MODULE 13: OTHER PROFESSIONAL SERVICES

Question 1

1. The primary standards for assurance engagement other than audits or reviews of historical financial statements are the
   A. Accounting and Review Services
   B. Philippine Standard on Assurance Engagement
   C. Generally Accepted Auditing Standards
   D. Philippine Standards on Review Engagement

Answer 1

B. Philippine Standard on Assurance Engagement

Question 2

2. The objective of a review of financial statements is
   A. To enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with Philippine financial reporting standards
   B. For the auditor to carry out 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.
   C. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify and summarize financial information.
   D. To enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with Philippine financial reporting standards (negative assurance).

Answer 2

D. To enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with Philippine financial reporting standards (negative assurance).

Question 2

3. Performing inquiry and analytical procedures that provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to
   the financial statements in order for them to be in conformity with PFRS or with other
   comprehensive basis of accounting is the definition of
   A. Compilation.
   B. Audit
   C. Review
   D. Agreed-upon procedure.

Answer 2

C. Review

Question 2

5. Before performing a review of a non-public entity’s financial statements, an accountant should
   A. Make inquiries of the management
   B. Apply analytical review procedures to identify unusual fluctuations.
   C. Obtain a sufficient level of knowledge about accounting principles and practices in the industry wherein the entity operates.
   D. Inquire as to whether the management has significantly omit disclosures in the financial statements.

Answer 2

C. Obtain a sufficient level of knowledge about accounting principles and practices in the industry wherein the entity operates.

Question 3

6. In planning a review of financial statements, the auditor should obtain or update his knowledge of the business. Which of the following is not one of this knowledge of the business?
   A. Entity’s organization.
   B. Nature of entity’s assets, liabilities, revenues and expenses
   C. Accounting system
   D. Internal control.

Answer 3

D. Internal control.

Question 4

4. Engagement letter or a review of financial statements least likely includes
   A. The objective of the service being performed
   B. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other irregularities, for example, fraud or defalcations that may exist
   C. A statement that an audit is not being performed and that an audit opinion will not be expressed
   D. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.

Answer 4

D. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered

Question 5

7. Which of the following is not used as a basis by the auditor in determining the specific nature, timing and extent of review procedures?
   A. Assessed level of control risk
   B. The extent to which a particular item is affected by management judgment
   C. The materiality of transactions and account balances
   D. Any knowledge acquired by carrying out a review of the financial statements of prior periods.

Answer 5

A. Assessed level of control risk

Question 6

9. Which of the following is least likely done by the auditor in conducting a review of financial statements?
   A. Study of the relationships of the elements of the financial statements
   B. Comparison of the financial statements with those statements of prior periods
   C. Comparison of the financial statements with anticipated results and financial position
   D. Comparison of inventory listing with physical inventory count.

Answer 6

D. Comparison of inventory listing with physical inventory count.

Question 6

8. Which statement is incorrect regarding procedures and evidence obtained in a review engagement?
   A. The auditor should apply his judgment in determining the specific nature, timing and extent of review procedures
   B. The auditor should apply the same materiality considerations as would have been applied had an audit opinion on the financial statements been expressed.
   C. There is a greater risk that misstatements will not be detected in an audit than in a review.
   D. The judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on that information, not to the level of assurance provided.

Answer 6

C. There is a greater risk that misstatements will not be detected in an audit than in a review.

Question 7

10. In a review of interim financial information of a publicly-held company, the CPA is expected to have an understanding of all of the following except the:
    A. Industry in which the client operates.
    B. Client’s internal control structure.
    C. Nature of the entity’s organization
    D. Entity’s accounting practices.

Answer 7

B. Client’s internal control structure.

Question 7

12. Which of the following is general more important in a review than in a compilation?
    A. Determining the accounting basis on which the financial statements are to be presented.
    B. Gaining familiarity with the industry’s accounting principles and practices
    C. Obtaining a signed engagement letter
    D. Obtaining a singed representation letter.

Answer 7

D. Obtaining a singed representation letter.

Question 7

11. Which of the following procedures is not included in a review of financial statements of a nonpublic entity?
    A. Inquiries of management
    B. Inquiries regarding events subsequent to the balance sheet date
    C. Any procedures designed to identify relationships among data that appear to be unusual
    D. Communicating any material weaknesses discovered during the study and evaluation of internal accounting control.

Answer 7

D. Communicating any material weaknesses discovered during the study and evaluation of internal accounting control.

Question 8

13. Which of the following procedures is ordinarily performed by a CPA in a review engagement of a non-public entity?
    A. Analytical procedures designed to test the accounting records by obtaining corroborating evidential matter
    B. Inquiries concerning entity’s procedures for recording and summarizing transactions
    C. Analytical review designed to evaluate the effectiveness of internal control
    D. Inquiries of the entity’s legal counsel concerning contingent liabilities.

Answer 8

B. Inquiries concerning entity’s procedures for recording and summarizing transactions

Question 9

14. Which of the following should the auditor perform in a review engagement?
    A. Understand matters that are relevant to the financial statements
    B. Understand the entity’s internal control system
    C. Observe the physical count of inventory
    D. Inquire of legal counsel of pending litigations.

Answer 9

A. Understand matters that are relevant to the financial statements

Question 10

15. The review of unaudited financial statements consists of:
    A. Internal control evaluation and management representation
    B. Inquiry of management and documentation of internal controls
    C. Analytical procedures and compliance with laws and regulations
    D. Inquiry of management and analytical procedures.

Answer 10

D. Inquiry of management and analytical procedures.

Question 11

16. When performing a review of the financial statements of a non public entity the CPA should:
    A. Obtain an understanding of internal control.
    B. Inquire about actions taken at the meetings of stockholders and board of directors
    C. Send letters of audit inquiry to attorneys.
    D. Read the minutes of meetings of stockholder and board of directors

Answer 11

B. Inquire about actions taken at the meetings of stockholders and board of directors

Question 12

17. Which of the following is a major difference between a review and an audit of the financial statements:
    A. The scope of the procedures performed and the assurance provided
    B. The level of knowledge of professional standards needed to perform the procedures
    C. The type of accounting used – reviews are typically on non PFRS accounting, while audits are based upon PFRS accounting.
    D. The type of company involved in reviews may only be publicly-held.

Answer 12

A. The scope of the procedures performed and the assurance provided

Question 13

18. Which of the following is not included in the scope paragraph of a review report?
    A. A statement that a review is limited primarily to inquiries and analytical procedures.
    B. A reference to Philippine Standard on Auditing applicable to review management.
    C. A statement that the review included an evaluation of reasonableness of accounting estimates made by management.
    D. A statement that an audit has not been performed.

Answer 13

C. A statement that the review included an evaluation of reasonableness of accounting estimates made by management.

Question 14

19. Where do you find the following paragraph?
    … Nothing has come to our attention that causes us to believe that the accompanying financial statements are not presented fairly, in all material respects in accordance with generally accepted accounting principles in the Philippines.
    A. Opinion paragraph of an auditor’s report
    B. Opinion paragraph of a review report
    C. Negative assurance paragraph
    D. Scope paragraph of a review report

Answer 14

C. Negative assurance paragraph

Question 15

20. In a review engagement, if there has been a material scope limitation, the auditor should describe the limitation in the review report and either
    A. Express a qualification of the negative assurance or not issued any assurance
    B. Express a qualification of the negative assurance provided or give an adverse statement that the financial statements are not presented fairly.
    C. Express an adverse statement that the financial statements are not presented fairly or the auditor does not issue any assurance
    D. Not modify the negative assurance or not issue an assurance.

Answer 15

A. Express a qualification of the negative assurance or not issued any assurance

Question 16

21. An accountant’s standard report on a review of the financial statements of a nonpublic entity should state that the accountant
    A. Does not express an opinion or any form of limited assurance on the financial statements
    B. Is not aware of any material modifications that should be made to the financial statements for them to conform with PFRS
    C. Obtained reasonable assurance about whether the financial statements are free of material misstatement.
    D. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements.

Answer 16

B. Is not aware of any material modifications that should be made to the financial statements for them to conform with PFRS

Question 17

22. A review report states that
    A. Review includes assessing the accounting principles used and significant estimates made by the management
    B. A review includes examining on a test-basis
    C. The accountant is not aware of any material modifications that should be made to the financial statements.
    D. The accountant does not express an opinion or any other form of assurance.

Answer 17

C. The accountant is not aware of any material modifications that should be made to the financial statements.

Question 18

23. The statement that the reviewer “is not aware of any material modification that should be made to the financial statements in order for them to be in conformity with PFRS” is known as:
    a. Reasonable assurance
    b. Negligent performance
    c. Negative assurance
    d. Necessary ignorance.

Answer 18

c. Negative assurance

Question 19

24. The professional accountants issued the following statement in their report…, nothing came to our attention that caused us to believe that the accompanying financial statements are not presented fairly… What is the nature of the report?
    A. Special report on financial statements prepared under comprehensive basis of accounting
    B. Qualified audit report
    C. Review report
    D. Audit report with limited reporting objective

Answer 19

C. Review report

Question 20

25. The objective of an agreed-upon-procedures engagement is for the auditor to:
    A. Carry out 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. Carry out procedures of a review nature to which the auditor and the entity and any
    appropriate third parties have agreed and to report on factual findings.
    C. Carry out procedures of a review nature and to express limited assurance based on those agreed procedures.
    D. Carry out procedures of an audit nature and to express limited assurance.

Answer 20

A. Carry out 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

Question 21

26. According to PSRS, engagement to perform agreed-upon procedures, the procedures employed in doing agreed-upon procedures are:
    A. Designed to enable the accountant to express a limited assurance
    B. Designed to enable the accountant to express negative assurance
    C. Designed to enable the accountant to provide the identified user(s) factual findings
    D. Less extensive than compilation procedures but more extensive than review procedures.

Answer 21

C. Designed to enable the accountant to provide the identified user(s) factual findings

Question 22

27. Rivera, CPA, has significant indirect financial interest on Mother Corporation. Mother Corporation engaged Rivera to apply agreed-upon procedures on accounts receivable and thereafter submits a Report of Factual Findings to Discount Finance. According to Philippine Standards on Auditing that applies to this engagement, Rivera:
    A. Should decline the engagement because of his lack of independence
    B. Should convince Mother Corporation to change the engagement to compilation due to his lack of independence
    C. Can accept the engagement, issue the Report of Factual Finding and state in the report his lack of independence
    D. Perform agreed-upon procedures and withhold the findings due to his lack of independence.

Answer 22

C. Can accept the engagement, issue the Report of Factual Finding and state in the report his lack of independence

Question 23

28. Which of the following ethical principles governing the auditor’s professional responsibilities for agreed-upon procedures engagement is not required of auditors?
    A. Technical standards.
    B. Confidentiality
    C. Integrity
    D. Independence

Answer 23

D. Independence

Question 24

29. Which of the following is incorrect about agreed-upon procedures engagement?
    A. An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning individual items of financial data.
    B. Users of the agreed-upon procedures report assess for themselves the procedures and findings reported by the auditor and draw their conclusion from the auditor’s work.
    C. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied.
    D. The report is restricted to those parties that have agreed to the procedures to be performed.

Answer 24

C. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied.

Question 25

30. Which statement is incorrect regarding agreed-upon procedures?
    A. Users of the report asses for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor’s work.
    B. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures, may misinterpret the results.
    C. The auditor should conduct an agreed-upon procedures engagement in accordance with PSA and the terms of the engagement
    D. Where the auditor is not independent, a statement to that effect need not be made in the report of factual findings.

Answer 25

D. Where the auditor is not independent, a statement to that effect need not be made in the report of factual findings.

Question 26

31. Matters to be agreed in an agreed-upon procedures engagement include the following, except:
    A. Stated purpose of the engagement.
    B. Limitations on distribution of the report of factual findings
    C. Anticipated form of the report and the level of assurance to be provided.
    D. Nature, timing and extent of the specific procedures to be applied.

Answer 26

C. Anticipated form of the report and the level of assurance to be provided.

Question 27

32. The following procedures may be performed by CPAs in an engagement.
    I. Consideration of internal control
    II. Observation
    III. Inquiry and analysis
    IV. Inspection
    V. Confirmation
    VI. Obtaining management representation letter
    Which of the foregoing may be performed by the auditor in an agreed-upon procedures engagement?
    A. II and VI only
    B. I, II and VI only
    C. II, III, IV and V only
    D. II, III, IV and VI only

Answer 27

C. II, III, IV and V only

Question 28

33. The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-upon procedures on the engagement in sufficient detail to enable the reader to understand the nature and extent of the work performed. The report of factual findings should not contain:
    a. addressee (ordinarily the client who engaged the auditor to perform the agreed-upon procedures)
    b. identification of the purpose for which the agreed-upon procedures were performed
    c. a description of the auditor’s factual findings including sufficient details of errors and exceptions found
    d. a statement that the procedures performed constitute an audit and, as such, an opinion is expressed

Answer 28

d. a statement that the procedures performed constitute an audit and, as such, an opinion is expressed

Question 29

34. A report for an agreed-upon procedures ordinarily includes:
    a. Findings – Yes; Negative Assurance – Yes
    b. Findings – Yes; Negative Assurance – No
    c. Findings – No; Negative Assurance – Yes
    d. Findings – No; Negative Assurance – No

Answer 29

b. Findings – Yes; Negative Assurance – No

Question 30

35. Which of the following is for limited distribution?
    a. Review Report
    b. Compilation Report
    c. Report of Factual Findings
    d. Audit Report

Answer 30

c. Report of Factual Findings

Question 31

36. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that:
    a. distribution of the report is limited to the specified parties involved
    b. the prospective financial statements are also examined
    c. the 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

Answer 31

a. distribution of the report is limited to the specified parties involved

Question 32

37. Distribution of a report is always restricted when:
    a. negative assurance is given
    b. there is a positive expression of opinion
    c. agreed-upon procedures have been performed
    d. a review has been performed

Answer 32

c. agreed-upon procedures have been performed

Question 33

38. Which of the following would not be appropriate to a report on an engagement to apply agreed-upon procedures to specified financial statement items
    a. Indicate the intended distribution of the report
    b. Provide an opinion on the specified elements, accounts, or items
    c. Enumerate the procedures performed
    d. State that the report relates only to the elements, accounts, or items specified

Answer 33

b. Provide an opinion on the specified elements, accounts, or items

Question 34

39. Which of the following is not appropriate for the accountant’s report on the results of applying agreed- upon procedures to prospective financial statements?
    a. Express an opinion on the results of applying the agreed-upon procedures
    b. Indicate the prospective financial statements reported on
    c. Specify that the use of the report is limited to certain user(s)
    d. Indicate that the prospective results may not be achieved

Answer 34

a. Express an opinion on the results of applying the agreed-upon procedures

Question 35

40. The report on an agreed-upon procedures engagement needs to describe the purpose and the procedures that have been agreed upon in sufficient details. The report should appropriately include the
    “title”
    a. Report of Agreed-Upon Procedures
    b. Report of Factual Findings
    c. Report of agreed Procedures and Finding
    d. CPA’s Report of Agreed-Upon Procedures

Answer 35

b. Report of Factual Findings