CH1 [Roque] An Introduction to Assurance, Auditing, and Related Services Flashcards
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
a
Assurance engagements performed by professional accountants are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an interested user
The level of assurance provided by the professional accountant’s conclusion conveys the degree of confidence that the intended user may place in the credibility of the subject matter.
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
d
Services performed by professional accountants that are not assurance engagements include the following:
- Agreed-upon procedures
- Compilation of financial or other information
- Preparation of tax returns where no conclusion is expressed, and tax consulting
- Management consulting
- Other advisory services
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
b
Which of the following best describes the objective of an assurance engagement?
a. Improve the company’s outcomes
b. Compare the company’s information with those of other entities
c. Enhance the credibility of information in order to improve the likelihood that the information will meet the needs of an intended user
d. Assist in preparing the company’s financial statements
c
The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about the subject matter.
An assurance engagement is intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user
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
b. II only
c. Both I and II
c. Neither I nor II
b
Assurance services differ from consulting services in that they:
- Focus on enhancing the credibility of information rather than providing advice
- Typically involve situations in which one party wants to monitor another
Consulting services are usually two-party arrangements that focus on providing advice on how to use the information for better outcomes
How many separate parties are involved in an assurance engagement?
a. 2
b. 3
c. 4
d. 5
b
An assurance engagement involves three separate parties:
- A practitioner
- A responsible party
- Intended users
An assurance engagement should have which of the following elements?
a. Subject matter? Yes.
Criteria? No.
b. Subject matter? No.
Criteria? Yes.
c. Subject matter? Yes.
Criteria? Yes.
d. Subject matter? No.
Criteria? No.
c
An assurance engagement should have the following elements:
- A three-party relationship involving:
a. a professional accountant
b. a responsible party
c. intended users - A subject matter
- Suitable criteria
- Sufficient appropriate evidence
- An assurance report
The Philippine Framework for Assurance Engagements
a. Contain basic principles, essential procedures, and related guidance for the performance of assurance engagements
b. Defines and describes the elements and objectives of an assurance engagement, and identifies engagements to which PSAs, PSREs, 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
b
The Framework defines and describes the elements and objectives of an assurance engagement and identifies engagements to which Philippine Standards on Auditing (PSAs), Philippine Standards on Review Engagements (PSREs), and Philippine Standards on Assurance Engagements (PSAEs) apply
The Framework does not itself establish standards or provide procedural requirements for the performance of assurance engagements. PSAs, PSREs, and PSAEs contain basic principles, essential procedures, and related guidance, consistent with the concepts in the Framework, for the performance of assurance engagements
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
c
The Philippine Standards on Related Services (PSRSs) are to be applied to non-assurance engagements such as compilation and agreed-upon procedures engagements
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
c
According to the Philippine Framework for Assurance Engagements, the responsible party and the intended users may be from different entities or the same entities
Answer D is incorrect because the PRACTITIONER is responsible for determining the nature, timing, and extent of procedures to be performed
The subject matter of an assurance engagement may include
a. Financial information, Internal controls, and Compliance with Regulation
b. None of the above
c. Financial information and Compliance with Regulation
d. Internal controls
a
According to the Philippine Framework for Assurance Engagements, an assurance engagement’s subject matter may include the following:
- Financial performance or conditions, such as historical or prospective financial position, financial performance, and cash flows
- Non-financial performance or conditions, for example, performance of an entity
- Physical characteristics, for example, capacity of a facility
- Systems and processes, for example, an entity’s internal control or IT system
- Behavior, such as corporate governance, compliance with regulation, and human resource practices
For assurance engagements regarding historical financial information, reasonable assurance engagements are called:
a. Audits
b. Reviews
c. Compilations
d. Examinations
a
For assurance engagements regarding historical financial information, reasonable assurance engagements are called audits, while limited assurance engagements are called reviews
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
b. Norms
c. Conditions
d. Gauges
a
Criteria are the standards or benchmarks used to evaluate or measure the subject matter of an assurance engagement. These are important because they establish and inform the intended user of the basis against which the subject matter has been evaluated or measured in forming the conclusion
The criteria against which the subject matter of the assurance engagement is to be evaluated or measured should possess which of the following characteristics?
a. Relevant, Neutral
b. Concise
c. Relevant
d. Concise, Neutral
a
According to the Philippine Framework for Assurance Engagements, suitable criteria should have the following characteristics:
- Relevance
- Relevant criteria contribute to conclusions that assist decision-making by the intended users - Completeness
- Criteria are sufficiently complete when relevant factors that could affect the conclusions in the context of the engagement are not omitted
- Complete criteria include, where relevant, benchmarks for presentation and disclosure - Reliability
- Reliable criteria allow reasonably consistent evaluation or measurement of the subject matter, including, where relevant, presentation and disclosure, when used in similar circumstances by similarly qualified practitioners - Neutrality
- Neutral criteria contribute to conclusions that are free from bias - Understandability
- Understandable criteria contribute to conclusions that are clear, comprehensive, and not subject to significantly different interpretations
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
d
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
b
The Framework states that criteria can either be established or specifically developed.
Established criteria are those that are embodied in laws or regulations, or issued by authorized or recognized bodies
Specifically developed criteria are those designed for the purpose of the engagement
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
b
The responsible party is the one responsible for the subject matter of an assurance engagement. For example, an entity’s management is responsible for the preparation and presentation of financial statements or the establishment and implementation of internal control.
The responsible party may or may not be the party who engages the professional accountant
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
a
The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose
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
a
The term “subject matter information” is used in the Framework for Assurance Engagements to mean the outcome of the evaluation or measurement of a subject matter
According to the Framework, it is the subject matter information about which the practitioner gathers sufficient appropriate evidence to provide a reasonable basis for expressing a conclusion in an assurance report
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
b
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
a
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
c
According to the Framework, the objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as a basis for a positive form of expression of the practitioner’s conclusion
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
c
According to the Framework, the objective of a reasonable assurance engagement 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
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
a