AT-01 (Fundamentals of

Auditing & Assurance Services)

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Last Review Date @April 16, 2024

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https://aasc.org.ph/

AT-01 (Fundamentals of Auditing & Assurance Services) 1

 FUNDAMENTALS OF AUDITING & ASSURANCE SERVICES

Old Presumption: Auditing of Historical FS only (One of many engagements you

can do)

ASSURANCE = Independence (All Elements NON-ASSURANCE (If not all five (5)
of Assurance Engagement are PRESENT) elements are present)

Audit of FS - Philippine Standards on Compilation - Philippine Standards on

Auditing (PSAs) Related Services (PSRSs)

Review of FS - Philippine Standards on Advisory (Consulting) - Philippine Standards

Review Engagements (PSREs) on Related Services (PSRSs)

Audit of Non-FS (Others) - Philippine

Tax-related Services - Philippine Standards
Standards on Assurance Engagements
on Related Services (PSRSs)
(PSAEs)

Review of Non-FS (Others) - Philippine

Standards on Assurance Engagements
(PSAEs)

Philippine Framework for Assurance Engagements

Defines and describes the elements and objectives of assurance

engagements and the various work performed by practitioners under the
Auditing and Assurance Standards Council’s (AASC) engagement standards
except those under the PSRS.

Guidance to identify if the engagement is Assurance or Non-Assurance

Elements of an assurance engagement:

(a) A three-party relationship

Practitioner (Auditor)

Responsible Party (Client)

Intended Users (Public)

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 (b) An appropriate subject matter - assertion [FS: Statement of Profit and Loss,
Statement of Changes in Equity, Statement of Financial Position, Statement of
Cash Flows, Notes]

Subject Matter (General), Subject Matter Information (Specific)

Can be financial or non-financial

(c) Suitable criteria; [RUNCR] - PFRS

Relevant

Understandable

Neutral

Complete

Reliable

(d) Sufficient appropriate evidence; (Quantity + Quality) ⇒ (S + A = Persuasive)

[Risk Assessment Procedures (RAP), Further Audit Procedures (FAP),

Completing Audit Procedures (CAP)]

Assurance Engagement Risk = Inherent Risk x Control Risk x Detection Risk

Risk of Material Misstatement = IC x CR

AR = RMM x DR

To reduce the engagement risk:

A. Professional Skepticism

B. Sufficient & Appropriate Evidence

C. The practitioner shall consider the materiality and nature, timing, and
extent (NTE) of Evidence-Gathering Procedures

Materiality is being determined by the PRACTITIONER

(e) A written assurance report (WAR)

Hardcopy or Digital

Independent Auditor’s Report

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 Types of Assurance Engagement:
a. reasonable assurance engagement
b. limited assurance engagement

Moderate
No Assurance High Assurance Absolute
Assurance

Types of Limited Reasonable

Non-Assurance
Assurance Assurance Assurance N/A
Services
Engagement Engagement Engagement

Example of
Compilation Review of FS Audit of FS NONE
Engagement

Engagement acceptance:
A practitioner accepts an assurance engagement only where the practitioner’s
preliminary knowledge of the engagement circumstances indicates that:
(a) relevant ethical requirements will be satisfied (Code of Ethics), and
(b) the elements of assurance engagements are present (5/5)
(c ) the preconditions to audit exist

A practitioner may not change that engagement to a non-assurance

engagement, or from a reasonable assurance engagement to a limited
assurance engagement without reasonable justification

Can convert from assurance to non-assurance ONLY WHEN there is a

reasonable justification

In relation to evidence and assurance reports:

Nature of Agreed Upon

Audit Review Compilation
Service Procedures

High assurance
Level of Moderate
(but not No assurance No assurance
Assurance Assurance
absolute)

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 Nature of Agreed Upon
Audit Review Compilation
Service Procedures

Positive Negative Factual findings Identification of

Report
assurance on assurance on of procedures information
Provided
assertion(s) assertion(s) (Restricted) compiled

As agreed upon
Evidence –
Theoretical (by the parties
gathering ARPS, inquiry -
unlimited to the
procedures
engagement)

Skill
Auditing Auditing Auditing Accounting
set/Expertise

Bookkeeping:

1. Analyzing source documents

2. Recording (Journalizing)

3. Classifying (Posting)

4. Preparing Trial Balance

Accounting:

5. Adjustments [Accruals, Deferrals, Estimates]

6. Preparing Adjusted TB

7. Preparing FS

Auditing:

8. Independent Auditor’s Report on FS

✨ TAKEAWAY ✨
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 You must understand the difference between Assurance and Non-Assurance
Services

QUESTIONS:

1. The framework for assurance engagements identifies engagement to which

the following standards apply, except,
A. Philippine Standards on Auditing (PSAs) - Assurance
B. Philippine Standards on Review Engagements (PSREs) - Assurance
C. Philippine Standards on Assurance Engagements (PSAEs) - Assurance

D. Philippine Standards on Related Services (PSRSs)

2. Which is correct concerning the framework for assurance engagements?

A. It provides a frame of reference against which audit engagements are
evaluated - False; PSA
B. It establishes specific guidelines and procedural requirements for the
performance of assurance engagements - False; PS

C. It provides a frame of reference for accountants in public practice when

performing assurance engagements - True
D. It is intended for reference of public accountants only - False; Restrictive

3. Evaluate the following statements:

I. Assurance services help information users make decisions based on more
credible information. - T
II. Assurance services can enhance the usefulness of information. - T

A. Both are true

B. True, false

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 C. Both are false
D. False, true

4. Evaluate the following statements:

I. Philippine Standards on Related Services is applicable to non-assurance
services. - T
II. Non-assurance services lack one or more element(s) of an assurance
engagement. - T

A. Both are true

B. True, false
C. Both are false
D. False, true

5. Evaluate the following statements:

I. Audit engagements are non-assurance services. - F
II. Review engagements are non-assurance services. - F
A. Both are true
B. True, false

C. Both are false

D. False, true

6. Which is an engagement in which a practitioner expresses a conclusion

designed to enhance the degree of confidence of the intended users other
than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria?

A. Assurance engagement
B. Audit engagement - Auditor
C. Attestation engagement
D. Management consulting engagement

7. Evaluate the following statements:

I. The preparation of tax returns where no conclusion conveying assurance is
expressed is non-assurance services. - T
II. Consulting engagements are assurance services. - F
A. Both are true

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 B. True, false
C. Both are false
D. False, true

8. Identify which is an element of an assurance engagement:

I. Sufficient and appropriate evidence - T
II. Professional fees - F
A. Both
B. Neither

C. I only
D. II only

9. Classify the following parties relevant to an assurance engagement:

• Management of an audit client
• Auditor
A. Both are responsible parties
B. Both are intended users

C. Responsible party, practitioner

D. Intended user, practitioner

10. Classify the following potential subject matters in an assurance engagement:

• Cash flows of an entity - Financial
• Effectiveness of an online payment system - Systems and Processes
A. Both are financial
B. Both are systems and processes

C. Financial, systems and processes

D. Systems and processes, financial

11. Classify the following statements:

• Zero customer complaints and product recall. - SMI
• Performance of an entity - SM
A. Both are subject matters (SM)
B. Both are subject matter information (SMI)
C. SM, SMI

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 D. SMI, SM

12. Classify the following statements:

• Adherence to SEC regulations - SM
• Report on an entity’s observance of the SEC regulations - SMI
A. Both are subject matters (SM)
B. Both are subject matter information (SMI)

C. SM, SMI
D. SMI, SM

13. Evaluate the following statements:

•
Evidential matters are benchmarks used to evaluate or measure the subject
matter including, where relevant, benchmarks for presentation and disclosure.
-F
•
Criteria refer to the information obtained by the practitioner in arriving at the
conclusions on which the conclusion is based. - F
A. Both are true
B. True, false

C. Both are false

D. False, true

14. A criterion that is relevant

A. Contributes to conclusions that assist decision-making by the intended

users.
B. Is sufficiently complete when relevant factors that could affect the
conclusions in the context of the engagement circumstances are not omitted.
Complete criteria include, where relevant, benchmarks for presentation and
disclosure - Completeness
C. Allows reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when used in
similar circumstances by similarly qualified practitioners - Reliability

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 D. Contributes to conclusions that are clear, comprehensive, and not subject
to significantly different interpretations - Understandability

15. Evaluate the possibility of obtaining the following levels of assurance:

I. Absolute II. Reasonable III. Limited
A. All are possible
B. All are impossible
C. Only I is possible

D. Only I is impossible

16. Evaluate the following reasons why a perfect level of assurance is not
possible:
• The use of selective testing - T
• Much of the evidence available to the practitioner is conclusive rather than
persuasive. - F
A. Both are true

B. True, false
C. Both are false
D. False, true

17. Classify the following statements as to the level of assurance:

I. The aim is a reduction in assurance engagement risk to an acceptably low
level in the circumstances of the engagement as the basis for a
positive form of expression of the practitioner’s conclusion. - Reasonable
II. The aim is a reduction in assurance engagement risk to a level that is
acceptable in the circumstances of the engagement, but where that risk is
greater than for a reasonable assurance engagement, as the basis for a
negative form of expression of the practitioner’s conclusion. - Limited
A. Limited, Absolute

B. Reasonable, Limited
C. Limited, Reasonable
D. Absolute, Limited

18. Classify the following statements as to the form of the conclusion related to
the assurance given:

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 I. In our opinion internal control is effective, in all material respects, based on
XYZ criteria. - Positive
II. 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 XYZ criteria. - Negative
A. Negative, Positive
B. Reasonable, Limited
C. Limited, Reasonable

D. Positive, Negative

19. Which of the following procedures ordinarily performed during an audit are
also performed in a review engagement?
A. Assessment of accounting and internal control systems.
B. As if doing something (AIDS)
C. Tests of records and responses to inquiries.

D. Inquiry and analytical procedures.

20. This is the risk that the practitioner expresses an inappropriate conclusion
when the subject matter information is materially misstated.
A. Audit risk
B. Detection risk

C. Assurance engagement risk

D. Practitioner’s risk

21. Which of the following is true about non-assurance services?

A. Audit engagements are non-assurance services
B. Review engagements are non-assurance services

C. Non-assurance services lack one or more element(s) of an assurance

engagement
D. All of the above are true about non-assurance services

22. In an engagement to perform agreed-upon procedures, an auditor is engaged

to
A. Use accounting expertise as opposed to auditing expertise to collect,

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 classify, and summarize financial information. - Compilation
B. Provide a moderate level of assurance that the information is free of
material misstatement. - Review

C. Carry out those procedures of an audit to which the auditor and the entity
and any appropriate third parties have agreed and to report on factual
findings.
D. Provide a high, but not absolute level of assurance that the information is
free of material misstatement. - Audit

23. Which of the following statements is true?

A. Having accepted an assurance engagement, a practitioner may not change
that engagement to a non-assurance engagement anytime the client requests
for such change. - False
B. Under no circumstance can a practitioner who has accepted an assurance
engagement may change that engagement to a non-assurance engagement,
or from a reasonable assurance engagement to a limited assurance
engagement even with reasonable justification. - False

C. Having accepted an assurance engagement, a practitioner may not change

that engagement to a non-assurance engagement without reasonable
justification.
D. Having accepted an assurance engagement, a practitioner may change that
engagement to a non-assurance engagement without reasonable justification
and disregards evidence obtained prior to the change. - False

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