Chapter

1: An Introduction to Assurance, Auditing and

Related Services

A. ASSURANCE SERVICES
1. Which of the following statements best describes assurance services?
A. Independent professional services that are intended to enhance the credibility of
information to meet needs of an intended user.
B. Services designed to express an opinion on the fairness of historical financial
statements based on the results of n audit.
C. The preparation of financial statements or the collection, classification and
summarization of other financial information.
D. Services designed for the improvement of operations, resulting in better outcomes.

Assurance engagements performed by professional accountants are intended to enhance
the credibility of information about a subject matter by evaluating whether the subject
matter conforms in all material respects with suitable criteria, thereby improving the
likelihood that the information will meet the needs of an intended user. The level of
assurance provided by professional accountant's conclusion conveys the degree of
confidence that the intended user may place in the credibility of the subject matter.

2. Which of the following is not an assurance service?
A. Examination of prospective financial information
B. Audit of historical financial statements
C. Review of financial statements
D. Compilation of financial information

Services performed by professional accountants that are not assurance engagements
1. Agreed upon procedures
2. Compilation of financial or other information
3. Preparation of tax returns where no conclusion is expressed, and tax consulting
4. Management consulting
5. Other advisory services

3. Which of the following professional services would be considered an engagement?
A. A management consulting engagement to provide IT advice o a client.
B. An engagement to report on compliance with statutory requirements.
C. n income tax engagement to prepare tax returns.
D. A compilation of financial statements from a client's accounting records.

4. Which of the following best describes the objective of an assurance engagement?
A. Improve the company's outcomes.
B. Compare the company's information and policies with those of other entities.
C. Enhance the credibility of information in order to improve the likelihood that the
information will meet the needs of an intended user.
D. Assist in preparing the company's financial statements

The objective of an assurance engagement is for a professional accountant to evaluate or measure a
subject matter that is the responsibility of another party against identified suitable criteria, and to
express a conclusion that provides the intended user with the level of assurance about the subject
matter.

An assurance engagement is intended to enhance the credibility of information about a subject matter
by evaluating whether the subject matter conforms in all material respects with suitable criteria,
thereby improving the likelihood that the information will meet the needs of an intended user.

5. Assurance services differ from consulting services in that they
I. Focus on providing advice.
II. Involve monitoring of one party by another.
A. I only
B. II only Both I and II
C. Neither I nor II
Assurance services differ from consulting services in that they:
1. Focus on enhancing the credibility of information rather than providing advice.
2. Typically involve situations in which one party wants to monitor another.

Consulting services are usually two-party arrangements that focus on providing advice on how to use
the information for better outcomes.
6. How many separate parties are involved in an insurance engagement?
A.2
B.3
C.4
D.5

An assurance engagement involves three (3) separate parties:
1. A practitioner,
2. A responsible party, and
3. Intended user.

7. An assurance engagement should have which of the following element?
Subject Matter Criteria
A. Yes No
B. No Yes
C. Yes Yes
D. No No

An engagement should have the following elements:
1. A three party relationship involving:
a.a professional accountant
b.a responsible party, and
c.intended users
2. A subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. An assurance report

8. The Philippine Framework for Assurance Engagements
A. Contains basic principles, essential procedures, and related guidance for the
performance of assurance engagements.
B. Defines and describes the elements and objectives of an assurance engagement, and
identifies engagements to which PSAs, PSREs, and PSAEs apply.
C. Provides a frame of reference for CPAs in public practice when performing audits,
reviews and compilations of historical financial information.
D. Establishes standards and provides procedural requirements for the performance of
assurance engagements.

The Framework defines and describes the elements and objectives of assurance
engagements and identifies engagements to which Philippine Standard on Auditing (PSAs),
Philippine Standard on Review Engagements (PSREs), and Philippine Standards on
Assurance Engagements (PSAEs) apply.

The Framework does not itself establish standards or provide procedural requirements for
the performance of assurance engagements. PSAs, PSREs, and PSAEs contain basic
principles, essential procedures and related guidance, consistent with the concepts in the
Framework, for the performance of assurance engagements.

9. CPAs in public practice who perform assurance engagements are governed by the following,
except
A. Philippine Framework for Assurance Engagements
B. Code of Ethics for Professional Accountants in the Philippines
C. Philippine Standards on Related Services
D. Philippine Standards on Quality Control

The Philippine Standard on Related Engagements (PSREs) are to be applied to non-
assurance engagements such as compilation and agreed-upon procedures engagements.

10. in an assurance engagement, the responsible party and the intended users
A. Should be from different entities.
B. Should b from the same entity.
C. Maybe from the same entity or different entities.
D. Are both responsible for determining the nature, timing and extent of the procedures
to be performed

11. The subject matter of an assurance engagement may include

Financial Information Internal control Compliance with

regulations
A Yes Yes Yes
B No No No
C Yes No Yes
D No Yes No

12. For assurance engagements regarding historical financial information, reasonable assurance
engagements are called.

A. Audits

B. Reviews

C. Compilations

D. Examination

13. When performing an assurance service, professional accountants use standards or benchmarks to
evaluate or measure the subject matter of an assurance engagement. These are referred to in the
Framework

A. Criteria

B. Norms

C. Conditions

D. Gauges

14. The criteria against which subject matter of the assurance engagement is to be evaluated or
measured should possess which of the following characteristics?

Relevant Concise Neutral

A Yes No Yes
B No Yes No
C Yes No No
D No Yes Yes

15. Relevant criteria to conclusions that are

A. Free from bias

B. Clear and comprehensive

C. Subject to different interpretations

D. Useful for decision making.

16. Criteria that are embodied in laws and regulations, or issued by authorized or recognized bodies of
experts that follow a transparent due process are called

A. Suitable Criteria

B. Established criteria
C. Specifically developed criteria

D. General Criteria

17. in an assurance engagement, the person o persons, either as individuals or representatives of an

entity, responsible for the subject matter is the

A. Intended user

B. Responsible party
C. Professional Accountant

D. Client

18. In an assurance engagement, the person or class of persons for whom the professional accountant
prepares the report for specific use or purpose is the

A. Intended user

B. Responsible party

C. Management

D. Client

19. In assurance engagement, the outcome of the evaluation or measurement of a subject matter
against is called

A. Subject matter information

B. Subject matter

C. Assurance

D. Conclusion

20. In some assurance engagements, the evaluation or measurement of the subject matter is performed
by the responsible party, and the subject matter information is in the form of an assertion by the
responsible party is made available to intended users. These engagements are called

A. Direct reporting engagements

B. Assertion based engagements.

C. Non-assurance engagements

D. Recurring engagements

21. The following are characteristics of “direct reporting” assurance engagements, except
A. The subject matter information is in the form of assertion by the responsible party that is made
available to the intended users.

B. The subject matter information is provided to the intended users in the assurance report.

C. The practitioner either directly performs the evaluation or measurement of the subject matter or
obtains a representation from the responsible party that is performed the evaluation or measurement.

D. The representation of the responsible party that has performed the evaluation or measurement of
the subject matter is not available to the intended users.

22. What type of assurance engagement is involved when the practitioner expresses a negative form of
conclusion?

A. Reasonable assurance engagement

B. Negative assurance engagement

C. Assertion- based assurance engagement

D. Limited assurance engagement.

24. A practitioner’s assurance report contains the following conclusion “Based on our work described in
this report, nothing has come to our attention that causes us to believe that internal control is not
effective, in all material respects, based on ABC criteria”. What type of assurance engagement was
performed?

A. Limited assurance engagement

B. Reasonable assurance engagement

C. Negative assurance engagement

D. Positive assurance engagement

25. In assertion-based assurance engagements, the evaluation or measurement of the subject matter
against criteria is performed by the

A. Intended users

B. Responsible party

C. Practitioner

D. AASC

26. The following statements relate to the three parties involved in assurance engagement. Which is
correct?
A. The responsible party and the intended users should be from different entities.

B. A practitioner should decline a proposed assurance engagement when the subject matter requires
specialized skills and knowledge beyond those ordinarily possessed by the practitioner.

C. A responsible party is the person who is responsible for the subject matter or the subject matter
information.

D. The responsible party, not the intended users, determines the nature of the procedures to be
performed.

27. A proposed assurance engagement can be accepted when the practitioner’s preliminary knowledge
about the engagement circumstances indicates that relevant ethical requirements will be satisfied and

I. The subject matter of the engagement is appropriate.

II. The criteria to be used are suitable and are available to the intended users.

III. The practitioner has access to sufficient appropriate evidence to support the conclusion.

IV. The conclusion is to be contained in a written report.

V. There is a rational purpose for the engagement.

A. I, II and III only

B. I, II, IV and V

C. I, II, III and IV only

D. I, II, III, IV and V

28. A practitioner should accept an assurance engagement only if

A. The subject matter is in the form of financial information.

B. The criteria to be used are not available to the intended users.

C. The practitioner’s conclusion is to be contained in a written report.

D. The subject matter is responsibility of either the intended users or the practitioners.

29. Which of the following statements is true concerning evidence in an assurance engagement?

A. Sufficiency is the measure of the quantity of evidence.

B. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.

C. The reliability of evidence is influenced not by its nature but by its source.
D. Obtaining more evidence may compensate for its poor quality.

30. Assurance engagement risk is the risk

A. That the practitioner expresses an inappropriate conclusion when the subject matter information is
materially misstatements.

B. Of expressing an inappropriate conclusion when the subject matter information is not materially
misstated.

C. Through loss from litigation, adverse publicity or the events arising in connection with a subject
matter reported on.

D. Of expressing an inappropriate conclusion when the subject matter information is either materially
misstated or nor materially misstated.

31. The following are components of assurance engagement risk except,

A. Inherent risk

B. Control risk

C. Detection risk

D. Business risk

32. An unqualified conclusion is not appropriate for either reasonable or limited assurance engagement.

A. Circumstances prevent the practitioner from obtaining evidence required to reduce assurance
engagement risk to appropriate level.

B. The responsible party or the engaging party imposes a restriction that prevents the practitioner from
obtaining evidence required to reduce assurance engagement risk to the appropriate level.

C. Both A and B

D. Neither A nor B

33. The following statements relate to the performance of an assurance engagement other than audit or
review of historical financial information covered PSA and PSRE’s. Which is incorrect?

A. Those person who are to perform the engagement should collectively possess the necessary
professional competence.

B. The practitioner is precluded from using the work of persons from other professional disciplines.

C. The practitioner should consider materiality and assurance engagement risk when planning and
performing an assurance engagement.
D. The assurance matter and related should be in writing and should contain a clear expression of the
practitioner’s conclusion about the subject matter information.

34. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of
the following factors, except

A. The use of selective testing.

B. The fact that much of the evidence available to the practitioner is persuasive rather than conclusive.

C. The practitioner may not have the required assurance knowledge and skills to gather and evaluate
evidence.

D. The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence.

35. After accepting an assurance engagement, a practitioner is not allowed to change the engagement
to a non-assurance engagement to a non-assurance engagement, or from a reasonable assurance
engagement to a limited assurance engagement, except when there is reasonable justification for the
change. Which of the following will justify a request for a change in the engagement?

I. A change in circumstances that affects the intended user’s requirements.

II. A misunderstanding concerning the nature of the engagement.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

B. AUDITINGAND RELATED SERVICES

36. Which of the following standards are to be applied, as appropriate, in the audit of historical financial
information?

A. PSREs

B. PSAEs

C. PSRSs

D. PSAs
37. Which of the following standards are to be applied to compilation engagements, engagements to
apply agreed-upon procedures to information, and other related services engagements as specified by
the AASC?

A. PSRSs

B. PSAs

C. PSAEs

D. PSREs

38. The Philippine Standards on Review Engagement (PSREs) are to be applied in

A. The audit of historical financial information

B. Assurance engagements dealing with subject matters other than historical financial information.

C. The review of historical financial information.

D. The review of both historical and prospective financial information.

39. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February
2008, applies to

A. Review of any historical financial information of an audit client.

B. Reviews of any historical financial information by a practitioner other than the entity’s auditor.

C. Reviews of historical financial or other information by a practitioner other than the entity’s auditor.

D. Reviews of historical financial or other information of an audit client.

40. The Philippine standards on Assurance Engagements (PSAEs) are to be applied in

A. Assurance engagements dealing with the subject matters other than historical financial information.

B. Compilation engagements and agreements to apply agreed upon procedures to information.

C. The audit or review of historical financial information.

D. Assurance engagements dealing with historical financial information.

41. The Philippine Standards on Quality Control (PSQCs) are to be applied to

A. Assurance engagements only.

B. Review engagements only.

C. Compilation and review engagements only.

D. All services that fall under the AASC’s engagement standards.

42. These statements are issued by the AASC to provide interpretive guidance and practical assistance to
auditors in the implementation of PSAs and to promote good practice.

A. PREPSs

B. PAPSs

C. PAEPs

D. PRSPSs

43. The Auditor’s satisfaction as to the reliability of an assertion being made by one party for use by

Another party is called

A. Opinion C. Examination

B. Assurance D. Verification

The term “Assurance’’ means the practitioner’s satisfaction as to the reliability of an assertion being
made by one party for use by another party. The level of assurance that may be provided depends on
the procedures performed and the evidence collected by the practitioner.

44. What level of assurance is provided by the auditor in an audit engagement?

A. Absolute

B. High, but not absolute

C. Moderate

D. No assurance

In an audit engagement, the auditor provides a high, but not absolute level of assurance that the
financial statements are free of material misstatement. This is expressed positively in the audit report as
reasonable assurance.

45. What level of assurance is provided by the practitioner in a review engagement?

A. No insurance C. Reasonable

B. High, but not absolute D. Moderate

In review engagement, the practitioner provides a moderate level of assurance that the information
subject to review is free of material misstatement. This expressed in the form of a negative (also called
limited) assurance

46. For the purpose of expressing negative assurance in the review report, the practitioner should
obtain sufficient appropriate evidence primarily through

Inquiry and confirmation

Analytical procedures and substantive tests of details of transactions and account balances

Confirmation and tests of controls

Inquiry and analytical procedures

47. In reviewing a company’s financial statements, a practitioner is required to

Send bank confirmations.

Obtain knowledge of the client’s industry.

Obtain a signed engagement letter from the client.

Observe client’s physically inventory.

48. In a review engagement, the practitioner performs which of the following?

Obtain an understanding Test of Test of

Of internal controls controls transactions

Yes Yes Yes

Yes No Yes

No Yes Yes
 No No No

49. A practitioner’s review of an entity’s financial statements does not provided assurance that he/she

Become aware of all significant matters that would be disclosed in audit. However, if the

Practitioner has become aware that information coming to his/her attention may be materially

Misstated, the practitioner should

Carry out additional or more extensive procedures as are necessary to achieve limited assurance.

Withdraw immediately from engagement.

Perform a complete audit and issue a modified auditor’s report.

Downgrade the engagement to a compilation and issue the appropriate report.

According to PSRE 2400, if the practitioner has reason to believe that the information subject to review
may be materially misstated, he/she should carry out additional or more extensive procedure as are
necessary to be able to express negative assurance or to confirm that a modified report is required.

50. The following statement relate to a review of financial statements. Which is incorrect?

A. The object of review of financial statements is to enable a practitioner to state whether

Anything has come to the practitioner’s attention that causes the practitioner to believe that

The financial statements are not prepared in accordance with identified financial reporting

Framework.

B. A review comprises inquiry and analytical procedures which are designed to review the
reliability of an assertion that is the responsibility of one party for use by another party.

C. A review ordinarily involves an assessment of accounting and internal control system.

D. The level of assurance provided in a review report is less than that give in an audit report.

While a review involves the application of audit skills and techniques and the gathering of evidence, it
does not ordinarily involve an assessment of accounting and internal control systems , tests of records
and responses to inquires by obtaining corroborating evidence through inspection, observation,
confirmation, and computation which are procedures ordinarily performed during an audit.

51. The following statements relate to a review of interim financial information performed by entity’s
independent auditor. Which is incorrect?

A. Similar to a financial statement audit, a review of interim financial information is designed to

Obtain reasonable assurance that the interim financial information is free from material misstatement.

B. A review of interim financial information does not provide a basis for expressing an

Opinion whether the financial information is presented fairly, in all material respects, in accordance with
an applicable financial reporting framework,

C. In a review of interim financial information, the auditor should have an understanding of the

Entity and its environment, including its internal control

D. A review of interim financial information may bring significant matters affecting the interim

Financial information to the auditor’s attention, but it does not provide all of the evidence

That would be required in an audit

In contrast to an audit, a review of interim financial information is not designed to obtain reasonable
assurance the interim financial information is free from material misstatement. The objective of an
engagement to review an entity’s interim financial information is to enable the auditor to express a
conclusion whether, on the basis of the review, anything has come to the auditor’s attention that cause
the auditor to believe that the interim financial information is not prepared, in all materials respects, in
accordance with an applicable financial reporting framework.

52. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to
auditing expertise to collect, classify, and summarize financial information. What type of assurance is
provided by the accountant when he/she performs this engagement?

Positive assurance

Negative assurance
No assurance

Limited assurance

A compilation engagement ordinarily entails reducing detailed data to a manageable and

understandable form without requirement to test the assertions underlying that information.

The procedure employed are mot designed and do not enable the accountant to express any assurance
on the financial information.

However, the accountant’s involvement provides some benefit to users of complied financial
information because the work has been performed with due professional skill and care.

53. Which of the following statements concerning compilation engagement is incorrect?

A. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to

auditing expertise to collect, classify, and summarize financial information.

B. The procedure employed in a compilation engagement enable the accountant to express a moderate
level of assurance on the complied financial information.

C. Users of the complied financial information derive some benefit as a result of the accountant’s
involvement because the service has been performed with due professional skill and care.

D. A compilation engagement ordinarily entails reducing detailed data to a manageable and

Understandable form without a requirement to test the assertions underlying that information.

The procedures employed in a compilation engagement are not designed and do not enable the
accountant to express any assurance on the financial information,

54. When performing a compilation engagement, the accountant is require to

A. Asses internal controls.

B. Make inquires of management to assess the reliability and completeness of the information
 Provided.

C. Verify matters and explanations.

D. Obtain a general knowledge of the business and operations of the entity.

Should read the compiled information and consider whether it appears to be appropriate in form and
free from obvious material misstatements.

Should use his/her auditing expertise in testing the assertion underlying the compiled financial
information.

Include in his/her report a listing of the specific procedures performed.

Need not obtain an acknowledgement from management of its responsibility for the appropriate
presentation of the financial information.

57. What assurance is provided by the auditor in an agreed-upon procedures engagement?

A. Reasonable C. Moderate

B. Absolute D. No assurance

In an agreed-upon procedures engagement, the auditor simply provides a report of the factual findings
and express no assurance in his/her report. Users of the report make an assessment of the procedures
and findings reported by the auditor and draw their own conclusions from the auditor and draw their
own conclusions from the auditor’s work.

58. In an engagement to perform agreed-upon procedures, an auditor is engaged to

A. Carry out those procedures of an audit nature to which the auditor and the entity and any

Appropriate third parties have agreed and to report on factual findings.

B. Use accounting expertise as opposed to auditing expertise to collect, classify, and summarize
financial information.

C. Provide a moderate level assurance that the information is free of material misstatement.
D. Provide a high, but not absolute, level of assurance that the information is free of material

Misstatement.

In an engagement to perform agreed-upon procedures, an auditor is engaged to carry out those

procedures of an audit nature to which

The auditor and the entity and an appropriate third parties have agreed and to report on factual
findings.

The report contains no assurance and is restricted to those parties that have agreed to the procedures
to be performed, since others, unaware of the reasons for the procedures, may misinterpret the results.
Users of the report must form their own conclusions from the auditor’s work.

59. A report may be based upon applying agreed-upon procedures to specified elements, accounts, or

Items of a financial statement. The users of the report should participate in establishing the

Procedures to be performed. If the auditor cannot discuss the procedures with all the parties who

Will receive the report, he/she may

Discuss the procedures to be applied with appropriate representatives of the parties involved.

Review relevant correspondence from the parties involved.

Distribute a draft of the type of report that will be issued to the parties involved.

I and II only C. II and III only

I and III only D. I, II, and III

PSRS 4400 (Engagement on Agreed-upon Procedure) states, “In certain circumstances, for example,
when the procedure have been agreed to between the regulator, industry representatives and
representatives of the accounting profession, the auditor may not be able to discuss the procedures
with all the parties who will receive the report. In such cases, the auditor may consider, for example,
discussing the procedures to be applied with appropriate representatives of the parties involved,
reviewing relevant correspondence from such parties or sending them a draft of the type of report that
will be issued.’’

60. An auditor may accept an engagement to perform specified procedures on the specific matter of
specified elements, accounts, or items of a financial statement if

The report does not list the procedure performed.

The financial statements are prepared in accordance with a special purpose framework.

Use of the report is restricted.

The auditor is also the entity’s continuing auditor.

PSSR 4400 states that the report is restricted to those parties that have agreed to the procedures to be
performed since others, unaware of the reasons for the procedures, may misinterpret the results.

Answer A is incorrect because the report should include a listing of the specific procedures performed.
Answer B is incorrect because the financial statements need not be prepared in accordance with a
special purpose framework. Answer D is incorrect because the auditor need not be the entity’s
continuing auditor.

61. Reports on agreed-upon procedures are intended to be distributed

A. To only involved parties, who are aware of the reasons for the procedures?

B. Only to the stockholders of the entity.

C. To any party to whom the client wishes.

D. Only to the entity’s management.

62. An engagement to perform agreed-upon procedures may involve the auditor in performing

Certain procedures concerning

I. Individual items of financial data.

II. A single financial statement.
III. A complete set of financial statements.


I and II only C. I and III only

II and III only D. I, II, and III

63. The report on an agreed-upon procedures engagement should contain

A. Identification of purpose for which the agreed-upon procedures were performed
B. An expression of positive assurance based on the specific procedure performed
C. A statement that the auditors is independent of the entity.
D. A general description of the procedures performed.

According to PSRS 4400, the report on an agreed-upon procedures engagement in sufficient detail to
enable the users of the report to understand and the nature and extent of the work performed

Answer B is incorrect because the report should include a statement that the procedures performed do
not constitute either an audit or a review and, as such, no assurance is expressed Answer C is incorrect
because the report should contain a statement that the auditor is not independent of the entity if such
is the case. Answer D is incorrect because the report should include a listing of the specific procedures
performed.

64. Which of the following engagements does not require compliance with independence
requirements?
A. Compilation of the financial information
B. Review of financial statement
C. Examination of perspective financial information.
D. Audit of financial statements.

Independence is not a requirement for compilation and agreed-upon procedures engagements.
However, where the accountant or auditor is not independent, a statement to that effect would be
made in the report.

65. Which of the following services, if any, may a practitioner who is not independent provide?

A. Compilation but not reviews.
B. Reviews but not compilations.
C. Reviews but not financial statement audits.
D. Agree-upon procedures but not compilations.

66. A practitioner is associated with financial information when
I. The practitioner attaches a report that financial information.
II. The practitioner consents to the use of his/her name in a professional
connection.

A. I only C. Either I or II
B. II only D. neither I nor II


A practitioner is associated with financial information when the practitioner attaches a report to that
information or consents to the use of his/her name in a professional connection. If the practitioner is
not associated in this manner, third parties can assume no responsibility of the practitioner.

C. DIFFERENT TYPES OF AUDITS

FINANCIAL STATEMENT/INDEPENDENT AUDITING
67. The purpose of an audit of financial statements is to
A. Relieve management or those charged with governance of the responsibility for
the preparation and representation of the financial statements.
B. Obtain an absolute level of assurance that the financial statements as a whole
are free from material misstatement.
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.

An audit is conducted primarily to enhance the degree of confidence of intended users in the financial
statements. the purpose is achieved y the auditor's expression of an option on whether the financial
statements are prepared, in all material respects, in accordance with an applicable financial reporting
framework.

Answer A is incorrect because the financial statements subject to the audit are those of the entity,
prepared and presented by its management, with oversight from those charged with governance.

Answer B is incorrect because the PSAs require the auditor to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement, wheter caused by
fraud or error. Reasonable assurance is a high level of assurance, both not an absolute level of
assurance.

Answer D is incorrect because the auditor's opinion on the financial statements does not assure the
future viability of the entity.

68. The auditor is required to comply with all PSAs relevant to the audit of an entity's financial
statements. A PSA is relevant to audit when

I. The PSA is in effect.

II. The circumstances addressed by the PSA exist.

A. I only C. Either I or II

B. II only D. Both I and II

A PSA is relevant when it is in effect and the circumstances addressed by the PSA exist.
69. The overall objectives of theauditor in conducting an audit of financial statements are

I. To obtain reasonable assurance about wheter the financial statements as a whole are free
from material misstatement, whether caused by fraud or error.

II. To report on the financial statements.

III. To obtain conclusive rather than persuasive evidence.

IV. To detect all misstatements, whether due to fraud or error.

A. I and II only C. I, II, and III only

B. II and IV only D. I, II, III, and IV

The overall objectives of the auditor in conducting an audit of financial statements are:

1. To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatements, whether caused by fraud or error, to enable the auditor to express an
opinion on whether the financial statements are prepared, in all material respects, in accordance with
an applicable financial reporting framework; and

2. To report on the financial statements, and communicate as required by the PSAs, in accordance with
the auditor's findings.

70. 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 adverse opinion

C. Qualified or disclaimer of opinion

D. Disclaimer of opinion

The standard provides that in all cases when reasonable assurance cannot be obtained and a qualified
opinion is insufficient in the circumstances for purposes of reporting to the intended users of the
financial statements, the auditor should disclaim an opinion or withdraw from the engagement, where
withdrawal is legally permitted.

71. An audit in accordance with PSAs is performed on the premise that management and, where
appropriate, those charged with governance have responsibilities that are fundamental to the conduct
of the audit. Which of the following is not one of those responsibilities?

A. To comply with all relevant PSAs in the preparation and presentation of the entity’s financial
statements.
 B. To provide the auditor with all information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial statements.

C. To provide unrestricted access to those with the entity from whom the auditor determines it
necessary to obtain audit evidence.

D. To design, implement, and maintain internal control relevant to the preparation of financial
statements that are free from material misstatement, whether cause by fraud or error.

Management, and where appropriate, those charged with governance, have responsibility for the
preparation and presentation of the financial statements in accordance with the applicable financial
reporting framework. The auditor has the responsibility to conduct the audit of financial statements in
accordance with relevant PSAs.

72. The auditor is required to maintain professional skepticism throughout the audit. Which of the
following statements concerning professional skepticism is false?

A. A belief that management and those charged with governance are honest and have integrity
relieves the auditor of the need to maintain professional skepticism.

B. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the
results thereof.

C. Professional Skepticism is necessary to the critical assessment of audit evidence.

D. Professional Skepticism is an attitude that includes questioning contradictory audit evidence

obtained.

The auditor is required to plan and perform the audit with professional skepticism. As defined in the
standard, professional skepticism is an attitude that includes a questioning mind, being alert to
conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of
audit evidence.

According to the standard, maintaining professional skepticism reduces the risk of:

• Overlooking unusual circumstances.

• Over generalizing when drawing conclusions from audit observations.

• Using inappropriate assumptions in determining the nature, timing, and extent of the audit
procedures and evaluating the results thereof.

Although the auditor cannot be expected to disregard past experience of the honesty and integrity of
the entity's management and those charged with governance, a belief that they are honest and have
integrity does not relieve the auditor to maintain professional skepticism in conducting the audit.
73. Professional judgement

A. Should exercise in planning and performing an audit of financial statements but need to be
documented.

B. Can be used as the justification for the decisions made by the auditor that are not supported by the
facts and circumstances of the engagement.

C. Is necessary in the evaluation of management's judgements in applying the entity's applicable

financial reporting framework.

D. Is not used in making decisions about materiality and audit risk.

According to the standard, professional judgement is necessary to the proper conduct of audit. The
auditor exercises professional judgement in making decisions about:

• Materiality and audit risk

• The nature, timing, and extent of audit procedures to be performed in gathering and audit
evidence.

• Evaluating whether sufficient appropriate audit evidence has been obtained.

• Evaluating management's judgements in applying the entity's applicable financial reporting

framework.

• Conclusions to be drawn based on the audit evidence gathered.

The auditor is required to document the exercise of professional judgement. The documentation should
enable an experienced auditor, having no previous connection with the audit, to understand the
significant professional judgements made in reaching conclusions on significant matters that arise during
the audit.

Professional judgement is not to be used as the justification for decisions that are not otherwise
supported by the facts and circumstances of the engagement or sufficient appropriate audit evidence.

74. The primary reason for a financial statement audit by an independent CPA is to

A. Provide increased assurance to users as to the fairness of the financial statements.

Guarantee that there are no misstatements in the financial statements and ensure that any fraud will
be discovered.

C. Satisfy government regulatory requirements.

D. Relieve management of responsibility for the financial statements.

 The objective of the financial statement audit is to express an opinion as to whether an entity ‘s
financial statement present fairly, in all material aspects, its financial position, performance, and cash
flow in accordance with an applicable financial reporting framework.

75. Independent auditing can be described as

A. A branch of accounting
B. A professional activity that measures and communicate financial and business data.
C. A discipline which attests to the result of accounting and other financial operation data.
D. A regulatory function that prevent s the insurance of improper financial information.

The objective of an independent audit is to attests (express an opinion on) accounting information.

76. Which of the following statement is correct concerning an auditor’s responsibilities regarding
financial statements?

A. An auditor’s responsibilities for audited financial statements are confined to the expression of the
auditor’s opinion.
B. The fair presentation of audited financial statements is in accordance with an applicable financial
reporting framework is an implicit part of the auditor’s responsibilities.
C. Making suggestions that are adopted about the form and content of an entity’s financial
statements impairs and auditor’s independence.
D. The auditor’s report should provide an assurance as to the future viability of the entity.

The auditor’s responsibilities for the financial statements is confined to the expression of his/her
opinion on them.

77. A financial statement audit aids in the communication of economic data because the audit

A. Assures the readers of financial statement that any fraudulent activity has been corrected.
B. Guarantees that financial data are fairly presented
C. Lend credibility to the financial statement.
D. Confirms the accuracy of management’s financial representation.

In financial statement audit, the auditor expresses an opinion on the fairness of the audited financial
statements. The auditor’s opinion help establish the credibility of the financial statements.

78. Which of the following best describe the why an independent auditor reports on a financial
statements?

A. A poorly designed internal control system may be in existence.

B. Different interests may exist between the company preparing in the statements and the persons
using the statements.
C. A misstatement of the account balances may exist and is generally corrected as a result of the
 independent auditor’s work.
D. A management fraud may exist and it is more likely to be detected by independent auditors.

In making decisions, external financial statements users are interested in financial statements that
present as closely as possible the true financial position, performance, and cash flow of the company.
Management, knowing that its steward function is to be evaluated on the basis of the financial
statements, may have incentives to resort the fraudulent financial reporting. Thus, a possible conflict
of interest maybe assumed between management and users of financial statements.

The auditor’s role is to lend credibility to the audited financial statements b expressing an opinion on
the fairness of presentation of the financial position, performance, and cash flows of the company.

79. Which of the following can be significantly affected by a financial statement audit.

A. Business risk
B. information risk
C. Inherent risk
D. The risk-free interest rate

80. The primary responsibility for the adequacy of disclosure in the financial statements rest with the
A. Partner assigned to the audit engagement
B. Management of the company
C. Security and exchange commission
D. Auditor in charge of the field work

A management responsibility for the fairness of the presentations made through financial
statements. The auditor’s responsibility is confined to the expression of the opinion on the fairness of
the management representations.

81. Which of the following elements does not relate to the audit quality?

A. Auditor competence
B. Audit fees
C. Independence
D. Due diligence

Audit quality is in overall concept that encompasses adherence to independence, auditor

competence, and quality control processes.

82. The following statements relate to the internal auditing? Which is incorrect?

A. Internal auditing is carried out within an entity by employees of the entity or by personnel
contracted for the purpose.
B. Internal auditing has become a function that evaluate and improves an organization’s risk
management, control and governance process to add value to the organization.
 C.The internal auditor’s judgment are subordinated to those of management.
D. Internal auditing has evolved into a highly professional activity that extend beyond the appraisal of
the efficiency and effectiveness on an entity’s operation.

83. Which of the following statements is incorrect description in the role of internal auditor?

A. Internal auditors should review the means of minimizing risk and assist management processes.
B. Internal auditor should assess risk within the business operation and those from outside business.
C. Internal auditor should appraise the economy and efficiency with the resources are employed.
D. Internal auditor should have authority and responsibility for the activities they audit.

84. Which of the following statements is not true in respect to the internal auditor?

A. The scope of audits performed by the internal auditors is primarily in respect of financial report
audits.
B. An internal auditor does not acquire a license to practice.
C. Internal auditors are usually employed by companies and government units.
D. Primary responsibility of the internal auditor is the board directors.

85. Which of the following groups could be involved in operational audit?

Internal Government
CPA Firms Auditors Auditors

A. YES YES YES

B. YES NO NO
C. NO NO YES
D. YES YES NO

86. Which is not one of the three phases in operational audit?

A. Evidence accumulation and evaluation

B. Planning
C. Reporting and follow-up
D. training and supervising employees

87. In performing an operation audit, the auditor primarily relies in which of the following procedures?

A. Physical inspection
B. Analytical procedures
C. Inquiry and observation
D. tracing and vouching

88. The term “efficiency” in performance auditing refers to
 A. Using resource to minimize output for a given input, or to minimize input for a given quantity and
quality of the output.
B. The achievement of intended result of operations, programs or activities.
C. The achievement of objectives within a specified time frame.
D. The acquisition of the resources at appropriate times and within a specified time frame.

89. Before an effectiveness audit can be performed, there must be

A. Specific criteria developed to define effectiveness

B. A compliance performed by a government auditor.

C. A review performed by either an independent or internal auditor.

D. A financial statement audit by an independent auditor.

90. Which of the following activities would generally account for a significant proportion of an internal
auditor’s time?

A. Checking the company is complying with all of its rules and regulations of operation.

B. Verifying all invoices before payment is made.

C. Ensuring the company is operating within budget.

D. Evaluating the effectiveness and efficiency of all phases of an entity’s operations.

91. Which of the following is a typical objective of an operational audit?

A. To determine whether an entity’s internal control system is adequately operating as designed.

B. To determine whether an entity’s operational information in accordance with PFRS.

C. To determine whether an entity’s financial statements presents fairly the results of operations.

D. To determine whether an entity’s specific operating units are functioning efficiently and effectively.

92. The primary orientation of operational auditing towards

A. Future improvements to accomplish the goals of management.

B. The accuracy of the data reflected in management’s financial records.

C. The verification that a company’s financial report is fairly presented.

D. Past protection provided by existing internal control.

93. The purpose of an internal audit is

I. To evaluate the adequacy and effectiveness of company’s internal controls.

II. To determine the extent to which assigned responsibilities are actually carried out.

III. To collect evidence on whether the company is continuing as a going concern.

A. I and II only

B. I and III only

C. II and III only

D. I, II and III

94. What is proper organizational role of internal auditing?

A. To serve as an independent, objective assurance and consulting activity adds value to operations.

B. To assist the external auditor in order to reduce external audit fees.

C. To perform studies to assist in the attainment of more efficient operations.

D. To serve as the investigative arm of the audit committee of the board of directors.

95. Which of the following best describes the scope of internal auditing as it has developed to date?

A. Internal auditing involves appraising the economy and efficiency with which resources are employed.

B. Internal auditing has evolved to verifying the existence of assets and reviewing the means of
safeguarding assets.

C. To relieve management of the responsibility for establishing effective controls.

D. To safeguard resources entrusted to the organization.

96. Which of the following is considered a primary reason for creating an internal audit department?

A. To evaluate and improve the effectiveness of control process.

B. To ensure the accuracy, reliability, and timeliness of financial and operating data used in
managements decision making.

C. To relieve management of the responsibility for establishing effective controls.

D. To safeguard resources entrusted to the organization.

97. The internal auditing profession has advanced primarily as a result of

A. Increased interest by Bachelor of Science and Accountancy (BSA) graduates and experienced
auditors.

B. Job qualification specifications that include added emphasis on background knowledge and skills.
 C. The limitation of financial statement audit scope.

D. Increased complexity and sophistication of business operations.

98. Which of the following actions would be an appropriate response by companies to improve the
public’s perception of their financial reporting?

A. Increased adoption of audit committees.

B. Keeping external and internal auditing work separated to maintain independence.

C. Requiring internal auditors to report all significant findings of fraud and illegal activity to the
company president.

D. None of the above.

99. Internal auditors review the adequacy of the company’s internal control system primarily to

A. Help determine the nature, timing, and extent of tests necessary to achieve audit objectives.

B. Determine whether the internal control system provides reasonable assurance that the company’s
objectives and goals are met efficiently and economically.

C. Ensure that material weaknesses in the system of internal control are corrected.

D. Determine whether the internal control system ensures that financial statements are fairly presented.

100. The internal auditing department’s responsibility for deterring fraud is to

A. Establish an effective internal control system.

B. Maintain internal control.

C. Examine and evaluate the system of internal control.

D. Exercise operating authority over fraud prevention activities.

 1 A 24 A 47 B 70 C 93 A
2 D 25 B 48 D 71 A 94 A
3 B 26 C 49 A 72 A 95 C
4 C 27 D 50 C 73 C 96 A
5 B 28 C 51 A 74 A 97 D
6 B 29 A 52 C 75 C 98 A
7 C 30 A 53 B 76 A 99 B
8 B 31 D 54 D 77 C 100 C
9 C 32 C 55 D 78 B 101 D
10 C 33 B 56 A 79 B 102 A
11 A 34 C 57 D 80 B 103 A
12 A 35 C 58 A 81 B 104 B
13 A 36 D 59 D 82 C 105 A
14 A 37 A 60 C 83 D 106 B
15 D 38 C 61 A 84 A 107 C
16 B 39 B 62 D 85 A 108 D
17 B 40 A 63 A 86 D 109 C
18 A 41 D 64 A 87 C 110 A
19 A 42 B 65 A 88 A 111 D
20 B 43 B 66 C 89 A 112 C
21 A 44 B 67 C 90 D 113 B
22 C 45 D 68 D 91 D 114 A
23 D 46 D 69 A 92 A 115 A