Chapter 1

An Introduction to Assurance, Auditing, and Related Services

A. ASSURANCE SERVICES

1. Which of the following statements best describes 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 an audit.
C. The preparation of financial statements or 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 statements
C. Review of financial statements
D. Compilation of 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 a client.
B. An engagement to report on compliance with statutory requirements.
C. An income tax engagement to prepare tax returns.
D. A compilation of financial statements from a client’s accounting records.

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

A. Improve the company’s outcomes.
B. Compare the company’s information and policies with those of the other entities.
C. Enhance the credibility of information will meet the needs of an intended user.
D. Assist in preparing the company’s financial statements.

5. 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 C. Both I and II
B. II only D. Neither I nor II

6. How many separate parties are involved in an assurance engagement?

A. 2 C. 4
B. 3 D. 5

7. An assurance engagement should have which of the following elements?

Subject matter Criteria
A. Yes No
B. No Yes
C. Yes Yes
D. No No

8. The Philippine Framework for Assurance Engagements

A. Contains basic principles, essential procedures, and related guidance for the performance of assurance
engagements.
 B. Define and describes the elements and objectives of an assurance engagement, and identifies
engagements to which PSAs, and PSAEs apply.
C. Provides a frame of reference for CPAs in public practice when performing audits, reviews, and
compilations of historical financial information.
D. Establishes standards and provides procedural requirements for the performance of assurance
engagements.

9. CPAs in public practice who perform assurance engagements are governed by the following, except
A. Philippine Framework for Assurance Engagements
B. Code of Ethics for Professional Accountants in the Philippines
C. Philippine Standards on Related Services
D. Philippine Standards on Quality Control

10. In an assurance engagement, the responsible party and the intended users
A. Should be from different entities.
B. Should be from the same entity.
C. May be from the same entity or different entities.
D. Are both responsible for determining the nature, timing and extent of the procedures to be performed.

11. The subject matter of an assurance engagement may include

Financial Internal Compliance
Information Controls with Regulation
A. Yes Yes Yes
B. No No No
C. Yes No Yes
D. No Yes No

12. For assurance engagements regarding historical financial information, reasonable assurance engagements
are called
A. Audits C. Compilations
B. Reviews D. Examinations

13. When performing an assurance service, professional accountants use standards or benchmarks to evaluate
or measure the subject matter of an assurance engagement. These are referred to in the Framework as
A. Criteria C. Conditions
B. Norms D. Gauges

14. The criteria against which the subject matter of the assurance engagement is to be evaluated or measured
should possess which of the following characteristics?
Relevant Concise Neutral
A. Yes No Yes
B. No Yes No
C. Yes No No
D. No Yes Yes

15. Relevant criteria contribute to conclusions that are

A. Free from bias.
B. Clear and comprehensive.
C. Subject to different interpretations.
D. Useful for decision making.
16. Criteria that are embodied in laws or 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. Specifically developed criteria
D. General criteria

17. In an assurance engagement, the person or persons, either as individuals or representatives of an entity,
responsible for the subject matter is the
A. Intended user
B. Responsible party
C. Professional accountant
D. Client

18. 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

19. 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

20. In some assurance engagements, the evaluation or measurement of the subject matter is performed by the
responsible party, and the subject matter information is in the form of an assertion by the responsible party
that is made available to intended users. These engagements are called
A. Direct reporting engagements
B. Assertion-based engagements
C. Non-assurance engagements
D. Recurring engagements

21. The following are characteristics of “direct reporting” assurance engagements, except
A. The subject matter information is in the form of an assertion by the responsible party that is made
available to the intended users.
B. The subject matter information is provided to the intended users in the assurance report.
C. The practitioner either directly performs the evaluation or measurement of the subject matter or
obtains a representation from the responsible party that has performed the evaluation or
measurement.
D. The representation of the responsible party that has performed the evaluation or measurement of the
subject matter is not available to the intended users.

22. 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
D. Absolute assurance engagement
23. What type of assurance engagement is involved when the practitioner expresses a negative form of
conclusion?
A. Reasonable assurance engagement
B. Negative assurance engagement
C. Assertion-based assurance engagement
D. Limited assurance engagement

24. 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. Limited assurance engagement
B. Reasonable assurance engagement
C. Negative assurance engagement
D. Positive assurance engagement

25. In assertion-based assurance engagements, the evaluation or measurement of the subject matter against
criteria is performed by the
A. Intended users C. Practitioner
B. Responsible party D. AASC

26. The following statements relate to the three parties involved in an assurance engagement. Which is correct?
A. The responsible party and the intended users should be from different entities.
B. A practitioner should decline a proposed assurance engagement when the subject matter requires
specialized skills and knowledge beyond those ordinarily possessed by the practitioner.
C. A responsible part is the person who is responsible for the subject matter or the subject matter
information.
D. The responsible party, not the intended users, determines the nature of the procedures to be
performed.

27. 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

28. 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.

29. Which of the following statements is true concerning evidence in an assurance engagement?
A. Sufficiency is the measure of the quantity of evidence.
B. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.
 C. The reliability of evidence is influenced not by its nature by its source.
D. Obtaining more evidence may compensate for its poor quality.

30. 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.

31. The following are components of assurance engagement risk, except

A. Inherent risk C. Detection risk
B. Control risk D. Business risk

32. An unqualified conclusion is not appropriate for either reasonable or limited assurance engagement when
A. Circumstances prevent the practitioner from obtaining evidence required to reduce assurance
engagement risk to the appropriate level.
B. The responsible party or the engaging party imposes a restriction that prevents the practitioner from
obtaining evidence required to reduce assurance engagement risk to the appropriate level.
C. Both A and B.
D. Neither A nor B.
33. The following statements relate to the performance of an assurance engagement other than an audit or
review of historical financial information covered by PSAs and PSREs. Which is incorrect?
A. Those persons who are to perform the engagement should collectively possess the necessary
professional competence.
B. The practitioner is precluded from using the work of persons from other professional disciplines.
C. The practitioner should consider materiality and assurance engagement risk when planning and
performing an assurance engagement.
D. The assurance report should be in writing and should contain a clear expression of the practitioner’s
conclusion about the subject matter information.

34. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the
following factors, except
A. The use of selective testing.
B. The fact that much of the evidence available to the practitioner is persuasive rather than conclusive.
C. The practitioner may not have the required assurance knowledge and skills to gather and evaluate
evidence.
D. The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence.

35. After accepting an assurance engagement, a practitioner is not allowed to change the engagement to a non-
assurance engagement, or from a reasonable assurance engagement to a limited assurance engagement,
except when there is a reasonable justification for the change. Which of the following ordinarily will justify a
request for a change in the engagement?
I. A change in circumstances that affects the intended user’s requirements.
II. A misunderstanding concerning the nature of the engagement.
A. I only C. Both I and II
B. II only D. Neither I nor II
B. AUDITING AND RELATED SERVICES

36. Which of the following standards are to be applied, as appropriate, in the audit of historical financial
information?
A. PSREs C. PSRSs
B. PSAEs D. PSAs

37. Which of the following standards are to be applied to compilation engagements, engagements to apply
agreed-upon procedures to information, and other related services engagements as specified by the AASC?
A. PSRSs C. PSAEs
B. PSAs D. PSREs

38. The Philippine Standards on Review Engagements (PSREs) are to be applied in

A. The audit of historical financial information.
B. Assurance engagements dealing with subject matters other than historical financial information.
C. The review of historical financial information.
D. The review of both historical and prospective financial information.