Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

MODULE 13

OTHER PROFESSIONAL SERVICES

PS preface, PSRE, PSRS, PSAE-BASED QUESTIONS

1. The primary standards for assurance engagement other than audits or reviews of historical financial
statements are the
A. Accounting and Review Services
B. Philippine Standard on Assurance Engagement
C. Generally Accepted Auditing Standards
D. Philippine Standards on Review Engagement

2. The objective of a review of financial statements is

A. To enable the auditor to express an opinion whether the financial statements are prepared, in all
material respects, in accordance with Philippine financial reporting standards
B. For the auditor to carry out procedures of an audit nature to which the auditor and the entity and any
appropriate third parties have agreed and to report on factual findings.
C. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify and
summarize financial information.
D. 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 auditor’s attention that causes the auditor
to believe that the financial statements are not prepared, in all material respects, in accordance with
Philippine financial reporting standards (negative assurance).

3. Performing inquiry and analytical procedures that provide the accountant with a reasonable basis for
expressing limited assurance that there are no material modifications that should be made to the financial
statements in order for them to be in conformity with PFRS or with other comprehensive basis of
accounting is the definition of
A. Compilation.
B. Audit
C. Review
D. Agreed-upon procedure.

4. Engagement letter or a review of financial statements least likely includes

A. The objective of the service being performed
B. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other irregularities,
for example, fraud or defalcations that may exist
C. A statement that an audit is not being performed and that an audit opinion will not be expressed
D. The fact that because of the test nature and other inherent limitations of an audit, together with the
inherent limitations of any accounting and internal control system, there is an unavoidable risk that
even some material misstatements may remain undiscovered.

5. Before performing a review of a non-public entity’s financial statements, an accountant should

A. Make inquiries of the management
B. Apply analytical review procedures to identify unusual fluctuations.
C. Obtain a sufficient level of knowledge about accounting principles and practices in the industry
wherein the entity operates.
D. Inquire as to whether the management has significantly omit disclosures in the financial statements.

6. In planning a review of financial statements, the auditor should obtain or update his knowledge of the
business. Which of the following is not one of this knowledge of the business?
A. Entity’s organization.
B. Nature of entity’s assets, liabilities, revenues and expenses
C. Accounting system
D. Internal control.

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7. Which of the following is not used as a basis by the auditor in determining the specific nature, timing and
extent of review procedures?
A. Assessed level of control risk
B. The extent to which a particular item is affected by management judgment
C. The materiality of transactions and account balances
D. Any knowledge acquired by carrying out a review of the financial statements of prior periods.

8. Which statement is incorrect regarding procedures and evidence obtained in a review engagement?
A. The auditor should apply his judgment in determining the specific nature, timing and extent of review
procedures
B. The auditor should apply the same materiality considerations as would have been applied had an audit
opinion on the financial statements been expressed.
C. There is a greater risk that misstatements will not be detected in an audit than in a review.
D. 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.

9. Which of the following is least likely done by the auditor in conducting a review of financial statements?
A. Study of the relationships of the elements of the financial statements
B. Comparison of the financial statements with those statements of prior periods
C. Comparison of the financial statements with anticipated results and financial position
D. Comparison of inventory listing with physical inventory count.

10. In a review of interim financial information of a publicly-held company, the CPA is expected to have an
understanding of all of the following except the:
A. Industry in which the client operates.
B. Client’s internal control structure.
C. Nature of the entity’s organization
D. Entity’s accounting practices.

11. Which of the following procedures is not included in a review of financial statements of a nonpublic entity?
A. Inquiries of management
B. Inquiries regarding events subsequent to the balance sheet date
C. Any procedures designed to identify relationships among data that appear to be unusual
D. Communicating any material weaknesses discovered during the study and evaluation of internal
accounting control.

12. Which of the following is general more important in a review than in a compilation?
A. Determining the accounting basis on which the financial statements are to be presented.
B. Gaining familiarity with the industry’s accounting principles and practices
C. Obtaining a signed engagement letter
D. Obtaining a singed representation letter.

13. Which of the following procedures is ordinarily performed by a CPA in a review engagement of a non-
public entity?
A. Analytical procedures designed to test the accounting records by obtaining corroborating evidential
matter
B. Inquiries concerning entity’s procedures for recording and summarizing transactions
C. Analytical review designed to evaluate the effectiveness of internal control
D. Inquiries of the entity’s legal counsel concerning contingent liabilities.

14. Which of the following should the auditor perform in a review engagement?
A. Understand matters that are relevant to the financial statements
B. Understand the entity’s internal control system
C. Observe the physical count of inventory
D. Inquire of legal counsel of pending litigations.

15. The review of unaudited financial statements consists of:

A. Internal control evaluation and management representation
B. Inquiry of management and documentation of internal controls
C. Analytical procedures and compliance with laws and regulations
D. Inquiry of management and analytical procedures.

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16. When performing a review of the financial statements of a non public entity the CPA should:
A. Obtain an understanding of internal control.
B. Inquire about actions taken at the meetings of stockholders and board of directors
C. Send letters of audit inquiry to attorneys.
D. Read the minutes of meetings of stockholder and board of directors

17. Which of the following is a major difference between a review and an audit of the financial statements:
A. The scope of the procedures performed and the assurance provided
B. The level of knowledge of professional standards needed to perform the procedures
C. The type of accounting used – reviews are typically on non PFRS accounting, while audits are based
upon PFRS accounting.
D. The type of company involved in reviews may only be publicly-held.

18. Which of the following is not included in the scope paragraph of a review report?
A. A statement that a review is limited primarily to inquiries and analytical procedures.
B. A reference to Philippine Standard on Auditing applicable to review management.
C. A statement that the review included an evaluation of reasonableness of accounting estimates made by
management.
D. A statement that an audit has not been performed.

19. Where do you find the following paragraph?

… 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 generally accepted accounting principles
in the Philippines.

A. Opinion paragraph of an auditor’s report

B. Opinion paragraph of a review report
C. Negative assurance paragraph
D. Scope paragraph of a review report

20. In a review engagement, if there has been a material scope limitation, the auditor should describe the
limitation in the review report and either
A. Express a qualification of the negative assurance or not issued any assurance
B. Express a qualification of the negative assurance provided or give an adverse statement that the
financial statements are not presented fairly.
C. Express an adverse statement that the financial statements are not presented fairly or the auditor does
not issue any assurance
D. Not modify the negative assurance or not issue an assurance.
21. An accountant’s standard report on a review of the financial statements of a nonpublic entity should state
that the accountant
A. Does not express an opinion or any form of limited assurance on the financial statements
B. Is not aware of any material modifications that should be made to the financial statements for them to
conform with PFRS
C. Obtained reasonable assurance about whether the financial statements are free of material
misstatement.
D. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements.

22. A review report states that

A. Review includes assessing the accounting principles used and significant estimates made by the
management
B. A review includes examining on a test-basis
C. The accountant is not aware of any material modifications that should be made to the financial
statements.
D. The accountant does not express an opinion or any other form of assurance.

23. The statement that the reviewer “is not aware of any material modification that should be made to the
financial statements in order for them to be in conformity with PFRS” is known as:
a. Reasonable assurance
b. Negligent performance

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 c. Negative assurance
d. Necessary ignorance.

24. The professional accountants issued the following statement in their report…, nothing came to our attention
that caused us to believe that the accompanying financial statements are not presented fairly…
What is the nature of the report?
A. Special report on financial statements prepared under comprehensive basis of accounting
B. Qualified audit report
C. Review report
D. Audit report with limited reporting objective

25. The objective of an agreed-upon-procedures engagement is for the auditor to:

A. Carry out procedures of an audit nature to which the auditor and the entity and any appropriate third
parties have agreed and to report on factual findings.
B. Carry out procedures of a review nature to which the auditor and the entity and any appropriate third
parties have agreed and to report on factual findings.
C. Carry out procedures of a review nature and to express limited assurance based on those agreed
procedures.
D. Carry out procedures of an audit nature and to express limited assurance.
26. According to PSRS, engagement to perform agreed-upon procedures, the procedures employed in doing
agreed-upon procedures are:
A. Designed to enable the accountant to express a limited assurance
B. Designed to enable the accountant to express negative assurance
C. Designed to enable the accountant to provide the identified user(s) factual findings
D. Less extensive than compilation procedures but more extensive than review procedures.

27. Rivera, CPA, has significant indirect financial interest on Mother Corporation. Mother Corporation
engaged Rivera to apply agreed-upon procedures on accounts receivable and thereafter submits a Report of
Factual Findings to Discount Finance. According to Philippine Standards on Auditing that applies to this
engagement, Rivera:
A. Should decline the engagement because of his lack of independence
B. Should convince Mother Corporation to change the engagement to compilation due to his lack of
independence
C. Can accept the engagement, issue the Report of Factual Finding and state in the report his lack of
independence
D. Perform agreed-upon procedures and withhold the findings due to his lack of independence.

28. Which of the following ethical principles governing the auditor’s professional responsibilities for agreed-
upon procedures engagement is not required of auditors?
A. Technical standards.
B. Confidentiality
C. Integrity
D. Independence

29. Which of the following is incorrect about agreed-upon procedures engagement?

A. An engagement to perform agreed-upon procedures may involve the auditor in performing certain
procedures concerning individual items of financial data.
B. Users of the agreed-upon procedures report assess for themselves the procedures and findings reported
by the auditor and draw their conclusion from the auditor’s work.
C. The auditor should be independent of the financial data or financial statements where agreed
procedures have to be applied.
D. The report is restricted to those parties that have agreed to the procedures to be performed.

30. Which statement is incorrect regarding agreed-upon procedures?

A. Users of the report asses for themselves the procedures and findings reported by the auditor and draw
their own conclusions from the auditor’s work.
B. 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 results.
C. The auditor should conduct an agreed-upon procedures engagement in accordance with PSA and the
terms of the engagement

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 D. Where the auditor is not independent, a statement to that effect need not be made in the report of
factual findings.

31. Matters to be agreed in an agreed-upon procedures engagement include the following, except:
A. Stated purpose of the engagement.
B. Limitations on distribution of the report of factual findings
C. Anticipated form of the report and the level of assurance to be provided.
D. Nature, timing and extent of the specific procedures to be applied.

32. The following procedures may be performed by CPAs in an engagement.

I. Consideration of internal control

II. Observation
III. Inquiry and analysis
IV. Inspection
V. Confirmation
VI. Obtaining management representation letter

Which of the foregoing may be performed by the auditor in an agreed-upon procedures engagement?

A. II and VI only
B. I, II and VI only
C. II, III, IV and V only
D. II, III, IV and VI only

33. The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-upon
procedures on the engagement in sufficient detail to enable the reader to understand the nature and extent of the
work performed. The report of factual findings should not contain:
a. addressee (ordinarily the client who engaged the auditor to perform the agreed-upon procedures)
b. identification of the purpose for which the agreed-upon procedures were performed
c. a description of the auditor’s factual findings including sufficient details of errors and exceptions found
d. a statement that the procedures performed constitute an audit and, as such, an opinion is expressed

34. A report for an agreed-upon procedures ordinarily includes:

a. Findings – Yes; Negative Assurance – Yes
b. Findings – Yes; Negative Assurance – No
c. Findings – No; Negative Assurance – Yes
d. Findings – No; Negative Assurance – No

35. Which of the following is for limited distribution?

a. Review Report
b. Compilation Report
c. Report of Factual Findings
d. Audit Report

36. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements
provided that:
a. distribution of the report is limited to the specified parties involved
b. the prospective financial statements are also examined
c. the responsibility for the adequacy of the procedures performed is taken by the accountant
d. negative assurance is expressed on the prospective financial statements taken as a whole

37. Distribution of a report is always restricted when:

a. negative assurance is given
b. there is a positive expression of opinion
c. agreed-upon procedures have been performed
d. a review has been performed

38. Which of the following would not be appropriate to a report on an engagement to apply agreed-upon procedures
to specified financial statement items
a. Indicate the intended distribution of the report
b. Provide an opinion on the specified elements, accounts, or items
c. Enumerate the procedures performed

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 d. State that the report relates only to the elements, accounts, or items specified

39. Which of the following is not appropriate for the accountant’s report on the results of applying agreed-upon
procedures to prospective financial statements?
a. Express an opinion on the results of applying the agreed-upon procedures
b. Indicate the prospective financial statements reported on
c. Specify that the use of the report is limited to certain user(s)
d. Indicate that the prospective results may not be achieved

40. The report on an agreed-upon procedures engagement needs to describe the purpose and the procedures that
have been agreed upon in sufficient details. The report should appropriately include the “title”
a. Report of Agreed-Upon Procedures
b. Report of Factual Findings
c. Report of agreed Procedures and Finding
d. CPA’s Report of Agreed-Upon Procedures

41. Compilation is an example of which one of the following types of services?

a. Auditing
b. Review
c. Consulting
d. Accounting

42. A CPA has been engaged to compile financial statements for a non-public client. Which of the following
statements best describes this engagement?
a. The CPA must perform the basic accepted auditing procedures necessary to determine that the statements
are in conformity with PFRS
b. The CPA is performing an accounting services rather than an examination of financial statements
c. The financial statements are representation of both management and the CPA
d. The CPA may prepare the statements from the books but may not assist in adjusting and closing the books

43. A CPA who is not independent may issue a

a. compilation report
b. compilation report and review report
c. comfort letter
d. report of any type

44. Which statement is incorrect regarding compilation engagement?

a. This ordinarily entails reducing detailed data to a manageable and understandable form without a
requirement to test the assertions underlying that information.
b. The procedures employed are designed to enable the accountant to express limited assurance on the
financial information.
c. Users of the compiled financial information derive some benefit as a result of the accountant’s involvement
because the service has been performed with professional competence and due care.
d. In all circumstances when an accountant’s name is associated with financial information compiled by the
accountant, the accountant should issue a report.

45. When compiling financial information, the accountant is ordinarily required to

a. obtain a general knowledge of the business and operations of the entity
b. make any inquiries of management to assess the reliability and completeness of the information provided
c. verify any matters
d. verify any explanations

46. Indicate whether the following procedures performed in an audit engagement are also required when performing
related services.
A B C D
 Agreeing on the terms of engagement Yes Yes Yes No
 Engagement planning Yes Yes Yes No
 Documentation Yes Yes No No
 Issuance of report Yes No No No

47. Which statement is incorrect regarding the procedures performed in a compilation agreement?
a. If the accountant becomes aware that information supplies by the management is incorrect, incomplete, or
otherwise unsatisfactory, the accountant should consider performing appropriate procedures and request the
management to provide additional information.

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 b. The accountant should read the compiled information and consider whether it appears to appropriate in
form and free form obvious material misstatements.
c. The Philippine Financial Reporting Standards and any known departures thereof should be disclosed within
the financial information, and their effects should be quantified.
d. The accountant should obtain an acknowledgement from the management of its responsibility for the
appropriate presentation of the financial information and of its approval of the financial information.

48. If the accountant becomes aware of material misstatements, the accountant should try to agree appropriate
amendments with the entity. If such amendments are not made and the financial information is considered to be
misleading, the accountant should:
a. do nothing
b. withdraw from the engagement
c. issue a qualified or adverse opinion
d. issue a negative assurance

49. In performing a compilation of financial statements, the accountant feels that a modification of the standard
report is not adequate to indicate deficiencies in the financial statements taken as a whole, and the client is not
willing to correct the deficiencies. The accountant should therefore
a. perform a review of the financial statements
b. issue a special report
c. withdraw from the engagement
d. express an adverse opinion

50. Reports on compilation engagements should certain the following, except:

a. a statement that the engagement was performed in accordance with the PSAs applicable to compilation
engagements
b. identification of the financial information indicating that it is based on information provided by the
management
c. a statement that the management is responsible for the financial information compiled by the accountant
d. a statement that the accountant does not express an opinion but expresses only a limited assurance on the
financial statements.

51. A compilation report should include all of the following except:

a. a statement that the compilation has been performed in accordance with the Philippine Standards on
Related Services applicable to compilation
b. a statement that the financial statements are the representation of the management
c. a statement that adequate disclosure has been made concerning accounting policy and practice
d. a statement that the financial statement have not been audited or reviewed

52. Which of the following statements should not be included in an accountant’s standard report based on the
compilation of client’s financial statements?
a. the compilation was performed in accordance with the applicable Philippine Standards on Related Services
b. the accountant has not audited or reviewed the financial statements
c. the accountant expresses only a limited assurance on the financial statements
d. the compilation is limited to representing in the form of financial statements, information that is the
representation of management

53. The level of assurance that is provided by the CPA on a compilation report is
a. high
b. low
c. moderate
d. none

54. An accountant’s compilation report should state that

a. a compilation includes assessing the accounting principles used and significant estimates made
b. a compilation is substantially less in scope than an adult
c. the accountant is not aware of any material modifications that should be made to the financial statements
d. the accountant does not express an opinion or any form of assurance on the financial statements

55. An accountant’s compilation report on a financial forecast should include a statement that the
a. compilation does not include an evaluation of the support of the assumptions underlying the forecast
b. hypothetical assumptions used in the forecast are reasonable
c. range of assumptions selected is one in which one end of the range is less likely to occur than the other

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 d. prospective statements are limited to presenting, in the form of a forecast, information that is the
accountant’s representation

56. 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. “Unaudited”
b. “Compiled without Audit or Review”
c. “Refer to Compilation Report”
d. Any of the given choices

57. Each page of the financial statements compiled by an accountant should include a reference such as
a. see accompanying accountant’s footnotes
b. unaudited, see accountant’s disclaimer
c. see accountant’s compilation report
d. subject to compilation restriction

58. In an engagement to examine prospective financial information, the auditor should obtain sufficient appropriate
evidence as to whether:
i. The management’s best-estimate assumptions on which the prospective financial information is
based are not reasonable and, in the case of hypothetical assumptions, they are consistent with the
purpose of the information.
ii. The prospective financial information is properly prepared on the basis of the assumptions.
iii. The prospective financial information is properly presented and all material assumptions are
adequately disclosed, including a clear indication as to whether they are best-estimate or
hypothetical assumptions.
iv. The prospective financial information is prepared on a consistent basis with historical financial
statements, using appropriate accounting principles.

a. i, ii, iii, and iv

b. i, ii, and iii
c. i and ii
d. i, ii, and iv

59. An examination of a financial forecast is a professional service that involves

a. compiling or assembling a financial forecast that is based on management assumptions
b. limiting the distribution of the accountant’s report to the management and the boards of directors
c. assuming a responsibility to update the management on key events for one year after the report’s date
d. evaluating the preparation of a financial forecast and the support underlying the management’s assumptions

60. Forecast means a

a. financial information based on assumptions about events that may occur in the future and possible actions
by an entity
b. prospective financial information prepared on the basis of assumptions as to future events which the
management expects to take place and the actions that the management is expected to take as of the date the
information is prepared (best-estimate assumptions)
c. prospective financial information prepared on the basis of hypothetical assumptions about future events and
management actions which are not necessarily expected to take place
d. prospective financial information prepared on the basis of a mixture of best-estimate and hypothetical
assumptions

61. What is meant by a financial forecast under Philippine Standard on Assurance Engagements?
a. a prospective financial statement that predicts an entity’s expected financial position, results of operations,
and cash flows
b. a prospective financial statement that is prepared on the basis of assumptions as to future events which the
management expects to take place and the actions that the management is expected to take as of the date the
information is prepared
c. a prospective financial statement that presents an entity’s expected financial position, results of operations,
and cash flows based on one or more hypothetical assumptions
d. a prospective financial statements that predicts an entity’s expected financial position, results of operations,
and cash flows based on one or more hypothetical assumptions

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62. Given one of 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 changes in the financial position. Such
prospective financial statements are most commonly known as
a. special purpose financial statements
b. financial projections
c. partial presentations
d. financial forecasts

63. 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 with information about future expectations
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. any of the given choices

64. When prospective financial statements are prepared, the “responsible party” is usually the
a. management
b. CPA who examines them
c. government entity that requires them
d. audit committee

65. Which statement is incorrect regarding the examination of prospective financial information?
a. The auditor should not accept or should withdraw from an engagement when the assumptions are clearly
unrealistic or when the auditor believes that the prospective financial information will be inappropriate for
its intended use
b. The auditor and the client should agree on the terms of the engagement
c. The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate whether all
significant assumptions required for the preparation of the prospective financial information have been
identified
d. The auditors need not obtain written representations from the management regarding the intended use of
the prospective financial information, the completeness of the significant management assumptions and the
management’s acceptance of its responsibility for the prospective financial information

66. Prospective financial statements are for

a. general use
b. limited use only
c. either general or limited use
d. use by internal management only

67. When an accountant issues an examination report on a financial forecast, the report ordinarily should
a. state that the forecast is presented in conformity with the generally accepted accounting principles in the
Philippines
b. provide an explanation of the differences between an examination and an audit
c. state that the accountant is responsible for events and circumstances not to exceed one year after the
report’s date
d. disclaim an opinion on whether the assumptions provide a reasonable basis for the projection

68. An auditor should not issue a report on

a. the achievability of forecasts
b. internal control
c. management performance
d. quarterly financial information

69. When the auditor believes that the presentation and disclosure of the prospective financial information is not
adequate, the auditor should
a. express a qualified or adverse opinion in the report on the prospective financial information
b. withdraw from the engagement
c. disclaim an opinion in the report on the prospective financial information
d. either modify the opinion or withdraw from the engagement

70. When an accountant examines a financial forecast that fails to disclose several significant assumptions used to
prepare the forecast, the accountant should describe the assumptions in the accountant’s report and issue a(n)
a. qualified in a negative assurance form of opinion
b. unqualified opinion with a separate explanatory paragraph

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 c. disclaimer of opinion
d. qualified or adverse opinion

71. Assurance services are independent professional services that improve the quality of information or its
a. context
b. profitability
c. reliability
d. sufficiency

72. When an accountant performs more than one level of service, he generally should issue a report that is
appropriate for
a. the lowest level of service rendered
b. a compilation engagement
c. the highest level of service rendered
d. a review engagement

1. An auditor who was engaged to perform an examination of the financial statements of a non-public entity has
been asked by the client to refrain from performing various audit procedures and changed the nature of the
engagement to a review of financial statements. The client made the request because of the significant cost of
completing the examination. The auditor would most likely
a. qualify the auditor’s report and refer to the scope limitation
b. view the request as an indication of possible irregularity
c. complete the examination in progress
d. grant the client request

2. The degree of certainty that the practitioner has attained and wishes to convey is a(n)
a. assertion
b. conveyance
c. assurance
d. declaration

3. A practitioner who is performing an assurance engagement may ordinarily report upon the subject matter or a(n)
a. assertion about the subject matter
b. control criterion
c. reliability statement
d. suitable criteria

4. Which of the following types of assurance engagement is similar to an assurance provided by an audit of
historical financial statements?
a. assessment
b. detailed review

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 c. evaluation
d. examination

5. Which of the following statements is true concerning interim financial information?

a. An audit of interim financial information is required for SEC registered companies
b. The accountant needs to obtain sufficient knowledge of the entity’s business and industry before
undertaking an engagement on interim financial information
c. An accountant may not report on financial information presented separately from the audited financial
statements
d. Interim financial information may not be included as part of a note to audited financial statements

6. What type of assurance is provided by an auditor when he issues a review report?

a. limited
b. neutral
c. none
d. positive

7. The circumstance most likely to make it impossible for a practitioner to issue a review report is when the
a. criteria are only available to specified users
b. subject matter contains a departure from the criteria
c. company faces a going concern uncertainty
d. scope of the engagement has been significantly limited

8. The objective of a review of interim financial information is to provide the CPA with a basis
a. expressing a limited opinion that the financial information is presented in conformity with generally
accepted accounting principles
b. expressing a compilation opinion on the financial statements
c. reporting whether material modifications should be made to such information to make it conform with
generally accepted accounting principles
d. reporting limited assurance to the board of directors only

9. Which of the following procedures is not appropriate to a review of interim financial information?
a. Confirm cash balances with all banks and depositories
b. Make inquiries concerning the accounting system and any significant changes in the internal control
structure
c. Perform analytical procedures to identify and provide a basis for inquiry about relationships and individual
items that appear unusual
d. Inquire about the actions taken on meetings of stockholders, the board of directors, and committees of the
board

10. In a review engagement, the independent accountant’s procedures include

a. examining bank reconciliation
b. confirming accounts receivable with debtors
c. reading the financial statements to consider whether they appear to conform to PFRS
d. obtaining a letter of audit inquiry from all legal counsels

11. Which of the following procedures is not normally performed by the accountant in a review engagement of a
non-public entity?
a. Communicating any material weaknesses discovered during the study and evaluation of internal accounting
control
b. Reading the financial statements to determine whether they are in conformity in PFRS
c. Writing an engagement letter to establish an understanding regarding the services to be performed
d. Issuing report stating that the review was performed

12. Performing inquiry and analytical review procedures is the primary basis for an accountant to issue
a. Compilation reports
b. Management advisory services report
c. Review report
d. Audit report

13. The use of negative assurance in an audit report on financial statements

a. is a violation of the standards of reporting
b. is encouraged by PSAs

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 c. helps in clarifying the degree of responsibility being assumed by the auditor
d. is property located in the opinion paragraph of the unqualified report

14. Claire, CPA, was engaged to review the financial statements of Emir Company, a non-public entity. Evidence
came to Claire’s attention that indicated a substantial doubt as to Emir’s ability to continue as a going concern. The
principal conditions and events that caused the substantial doubt have been fully disclosed in the notes to Emir’s
financial statements. Which of the following statements best describes Claire’s reporting responsibility concerning
this matter?
a. Claire is not required to modify the accountant’s review report
b. Claire is not permitted to modify the accountant’s review report
c. Claire should issue an accountant’s compilation report instead of a review report
d. Claire should express a qualified opinion in her review report

15. The objective of a review of the interim financial information of a public company is to
a. provide the accountant with a basis for expressing an opinion
b. estimate the accuracy of the financial statements based on limited tests of accounting records
c. provide the accountant with a basis for reporting to the board of directors or shareholders
d. obtain corroborating evidence through inspection, observation, and conformation

16. If requested to perform a review engagement for a non-public entity for which the accountant has immaterial
direct financial interest, the accountant is:
a. not independent and, therefore, may issue a review report but not an auditor’s opinion
b. not independent and therefore, may not issue a review report
c. not independent and, therefore, may not be associated with the financial statements
d. independent because the financial interest is immaterial

17. An accountant is requested to issue a review report on the balance sheet of a non-public entity but not on the
other basic financial statements. The accountant may not do so
a. because compliance to this request will result to an incomplete review
b. because compliance to this request is a violation of ethical standards
c. if the scope has been restricted
d. if the review discloses material departure from PFRS

18. When providing a limited assurance that the financial statements of a non-public entity requires no material
modifications in order to present them in accordance with PFRS, the accountant should
a. understand the system of accounting controls
b. test the accounting records that identify inconsistencies with the prior year’s financial statements
c. understand the accounting principles in the industry wherein the business entity operates
d. develop an audit program

19. The statement that “nothing came to our attention which would indicate that these statements are not fairly
presented” expresses which of the following?
a. Disclaimer of opinion
b. Negative assurance
c. Negative confirmation
d. Piecemeal opinion

20. Which of the following would not be included in a CPA’s report based upon a review of the financial
statements?
a. A statement that the review is in accordance with PSAs
b. A statement that all information included in the financial statements is the representation of management
c. A statement describing the principal procedures performed
d. A statement describing the auditor’s conclusions based on the results of the review

21. In a review service where the client failed to follow PFRS, the accountant is
a. not required to determine the effect of a departure if the management has not done so, but that fact must be
disclosed in the report
b. required to determine the effect of a departure if the management has not done so and that fact must be
disclosed in the report
c. not required to determine the effect of a departure if management has not done so and that fact need not be
disclosed in the report
d. required to determine the effect of a departure if management has not done so but that fact not be disclosed
in the report

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22. The objective of a review of interim financial information of a public entity is to provide an accountant with a
basis for reporting whether
a. material modification in the financial statements should be made to conform with PFRS
b. a reasonable basis exists for expressing an updated opinion regarding the financial statements that were
previously audited
c. condensed financial statements should be included in a registration statement
d. the financial statements are presented fairly in conformity with PFRS

23. An accountant who reviews the financial statements should issue a report stating that a review
a. is substantially less in scope than an audit
b. provides negative assurance that the internal control is functioning as designed
c. provides only a limited assurance that the financial statements are fairly presented
d. is substantially more in scope than a compilation

24. In a review engagement, if the CPA believes that the financial statements lack a material disclosure that the
management refuses to include, the CPA should
a. issue a qualified opinion
b. issue and adverse opinion
c. express only limited assurance
d. disclose this departure in a separate paragraph

25. Which of the following procedures would normally be included in the review engagements?
a. Preparing a bank transfer schedule
b. Inquiring about related party transactions
c. Assessing the internal control structure
d. Performing cut-off tests

26. Which of the following procedures is ordinarily performed by CPA in a review engagement of a non-public
entity?
a. Verify changes in key account balances
b. Read the minutes of board of directors’ meeting
c. Inspect the open purchase order file
d. Search for unrecorded liabilities

27. Before an independent CPA agrees to a change from an audit engagement to a review engagement, he should
consider the
I. Additional audit effort necessary to complete the engagement
II. Reason for the change in the terms of the engagement

a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No

28. If the CPA is not familiar with the specialized industry accounting principles but plans to obtain certain level of
knowledge, which of the following engagements may be accepted?
I. Compilation
II. Review
III. Review

a. I only
b. I and II only
c. All of them
d. None of them

29. An accountant should perform analytical procedures in an engagement to do

I. Audit
II. Review
III. Compilation

a. Yes, yes, yes

b. No, yes, no
c. Yes, yes, no
d. Yes, no, no

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30. Which of the following would not be included in a review engagement?
a. Obtaining a representation letter
b. Considering whether financial statements conform with PFRS
c. Assessing control risk
d. Inquiring about subsequent events

31. Which statement is incorrect regarding the general principles on a review engagement?
a. The auditor is not required to comply with the “Code of Professional Ethics for Certified Public
Accountants” promulgated by the Board of Accountancy.
b. The auditor should conduct a review in accordance with PSRE 2400.
c. The auditor should plan and perform the review with an attitude of professional scepticism, recognizing
that circumstances may exist that may cause the financial statements to be materially misstated.
d. For the purpose of expressing a negative assurance in the review report, the auditor should obtain sufficient
appropriate evidence primarily through inquiry and analytical procedures to be able to draw conclusions.

32. Which of the following is required to be performed in an audit but not in a review engagement?
a. Complying with the Code of Professional Ethics for Certified Public Accountants
b. Planning the engagement
c. Agreeing on the terms of engagement
d. Studying and evaluating internal control structure

33. An auditor’s report would be designated as a special report when it is issued in connection with which of the
following set of financial statements?
a. Financial statements for an interim period that are subjected to a limited review
b. Financial statements that are prepared in accordance with a comprehensive basis of accounting other than
PFRS
c. Financial statements that purport to be in accordance with PFRS but do not include a statement of cash
flows
d. Financial statements that are unaudited and are prepared from a client’s accounting records

34. A CPA’s report on applying agreed-upon procedures to prospective financial statements always includes a(n)
a. disclaimer of opinion
b. adverse opinion
c. restrictions on its distribution
d. unqualified opinion

35. Clients sometimes engage auditors to perform a specified set of procedures concerning an element of a financial
statement. This type of engagement is called
a. individual account engagement
b. agreed-upon procedures engagement
c. assurance service
d. compliance audit

36. A CPA is not required to comply with the “Code of Professional Ethics for Certified Public Accountants” when
performing a(n)
a. review
b. agreed-upon procedures
c. compilation
d. none of the choices given

37. An accountant’s compilation report should be dated as of the date of

a. completion of fieldwork
b. completion of the engagement
c. transmittal of the compilation report
d. the latest subsequent event referred to in the notes to the financial statements

38. Which of the following would not be considered an attestation engagement?

a. A compilation of financial statements
b. A letter to an underwriter
c. A report on the application of an accounting principle
d. A report on financial statements that are prepared on a comprehensive basis of accounting other than PFRS

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39. An accountant has asked to compile the financial statements of a non-public company that omit substantially all
the disclosures required by generally accepted accounting principles. The accountant may issue a compilation report
if
a. the report indicates the lack of disclosures
b. the absence of disclosures is not, to the CPA’s knowledge, intended to mislead the users of the financial
statements
c. the financial statements are intended primarily for management purposes only
d. all of the given conditions are met

40. You own Garter Inc., which manufactures wooden tables. You need to hire some accountants to prepare your
monthly financial statements. The preparation of your financial statement is referred to as a(n)
a. audit
b. compilation
c. review
d. special report

41. A compilation report is not required when compiled financial statements are expected to be used by
a. management only
b. management and third parties
c. third parties only
d. a compilation report is required whenever financial statements are compiled

42. Which of the following is not an assurance form of report?

a. compliance
b. compilation
c. examination
d. review

43. Which of the following procedures is normally performed in connection with a compilation engagement?
a. Making a risk assessment
b. Making inquiries of management concerning actions taken at the board meetings
c. Applying analytical review procedures
d. Reading the financial statements for obvious mistakes in the application of accounting principles

44. An accountant who is not independent may issue a

a. compilation report
b. review report
c. comfort letter
d. qualified opinion

45. When a CPA compiles a non-public entity’s financial statements that omit substantially all disclosures required
by PFRS, the CPA should indicate in the compilation report that the financial statements are
a. restricted for internal use only
b. not to be given to financial institutions for the purpose of obtaining credit
c. compiled in conformity with other comprehensive basis of accounting
d. not designed for those who are not informed of the omitted disclosures

46. When an independent CPA assists in preparing the financial statements of a publicity-held entity but has not
audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no
responsibility to apply any procedures beyond
a. documenting that the internal control is not being relied on
b. reading the financial statements for obvious material misstatements
c. ascertaining whether the financial statements are in conformity of PFRS
d. determining whether management has elected to omit substantially all the required disclosure

47. When reporting on financial statements prepared on a comprehensive basis of accounting other than generally
accepted accounting principles, the independent auditor should include in the report a paragraph that
a. states that the financial statements are not intended to be in conformity with generally accepted accounting
principles
b. states that the financial statements are not examined in accordance with generally accepted auditing
standards
c. refers to the authoritative pronouncements that explain the comprehensive basis of accounting being used
d. justifies the comprehensive basis of accounting being used

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48. Which of the following is not a type of special report?
a. A report for a company that uses the cash basis of accounting
b. A report on a financial presentation prepared in compliance with the terms of a debt agreement
c. A report for the board of directors on the company’s internal control
d. A report with an opinion on whether a company’s accounts receivable and cash flow PFRS

49. A comfort letter is typically sent to whom and for what reason?
a. Banks when a company is applying for a loan
b. The Board of Directors of a company on a report on internal control
c. The underwriters of a company’s securities to assist them in their reasonable investigation of a registration
statement
d. Company management indicating the types of procedures performed during the audit and general findings

50. Which statements is correct regarding report on a component of financial statements?

a. This type of engagement may be undertaken as a separate engagement or in conjunction with an audit of
the entity’s financial statements
b. In determining the scope of the engagement, the auditor need not consider those financial statement items
that are interrelated and which could materially affect the information on which the audit opinion is to be
expressed
c. The auditor’s examination will ordinarily be less extensive than if the same component were to be audited
in connection with a report on the entire financial statements
d. When an adverse opinion or disclaimer of opinion on the entire financial statements has been expressed, the
auditor may report on components of the financial statements even if those components are so extensive as
to constitute a major portion of the financial statements

51. Which statements in incorrect regarding report on compliance with contractual agreements?
a. The auditor must not be requested to report on an entity’s compliance with certain aspects of contractual
agreements, such as bond indentures or loan agreements
b. Engagements 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
c. 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
d. The report should state whether, in the auditor’s opinion, the entity has complied with the particular
provisions of the agreement

52. Which of the following statements is incorrect regarding report on summarized financial statements?
a. Unless the auditor has expressed an audit opinion on the financial statements from which the summarized
financial statements were derived, the auditor should not report on summarized financial statements
b. Summarized financial statements are presented in considerably less detail than annual audited financial
statements
c. Summarized financial statements need to be appropriately titled in order to identify the audited financial
statements form in which they have been derived
d. Summarized financial statements contain all the information required by the financial reporting framework
used for the annual audited financial statement

53. The auditor’s report on summarized financial statements least likely include
a. an identification of the audited financial statements from which the summarized financial statements were
derived
b. a reference to the date of the audit report on the general-purpose financial statements and the type of
opinion given in that report
c. an opinion as to whether the information in the summarized financial statements is presented fairly, in all
material respects
d. a statement which indicated that for a better understanding of an entity’s financial performance and position
and of the scope of the audit performed, the summarized financial statements should be read in conjunction
with the general-purpose financial statements and the audit report thereon

54. Which of the following best described the auditor’s responsibility for “other information” that is included in the
annual report to stockholders which contains financial statements and the auditor’s report?
a. The auditor has no obligation to read the “other information”
b. The auditor had no obligation to corroborate the “other information” but should read “other information” to
determine whether it is materially inconsistent with the financial statements

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 c. The auditor should extend the examination to the extent necessary to verify the “other information”
d. The auditor must modify the auditor’s report to state that the “other information” is not audited or “not
covered by the auditor’s report”

55. Comfort letters are ordinarily signed by the

a. independent auditor
b. client
c. client’s lawyer
d. internal auditor

56. An auditor has been engaged to audit a set of financial statements that were prepared on a cash basis. The auditor
a. must ascertain that there is a proper disclosure of the fact that the cash basis of accounting has been used,
the general nature of material items omitted, and the net effect of the omissions
b. may not be associated with statements that are not in accordance with PFRS
c. must render a qualified report explaining the departure from PFRS in the opinion paragraph
d. must restate the financial statements on an accrual basis and then issue the standard report

57. Which of the following statements concerning prospective financial statements is correct?
a. Only a financial forecast would normally be appropriate for limited use
b. Only a financial projection would normally be appropriate for general use
c. Any type of prospective financial statements would normally be appropriate for limited use
d. Any type of prospective financial statements would normally be appropriate for general use

58. Accepting an engagement to examine an entity’s financial projection most likely would be appropriate if the
projection were to be distributed to
a. all employees who work for the entity
b. potential stockholders who request a prospectus or a registration statement
c. a bank with which the entity is negotiating for a loan
d. all stockholders of record as of the report date

59. Which of the following services is not normally performed in connection with prospective financial statements?
a. examination
b. review
c. agreed-upon procedures
d. compilation

60. If a CPA has both compiled and reviewed the financial statements of a non-public entity the CPA should issue
a. a compilation report only
b. both a review and compilation report
c. a combination review and compilation report
d. a review report only

61. Which of the following represents the highest to lowest level of assurance or even no assurance provided by
auditors in the performance of the engagement?
a. An audit; a compilation; a review
b. A compilation; a review; an audit
c. A review; an audit; a compilation
d. An audit; a review; a compilation

62. Which statement is incorrect regarding special purpose audit engagements?

a. Before undertaking a special purpose audit engagement, the auditor should ensure that there is agreement
with the client as to the exact nature of the engagement and the form and content of the report to be issued
b. To avoid the possibility of the auditor’s report being used for purposes for which it was not intended, the
auditor may wish to indicate in the report the purpose for which the report is prepared and any restrictions
on its distribution and use
c. When requested to report in a prescribed format, the auditor should consider the substance and wording of
the prescribed report
d. The auditor need not consider whether any significant interpretations on an agreement on which the
financial information is based are clearly disclosed in the financial information

63. A comprehensive basis of accounting comprises a set of criteria used in preparing financial statements which
applies to all material items and which has substantial support. Other comprehensive financial reporting frameworks
may include the following, except
a. a conglomeration of accounting conventions devised to suit individual preference

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 b. that one used by an entity to prepare its income tax return
c. the cash receipts and disbursements basis of accounting
d. the financial reporting provisions of a government regulatory agency

64. The CPA is asked to audit financial statements prepared on a modified cash basis. This is acceptable provided
the CPA
a. converts the financial statement to an accrual basis before rendering an audit report
b. qualifies the audit opinion due to a departure from PFRS
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 PFRS

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