MODULE 1: AUDITING CONCEPTS

The primary purpose of an independent audit of financial statements is to

• provide a basis for assessing management‘s performance.

• comply with laws and regulations.

• assure management that the financial statements are unbiased and free from material misstatements.

• provide users with an unbiased opinion about the fairness of information presented in the financial statements.

Which of the following statements best describes a review service?

• A review engagement focuses on providing assurance on the assertions contained in the financial statements of a public company.

• A review engagement focuses on providing assurance on the internal controls of a public company.

• A review engagement focuses on providing limited assurance on financial statements of a private company.

• A review engagement focuses on providing advice in a three-party contract.

Professional skepticism dictates that when management makes a statement to the auditor, the auditors should

• disregard the statement because it ranks low of the evidence quality scale.

• corroborate the evidence with other supporting documentation whenever possible.

• require that the statement be put in writing.

• believe on the statement in order to maintain the professional client-auditor relationship.

In performing a financial statement audit, which of the following would an auditor least likely consider?

• Internal control

• Compliance with GAAP

• Quality of managements‘ business decisions

• Fairness of the financial statement amounts

The level of assurance provided by an audit of detecting a material misstatement is referred to as:

• Absolute assurance.

• High assurance.

• Negative assurance

• Reasonable assurance.

An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of financial statement audit, which of the following is not a valid criterion?

• Accounting standards generally accepted in the Philippines.

• International Accounting Standards.

• Authoritative financial reporting framework.

• Philippine Standards on Auditing.

Which of the following statements is (are) true regarding the provision of assurance services?

• I. The third party who receives the assurance generally pays for the assurance received.

• II. Assurance services always involve a report by one person to a third party on which an independent organization provides assurance.

• III. Assurance services can be provided either on information or processes.

Which of the following is least likely an objective of an assurance engagement?

• The engagement is intended to prevent the issuance of materially misleading information.

• The engagement is intended to enhance the credibility of information about a subject matter.

• An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended users with a level of assurance about the subject matter.

• The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects, with suitable criteria.

The broad range of assurance engagements includes all, but which of the following?

• Engagements intended to provide high or moderate levels of assurance.

• Preparation of tax returns, though no conclusion is expressed.

• Attest and direct reporting engagements.

• Engagements to report externally, but not internally.

Which statement does not accurately describe an assurance engagement?

• 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 a level of assurance about that subject matter.

• Not all engagements performed by professional accountants are assurance engagements.

• A particular engagement, to be an assurance engagement, depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion.

• An engagement in form of agreed-upon procedures results in the expressions of factual findings.