AT 01 - Introduction to Assurance and Non Assurance Engagements

Quizzer

MULTIPLE CHOICE QUESTIONS

1. Assurance services
a. Include tax services, compliance audits, and review engagements.
b. Are contracts in which the assuror reports on or improves the quality of the information.
c. Are offered only by members of the American Institute of Certified Public Accountants.
d. Are contracts in which one party makes recommendations on how another party might
use information.

2. The essence of the attest function is to

a. Offer assurance about subject matter that is the responsibility of another party.
b. Examine individual transactions and certify as to the validity of each.
c. Ensure the consistent application of correct accounting principles.
d. Detect fraud in the client's financial statements.

3. The market for auditing services is driven by

a. The regulations of the Securities and Exchange Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing and Assurance Standards Council.
d. Congress and elected legislative bodies at the national level.

4. Which of the following statements is an example of an assertion made by management in an

entity's financial statements?
a. The financial statements were prepared in an unbiased manner.
b. Reported inventory balances reflect all related transactions for the period.
c. Reported accounts receivable does not include any uncollectible accounts.
d. The scope of the auditors' investigation was not limited in any way by management.

5. An independent audit report

a. Confirms the accuracy of management's financial statements.
b. Guarantees that financial statements are accurate.
c. Assures the readers of financial statements that any fraudulent activity has been corrected.
d. Provides written assurance that the financial statements are fairly presented.

6. In a review engagement, a public accounting firm

a. Provides limited assurance about whether an entity's financial statements conform to applicable
reporting framework.
b. Has as a client a large, public company.
c. Compiles financial information into the form of financial statements, providing no assurance.
d. Performs procedures which are agreed upon in advance with the client.

7. The reason an independent auditor gathers evidence is to

a. Evaluate internal controls.
b. Detect fraud.
c. Evaluate management.
 d. Form an opinion on the financial statements.

8. An independent audit is important to readers of financial statements because it

a. Reports on the accuracy of information in the financial statements.
b. Measures and communicates the financial data included in financial statements.
c. Provides a measure of management's stewardship function.
d. Objectively examines and reports on the fair presentation of the financial statements.

9. Which of the following criteria is unique to the independent auditor's attest function?
a. Independence.
b. Familiarity with the particular industry of each client.
c. Due professional care.
d. General competence.

10. The primary purpose of an independent financial statement audit is to

a. Provide a basis for assessing management's performance.
b. Comply with state and federal regulatory requirements.
c. Assure management that the financial statements are unbiased and free from material
misstatement.
d. Provide users with an unbiased opinion about the fairness of information reported in the
financial statements.

11. The audit process is

a. A service which guarantees the accuracy of management's financial statements.
b. A subjective process which the auditor commences by gathering evidence.
c. The only service a CPA is allowed to perform by law.
d. Involves gathering and evaluating evidence and reporting an opinion.

12. Philippine Standards on Auditing

a. Relate to the filing requirements and enforcement activities of the SEC.
b. Describe procedures to be applied in specific areas of audit activity to eliminate
inconsistencies in audit practice.
c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function.
d. Interpret standards rather than promulgate specific audit procedures.

13. Independent auditing is a

a. Branch of accounting which focuses on constructing financial statements.
b. Discipline which emphasizes gathering support for the financial statements and has its roots in
logic.
c. Professional activity that measures and communicates financial and business data and makes
recommendations for its use.
d. Governmental regulatory function that prevents the issuance of improper financial information.

14. An operational audit is designed to

a. Assess the efficiency and effectiveness of management's operating procedures.
b. Assess the presentation of management's financial statements in accordance with generally
accepted accounting principles.
c. Determine whether management has complied with applicable laws and regulations.
 d. Determine whether the audit committee of the board of directors is effectively discharging its
responsibility to oversee management's operations.

15. The purpose of a compliance audit for a governmental entity is to determine whether
a. Financial statements comply with GAAP and whether the entity is operating efficiently.
b. Financial statements comply with GAAP and the entity has complied with applicable laws and
regulations.
c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP.

16. Information risk is

a. The company's cost of capital.
b. The cost a company incurs to issue and service equity and debt.
c. The risk that the information in financial statements is materially misstated.
d. The risk of the client not being able to pay off a bank loan.

17. Which statement below concerning assurance services and consulting services is not true?
a. Assurance services may be performed by independent nonprofit institutions, public accounting
firms, or consulting firms.
b. Consulting services recommend uses for information.
c. Assurance services report on or improve the quality of information.
d. Consulting services involve reporting on the quality of written assertions made by the client.

18. Which of the following mostly describes the function of AASC?

a. To monitor full compliance by auditors to PSAs.
b. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in
audit practice.
c. To promulgate auditing standards, practices and procedures that shall be generally accepted by
the accounting profession in the Philippines.
d. To undertake continuing research on both auditing and financial accounting in order to make
them responsive to the needs of the public.

19. Assurance engagements encompass the following types of services, except

a. Attestation services.
b. Audit of historical financial statements.
c. Review engagements.
d. Management consulting.

20. Assurance services differ from consulting services in that they

I. Focus on providing advice.
II. Involve monitoring of one party by another.

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.

21. Why does a company choose to have an independent auditor report on its financial statements?
 a. Independent auditors will always detect management fraud.
b. The company preparing the statements may have a vested interest in reporting certain results.
c. Independent auditors guarantee the accuracy of the financial statements.
d. An independent audit is designed to search for deficiencies in the company’s internal controls.

22. Absolute assurance in auditing is not attainable because of

a. The need for judgment.
b. The use of testing
c. The inherent limitation and internal control systems
d. All of the above

23. According to Preface on Assurance Engagements, these are the standards or benchmarks used to
evaluate or measure the subject matter of an assurance engagement:
a. Criteria
b. Engagement process
c. Assertions
d. Generally accepted auditing standards

24. The decision of whether the criteria are suitable involves considering whether the subject matter of
the assurance engagement is capable of reasonably consistent evaluation or measurement using such
criteria. Which of the following characteristics is not considered necessary in determining whether
the criteria are suitable?
a. Relevance
b. Neutrality
c. Reliability
d. Sufficiency

25. According to Philippine Standard on Auditing, a compilation presents information in the form of
financial statements, that is, the representation of management. The accountant who prepares the
compilation undertakes to express
a. Limited assurance on the statements.
b. Minimal assurance on the statements.
c. No assurance on the statements.
d. Full assurance on the statements.

26. In an engagement to perform agreed –upon procedures, an auditor is engaged to

a. Carry out those procedures of an audit to which the auditor and the entity and any appropriate
third parties have agreed and to report on factual findings.
b. Use accounting expertise as opposed to auditing expertise to collect, classify, and summarize
financial information.
c. Provide a moderate level of assurance that the information is free of material misstatement.
d. Provide a high, but not absolute level of assurance that the information is free of material
misstatement.

27. What best describes the word “assurance” in the context of the Philippine Standards on Auditing?
a. Auditor’s satisfaction as to the reliability of an assertion being made by one party for use by
another party.
b. Level of assurance which may be provided is determined by the reporting objective.
 c. Expressed positively in the report.
d. Assurance is of limited in nature.

28. The AASC considers the comments and suggestions received as a result of the exposure of Philippine
Standards and Practice Statements and revise the exposure draft when deemed appropriate. Such
exposure draft is then issued as a final Philippine Standards on Practice Statement after meeting the
approval of
a. A majority of the AASC members.
b. At least 10 members of the AASC.
c. At least 5 members of the AASC.
d. All the AASC members.

29. The exposure period allowed for each exposure draft of PSA to be considered by the organizations
and persons to whom it is sent for comment is generally
a. Four months c. Two months
b. Three months d. Six months

30. Governmental auditing, in addition to including audits of financial statements, often includes audits
of efficiency, effectiveness and
a. Adequacy. c.. Accuracy
b. Evaluation. d. Compliance

31. In “auditing” accounting data, the concern is with

a. Determining whether recorded information properly reflects the economic events that occurred
during the accounting period.
b. Determining if fraud occurred.
c. Determining if taxable income has been calculated correctly.
d. Analyzing the financial information to be sure that it complies with government requirements.

32. Although a CPA does not guarantee his findings, his opinion is nevertheless valuable to various third
parties. The value of the CPA’s opinion lies in the fact that
a. He has the qualifications required by law to be a CPA.
b. He is under the supervision of the Professional Regulatory Board of Accountancy.
c. He has gathered sufficient, competent, evidential matter to support his opinion.
d. He has followed generally accepted auditing standards.

33. Independent auditors of financial statements perform audits that reduce and control
a. The business risks faced by investors.
b. The information risk faced by investors.
c. The complexity of financial statements.
d. Quality reviews performed by other CPA firms.

34. The main way (s) to reduce information risk is to have

a. The users verify the information.
b. The users share the information risk with management.
c. Audited financial statements provided.
d. All of the above.
35. An audit conducted to determine whether an entity is following specific procedures or rules set down
by some higher authority.
a. Operational audit c. Financial audit
b. Compliance audit d. Detailed audit

36. Which of the following types of audits are most similar?

a. Operational audits and compliance audits.
b. Independent financial statement audits and operational audits.
c. Compliance audits and independent financial statement audits.
d. Internal audits and independent financial statement audits.
37. When the professional accountant has obtained sufficient appropriate evidence to be satisfied that
the subject matter is plausible in the circumstances, he or she can provide what level of assurance?
a. None
b. Moderate
c. High
d. Absolute

38. The objective of the attest function is to

a. Ascertain the consistent application of GAAP.
b. Determine the validity of the transactions examined.
c. Express an opinion on the fairness of the financial statements.
d. Detect fraud.

39. A concept relating to the accumulation of the audit evidence necessary for the auditor to conclude
that there are no material misstatement in the financial statements taken as whole is:
a. Reasonable assurance
b. Positive assurance
c. Moderate assurance
d. Negative assurance

40. 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:
a. Intended user.
b. Responsible party.
c. Management.
d. Client.