Auditing (Theoretical Concepts): FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES

FAR EASTERN UNIVERSITY – MANILA

FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES

1. This document defines the elements and objectives of an assurance engagement, but does not, by itself, establish
standards or provide procedural requirements for the performance of assurance engagements.
A. PSRS
B. PREPS
C. PSAE
D. PFAE

2. Which is correct concerning the framework for assurance engagements?

A. It provides a frame of reference against which audit engagements are evaluated
B. It establishes specific guidelines and procedural requirements for the performance of assurance engagements
C. It provides a frame of reference for accountants in public practice when performing assurance engagements
D. It is intended for reference of public accountants only

3. An engagement conducted to provide: (a) a high level of assurance that the subject matter conforms in all
material respects with identified suitable criteria; or (b) a moderate level of assurance that the subject matter is
plausible in the circumstances.
A. Audit engagement
B. Reasonable assurance
C. Review engagement
D. Assurance engagement

4. The auditor’s satisfaction as to the reliability of an assertion being made by one party for use by another is called:
A. Assurance
B. Reliance factor
C. Precision
D. Materiality

5. The Philippine Framework for Assurance Engagements identifies two types of assurance engagements a
practitioner is permitted to perform: a reasonable assurance engagement and a limited assurance engagement.
Which of the following is the objective of a limited assurance engagement?
A. A reduction in assurance engagement risk to a very low level in the circumstances of the engagement as a
basis for no opinion to be expressed
B. A reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement
as a basis for a positive form of expression of the practitioner’s conclusion
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C. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a negative form of expression of the practitioner’s conclusion
D. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement a s a basis for qualified form of opinion

6. Which of the following statements is incorrect?

A. Assurance services report on the quality of information
B. Assurance engagements encompass attestation engagements
C. Not all engagements performed by professional accountants are assurance engagements
D. Non-assurance engagements include agreed upon procedures, compilation of financial or other information,
preparation of tax returns where no conclusion is expressed, tax consulting and review engagements.

7. The primary goal of the CPA in performing the attest function is to

A. Detect fraud.
B. Examine individual transactions so that the auditor may certify as to their validity.
C. Determine whether the client's assertions are fairly stated.
D. Assure the consistent application of correct accounting procedures.

8. What is the type of assurance engagement that has as its subject matter non-historical financial information?
A. Audit of financial statements
B. Review of financial statements
C. Agreed-upon procedures
D. Prospective financial information

9. Which of the following is not one of major categories of practitioner’s assurance services?
A. Assurance engagements on subject matters other than historical financial information
B. Audit and reviews of historical financial information
C. Review of historical financial information
D. Compilation engagement

10. Which of the following is true about assurance services?

A. All assurance services are financial statement audits
B. An assurance engagement must have five fundamental elements
C. A fundamental element for an assurance engagement is engagement fee
D. A review of historical financial statements is not an assurance service

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Auditing (Theoretical Concepts): FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES
11. Which of the following is not one of five elements exhibited by all assurance engagements?
A. The subject matter
B. A multi-party relationship involving a practitioner, a responsible party, those in charge with governance, and
the intended users
C. Suitable criteria
D. Evidence

12. 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 the responsibility of either the intended users or the practitioner.

13. According to the IAASB Glossary of terms, this refers to a professional accountant in public practice
A. Auditor
B. Practitioner
C. Public accountant
D. Professional

14. Who is responsible for determining the nature, timing, extents of assurance procedures?
A. Practitioner
B. Practitioner and Responsible Party
C. Practitioner and Intended User
D. Practitioner, Responsible Party, and Intended User

15. The person or person who in a direct reporting engagement, is responsible for the subject matter; or in an
assertion-based engagement, is responsible for the subject matter information (the assertion), and may be
responsible for the subject matter.
A. General public
B. Responsible party
C. Audit committee
D. Intended users

16. A responsible party does each of the following except:

A. Engages the practitioner
B. Selects the criteria
C. Determines the subject matter
D. Selects the audit procedures

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17. Which is not true of the intended user?
A. The intended user is the person or class of persons for whom the professional accountant prepares the report
for a specific use or purpose
B. The intended user(s) is (are) always limited to the addressee of the professional accountant’s report
C. The responsible party may also be one of the intended users
D. The intended user(s) may not be the addressee of the professional accountant’s report

18. The subject matter, and subject matter information, of an assurance engagement can take many forms, such as:
A. Financial performance or conditions
B. Non-financial performance or conditions
C. Behavior
D. All of the above

19. Subject matter and subject matter information of an assurance engagement can take all the following forms
except:
A. Litigation planning
B. Physical characteristics
C. Non-financial performance or conditions
D. Financial performance or conditions

20. Which of the following is not true about the subject matter of an assurance engagement?
A. It is the topic about which the assurance is conducted.
B. It could be information such as financial statements, statistical information and non-financial performance
indicators.
C. It could be International Financial Reporting Standards.
D. It could be systems and processes or behavior.

21. Which of the following is an example of a formal criterion(a)?

I. Philippine Public Sector Accounting Standards
II. Number of times a committee meets in a year
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Auditing (Theoretical Concepts): FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES
22. The characteristics for assessing whether criteria are suitable are all of the following except:
A. Neutrality
B. Reliability
C. Understandability
D. International acceptance

23. According to the framework for assurance engagement, evidence must be ______.
A. Sufficient and appropriate
B. Sufficient or appropriate
C. Suitable and appropriate
D. Suitable or appropriate

24. Sufficiency of evidence is

A. Evidence which is material.
B. The measure of the quantity of evidence.
C. The measure of the quality of evidence.
D. Evidence which is adequate.

25. Which of the following statements is not true regarding the competence of audit evidence?
A. Relevance is enhanced by an effective information system.
B. To be competent, evidence must be both valid and relevant.
C. Validity is related to the quality of the client’s information system.
D. Relevance must always relate to audit objectives.

26. Professional judgment is the application of relevant training, knowledge and experience, within the context
provided by _____________ in making informed decisions about the courses of action that are appropriate in the
circumstances of the audit engagement.
A. Auditing, accounting and ethical standards
B. Philippine Standards on Auditing
C. Philippine Financial Reporting Standards
D. The Code of Ethics for Professional Accountants

27. The professional skepticism is

A. 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.
B. Necessary for a quality control system.
C. Adherence to the professional code of ethics.
D. The application of relevant training, knowledge and experience, within the context provided by auditing,
accounting and ethical standards, in making informed decisions about the courses of action that are
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appropriate in the circumstances of the audit engagement.

28. Which of the following is/are true?

Statement 1: Reliability of evidence is influence by its source and nature.
Statement 2: Generalizations about reliability of evidence can be made without exceptions.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

29. Evaluate the following sources of evidence:

I. Minutes of meeting of the Board of Directors
II. Oral representation of one of the directors
A. More reliable, More reliable
B. Less reliable, Less reliable
C. More reliable, Less reliable
D. Less reliable, More reliable

30. Which of the following types of evidence is most reliable?

A. Original copy of the Omnibus Loan and Credit Agreement
B. Photocopy of the Omnibus Loan and Credit Agreement
C. Scanned copy of the Omnibus Loan and Credit Agreement
D. Faxed copy of the Omnibus Loan and Credit Agreement

31. What standards are practitioners who perform assurance engagements governed by no matter what type of
assurance audit they are performing?
A. PSRS and Code of Ethics of Professional Accountants
B. PSRE and Code of Ethics of Professional Accountants
C. PSQC and Code of Ethics of Professional Accountants
D. PSA and Code of Ethics of Professional Accountants

32. An assurance report

A. Provides reasonable assurance to the responsible party.
B. Is prepared by the responsible party.
C. Provides a written report containing a conclusion that conveys the assurance obtained about the subject
matter information.
D. Has a format that is uniquely different from PSA audit opinions.

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Auditing (Theoretical Concepts): FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES
33. Which characteristic(s) of an assurance report is (are) valid?
I. Must be in writing
II. May contain a conclusion
A. I only
B. II only
C. I and II
D. Neither I nor I

34. Which of the following is/are true?

Statement 1: Whenever practical, the assurance report is addressed to all the intended users.
Statement 2: In certain cases, intended users may be limited to major stakeholders with significant and common
interests.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

35. The single feature that most clearly distinguishes auditing, attestation, and assurance is
A. Type of service.
B. Training required to perform the service.
C. Scope of services.
D. CPA’s approach to the service.

36. Three common types of attestation services are:

A. audits, reviews, and “other” attestation services.
B. audits, verifications, and “other” attestation services.
C. reviews, verifications, and “other” attestation services.
D. audits, reviews, and verifications.

37. Which of the following services provides the lowest level of assurance on a financial statement?
A. A review.
B. An audit.
C. Neither service provides assurance on financial statements.
D. Each service provides the same level of assurance on financial statements.

38. What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?
A. Limited assurance engagement
B. Positive assurance engagement
C. Reasonable assurance engagement
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D. Absolute assurance engagement

39. In a limited assurance engagement, the practitioner

A. Has obtained sufficient appropriate evidence to reduce assurance engagement risk to an acceptably low level
B. Expresses the conclusion in a positive form
C. Expresses the conclusion in the negative form
D. Conveys reasonable assurance

40. Procedures in a review engagement consist primarily of inquiry and analytical procedures. Regarding review
procedures, which of the following statements is incorrect?
A. The practitioner 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 practitioner 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 than in a review.
D. The practitioner should apply judgment in determining the specific nature, timing and extent of review
procedures.

NON-ASSURANCE ENGAGEMENTS
41. Which of the following services, if any, may a practitioner who is not independent provide?
A. Compilations but not reviews
B. Reviews but not financial statement audits
C. Reviews but not compilations
D. Agreed-upon procedures but not compilations

42. Which of the following may be under the scope of the Framework for Assurance Engagement?
A. Agreed-upon procedures engagements and compilation of financial and other information.
B. Preparation of tax returns where no conclusion conveying assurance is expressed.
C. Consulting (or advisory) engagements, such as management and tax consulting.
D. Preparation of tax returns where a conclusion conveying assurance is expressed.

43. Unlike consulting services, assurance services:

A. Report on how to use information
B. Make recommendations to management
C. Are two party contracts
D. Improves the quality of information

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Auditing (Theoretical Concepts): FUNDAMENTALS OF ASSURANCE AND NON-ASSURANCE SERVICES
44. Which of the following is not an assurance engagement?
A. Compilation
B. Information system reliability services
C. Financial statements audit
D. Reviews of prospective financial statements

45. How does the related services framework differ from the assurance framework?
A. Related services engagements do not result in an opinion.
B. Related services claim compliance with PSAE.
C. Related services enhance the degree of confidence intended users can have.
D. Related services claim compliance with PSA.

46. Which of the following is true of the report based on agreed-upon procedures?
A. The report is restricted to those parties who have agreed to the procedures to be performed
B. The CPA provides the recipients of the report limited assurance as to the reasonableness of the assertion(s)
presented in the financial information
C. The report states that the auditor has not recognized any basis that requires revision of financial statements
D. The report should state that the procedures performed are limited to analytical procedures only.

47. Consulting services are:

A. Three-party contracts involving services that recommend uses for information
B. Two-party contracts involving services that recommend uses for information
C. Two-party services that require the use of accounting rather than auditing expertise
D. Three-party services that require knowledge of the analytical approach and process

48. Jude, 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 are incomplete. Client management refuses to comply with Jude’s requests for additional
information. In this case, Jude should:
A. Issue a qualified opinion on the financial statements compiled.
B. Issue an adverse opinion on the financial statements compiled.
C. Issue a disclaimer of opinion on the financial statements complied.
D. Withdraw from the engagement.

49. Agreed-upon procedures provides what level of assurance?

A. None
B. Moderate
C. High
D. Absolute
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50. When reporting on non-assurance engagement, the practitioner should avoid the following?
A. Implying compliance with the Framework on Assurance Engagements, PSA, PSREs and PSAEs
B. Using the word “assurance”, “audit” or “review”
C. Including a statement that could reasonably be mistaken for a conclusion designed to enhance the degree of
confidence of intended users about the outcome of the evaluation or measurement of a subject matter against
criteria
D. All of the above.

“Great people go through the great challenges to prepare them for greatness in their lives. Our
humbleness will swing us above all our great challenges to a place where great, true success meets our
humbleness."

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