ASSURANCE SERVICES

1. Financial statements of an entity that have been reviewed by an

accountant should be accompanied by a report stating that a
review
a) Provides only limited assurance that the financial
statements are fairly presented.
b) Includes examining on a test basis, information that is
representation of management.
c) Consists principally of inquiries of company personnel and
analytical procedures applied to financial data.
d) Does not contemplate obtaining corroborating evidential
matter or applying certain other procedures ordinarily
performed during an audit.

2. An accountant's report on a review of the financial statements of

an entity should state that the accountant
A . Doe s no t e x pr es s an o p in io n o r a ny fo rm o f lim it e d
a ss u ra nce o n the f in a n c ia l statements,
B . C o n d u c t e d t h e r e v ie w i n a c c o r d a n c e w i t h t h e P h i l i p p i n e
S t a n d a r d o n R e v i e w Engagements,
C. Obtained reasonable assurance about whether the financial
statements are free of material misstatements,
D. Examined evidence, on a test basis, supporting the amounts
and disclosures in the financial statements.
3. Financial statements of an entity that have been reviewed by an
accountant should be accompanied by a report stating that
A. The scope of inquiry and analytical procedures performed by the
accountant has not been restricted.
B. The financial statements are the responsibility of the company’s
management.
C. A review examining on a test basis, evidence supporting the amounts
and disclosures in the financial statements.
D. A review is a greater in scope than a compilation, the objective of
which is to present financial statements that are free of material
misstatements.
4. An accountant who reviews the financial statements of an entity
should issue a report stating that a review
A. Provides less assurance than an audit.
B. Provides negative assurance that internal control is functioning as
designed.
C. Provides only limited assurance that the financial statements are fairly
presented.
D. Is substantially more in scope than a compilation.
5. When compiling the financial statements of an entity, an accountant should
A. Review agreements with financial institutions for restrictions on cash
balances.
B. Understand the accounting principles and practices of the entity's
 industry.
C. Inquire of key personnel concerning related parties and subsequent
events.
D. Perform ratio analyses of the financial data of comparable prior
periods.
6. When compiling an entity's financial statements, an accountant would be
least likely to
A. Perform analytical procedures designed to identify relationships
that appear to be unusual.
B. Read the compiled financial statements and consider whether they
appear to include adequate disclosure.
C. Obtain an acknowledgment from management of its responsibility for
the financial statements.
D. Plan the work so that an effective engagement will be performed.
7. Which of the following should not be included in an accountant's report
based upon the compilation of an entity's financial statements?
A. A statement that a compilation of the company's financial statements
was made in accordance with the Philippine Standard on Related
Services applicable to compilation engagements.
B. A statement that management is responsible for the financial
statements.
C. A statement that the accountant has not audited or reviewed the
statements.
D. A statement that the accountant does not express an opinion
but provides only negative assurance on the statements.
8. Negative assurance may be expressed when an accountant is requested
to report agreed-upon procedures to specified
Elements of a Accounts of a
Financial Statement Financial Statement
A. Yes Yes
B. Yes No
C. No No
D. No Yes
9. An accountant may accept an engagement to apply agreed-upon
procedures that are not sufficient to express an opinion on one or more
specified accounts or items of a financial statement provided that
A. The accountant's report does not enumerate the procedures
performed.
B. The financial statements are prepared in accordance with a
comprehensive basis of accounting other than generally accepted
accounting principles.
C. Distribution of the accountant's report is restricted.
D. The accountant is also the entity's continuing auditor.
10. Given one or more hypothetical assumptions, a responsible party may
prepare, to the best of its knowledge and belief, an entity's expected
financial position, results of operations, and cash flows. Such
prospective financial statements are known as
A. Pro forma financial statements
 B.Financialprojections
C. Partial presentations
D. Financial forecasts
11. A financial forecast consists of prospective financial statements
that present an entity's expected financial position, results of
operations, and cash flows. A forecast
A. Is based on the most conservative estimates.
B. Present estimates given one or more hypothetical assumptions.
C. Unlike a projection, may contain a range.
D. Is based on assumptions reflecting conditions expected to exist
and courses of action expected to be taken.
12. When an accountant examines prospective financial statements,
the accountant's report should include a separate paragraph that
A. Contains an opinion as to whether the prospective financial
statements are properly prepared on the basis of the
assumptions and are presented in accord ance with generally
accepted accounting principles in the Philippines.
B. Provides an explanation of the differences between an examination
and an audit.
C. States that the accountant is responsible for events and
circumstances up to 1 year after the report's date,
D. Disclaims an opinion on whether the assumptions provide a
reasonable basis for the prospective financial statements.
13. A prospective financial information prepared on the basis of
assumptions as to future events which management expects to
take place and the actions management expects to take as of the
date the information is prepared (best-estimate assumption is
known as
A. Forecast
B. Hypothetical financial information
C. Best-estimate projection
D. Projection
14. The following statements relate to the examination of prospective
financial information. Which is false?
A. The auditor should express an opinion as to whether the
reports shown in the prospective financial information will be
achieved.
B Before accepting an engagement to examine prospective
financial information, the auditor should consider the intended use
of the information.
C. The auditor should not accept, or should withdraw from, an
engagement to examine prospective financial information when the
assumptions are clearly unrealistic.
D. When in the auditor's judgment an appropriate level of satisfaction
has been obtained, the auditor is not precluded from expressing
positive assurance regarding the assumptions.
15. Which of the following is a prospective financial information for
general use upon which an accountant may appropriately report?
 A. Financial projection
B. Partial presentation
C. Pro forma financial
statement
D. Financial forecast
16.Which of the following is not a special- purpose audit engagement?

a. Audits of compliance with contractual agreements.

b. Audits involving financial statements prepared in accordance
with a comprehensive basis of accounting other than generally
accepted accounting principles in the Philippines.
c. Audits of special accounts, elements of accounts, or items in a
financial statement.
d. Compilation of financial statements.
17.Before undertaking a special- purpose audit engagement, the auditor
should ensure there is agreement with the client as to:
i. The exact nature of the engagement
ii. The form and content of the report to be issued

b. I only.
c. II only
d. Both I and II
e. Neither I nor II
18.When requested by the client to report in a prescribed format, and the
prescribed format is different from the format presented in PSA 800:
a. The prescribed format shall always prevail over the format
presented in PSA 800.
b. The auditor, when necessary, should make appropriate changes
in the prescribed format to conform to the requirements of PSA
800.
c. The prescribed format shall always be presented together with
the format required by PSA 800.
d. Cannot be determined without additional information.
19.Which statement is correct?
a. S1: A comprehensive basis of accounting comprises a set of
criteria used in preparing financial statements which applied to
all material items and which has substantial support.
b. S2: A conglomeration of accounting conventions devised to suit
individual preference is considered as another comprehensive
basis of accounting.

c. S1 only.
d. S2 only
e. Both S1 and S2
f. Neither S1 nor S2
20.Other comprehensive financial reporting frameworks may include the
following:
 a. That used by an entity to prepare its income tax return.
b. The cash receipts and disbursements basis of accounting.
c. The financial reporting provisions of a government regulatory
agency.
d. All of these.
21.Marcel, CPA wad asked to audit a set of financial statements prepared
under a modified cash basis. This is acceptable provided Marcel:
a. Converts the financial statement to an accrual basis before
rendering an audit report.
b. Qualifies the audit opinion for a departure from generally
accepted accounting principles.
c. Issues an adverse opinion.
d. States clearly in the audit report that fairness was evaluated
within the framework of the other basis rather than GAAP
22.If the financial statements prepared on other comprehensive bases are
not suitably titled or the basis of accounting is not adequately disclosed,
the auditor should:
a. Withdraw from the engagement.
b. Issue an appropriately modified report.
c. Reword the title of the financial statements.
d. Request for an additional representation in the management
representation letter.
23.Reporting on components of financial statements may include reporting
on:
a. Asset accounts, such as accounts receivable and inventory
b. Employee’s bonus calculation
c. Provision for income taxes
d. All of these are examples of reporting on components of financial
statements.
24.Reporting on components of financial statements are undertaken:
a. As a separate engagement, i.e., apart from the audit of financial
statements.
b. In conjunction with an audit of the entity’s financial statements.
c. Either A or B
d. Neither A nor B.
25.In an audit of components, the auditor’s examination of a component
will ordinarily be:
a. Less extensive than if the same component were to be audited
in connection with a report on the entire financial statements.
b. More extensive than if the same component were to be audited
in connection with a report on the entire financial statements.
c. Just as the same components were to be audit in connection with
a report on the entire financial statements.
d. A non- assurance engagement since audit of components do not
result in the issuance of an audit report.
26.Meg, has audited the entire financial statements of UBE Corporation.
Accordingly, she issued an adverse opinion due to very material
 misstatements which management did not correct. Can Meg engage to
perform an audit of components of the said financial statements?
a. Yes, because the opinion on the whole financial statements is not
relevant in deciding whether to perform an audit of components.
b. No, because PSA 800 requires an auditor NOT to accept an audit
of components for financial statements that receive an adverse
opinion.
c. Yes, provided the components to be audited are not so extensive
and to constitute a major portion of the financial statements.
d. No, unless the components to be audited are so extensive as to
constitute a major portion of the financial statements.
27.The auditor may be requested to report on an entity’s compliance with
certain aspects of contractual agreements, such as bond indentures or
loan agreements. Regarding this type of engagement, select the correct
statement:
a. Engagement to express an opinion as to an entity’s compliance
with contractual agreements should be undertaken only when
the overall aspects of compliance relate to accounting and
financial matters within the scope of the auditor’s professional
competence.
b. When there are particular matters forming part of the
engagement that are outside the auditor’s expertise, the auditor
would consider using the work of an expert.
c. The report should state whether, in the auditor’s opinion, the
entity’s has complied with the particular provisions of the
agreement.
d. All of the above statements are correct.
28.Summarized financial statements are presented:
a. In considerably less detail than annual audited financial
statements.
b. In considerably more detail than annual audited financial
statements.
c. In equal detail with annual audited financial statements.
d. None of the above choices can correctly complete the statement.
29.Dorothy, CPS is requested to report on summarized financial
statements of Lock Books, Inc., Dorothy has not expressed an audit
opinion on the financial statements form which the summarized
financial statements were derived. Based solely on this information,
should Dorothy accept the engagement?
a. Yes, because a report on summarized financial statements is a
separate engagement.
b. No, because PSA 800 mandates that the auditor should not
report on summarized financial statements unless the auditor
has expressed an audit opinion on the financial statements from
which the summarized financial statements were derived.
c. Yes, because an audit of summarized financial statements is
comparable to the audit of financial statements for which such
summarized statements were derived.
 d. None of the above choices can be selected because of lack of
information.
30.S1: Summarized financial statements need to be appropriately titled to
identify the audited financial statements from which they have been
derived.
a. S2: Summarized financial statements contains all the
information required by the financial reporting framework used
for the annual audited financial statements.
b. Which statement is incorrect?

c. S1 only
d. S2 only
e. All of the above answers
f. None of the answers.
31.The auditor’s report on summarized financial statement least likely
include:
a. An opinion as to whether the information in the summarized
financial statements is presented fairly, in all material respects.
b. An identification of the audited financial statements from which
the summarized financial statements were derived.
c. A reference to the date of the audit report on the unabridged
financial statements and the type of opinion given in that report.
d. A statement which indicates that for a better understanding of
an entity’s financial performance and position and of the scope
of the audit performed, the summarized financial statement
should be read in conjunction with the unabridged financial
statements and the audit report thereon.
32.The examination of prospective financial information is covered by:
a. PRAE3000
b. PSRE2400
c. PRSE3400
d. PSRS4000
33.These refers to prospective financial information prepared on the basis
of assumptions as to future events which management expects to take
place and the actions management expects to take as of the date the
information is prepared (best- estimate assumption)
a. Forecast
b. Projection
c. Prospective financial statements
d. Budget.
34.This refers to prospective financial information prepared on the basis
of hypothetical assumptions about future events and management
actions which are not necessarily expected to take place; and a mixture
of best- estimate and hypothetical assumptions.
a. Forecast
b. Projection
c. Prospective financial statements
d. Budget
35.Prospective financial information can include financial statements or
one or more elements of financial statements and may be prepared:
i. As in Internal management tool
ii. For distribution to third parties.
b. I only.
c. II only
d. I and II
e. Neither I nor II.
36.The following statements refer to PSAE 3400. Which one is incorrect?
a. Prospective financial information related to events/ actions that
have not yet occurred and may not occur.
b. In connection with auditor’s assurance regarding prospective
financial information, the auditor is in a position to express an
opinion as to whether the results shown in the prospective
financial information will be achieved.
c. The auditor should consider the extent to which reliance on the
entity’s historical information is justified.
d. The auditor should consider the period of tome covered by the
prospective financial information
37.Prospective financial information can include financial statements or
one or more elements of financial statements and may be prepared for
distribution to third parties in
a. A prospectus to provide potential investors information about the
future expectation.
b. An annual report to provide information to shareholders,
regulatory bodies and other interested parties.
c. A document for the information of lenders which may include, for
example, cash flow forecasts.
d. All of these are examples of external uses of prospective financial
information.
38.S1: Assumptions become more speculative as the length of the period
covered increases.

a. S2: The ability of management to make best- estimate

assumptions decreases as the length of the period covered
increases.

b. S1 only.
c. S2 only
d. Both S1 and S2
e. Neither S1 nor S2
39.The following are some of the factors that re relevant to the auditor’s
consideration of the period of time covered by prospective financial
information, except:
a. Operating cycle
b. The degree of reliability of assumptions.
c. The needs of users
 d. Management’s competence regarding the preparation of
prospective financial information.
40.S1: Although evidence supporting hypothetical assumptions need not
be obtained, the auditor would need to be satisfied that they are
consistent with the purpose of the prospective financial information and
that there is no reason to believe that they are clearly unrealistic.
S2: The auditor would assess the source and reliability of the
evidence supporting management’s best estimate assumptions.
Which of these statements is/ are correct?

a. S1 only.
b. S2 only
c. Both S1 and S2
d. Neither S1 nor S2
41.Written representations on prospective financial statements must be
obtained regarding
a. The intended use of the prospective financial information
b. The completeness and significant management assumptions.
c. Management’s acceptance of its responsibilities for the
prospective financial information
d. Each of these representations must be obtained in writing from
management.
42.An auditor should not issue a report on
a. The achievability of forecast
b. Quarterly financial information
c. Internal control
d. Management performance
43.When the auditor believes that the presentation and disclosure of
prospective financial information is not adequate, the auditor may
choose to withdraw from the engagement. As an alternative, what type
of opinion maybe expressed by the auditor?
a. Qualified or adverse opinion
b. Disclaimer of opinion
c. Qualified opinion or disclaimer of opinion
d. Negative assurance
44.When the auditor believes that one or more significant assumptions do
not provide a reasonable basis for the prospective financial information
prepared on the basis of best estimate assumptions or hypothetical
assumptions, what are the steps taken by the auditor?

a. Withdraw from the engagement.

b. Express an adverse opinion in the report, or withdraw from the
engagement
c. Express an qualified opinion in the report, or withdraw from the
engagement
d. Disclaim an opinion
45.Which of the following statements best describes the objective of a
review engagement?
 a. For the auditor to carry out the procedures of an audit nature to
which that auditor and the entity and any appropriate third
parties have agreed and to report on factual findings
b. To enable an auditor to state whether, on the basis of procedures
which do not provide all the evidence that would be required in
an audit, anything has come to the auditors attention that causes
the auditor to believe that the financial statements are not
prepared in all material respects, in accordance with generally
accepted accounting principles
c. To enable the auditor to express an opinion whether the financial
statement are prepared, in all material respects, in accordance
with generally accepted accounting principles in the Philippines
d. For the accountant to use accounting expertise, as opposed to
auditing expertise , to collect, classify and summarize financial
information
46.Broadly speaking, the general principles of a review
a. Are similar to the general principles applicable to an audit
engagement
b. Are the opposite of general principles applicable to an audit
engagement
c. Are stricter compared to the general principles applicable to an
audit engagement
d. Are the same as the general principles applicable to a compilation
engagement
47.Select the incorrect statement
a. The auditor is required to comply with the “Code of Professional
Ethics for CPAs” promulgated by the BOA
b. The auditor should conduct a review in accordance with
Philippine Standards on Review Engagements
c. The auditor need not exercise professional skepticism
recognizing that in a review engagement, only a moderate level
of assurance is expressed
d. All of the above statements are incorrect
48.Which of the following procedures is performed in review of financial
statements?
a. Confirming accounts receivable with client customers to test
existence
b. Testing the bank reconciliation prepared by client personnel
c. Obtaining a letter of audit inquiry from all attorneys of record
d. Reading the financial statement to consider whether they appear
to conform with PFRS
49.Procedures in a review engagement consist primarily of inquiry and
analytical procedures. Regarding review procedures, which of the
following statements is incorrect?
a. The auditor should apply the same materiality considerations as
would be applied if an audit opinion on the financial statements
were given
 b. The judgment as to what is material is made by reference to the
information on which the auditor is reporting and the needs of
those relying on that information, not to the level of assurance
provided
c. There is a greater risk that misstatements will not be detected in
an audit in a review
d. The auditor should apply the judgment in determining the
specific nature, timing and extent of review procedures
50.An engagement letter for review services may be prepared for the
benefit of both the client and the auditor. Which of the following
statements lest likely will appear on such an engagement letter?
a. “We will not perform an audit of such financial statements and,
accordingly, we will not express an audit opinion on them.”
b. Responsibility for the financial statements, including adequate
disclosure, is that of the management of the company.”
c. “Our engagement cannot be relied upon to disclose whether
fraud or errors, or illegal acts exist. However, we will inform you
of any material matters that come to our attention.”
d. Because of the test nature and other inherent limitations of an
audit, together with the inherent limitations of any accounting
and control system, there is an unavoidable risk that even some
material misstatement may remain undiscovered.”
51.Which of the following procedures is not included in a review
engagement on a non-public entity?
a. Inquiries of management and of personnel involved in
accounting functions
b. Communicating any material weaknesses discovered during the
study and evaluation of internal accounting control
c. Any procedures designed to identify relationships among data
that appear to be unusual
d. Inquiries regarding events subsequent to the balance sheet date
52.One of the requirements of a review is that a conclusion must be
expressed (and issued in the form of a review report). Which of the
following is not an element of a review report?
a. Title of the review report
b. Addressee
c. Statement of negative assurance
d. Description of procedures performed
53.Philomena, a CPA, has issued a review report for a non-public entity’s
financial statements. The review report should state that
a. “We obtained reasonable assurance about whether the financial
statements are free of material misstatement.”
b. “we does not express an opinion or any form of limited assurance
on the financial statements”
c. “based on our review, nothing has come to our attention that
causes us to believe that the accompanying financial statements
are not presented fairly, in all material respects, in accordance
with PFRS
 d. “A review includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.”
54.If matters that impair a fair presentation have come to the auditors
opinion during a review engagement, the auditor should describe those
matters, including, unless impracticable, a quantification of the possible
effects on the financial statements and
a. Express a qualification of the negative assurance provided
b. When the effect of the matter is so material and pervasive to the
financial statements that the auditor concludes that a
qualification is not adequate to disclose the misleading or the
incomplete nature of the financial statements, give an adverse
statement
c. Both a and b
d. Either a or b
55.Scope limitations may also affect review engagements. In a case of a
scope limitation that is so significant and pervasive, the auditor should
a. Express a qualification of the negative assurance provided
b. Give an adverse statement
c. Not provide any assurance
d. Express a qualification of the negative assurance provided, or
not provide any assurance
56.A review report should be dated no later than the
a. Balance sheet date of the latest period reported on
b. Date the report is delivered to the entity reviewed
c. Date review is completed
d. Date management contracted the services of a CPA for the
review engagement
57. The following statements pertain to agreed-upon procedures. Which
one is incorrect?
a. Users of the report assess for the themselves the procedures and
findings reported by the auditor and draw their own conclusions
from the auditor’s work
b. The auditor should conduct agreed-upon procedures
engagement in accordance with PFRS 4400 and the terms of the
engagement
c. 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 result6s
d. Independence is required when performing an agreed upon
procedures engagement
58.Which of the following is correct of the report based on agreed upon
procedures?
a. It is restricted to those parties who have agreed to the
procedures to be performed
b. It should contain an expression of limited assurance as to the
reasonableness of the assertion(s) presented in the financial
information
 c. It states that the auditor has not recognized any basis that
requires a revision of the financial statements
d. It should state that the procedures performed are limited to
analytical procedures and inquiry
59.An accountant who is not independent may issue a
a. Compilation report
b. Review report
c. Comfort letter
d. Qualified opinion
60.According to the Philippine Standards on Related Services , the
procedures employed in doing a compilation are the
a. Designed to enable the accountant to express a limited
assurance
b. Designed to enable the accountant to express a negative
assurance
c. Not designed to enable the accountant to express any form of
assurance
d. Less extensive than review procedures but more extensive than
agreed-upon procedures
61.According to PFRS 4410, the following procedures are required
whenever a CPA performs a compilation engagement
A B C D

Agree with the client regarding the

terms of the engagement YES YES YES YES
Planning for the engagement YES YES YES YES
Use of audit expertise YES YES NO NO
Issuance of a report YES NO YES NO

62.Metro, CPA, is performing a compilation service for Clean and Green

Corporation. In the course of performing compilation procedures, Jude
became aware that some of the information provided by Clean and
Green’s management is incomplete. Client management refuses to
comply with Metro’s request for additional information. In this case
Metro should
a. Issue a qualified opinion on the financial statements compiled
b. Issue an adverse opinion on the financial statement compiled
c. Issue a disclaimer of opinion on the financial statements
compiled
d. Withdraw from the engagement
63.On each page of the financial information or on the front of the
complete set of financial statements, the financial information compiled
by the accountant should contain a reference such as:
a. “Compiled without audit or review.”
b. “Unaudited.”
c. “Refer to the compilation report.”
d. Any of these