OVERVIEW OF AUDIT AND ENGAGEMENT STANDARDS Flashcards
The single feature that most clearly distinguishes auditing, attestation, and assurance is
a. Type of service
b. Training required to perform the service
c. Scope of services
d. CPA’s approach to the service
c. Scope of services
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
c. Determine whether the client’s assertions are fairly stated
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
b. Includes a report on subject matter, or on an assertion about subject matter
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. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user
- An assurance engagement should have which of the following elements?
Subject matter Criteria
Subject matter Criteria
a. Yes No
b. No Yes
c. Yes Yes
d. No No
c. Yes Yes
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
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
c. Certify the correctness of the financial statements
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
c. Lends credibility to the financial statements
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
b. II and IV only
c. I, II and III only
d. I, II, III and IV
c. I, II and III only
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
b. Different interests may exist between the company preparing the statements and the persons using the statements
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
c. Overall financial statements are stated in accordance with the applicable financial reporting framework
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
b. Generally accepted auditing standards
c. Internal control
d. Information systems control
c. Internal control
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
b. Philippine Standards on Auditing (PSA)
c. National Internal Revenue Code
d. Regulations of the Securities and Exchange
Commission
a. PFRS or PFRS for SMEs
Broadly defined, the subject matter of any audit consists of
a. Financial statements
b. Economic data
c. Financial Statement Assertions
d. Operating data
c. Financial Statement Assertions
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
b. Measures of the quality of the auditors’ performance
The procedures deemed necessary in the circumstances to achieve the objective of the audit shall be determined by the
a. Client management
b. Independent auditor
c. Internal auditor
d. Those charged with governance
b. Independent auditor
Which of the following professionals has primary responsibility for the performance of an audit?
a. The managing partner of the firm
b. The senior assigned to the engagement
c. The manager assigned to the engagement
d. The partner in charge of the engagement
d. The partner in charge of the engagement
Which of the following has the primary responsibility for the fairness of the representations made in the financial statements?
a. Client’s management
b. Audit committee
c. Independent auditor
d. Board of Accountancy
a. Client’s management
Which of the following standards are to be applied, as appropriate, in the audit of historical financial information?
a. PSREs
b. PSAEs
c. PSRSs
d. PSAs
b. PSAEs
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
b. High, but not absolute
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.
Inquiries and analytical procedures ordinarily form the basis for which type of engagement?
a. Agreed-upon procedures c. Examination
b. Audit d. Review
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
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
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
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
Mr. Accounting, 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. Accounting’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. Accounting’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. Accounting’s responsibility
An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning
I. Individual items of financial data III. A complete set of financial statements
II. A single financial statement
a. I and II only c. I and III only
b. II and III only d. I, II and III
What assurance is provided by the auditor in an agreed-upon procedures engagement?
a. Reasonable c. Moderate
b. Absolute d. No assurance
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
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 event
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
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
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
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
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
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
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
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
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
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
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
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
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
