9. Provide and des for FS Audit. 10. Discuss the value of FS audit. 2 - 1 TRUE OR FALSE 1. Auditors serve numerous parties, but most importantly is the public, as exemplified by investors, creditors and other stakeholders. 2. External auditors enhance credibility of information by helping the management in preparing the financial statements and designing and implementing internal controls. 3. Assertions are representations made by an audit client, explicit or otherwise, about economic actions and events. 4. Providers of external audits and internal audits are both independent from the management which allows them to perform financial statements audit. 5. The overall objective of the auditor in financial statements audit is to have an opinion on whether the financial statements are prepared, in all material respects, in accordance with the criteria. 6. The opinion to be expressed by the auditor must pertain individually and separately to each financial statement presented by management. 7. Comparability means that different knowledgeable and independent observers could reach consensus. 8. Financial statements should not favor one user over another, as such, the interest of the users must have no conflicts.2021/9/9 23:31 Chapter 2 - Introduction to Audit Services and Financial Statement Audit 9. External audit benefits the public by lending credibility to the item. ch presented in the financial statements. 15 10. Financial information is more reliable when the internal controls of the entity are effective, as such, external auditors also express an opinion over the effectiveness of these controls. 2 -2 TRUE OR FALSE 1. The auditor is expected to detect both fraud and error during the course of performing external audits. 2. The financial statements must be adequately supported by records and documents to be considered an appropriate subject matter. 3. The applicable financial reporting framework used as criteria in performing the audit is driven by the information needs of its users. 4. The opinion to be expressed by the auditor depends on the materiality of non-compliance from the framework and pervasiveness of the related effects of such non-compliance. 5. Depending on the magnitude of audit procedures, the level of assurance provided by auditors ranges from high to absolute level. 6. The accumulation of persuasive evidences leads to the establishment of conclusive evidences in detecting material misstatements. 7. Inherent limitations of an audit arise due to the auditor's exposure to inherent risks, control risks and detection risks. 8. External audits provide value to organizations through reduction of information risk that may lead to lower cost of capital. 9. The high demand for audit is present because it is required by law. 10. One of the ways to reduce information risk is to share such risk with the preparer of the information. 11. The auditor is not, and cannot, be held responsible for fraud and error. 12. The audit of financial statements relieves the management and/or those charged with governance of their responsibilities with the financial statements. 13. An audit, when carried out, may act as a deterrent for fraud and error. 14. When the auditor is unable to gather sufficient appropriate evidence, he or she ordinarily selects between qualified and adverse opinion.Chapter 2 - Introduction to Audit Services and Financial Statement Audit 15. An auditor may provide an absolute level of assurance in extremely rare circumstances. 2 - 3 MULTIPLE CHOICE QUIZZERS 1. Which of the following statements refers to the definition of auditing? A. A service activity which function is to provide quantitative information primarily financial in nature about economic entities that is intended to be useful in making economic decisions. B. The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the results thereof. C. The process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users of the information. D. A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results thereof. 2. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis? A. Internal auditing C. BIR auditing B. Government auditing D. External auditing 3. This type of audit involves a review of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness of operations, identifying areas for improvement, and making recommendations to improve performance. A. Financial statement audit C. Compliance audit B. Operational audit D. Internal audit 4. An objective of operational audit is to assess whether A. Specific units of the entity are functioning effectively and efficiently B. Financial statements fairly reflect the results of operations C. An organization's procedures adhere to specific procedures, rules or regulations set by an authoritative body D. Internal control structure is designed and implemented 5 . An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): A. Audit of financial statements. C. Operational audit. B. Compliance audit. D. Production audit