WorksheetsAuditing and Assurance Principles
Total questions: 80
Worksheet time: 1hrs 20mins
The preface to to the Philippine Standards on Quality Control, Auditing, Other Assurance and Related Services is issued to facilitate understanding of the
I. Objectives and operating procedures of the Auditing and Assurance Standards Council (AASC).
II. Scope and authority of the documents issued by the AASC.
I only
II only
Both I and II
Neither I nor II
Its mission is the promulgation of auditing standards, practices and procedures which shall be generally accepted by the accounting profession in the Philippines
Financial Reporting Standards Council (FRSC).
Auditing and Assurance Standards Council (AASC).
International Federation of Accountants (IFAC).
Philippine Institute of Public Accountants (PICPA).
Which of the following are collectively referred to as "Engagement Standards"?
PSAs and PSREs
PSAs, PSREs and PSAEs
PSAs, PSREs, PSAEs, PSRSs and PSRSs
PSAs, PSREs, PSAEs, PSRSs and PSQCs
Which of the following Philippine 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?
PSAs
PSAEs
PSRSs
PSREs
These are issued to provide interpretive guidance and practical assistance to professional accountants in implementing PSAs and to promote good practice.
PAPSs
Practical Statements
PRSPSs
PAEPSs
I. Professional accountants should be aware of and consider Practice Statements applicable to the engagement.
II. A professional accountant who does not consider and apply the guidance included in a relevant Practice
Statement need not explain how the basic principles and essential procedures in the Engagement
Standard(s) addressed by the Practice Statement have been complied with
Both statements are true
Both statements are false
True; False
False, True
Which of the following statements best describes assurance services?
Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user.
Services designed to express an opinion on the fairness of historical financial statements based on the results of an audit.
The preparation of the financial statements or the collection, classification, and
summarization of other financial information.
Services designed for the improvement of operations, resulting in better outcomes.
The following statements relate to the two types of assurance engagements that a practitioner is
permitted to perform: reasonable assurance engagement and limited assurance engagement.
Statement I. The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an
acceptably low level in the circumstances of the engagement as a basıs for a positive form of expression
of the practitioner's conclusion
Satement II. The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level
that is acceptable in the circumstances of the engagement, but where the risk is greater than for a
reasonable assurance engagement, as the basis for a positive of expression of the practitioner's conclusion.
Staement III. The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an
acceptably low level in the circumstances of the engagement as the basis for a negative form of expression of the practitioner's conclusion.
False, True, True
True, False, False
True, True, True
False, False
I. Philippine Framework for Assurance Engagements defines and describes the elements and
objectives of an assurance engagement, and identifies engagements to which PSAs, PSREs and PSAEs
apply.
II. The Philippine Framework for Assurance Engagements is not itself establish standards or provide
procedural requirements for the performance of assurance engagements
Both statements are true
Both statements
True; False
False; True
A practitioner who is engaged to perform an assurance engagement other than an audit or a review
of historical financial information should comply with which of the following standards?
PSAEs
PSAEs and PSAs
PSAs and PSRES
PSAEs, PSREs and PSAs
Assurance engagements encompass the following types of services, except
Attestation services
Review Managements
Audit of historical financial statements
Management consulting
Assurance services differ from consulting services in that they
I. Focus on providing advice
II. Involve monitoring of one party by another.
I. only
II. only
Both I and II
Neither I nor II
Assurance engagements involve.
Two separate parties: a professional accountant and an intended user.
Two separate parties: a professional accountant and a responsible party.
Two separate parties: a responsible party and an intended user.
Three separate parties: a professional accountant, a responsible party and an intended user.
An assurance engagement should have which of the following elements?
I. A three party relationship involving a practitioner, a responsible party and intended users.
II. An appropriate subject matter.
III. Suitable criteria.
IV. Sufficient appropriate evidence
V. written assurance report.
I, II, and Ill only
II, III, IV and V only
I, Il, Ill and IV only
I, II ,III, IV and V
The subject matter of an assurance engagement may include
Historical or prospective financial information.
An entity's internal control or IT system.
Compliance with regulations
All of the above
These are the benchmarks used to evaluate or measure the subject matter of an assurance engagement.
Criteria
GAAP
Assertions
Conclusions
Suitable criteria should have which of the following characteristics, except
Relevance
Completeness
Reliability
Neutrality
Comparability
In an assurance engagement, the person or persons, either as individuals or representatives of an entity, responsible for the subject matter is the
Intended user
Responsible party
Practitioner
Client
In an assurance engagement, the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose is the
Intended user
Responsible party
Management
Client
I. An assurance engagement risk is the risk that the practitioner expresses an inappropriate conclusion
when the subject matter information is materially misstated.
II. An assurance engagement risk is the risk that the practitioner expresses an inappropriate conclusion
when the subject matter information is not materially misstated
True; False
Both statements are true
False; True
Both statements are false
What level of assurance is provided by the auditor in an audit engagement?
Absolute
High, but not absolute
Moderate
No assurance
What level of a assurance is provided by the auditor in a review engagement?
No assurance
High. but not absolute
Reasonable
Moderate
What assurance is provided by the auditor in an agreed-upon procedures engagement?
Reasonable
Absolute
Moderate
No assurance
In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to
auditing expertise to collect, classify, and summarıze financial information. What type of assurance is
provided by the accountant when he/she performs this engagemen?
Positive assurance
Negative assurance
No assurance
Limited assurance
The following statements relate to a review of financial statements. Which is incorrect?
The objective of a review of financial statements is to enable an auditor to state whether,
on the basis of procedures which do provide all the evidence that would be required
in an audit, anything has come to the auditor's attention that causes the auditor to believe that the
financial statements are not prepared, in all all material respects, in accordance with an identified
financial reporting framework.
A review comprises inquiry and analytical procedures which are designed to review the reliability of an assertion that it is the responsibility of one party for use by another party
A review ordinarily involves an assessment of accounting and internal control systems, test
of records, and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation, and computation.
The level of assurance provided in a review report is less than that given in an audit report.
In an engagement to perform agreed-upon procedures, an auditor is engaged to
Carry out those procedures of an audit nature to to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.
Use accounting expertise as opposed to auditing expertise to collect, classify, and summarize financial information
Provide a moderate level of assurance that the information is IS free of material misstatement.
Provide a high, but not absolute, level of assurance that the information is free of material misstatement.
Which of the following statements concerning compilation engagement is incorrect?
In a compilation engagement, the accountant is engaged to use accounting expertise as opposed
to auditing expertise to collect, classify, and summarize financial information
The procedures employed in a compilation engagement enable the accountant to express a moderate level of assurance on the compiled financial information.
Users of the compiled 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
A compilation engagement ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying that information.
I. The auditor should conduct an audit in accordance with Philippine Standards on Auditing.
II. The auditor should plan and perform the audit with an attitude of professional skepticism.
Both statements are true
True; False
Both statements are false.
False; True
The primary reason for a financial statement audit by an independent CPA is to
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.
Satisfy governmental regulatory requirements.
Relieve management of responsibility for the financial statements.
Which of the following statements is correct concerning an auditor's responsibilities regarding
financial statements?
An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor's responsibilities
Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence.
The auditor's report should provide an assurance as the future viability of the entity.
What is the proper organizational role of internal auditing?
To serve as an independent, objective assurance and consulting activity that adds value to operations.
To assist the external auditor to reduce external audit fees
To perform studies to assist in the attainment of more efficient operations
To serve as the investigative arm of he of the audit committee of the board of directors.
Which of the following best describes the scope of internal auditing as it has developed to date?
Internal auditing involves appraising the economy and efficiency with which resources are employed.
Internal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets.
Internal auditing has evolved to more of an operational orientation from a strictly financial orientation.
Internal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets.
Which of the following is considered a primary reason for creating an internal audit department?
To evaluate and improve the effectiveness of control processes.
To ensure the accuracy, reliability, and timeliness of financial and operating data used in management's decision making.
To relieve management of the responsibility for establishing effective controls.
To safeguard resources entrusted to the organization
In conducting an appraisal of the economy and efficiency with which company resources are used, an internal auditor's responsibility is to
Verify the accuracy of asset valuation
Review the reliability of operating information.
Verify the existence of assets.
Determine whether operating standards have been established.
Operational audits generally have been conducted by internal and COA auditors, but may be
performed by certified public accountants. A primary purpose of an operational audit is to provide
A measure of management performance in meeting organizational goals.
The results of internal examinations of financial and accounting matters to a company's top-level
Aid to the independent auditor, who is conducting the examination of the financial statements.
A means of assurance that internal accounting controls are functioning as planned.
Governmental auditing often extends beyond examinations leading to the expression of opinion on
the fairness of financial presentation and includes audits of efficiency, economy, eftectiveness, and also
Accuracy
Compliance
Evaluation
Internal Control
An objective of a performance audit 1s to determine whether an entity's
Operatıonal information is in accordance with government auditing standards.
Specific operating units are functioning economically and efficiently
Financial statements present fairly the results of operations.
Internal control is adequately operating as designed.
In comparison to the independent auditor, an internal auditor is more likely to be concerned with
Legal and regulatory compliance.
Cost accounting procedures.
Operational auditing.
Internal control system.
A pervasive characteristics of a CPA's role in a consulting services engagement is that of being a (an)
Independent practitioner.
Computer expert
Confidential reviewer.
Objective advisor.
Which of the following statements concering consulting services is false?
The performance of consulting services for audit clients does not, in and of itself, impair the auditor's independence.
onsulting services differ fundamentally from the CPA's function of attesting to the assertions of other parties.
Consulting services ordinarily involve external reporting.
Most CPAs, including those who provide audit and tax ServIces, also provide consulting services to their clients,
Reyes, CPA, has been asked to perform a consulting services engagement concerning the analysıs of
a potential merger. She has little experience with the industry involved. What is his most appropriate action?
Accept the engagement and perform it in accordance with PSAs.
Accept the engagement and perform additional research or consult with others to obtain
sufficient competence.
Accept the engagement and 1ssue a report vouching for the achievability of the results of the merger.
Decline the engagement because he lacks sufficient knowledge.
Which of the following statements applies to consultation services engagements?
A practitioner should obtain an understanding of the internal control to assess control risk.
A practitioner is not permitted to compile a financial forecast.
A practitioner should obtain sufficient relevant data to complete the engagement.
A practitioner is to maintain an appearance of independence.
According to PSA 300, it involves establishing the overall audit strategy for the engagement and developing an audit plan in order to reduce audit risk to an acceptably low level.
Reporting
Planning
Field work
Organizing
I. Obtaining knowledge of the entity's business is an important part of planning the audit work.
II. The auditor's knowledge of the entity's business assists in the identification of events.
transactions and practices which may have a material effect on the financial statements
Both statements are true.
Both statements are false
True; False
False: True
Which of the following matters should be considered by the auditor in developing the overall audit strategy?
Important characteristics of the entity, its business, its financial performance and its reporting requirements including including changes changes since the date of the prior audit.
Conditions requiring special attention, such as the existence of related parties
The setting of materiality levels for audit purposes
All of the above.
Audit risk has three components: inherent risk, control risk, and detection risk. Which of the following statements is correct?
Detection risk is a function of the efficiency of an auditing procedure
Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
The risk that material misstatements will not be prevented or detected on a timely basis by internal control can be reduced to zero by effective controls.
The existing levels of inherent risk, control risk, and detection risk can be changed at the discretion of the auditor.
Some account balances, such as those for retirement benefits and finance leases, are the results of
complex calculations. The susceptibility to material misstatements in these types of accounts is referred to as
Audit risk
Detection risk
Inherent risk
Control risk
There is an inverse relationship that exists between the acceptable level of detection risk and the
Risk of failing to discover material misstatements.
Assurance provided by substantive tests.
Preliminary judgments about materiality levels
Risk of misapplying audit procedures
It is the process designed and effected by those charged with governance, management, and other
personnel to provide reasonable assurance about the achievement of the entity's objectives
Internal auditing
Internal control
Business strategy
Accounting process
This internal control component IS the foundation for all other components. It sets the tone of the organization, provides discipline and structure, and influences the control consciousness of employees.
Control activities
Monitoring of controls
Control environment
The entity's assessment process
In conducting an audit in accordance with PSAs. the auditor is required to identify and assess the
risks of material misstatements at the financial statement level, and at the assertion level for classes of
transactions, account balances, and disclosures. Some of these risks, in the auditor's judgment, require special audit consideration, such those that involve fraud or complex transactions. Such risks are called
Business risks
Audit risks
Significant risks
Material risks
As a result of obtaining an understanding of an entity's internal control system, the auditor may
become aware of material weaknesses in the design or implementation of internal control. The auditor is required to communicate this matter to
Those charged with governance or management
Chief executive officer
Securities and Exchange Commission
Board of Accountancy
Which of the following controls most likely would provide reasonable assurance that all credit sales transactions of an entity are recorded?
The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers.
he accounting department supervisor independently reconciles, on a monthly basis, the
accounts receivable subsidiary ledger to the accounts receivable control account.
he billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances
A sound internal control produce should require that defective merchandise returned by customers be presented initially to the
Receiving clerk
Accounts receivable
Billing clerk
Shipping department
An auditor intends to perform tests of control on a client's cash disbursements procedures. If the
control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
Inquiry and analytical procedures
Inquiry and observation.
Analytical procedures and confirmation.
Confirmation and observation
An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believes
Controls are unlikely to pertain to the assertions.
The entity's control components are interrelated
Sufficient appropriate audit evidence to support the assertions is likely to be available.
More emphasis on tests of controls than substantive tests is warranted.
Which of the following statements is correct concerning an auditor's assessment of control risk?
Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control.
Evidence about the operation of controls in prior audits may not be considered during the current year's assessment of control risk.
The basis for an auditor's conclusions about the assessed level of control risk need not be
documented unless control risk is assessed at the maximum level.
The lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating eftectively.
According to PSA 330 (The Auditor's Procedures in Response to Assessed Risks), an auditor who
plans to rely on controls that have not changed since they were last tested should test the operating effectiveness of such controls at least once every
Second audit
Third audit
Fourth audit
Fifth audit
On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed
level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would
Increase inherent risk.
Increase materiality level.
Decrease inherent risk.
Decrease detection risk.
When an auditor increases the planned assessed level of control risk because certain controls were
determined to to be ineffective, the auditor would most likely increase the
Extent of tests of details.
Level of inherent risk
Extent of tests of controls.
Level of detection risk.
In performing tests of the operating effectiveness of an entity's controls, an auditor selects from a variety of techniques including
Reperformance and observation.
Inquiry and analytical procedures.
Comparison and confirmation.
Inspection and verification.
An auditor intends to perform tests of control on a client's cash disbursement procedures. If the
control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
Inquiry and analytical procedures.
Inquiry and observation.
Analytical procedures and confirmation.
Confirmation and observation.
Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?
Scan the sales journal for sequential and unusual entries
Examine shipping documents for matching sales invoices.
Compare the accounts receivable ledger to daily sales invoices.
Inspect unused sales invoices for consecutive prenumbering.
An auditor is least likely to test controls that provide for
Approval of the purchase and sale of trading securities
Classification of revenue and expense transactions by product line.
Segregation of the functions of recording disbursements and reconciling the bank account.
Comparison of receiving reports and vendor's invoices with purchase orders,
An auditor uses the knowledge provided by the understanding of internal control and the final
assessed level of control risk primarily to determine the nature, timing, and extent of the
Attribute tests
Compliance tests
Tests of controls
Substantive tests
Which of the following procedures would an auditor most lïkely to perform in planning a finanancial statement audit?
Inquiring about the client's legal counsel concerning pending litigation.
Comparing the financial statements with anticipated results.
Examining computer-generated exception reports to verify the effectiveness of internal cor
Searching for unauthorized transactions that may aid in directing unrecorded liabilities
Management makes certain assertions that are embodied in financial statement components; for example, two such categories of assertions are completeness and valuation and allocation. Which of the following is not a broad category of management assertions?
Rights and obligations
Completeness
Existence
Errors or fraud
The objective of tests of details of transactions performed as substantive tests is to
Comply with generally accepted auditing standards.
Attain assurance about the reliability of the accounting system.
Detect material misstatements in the financial statements.
Evaluate whether management's policies and procedures operated effectively.
In testing the existence assertion for an asset, an auditor ordinarily works from the
Financial statements to the potentially unrecorded items
Potentially unrecorded items to the financial statements.
Accounting records to the supporting evidence.
Supporting evidence to the accounting records.
In determining whether transactions have been recorded, the direction of the audit testing should be from the
General ledger balances
Adjusted trial balance
Original source documents
General journal entries
An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of
Existence
Rights and obligations
Valuation and allocation
Completeness
Which of the following might be be detected by an auditor 's review of the client's sales cut-off?
Excessive goods returned for credit.
Unrecorded sales discounts.
Lapping of year-end accounts receivable.
Inflated sales for the year.
The single feature that most clearly distinguishes auditing, attestation, and assurance is
Type of service.
Scope of services.
Training required to perform the service
CPA's approach to the service
It refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party.
Contidence
Reasonableness
Assurance
Tolerable
The three types of attestation services are:
Audits, review, and compilations
Audits, compilations, and other attestation services
Reviews, compilations, and other attestation services
Audits, reviews, and other attestation services
Assurance engagement include the following, except
An engagement conducted to provide a high level of assurance that the subject matter conforms in all material respects with identified suitable criteria.
An engagement conducted to provide a moderate level of assurance that the subject matter is plausible inthe circumstances.
An engagement in accordance with the Philippine Standard on Assurance Engagement(s) issued by the Auditing and
Assurance Standard Council as approved by the Board of AccountancylProfessional Regulation Commission
An engagement to perform agreed-upon procedures
Unlike con sulting services, assurance services:
Make recommendations to management
Report on how to use information
Report on quality information
Are two-party contracts
The following statements are correct, except:
The greater the risk of misstatement, the more evidence is likely to be required
The higher the quality of evidence, the less may be required
Obtaining more evidence will compensate for its poor quality
The sufficiency and appropriateness of evidence are interrelated
Which of the following procedures is not as a part of planning an audit engagement?
Reviewing working papers of the prior year
Performing analytical procedures
Designing an audit program
Test of controls
One of the first things that the auditor will do do after accepting a new client is:
Communicate with the predecessor auditor
Contact the client's attorney to discover legal obligation.
Study the clients's internal control structure.
Tour the clients facilities.
