by the Generally Accepted Auditing Standards that states that due professional care is to be exercised in the performance of the audit?
   1. Observance of the standards of field work and reporting
   2. Critical review of the audit work performed at every level of supervision
   3. Degree of skill commonly possessed by others in the profession.

1. 4. Responsibility for losses because of errors of judgment

8. The first general standard requires that the audit of financial statements be performed by a person or persons having adequate technical training and
   1. Independence with respect to the financial statements and supplementary disclosures.
   2. Exercising professional care as judged by peer reviewers.
   3. Proficiency as an auditor, which likely has been acquired from previous experience.
   4. Objectivity as an auditor, as verified by proper supervision.

9. Which of the following is mandatory if the auditor is to comply with generally accepted auditing standards?
   1. Possession by the auditor of adequate technical training.
   2. Use of analytical review on audit engagements.
   3. Use of statistical sampling whenever feasible on an audit engagement.
   4. Confirmation by the auditor of material accounts receivable balances.

10. The third general standards states that due care is to be exercised in the performance of the examination. This standard should be interpreted to mean that a CPA who undertakes an engagement assumes a duty to perform.
    1. With reasonable diligence and without fault or error.
    2. As a professional who will assume responsibility for losses consequent upon error of judgment.
    3. To the satisfaction of the client and third parties who may rely upon it.
    4. As a professional possessing the degree of skill commonly possessed by others in the field.
11. The third general standard states due care is to be exercised in the performance of an

audit.

This standard is generally interpreted to require

1. 1. Objective review of the adequacy of the technical training and proficiency of firm personnel
   2. Critical review of work done at every level of supervision
   3. Thorough review of the existing internal control structure
   4. Periodic review of a CPA firm’s quality control procedures.

12. The first standard of fieldwork, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
    1. Early appointment of the auditor is advantageous both to the auditor and to the client.
    2. Acceptance of an audit engagement after the close of the client's fiscal year is generally not permissible.
    3. Appointment of the auditor subsequent to the physical count of inventories requires a

disclaimer of opinion.

1. 4. Performance of substantial parts of the engagement is necessary at interim dates.

13. The fourth standard of reporting requires the auditor’s report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion

to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent

1. 1. An auditor from expressing different opinions on each of the basic financial statements.
   2. Restrictions on the scope of the examination, whether imposed by the client or by the inability to obtain evidence.
   3. Misinterpretations regarding the degree of responsibility the auditor is assuming
   4. An auditor from reporting on one basic financial statement and not the others.

14. What is the overriding reason why the auditor considers the professional competence of assistants whom the work will be delegated?
    1. All the audit assistants assigned to an engagement must be independent in appearance.
    2. To have reasonable assurance that such work will be performed with due care by the audit assistant.
    3. To lessen the working paper preparation.
    4. To eliminate audit risk.

15. A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through
    1. A system of peer review.
    2. Continuing professional education.
    3. A system of quality controls.
    4. Compliance with generally accepted reporting standards.

16. The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its quality control system
    1. Compliance audit                                                        c. Peer review
    2. Examination                                                                  d. Quality control audit

17. The firm is to be staffed by personnel who have attained and maintained the technical standards and professional competence required to enable them to fulfill their responsibilities with due care is the objective of what quality control policy?
    1. Professional Requirements                    c. Assignment
    2. Skills and Competence                             d. Delegation

18. In connection with the element of professional development, a CPA firm’s system of quality control should ordinarily provide that all personnel
    1. Have the knowledge required to enable them to fulfill responsibilities assigned.
    2. Possess judgment, motivation, and adequate experience.
    3. Seek assistance from persons having appropriate levels of knowledge, judgment, and authority.
    4. Demonstrate compliance with peer review directives.