OVERVIEW OF AUDIT AND ENGAGEMENT STANDARDS

Question 1

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

Answer 1

c. Scope of services

Question 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

Answer 2

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

Question 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

Answer 3

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

Question 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

Answer 4

a. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user

Question 5

5. 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

Answer 5

c. Yes Yes

Question 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

Question 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

Answer 7

c. Certify the correctness of the financial statements

Question 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

Answer 8

c. Lends credibility to the financial statements

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

Answer 9

c. I, II and III only

Question 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

Answer 10

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

Question 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

Answer 11

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

Question 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
b. Generally accepted auditing standards
c. Internal control
d. Information systems control

Answer 12

c. Internal control

Question 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
b. Philippine Standards on Auditing (PSA)
c. National Internal Revenue Code
d. Regulations of the Securities and Exchange
Commission

Answer 13

a. PFRS or PFRS for SMEs

Question 14

Broadly defined, the subject matter of any audit consists of
a. Financial statements
b. Economic data
c. Financial Statement Assertions
d. Operating data

Answer 14

c. Financial Statement Assertions

Question 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

Answer 15

b. Measures of the quality of the auditors’ performance

Question 16

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

Answer 16

b. Independent auditor

Question 17

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

Answer 17

d. The partner in charge of the engagement

Question 18

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

Answer 18

a. Client’s management

Question 19

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

Answer 19

b. PSAEs

Question 20

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

Answer 20

b. High, but not absolute

Question 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.

Question 22

Inquiries and analytical procedures ordinarily form the basis for which type of engagement?
a. Agreed-upon procedures c. Examination
b. Audit d. Review

Question 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

Question 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

Question 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

Question 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

Question 27

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

Question 28

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

Question 29

What assurance is provided by the auditor in an agreed-upon procedures engagement?
a. Reasonable c. Moderate
b. Absolute d. No assurance

Question 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

Question 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 event

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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

Question 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