AUDITING THEORY

AT.3001-Assurance Engagements & R.C.P. SOLIMAN/K.J. UY

Other Services of a Practitioner MAY 2021

References:
a. Philippine Framework for Assurance Engagements
b. PSA 120, Framework of Philippine Standards on Auditing

DISCUSSION QUESTIONS
Ethical Principles and Quality Control Standards
Introduction
5.
1. Philippine Standards on Assurance Engagements
defines and describes the elements and objectives of an
assurance engagement.
Philippine Framework for Assurance Engagements
contain basic principles, essential procedures, and
related guidance, consistent with the concepts in the
Framework, for the performance of assurance
Definition and Objective of an Assurance Engagement
engagements.
a. Only Statement 1 is correct.
6.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
Services of a CPA in Public Practice
2. Which of the following is not an assurance service?
a. Audit of financial statements.
b. Review of interim financial information.
c. WebTrust engagement.
d. Preparation of financial statements.
7.
3. Which of the following professional services would be
considered an assurance engagement?
a. An engagement to install web-based accounting
system for a client.
b. Preparation of tax returns and attachments based
on information provided by the client.
c. Performance of agreed-upon procedures related to
application of the client with the SEC to increase its
authorized shares.
d. An engagement to report on compliance of a client
with a debt covenant.
Demand for Assurance Services
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
Assurance services are best described as
a. Independent professional services that improve the
quality of information, or its context, for decision
makers.
b. The assembly of financial statements based on
assumptions of a reasonable party.
c. Services designed to express an opinion on
historical financial statements based on the results
of an audit.
d. Services designed for the improvement of
operations, resulting in better outcomes.
Which of the following best describes the objective of
an assurance engagement?
a. To assist the company in improving the
effectiveness and efficiency of its operations.
b. To benchmark the company’s information with
companies that are considered leaders in their
industry.
c. To assist the company in compiling information
needed for the preparation of its financial
statements.
d. To enhance the credibility of information being
provided by one party to another in such a way that
the other party receiving the information will be
able to use it in making informed decisions.

4. Which of the following statements does not describe a Scope of the Framework
condition that creates a demand for auditing?
a. Conflict between the information preparer and the 8. The following engagements may meet the definition of
user can result in biased information. assurance engagement but are not covered by the
b. Information can have substantial economic Framework:
consequences for a decision maker. I. Engagements to testify in legal proceedings
c. Expertise is often required for information regarding accounting, auditing, taxation, or
preparation and verification. other matters.
d. Users can directly assess the quality of information. II. Engagements that include professional
opinions, views or wording from which a user

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may derive some assurance, but those 12. Which of the following items can be a subject matter of
opinions, views or wordings are incidental only
to overall engagement, a written report is
expressly restricted in use by specified users,
there is a written understanding with the users
that the engagement is not intended to be an
assurance engagement, and the engagement
is not represented as an assurance
13. When is a subject matter considered appropriate?
engagement in the report.
III. An assurance engagement which is part of a
larger consulting engagement.
a. I, II, and III
b. III only
c. I and II only
d. Neither I, II, nor III
Reports on Non-Assurance Engagements
9. A practitioner performed a non-assurance engagement
with a client. Which of the following statements are
allowed to be included in the report of the practitioner?
a. A statement saying that the practitioner complied
with the Framework for Assurance Engagements.
b. Use of words such as “assurance,” “audit” or
“review.”
c. A conclusion designed to enhance the degree of
confidence of intended users about the outcome of
the evaluation or measurement of a subject matter 15. When performing an assurance engagement, CPAs use
against criteria.
d. None of the above.
Engagement Acceptance
10. A proposed assurance engagement can only be
accepted when
I. The CPA’s preliminary knowledge about the 16. Which of the following statements refer to the
engagement circumstances indicates that relevant
ethical requirements will be satisfied.
II. The subject matter of the engagement is
appropriate, the criteria to be used are suitable
and are available to intended users, the
practitioner has access to sufficient appropriate
evidence to support the conclusion, and the
conclusion is to be contained in a written report.
III. There is a rational purpose for the engagement. a.
I, II, or III.
b. I and II only.
c. II and III only.
d. I, II, and III.
Elements of an Assurance Engagement
Three Party Relationship
11. Which of the following statements is incorrect regarding
the three-party relationship element of assurance
engagement?
a. The intended user is generally the addressee of the
professional accountant’s report.
b. The responsible party and the intended user will
often be from separate organizations.
c. The responsible party may also be one of the
intended users.
d. The practitioner is expected to perform audit
services only.
Subject Matter
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an assurance engagement?
a. Historical or prospective financial information.
b. Performance of a basketball team.
c. Enrollment system of a university.
d. All of the above.
a. Identifiable, and capable of consistent evaluation or
measurement against the identified criteria.
b. The information about it can be subjected to
procedures and for gathering of sufficient
appropriate evidence to support a conclusion.
c. Either a or b.
d. Both a and b.
14. In an assurance engagement, the outcome of the
evaluation or measurement of a subject matter against
criteria is called
a. Subject matter
b. Subject matter information
c. Assertion
d. Evidence
Criteria
standards or benchmarks to evaluate or measure the
subject matter of an assurance engagement. These are
referred to in the framework as a. Evidence
b. Subject Matter
c. Criteria
d. Conclusion
‘Relevance’ characteristic of suitable criteria for
assurance engagements?
a. Relevant factors that could affect the conclusions in
the context of the engagements are not omitted.
b. Allows reasonably consistent evaluation or
measurement of the subject matter including when
used in similar circumstances by similarly qualified
practitioners.
c. Contributes to conclusions that are free from bias.
d. Contributes to conclusions that assist decision-
making by the intended users.
17. Criteria that are embodied in laws, regulations, or
issued by authorized or recognized bodies of experts
that follow a transparent due process are called a.
Established criteria
b. Specifically developed criteria
c. Either a or b
d. Neither a nor b
18. Criteria may be made available to intended users to
allow them to understand how the subject matter has
been evaluated or measured.
Criteria may also be available only to specific intended
users, for example the terms of a contract, or criteria
issued by an industry association that are available only
to those in the industry.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
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c. Reasonable assurance engagement

Evidence d. Absolute assurance engagement

19. In determining the nature, timing and extent of 25. Which of the following is (are) characteristic(s) of a
evidence-gathering procedures, the CPA considers a. limited assurance engagement?
Materiality a. A reduction in assurance engagement risk to a level
b. Assurance engagement risk that is acceptable in the circumstances of the
c. The quantity and quality of available evidence engagement but where that risk is greater than for
d. All of the above a reasonable assurance engagement.
b. The assurance report includes description of the
20. Which of the following statements is incorrect? engagement circumstances, and a negative form of
a. The practitioner plans and performs an assurance expression of the conclusion.
engagement with an attitude of professional c. Sufficient appropriate evidence is obtained but in
skepticism recognizing that circumstances may which procedures are deliberately limited relative to
exist that cause the subject matter information to a reasonable assurance engagement.
be materially misstated. d. All of the above.
b. Assurance engagement risk is the risk that the
practitioner expresses an inappropriate conclusion
when the subject matter information is materially
misstated.
According to Structure
c. The assessment of materiality and the relative
importance of quantitative and qualitative factors in
26. In some assurance engagements, the evaluation or
a particular engagement are matters for the
measurement of the subject matter performed by the
practitioner’s judgement.
responsible party, and the subject matter information is
d. None of the above.
in the form of an assertion by the responsible party
that is made available to intended users. These
21. Which of the following is incorrect concerning evidence engagements are called
in an assurance engagement?
a. Direct reporting engagements
a. Sufficiency is the measure of the quantity of b. Assertion-based engagements
evidence.
c. Non-assurance engagements
b. Appropriateness or competence of evidence is the
d. Recurring engagements
measure of the quality of the evidence.
c. Sufficiency and appropriateness of evidence are
27. The following are characteristics of direct reporting
interrelated with each other.
assurance engagements, except
d. Obtaining more evidence may compensate for the
poor quality of evidence. a. The subject matter information is in the form of an
assertion by the responsible party that is made
available to the intended users.
Assurance Report
b. The subject matter information is provided to the
intended users in the assurance report.
22. Written assurance report is required for assurance
c. The practitioner either directly performs the
engagements.
evaluation or measurement of the subject matter or
obtains a representation from the responsible party
Written report encompass hard copy reports and those
that has performed the evaluation or measurement.
in electronic format.
d. The representation of the responsible party that has
a. Only Statement 1 is correct
performed the evaluation or measurement of the
b. Only Statement 2 is correct subject matter is not available to the intended
c. Both statements are correct users.
d. Both statements are incorrect
Limitations of Assurance Engagements
23. An unqualified conclusion is not appropriate when
a. Circumstances prevent the practitioner from 28. Which of the following is not a limitation of assurance
obtaining evidence required to reduce assurance services provided by professional accountants?
engagement risk to the appropriate level. a. The practitioner does not test all of the
b. The responsible party or the engaging party transactions.
imposes a restriction that prevents the practitioner b. The evidence available are persuasive rather than
from obtaining evidence required to reduce conclusive.
assurance engagement risk to the appropriate level. c. The practitioner does not possess the qualifications
c. Both a and b for some complex subject matters.
d. Neither a nor b d. The practitioner uses judgment in evaluating the
subject matter.
Types of Assurance Engagements
Non-Assurance Engagements
According to Level of Assurance
29. Engagements frequently performed by professional
24. What type of assurance engagement is involved when accountants that are not assurance engagements
the practitioner expresses a positive form of include the following, except a. Agreed upon procedures
conclusion? a. Limited assurance engagement b. Reasonable assurance engagement
b. Positive assurance engagement c. Management consulting

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d. Compilation of financial information

30. In an engagement to perform agreed-upon procedures,
an auditor is engaged to
a. Carry out those 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. 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.
- now do the DIY drill -
DO-IT-YOURSELF (DIY) DRILL
1. Which of the following services would be most likely to
be structured as an assurance engagement?
a. Advocating a client’s position in tax matters.
b. A consulting engagement to develop a new
database system for the revenue cycle.
c. An engagement to issue a report addressing an
entity’s compliance with requirements of specified 9.
laws.
d. The compilation of a client’s forecast information.
2. 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.
6. The conclusion of the practitioner with regard to the
fairness of the subject matter or subject matter
information in accordance with the criteria is contained
in
a. Subject matter information
b. Specifically developed criteria
c. Written assurance report
d. Management representation
7. What level of assurance is provided by the auditor in an
audit engagement? a. Absolute
b. High, but not absolute
c. Moderate
d. No assurance
8. In a direct reporting engagement, the responsible party
is responsible for
a. The subject matter only.
b. The subject matter information only.
c. Both subject matter and subject matter
information.
d. Subject matter information and may also be
responsible to subject matter.
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 use of judgment in gathering and evaluating
evidence and forming conclusions based on that
evidence.
d. The practitioner may not have the required
assurance and knowledge and skills to gather an
evaluate evidence.

3. The subject matter of an assurance engagement may 10. Indicate the level of assurance provided by audit,
take many forms, including review and related services
a. b. c. d. a. b. c. d.
Audit Reasonable Reasonable Limited Absolute
Nonfinancial performance
Review Reasonable Limited Limited Reasonable
or condition Yes Yes Yes No Agreed upon
Behavior Yes Yes Yes Yes
Financial performance or procedures None None None Limited
condition Yes Yes No Yes Compilation None None None None
Physical characteristics Yes No No No
Systems and processes Yes No Yes Yes - end of AT.3001 -

4. The characteristics for determining whether criteria are

suitable include
a. b. c. d.
Relevance Yes Yes Yes Yes
Reliability Yes Yes Yes Yes
Completeness Yes Yes No Yes
Neutrality Yes No No Yes
Comparability Yes Yes No No
Understandability Yes No No Yes

5. What criteria contributes to conclusions that are clear,

comprehensive, and not subject to significantly
different interpretations. a. Relevance
b. Completeness
c. Reliability
d. Understandability

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