OVERVIEW OF AUDIT AND ENGAGEMENT STANDARDS

QUESTIONS

1. The single feature that most clearly distinguishes auditing, attestation, and assurance is

a. Type of service c. Scope of services

b. Training required to perform the service d. CPA’s approach to the service

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

a. Detect fraud

b. Examine individual transactions so that the auditor may certify as to their validity

c. Determine whether the client's assertions are fairly stated

d. Assure the consistent application of correct accounting procedures

3. An attestation engagement

a. Has as its primary source of standards the assurance standards

b. Includes a report on subject matter, or on an assertion about subject matter

c. Includes search and verification procedures for all major accounts

d. Is ordinarily an examination, review or compilation engagement

4. 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

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

Subject matter Criteria Subject matter Criteria

a. Yes No c. Yes Yes

b. No Yes d. No No
6. The primary reason for a financial statement audit by an external audit firm is

a. To satisfy governmental regulatory requirements

b. To guarantee that there are no misstatements in the financial statements

c. To provide increased assurance to users as to the fairness of the financial statements

d. To ensure that any fraud will be discovered

7. An audit of the financial statements is being conducted by an external auditor. The external auditor is

expected to

a. Express an opinion as to the fairness of the financial statements

b. Express an opinion as to the fairness for investment purposes

c. Certify the correctness of the financial statements

d. Examine all evidence supporting the financial statements

8. A financial statement audit aids in the communication of economic data because the audit

a. Assures the readers of financial statements that any fraudulent activity has been corrected

b. Guarantees that financial data are fairly presented

c. Lends credibility to the financial statements

d. Confirms the accuracy of management’s financial representations

9. The overall objectives of the auditor in conducting an audit of financial statements are

I. To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether caused by fraud or error

II. To report on the financial statements

III. To obtain conclusive rather than persuasive evidence

IV. To detect all misstatements, whether due to fraud or error

a. I and II only c. I, II and III only

b. II and IV only d. I, II, III and IV

10. Which of the following best describes the reason why an independent auditor reports on financial

statements?

a. A management fraud may exist, and it is more likely to be detected by independent auditors

b. Different interests may exist between the company preparing the statements and the persons
using the statements

c. A misstatement of account balances may exist and is generally corrected as the result of the

independent auditor’s work

d. A poorly designed internal control system may be in existence

11. An audit of financial statements is conducted to determine if the

a. Organization is operating efficiently and effectively

b. Auditee is following specific procedures or rules set down by some higher authority

c. Overall financial statements are stated in accordance with the applicable financial reporting

framework

d. Client’s internal control is functioning as intended

12. The auditor's judgment concerning the overall fairness of the presentation of financial position,
results of operations, and changes in financial position is applied within the framework of

a. Generally accepted accounting principles c. Internal control

b. Generally accepted auditing standards d. Information systems control

13. The criteria for evaluating quantitative information vary. For example, in the case of an independent
audit of financial statements by CPA firms, the criteria are usually the

a. PFRS or PFRS for SMEs c. National Internal Revenue Code

b. Philippine Standards on Auditing (PSA) d. Regulations of the Securities and Exchange

Commission

14. Broadly defined, the subject matter of any audit consists of

a. Financial statements c. Financial Statement Assertions

b. Economic data d. Operating data

15. Which of the following best describes what is meant by generally accepted auditing standards?

a. Acts to be performed by the auditors

b. Measures of the quality of the auditors' performance

 c. Procedures to be used to gather evidence to support financial statements

d. Audit objectives generally determined on audit engagements

16. The procedures deemed necessary in the circumstances to achieve the objective of the audit shall be

determined by the

a. Client management c. Internal auditor

b. Independent auditor d. Those charged with governance

17. Which of the following professionals has primary responsibility for the performance of an audit?

a. The managing partner of the firm c. The manager assigned to the engagement

b. The senior assigned to the engagement d. The partner in charge of the engagement

18. Which of the following has the primary responsibility for the fairness of the representations made in
the financial statements?

a. Client’s management c. Independent auditor

b. Audit committee d. Board of Accountancy

19. 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

20. What level of assurance is provided by the auditor in an audit engagement?

a. Absolute c. Moderate

b. High, but not absolute d. No assurance

21. The review of a company's financial statements by a CPA firm

a. Is substantially less in scope of procedures than an audit

b. Requires detailed analysis of the major accounts

c. Is of similar scope as an audit and adds similar credibility to the statements.

d. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the
statements.

22. Inquiries and analytical procedures ordinarily form the basis for which type of engagement?

a. Agreed-upon procedures c. Examination

b. Audit d. Review
23. What level of assurance is provided by the practitioner in a review engagement?

a. No assurance c. Reasonable

b. High, but not absolute d. Moderate

24. Which of the following describes how the objective of a review of financial statements differs from
the objective of a compilation engagement?

a. The primary objective of a review engagement is to test the completeness of the financial
statements prepared, but a compilation tests for reasonableness

b. The primary objective of a review engagement is to provide positive assurance that the
financial statements are fairly presented, but a compilation provides no such assurance

c. In a review engagement, accountants provide limited assurance, but a compilation expresses

no assurance

d. In a review engagement, accountants provide reasonable or positive assurance that the

financial statements are fairly presented, but a compilation provides limited assurance

25. 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 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

26. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial

statements provided that

a. Use of the report is restricted to the specified parties

b. The prospective financial statements are also examined and audited

c. 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

27. Mr. Cool, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to

financial data supplied by X Co. regarding X's written assertion about its compliance with contractual

requirements to pay royalties. Mr. Cool’s report on these agreed-upon procedures should contain a (an)

a. Disclaimer of opinion about the fair presentation of X's financial statements

b. List of the procedures performed (or reference thereto) and Mr. Cool’s findings

c. Opinion about the effectiveness of X’s internal control activities concerning royalty payments

d. Acknowledgment that the sufficiency of the procedures is solely Mr. Cool’s responsibility

28. An engagement to perform agreed-upon procedures may involve the auditor in performing certain

procedures concerning

I. Individual items of financial data

II. A single financial statement

III. A complete set of financial statements

a. I and II only c. I and III only

b. II and III only d. I, II and III

29. What assurance is provided by the auditor in an agreed-upon procedures engagement?

a. Reasonable c. Moderate

b. Absolute d. No assurance

30. A summary of findings rather than assurance is most likely to be included in a(n)

a. Agreed-upon procedures report c. Examination report

b. Compilation report d. Review report

31. When compiling the financial statements of a client, an accountant should

a. Review agreements with financial institutions for restrictions on cash balances

b. Understand the accounting principles and practices of the entity's industry

c. Inquire of key personnel concerning related parties and subsequent events

d. Perform ratio analyses of the financial data of comparable prior periods

32. When performing a compilation engagement, the accountant is required to

a. Assess internal controls

b. Make inquiries of management to assess the reliability and completeness of the information
provided

c. Verify matters and explanations

d. Obtain a general knowledge of the business and operations of the entity

33. Which of the following statements concerning compilation engagement is incorrect?

a. In a compilation engagement, the accountant is engaged to use accounting expertise as

opposed

to auditing expertise to collect, classify and summarize financial information

b. The procedures employed in a compilation engagement enable the accountant to express a

moderate level of assurance on the compiled 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 due professional skill and care

d. A compilation engagement ordinarily entails reducing detailed data to a manageable and

understandable form without a requirement to test the assertions underlying that information

34. Which of the following procedures is ordinarily performed by an accountant in a compilation

engagement?

a. Reading the financial statements to consider whether they are free of obvious mistakes in the
application of accounting principles

b. Obtaining written representations from management indicating that the compiled financial
statements will not be used to obtain credit

c. Making inquiries of management concerning actions taken at meetings of the stockholders

and the board of directors

d. Applying analytical procedures designed to corroborate management's assertions that are

embodied in the financial statement components

35. Which of the following statements concerning consulting services is false?

a. The performance of consulting services for audit clients does not, in and of itself, impair the
auditor’s independence

b. Consulting services differ fundamentally from the CPA’s function of attesting to the assertions
of other parties

c. Consulting services ordinarily involves external reporting

 d. Most CPAs, including those who provide audit and tax services, also provide consulting
services to their clients

36. An attitude that includes a questioning mind and a critical assessment of audit evidence is referred to
as

a. Due professional care c. Reasonable assurance

b. Professional skepticism d. Supervision

37. Professional skepticism requires that an auditor assume that management is

a. Honest, in the absence of fraud risk factors c. Neither honest nor dishonest

b. Dishonest until completion of audit tests d. Offering a reasonable assurance of honesty

38. Which of the following is one of the limitations of an audit?

a. The possibility that management may prevent the auditor from performing the necessary
audit procedures

b. The likelihood that the auditor may not be able to detect material misstatements in the
financial statements because the auditor is engaged only after the client’s year-end

c. The fact that most audit evidence is persuasive rather than conclusive in nature

d. The risk that the auditor may not possess the training and proficiency required by the
engagement

39. Which of the following is not one of the limitations of an audit

a. The use of testing c. Human error

b. Limitations imposed by client d. Nature of evidence that the auditor obtains

40. The auditor communicates the results of his or her work through the medium of the

a. Engagement letter c. Audit report

b. Management letter d. Financial statements

41. Which of the following types of services is generally provided only by CPA firms?

a. Tax audits c. Compliance audits

b. Financial statement audits d. Operational audits

42. Operational auditing is primarily oriented toward

a. Future operational improvements to accomplish the goals of management

b. The accuracy of data reflected in management's financial records

c. The verification that a company's financial statements are fairly presented

 d. Past protection provided by existing internal control

43. A typical objective of an operational audit is for the auditor to

a. Determine whether the financial statements fairly present the entity's operations

b. Evaluate the feasibility of attaining the entity's operational objectives

c. Make recommendations for improving performance

d. Report on the entity's relative success in attaining profit maximization

44. Governmental auditing often extends beyond examinations leading to the expression of opinion on
the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also

a. Accuracy c. Compliance

b. Evaluation d. Internal control