Audit Theory Quiz Questions And Answers

The correct answer is that an audit of financial statements is conducted to determine if the overall financial statements are stated in accordance with the applicable financial reporting framework. This means that the audit is performed to ensure that the financial statements are prepared in accordance with the relevant accounting standards and regulations, providing users of the financial statements with reliable and accurate information about the organization's financial performance and position.

A compliance audit is a type of audit that uses laws and regulations as its criteria. This type of audit is specifically focused on ensuring that an organization is adhering to applicable laws, regulations, and industry standards. It aims to assess whether the organization is following the required procedures and controls to comply with legal and regulatory requirements. By conducting a compliance audit, organizations can identify any areas of non-compliance and take corrective actions to mitigate risks and ensure legal compliance.

The correct answer is Audit report. The auditor communicates the results of his/her work through the audit report. This report contains the auditor's opinion on the financial statements of the company, including any findings or issues identified during the audit process. It provides an assessment of the company's financial position and the effectiveness of its internal controls. The audit report is an important document that is shared with stakeholders, such as shareholders, lenders, and regulators, to provide assurance on the accuracy and reliability of the company's financial statements.

An operational audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives. This type of audit focuses on analyzing the internal processes, systems, and procedures of an organization to identify areas for improvement and enhance overall performance. It does not primarily focus on financial statements or compliance with regulations, making it different from a financial statement audit or compliance audit. An external audit, on the other hand, refers to an independent examination of an organization's financial statements by an external party.

Independent auditing is a professional activity that involves examining and evaluating an organization's financial statements to ensure their accuracy and fairness. Auditors provide an independent and objective assessment of the financial information presented by the company. Their role is to attest to the fair presentation of financial statements, meaning that they confirm whether the financial information is reliable and in accordance with the applicable accounting standards and regulations. This helps to enhance the credibility and reliability of the financial statements for stakeholders such as investors, creditors, and regulators.

The independent auditor's main task in formulating an opinion on financial statements is to obtain and examine evidential matter. This involves gathering relevant and reliable evidence to support the financial statements and evaluating its accuracy and completeness. By obtaining and examining evidential matter, the auditor can assess the reliability of the financial information presented and determine if it is fairly stated in accordance with the applicable accounting standards. This process helps to ensure the integrity and transparency of the financial statements and provides assurance to stakeholders and users of the financial information.

Internal auditing is an important function within an organization that aims to assess and evaluate its activities. The primary purpose of internal auditing is to provide assistance and support to management and the board of directors. By conducting independent appraisals, internal auditors help management and the board of directors in identifying any potential risks or weaknesses in the organization's operations. This enables them to make informed decisions and take necessary actions to improve the overall efficiency, effectiveness, and compliance of the organization.

External auditing is the correct answer because it is the type of auditing that is most commonly performed by CPA's on a contractual basis. External auditors are independent professionals who are hired by organizations to review their financial statements and ensure that they are prepared in accordance with the relevant accounting standards. They provide an unbiased opinion on the accuracy and fairness of the financial statements, which is crucial for maintaining the trust of stakeholders such as investors, lenders, and regulators.

The subject matter of any audit consists of assertions. Assertions are the representations made by management regarding the financial statements, such as the completeness, accuracy, and validity of the information presented. During an audit, the auditor examines these assertions to determine if they are reasonable and supported by sufficient evidence. This helps to ensure the reliability and integrity of the financial statements and provides assurance to stakeholders.

An operational audit aims to assess the efficiency and effectiveness of specific operating units within an entity. It focuses on evaluating whether these units are performing their tasks in a productive and successful manner. This includes analyzing their processes, procedures, and performance metrics to identify any areas of improvement or potential risks. The objective is to ensure that the organization's resources are being utilized optimally and that the desired outcomes are being achieved.

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The question asks for a criterion that would not be valid in the audit of financial statements. The International Standards on Auditing (ISA) is a set of guidelines and procedures that auditors use to conduct audits. Therefore, the International Standards on Auditing would be a valid criterion in the audit process. On the other hand, International Accounting Standards, International Financial Reporting Standards, and Philippine Accounting Standards are all sets of accounting principles and guidelines that provide a framework for preparing financial statements. These standards would be considered valid criteria in the audit of financial statements.

The operational audit focuses on identifying areas within a company's operations where waste can be reduced through the implementation of controls. This type of audit involves reviewing and assessing various operational processes to identify inefficiencies and recommend improvements. By identifying and addressing areas of waste, the company can improve its overall efficiency and effectiveness.

The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. This means that internal auditors provide support and guidance to employees, helping them to carry out their duties in an efficient and effective manner. Internal auditors may offer recommendations for improvement, identify areas of risk, and ensure that processes and controls are in place to achieve organizational goals. While attesting to efficiency, ascertaining cost justification, and providing assurance of accurate financial data are important aspects of internal auditing, the primary objective is to support and assist members of the organization.

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