OUR LADY OF FATIMA UNIVERSITY

QUEZON CITY
COLLEGE OF BUSINESS AND ACCOUNTANCY
AUDITING ASSURANCE AND CONCEPTS APPLICATIONS 1
PRELIM EXAMINATION
FIRST SEMESTER, AY–2020-2021

GENERAL DIRECTIONS

• Read and understand every statements very carefully and choose the letter of the
correct answer.
•
• MULTIPLE CHOICE : Choose the letter of the correct answer.
1. Which of the following statements best described assurance services?
A. Independent professional services that are intended to enhance the credibility of information
to meet the needs of an intended user
B. Services designed to express an opinion on the fairness of historical financial statements
based on the results of the audit
C. The preparation of the financial statements on the collection, classification and
summarization of other financial information
D. Services designed for the improvement of operations, resulting in better outcomes
2. Which of the following is not an assurance service?
A. Examination of prospective financial information
B. Audit of historical financial information
C. Review of financial statements
D. Compilation of the financial information

3. Which of the following professional services would be considered an assurance engagement ?

A. A management consulting
engagement to provide IT advice to
client.
B. An engagement report on
compliance with statutory requirements.
C. An income tax engagement to
prepare tax returns
D. A compilation of financial statements
from client’s accounting records.

4. Which of the following best describes the objective of an assurance engagement?

A. Improve the company’s customers
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
5. 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 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 information
D. Establishes standards and provides procedural requirements for the performance of
assurance engagements
(i.e. PSAs – Philippine Standards of Auditing; PSREs- Philippine Standards of Review
Engagements; PSAEs – Philippine Standards on Assurance Engagements)

6. Professional judgment
A Should be exercised in planning and performing an audit of financial statements but need not
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 judgments in applying the entity’s applicable
financial reporting framework
D. Is not used in making decisions about materiality and audit risk

7. 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

8. Which of the following statements 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 in accordance with an applicable
financial reporting framework is an implicit
C. Making suggestions that are adopted about the form and content of an entity’s financial
statements impairs an auditor’s independence
D. The auditor’s report should provide an assurance as to the future viability of the entity

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

A. Provide increase assurance to users as to the fairness of the financial statements
B. Guarantee that there are no misstatements in the financial statements and ensure that any
fraud will be discovered
C. Satisfy governmental regulatory requirements
D. Relieve management of responsibility for the financial statements

10. 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 within 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 and
presentation of financial statements that are free from material misstatement whether caused
by fraud an error

11. Assurance engagement risk is the risk

A. That the practitioner expresses an inappropriate conclusion when the subject matter
information is materially misstated
B. Of expressing an inappropriate conclusion when the subject matter information is not
materially misstated
C. Through loss from litigation, adverse publicity or other 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 not materially misstated

12. 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. Reasonable assurance engagement
B. Limited assurance engagement
C. Adverse assurance engagement
D. Positive assurance engagement

13. A practitioner should only 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 the responsibility of either the intended users or the practitioner

14. A practitioner is associated with financial information when :

I. The practitioner attaches a report to the financial information
II. The practitioner consents to the use of his/her name in a professional connection
A. I only
B. II only
C. Either I or II
D. Neither I nor II

15. What is the responsibility of an auditor who is engaged in audit of the financial statements
of a government entity?
A. Assess control risk with respect to each component t of internal control
B. Assume responsibility
for assuring that the entity complies with applicable laws and regulation
C. Obtain an understanding of the possible financial statement effects of laws and regulations
having direct and material effects on amounts reported
D. Design the audit to provide reasonable assurance that the statements are free form material
misstatements resulting from illegal acts having direct or indirect or direct effects

16. The objective of government effectiveness or program auditing is to determine if the

desired results of a program are being achieved? What is the first step in conducting such an
audit?
A. Identify the legislative intent of the program being audited
B. Collect quantifiable data on the program’s success or failure
C. Determine the time frame to be audited
D. Evaluate the system used to measure results

17. The auditor is required to obtain reasonable assurance about whether the financial
statements are free from 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. Unqualified opinion
B. Qualified or disclaimer of an opinion
C. Qualified or adverse opinion
D. Disclaimer of an opinion

18. Which of the following standards are to be applied as appropriate in an audit of historical
information ?
A. PSREs
B. PSAEs
C. PSRESs
D. PSAs

19. A practitioner should accept an assurance engagement only if

A. The subject matter is in the form of financial information
B. The practitioner’s conclusion is to be contained in a written report
C. The subject matter is the responsibility of either the intended users or the practitioner
D. The subject matter is the responsibility of either the intended users or the practitioner

20. 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 only
C. I, II, III and IV only
D. I, II, III, IV and V

21. The criteria against which the subject matter of the assurance engagement is to be
evaluated or measured should possess which of the following characteristics?
RELEVAN CONCISE NEUTRAL
T
A YES NO YES
B NO YES NO
C YES NO NO
D NO YES YES

22. Relevant criteria contribute to conclusions that are :

A. Free from bias
B. Clear and comprehensive
C. Subject to different interpretations
D. Useful in decision making
23. 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. Developed Criteria
D. Standard criteria

24. In an assurance engagement, the outcome of the evaluation or measurement of a subject

matter against criteria is called
A. Subject matter information
B. Subject matter
C. Assurance
D. Conclusion

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

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

QUIZ
Determine if the following statements
Are “TRUE” or “FALSE”

1. FALSE Any advertising by professional accountants beyond their name, address,

telephone number and membership in professional organization has been traditionally
considered as ethical in the Accountancy profession

2. FALSE The client is billed on the basis of time spent by staff members of the auditing
firm at rates previously agreed upon with the client . This method of billing is called
retainer basis.

3. FALSE Reliable criteria contribute to conclusions that assist decision-making by the

intended users.

4. FALSE Suitable criteria are those embodied in laws and regulations or issued by
authorized or recognized bodies of experts

5-7.
Assurance Applicable
Engagement Criteria
Audit of Financial Philippine
Statements Accounting
Standards
Assurance of COSO Framework
Internal Control (Internal Control
Framework)
Compliance audits Applicable laws and
regulations, PFRS

5. TRUE
6. TRUE
7. TRUE
8. TRUE In an attestation engagement , the measurer or evaluator who is not the
practitioner evaluates the underlying subject matter against the criteria, the out come of
which is the subject matter of information.
9. FALSE The objective of a limited assurance engagement is a reduction in assurance
engagement risk to a level that is acceptable in the circumstances of an engagement but
where the risk is lesser than from a reasonable assurance engagement.
10. FALSE In gathering audit evidence, appropriateness refers to quantity while sufficiency
refers to quality of evidential matter.