NOTRE DAME OF MIDSAYAP COLLEGE

Midsayap, Cotabato

COLLEGE OF BUSINESS AND ACCOUNTANCY

SUBJECT:BSA 305 AUDITING AND ASSURANCE PRINCIPLES

INSTRUCTOR:HAMOD M. GULIDTEM, CPA

DRILL CHAPTER 1

1.Assurance engagement

A.Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.

B.Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

C.Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the engagement is free of material misstatement.

D.Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether the subjectmatterconformsinallmaterialrespectswith suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user.

2.It refers to the level of auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party.

A.Confidence levelc. Assurance level

B.Reasonableness leveld. Tolerable level

3.Which of the following is incorrect regarding the Philippine Standards on Assurance Engagements (PSAE)?

A.It provides an overall framework for an assurance engagements intended to provide either a high or moderate level of assurance.

B.It provides basic principles and essential procedures for engagements intended to provide a moderate level of assurance.

C.When a professional accountant is engaged to perform an assurance engagement for which specific standards exist, those standards apply.

D.If no specific standards exist for an assurance engagement, PSAE apply.

4.The Philippine Framework for Assurance Engagement

A.Contains 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.Establish standards and provides procedural requirements for the performance of assurance engagements.

5.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

6.Which statement does not accurately describe an assurance engagement?

A.The objective of assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified criteria and to express a conclusion that provides the intended user with a level of assurance about that subject matter.

B.Not all engagements performed by professional accountants are assurance engagements.

C.A particular engagement, to be an assurance engagement depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion.

D.An engagement in form of agreed-upon procedures result in the expression of factual findings.

7.The broad range of assurance engagements includes all, but which of the following? 1.) Engagements intended to provide high or moderate levels of assurance.

2.) Preparation of tax returns, though no conclusion is expressed. 3.) Attest and direct reporting engagements.

4.) Engagement to report externally, but not internally. 5.) Engagements in the private and public sector.

6.) Agreed-upon procedures engagement.

A.1,3, 4, 5C. 1,2, 4, 6

B. 1,3, 4,5,6D. 1,3,4, 6

8.Any services in which the CPA firm issues a written communication that express a conclusion with respect to the reliability of a written assertion that is the responsibility of another is a(n)

A.Accounting and bookkeeping serviceC. Attestation service

B.Management advisory serviceD. Tax service

9.The three types of attestation services are:

A.Audits, review, and compilations

B.Audits, compilations, and other attestation services

C.Reviews, compilations, and other attestation services

D.Audits, reviews, and other attestation services

10.Which of the following is not primary category of attestation report?

A.Compilation reportC. Review report

B.Special audit reportD. Audit report

11.Which of the following is an incorrect phrase?

A.Auditing is a systematic process.

B.Auditing subjectively obtains and evaluates evidence.

C.Auditing evaluates evidence regarding assertions.

D.Auditing communicates results to interested users.

12.Which of the following best describes the objective of an audit of financial statements?

A.To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.

B.To express an assurance as to the future viability of the entity whose financial statements are being audited.

C.To express an assurance about the management's efficiency or effectiveness in conducting the operations of entity.

D.To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an identified financial reporting framework.

13.The primarily 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.

14.The objective of a review of financial statements

A.Is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

B.Is 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 an identified financial reporting framework.

C.Is to carry out those 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. Is to use accounting expertise as opposed to auditing expertise tocollect,classify and summarize financial information.

D.Is to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

15.Which of the following procedures ordinarily performed during an audit are also performed in review?

A.Assessment of accounting and internal control systems

B.Test of controls

C.Tests of records and of responses to inquiries

D.Inquiry and analytical procedures

16.Which of the following is true of the report based on agreed-upon procedures?

A.The report is restricted to those parties who have agreed to the procedures to be performed.

B.The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s) presented in the financial information

C.The report states that the auditor has not recognized any basis that require revision of FS.

D.The report should state that the procedures performed are limited to analytical procedures and inquiry.

17.According to Philippine Standard on Auditing, the procedures employed in doing compilation are:

A.Designed to enable the accountant to express a limited assurance.

B.Designed to enable the accountant to express a negative assurance.

C.Not designed to enable the accountant to express any form of assurance.

D.Less extensive than review procedures but more extensive than agreed-upon procedures.

18.Which of the following are considered consulting services?

Advisory Services

Transaction Services

Assurance Services

A.No

Yes

Yes

B.Yes

Yes

No

C.Yes

No

Yes

D.Yes

Yes

Yes

19.A pervasive characteristics of a CPA's role in a consulting services engagement is that of being a (an)

A.Independent practitioner.

B.Computer expert.

C.Confidential reviewer.

D.Objective advisor.

20.Assurance services differ from consulting services in that they

I.Focus on providing service.

II.Involve monitoring of one party by another party.

A.I onlyC. Both I and II

B.II onlyD. Neither I and II

21.Users of financial statements demand independent audit because

A.Users demand assurance that fraud does not exist

B.Management may not be objective in reporting.

C.Users expect auditors to correct management errors.

D.Management relies on the auditor to improve internal control.

22.For assurance engagements regarding historical financial information, reasonable assurance engagements are called

A.AuditsC. Compilations

B.ReviewsD. Examinations

23.What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?

A.Reasonable assurance engagementC. Negative assurance engagement

B.Assertion-based engagementD. Limited assurance engagement

24.Indicate the level of assurance provided by audit and related services.

Audit

Review

Agreed-upon

procedures

Compilation

A

High

Moderate

None

None

B

High

None

None

None

C

Negative

Moderate

None

None

D

Absolute

High

Limited

None

25.Assurance engagement risk is the risk

A.That the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.

B.Of expressing an inappropriate conclusion when the subject matter information is not materially misstated.

C.Through loss from litigation, adverse publicity, or other events arising in connection with a subject matter reported on.

D.Of expressing an inappropriate conclusion when the subject matter information is either materially misstated or not materially misstated.

26.The following are components of assurance engagement risk, except

A.Inherent riskC. Detection risk

B.Control riskD. Business risk

27.Absolute assurance is generally not attainable as a result of such factors as:

the use of selective testing,

A

Yes

B

Yes

C

Yes

D

No

the inherent limitations of control systems

the fact that much of the evidence available to the CPA

Yes

Yes

Yes

Yes

is persuasive rather than conclusive

the use of judgment in gathering evidence and

Yes

Yes

No

Yes

drawing conclusions based on that evidence

Yes

No

No

No

28.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 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

29.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 available to 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 user.

30.An assurance engagement should exhibit the following elements except

A.A three party relationshipC. Appropriate professional fee

B.A conclusionD. A subject matter

31.Which of the following is incorrect regarding the "three-party relationship" element of assurance engagements?

A.Professional accountants as those persons who are members of an IFAC member body, which should be in public practice.

B.The responsible party and the intended user will often be from separate organizations but need not be.

C.The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for the subject matter.

D.The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose.

32.The subject matter of an assurance engagement may take many forms, including

A.DataC. Systems and processes

B.BehaviorD. All of these

33.When performing an assurance service, professional accountants use standards or benchmarks to evaluate the subject matter of an assurance engagement. These are referred to

A.CriteriaC. Conditions

B.NormsD. Gauges

34.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 criteriaC. Established criteria

B.Specifically developed criteriaD. General criteria

35.The criteria for evaluating quantitative information vary. For example, in the audit of historical financial statements by CPA firms, the criteria are usually

A.Generally accepted auditing standards.C. Generally accepted accounting principles.

B.Regulations of the Internal Revenue Service. D. Regulations of the SEC.

36.The decision as to whether the criteria are suitable involves considering whether the subject matter is capable of reasonably consistent evaluation or measurement using such criteria.The characteristics for determining whether criteria are suitable include the following, except

A.RelevanceC. Reliability:

B.Understandability:D. Sufficiency

37.Which of the following statements is true concerning evidence in an assurance engagement?

A.Sufficiency is the measure of the quantity of evidence.

B.Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.

C.The reliability of evidence is influenced not by its nature but by its source.

D.Obtaining more evidence may compensate for its poor quality.

38.The auditor communicates the results of his or her work through the medium of the

A.Engagement letterC. Management letter.

B.Audit reportD. Financial statements.

39.The auditor's opinion

A.Enhances the credibility of the financial statements.

B.Is an assurance as to the future viability of the entity.

C.Is an assurance as to the efficiency with which management has conducted the affairs of the entity, but not effectiveness.

D.Certifies the correctness of the financial statements.

40.Which of the following standards are to be applied, as appropriate, in the audit of historical engagements?

A.PSREsC. PSAEs

B.PSRSsD. PSAs

NOTRE DAME OF MIDSAYAP COLLEGE

Midsayap, Cotabato

COLLEGE OF BUSINESS AND ACCOUNTANCY

SUBJECT:BSA 305 AUDITING AND ASSURANCE PRINCIPLES

INSTRUCTOR:HAMOD M. GULIDTEM, CPA

DRILL CHAPTER 1

1.Assurance engagement

A.Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.

B.Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

C.Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the engagement is free of material misstatement.

D.Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether the subjectmatterconformsinallmaterialrespectswith suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user.

2.It refers to the level of auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party.

A.Confidence levelc. Assurance level

B.Reasonableness leveld. Tolerable level

3.Which of the following is incorrect regarding the Philippine Standards on Assurance Engagements (PSAE)?

A.It provides an overall framework for an assurance engagements intended to provide either a high or moderate level of assurance.

B.It provides basic principles and essential procedures for engagements intended to provide a moderate level of assurance.

C.When a professional accountant is engaged to perform an assurance engagement for which specific standards exist, those standards apply.

D.If no specific standards exist for an assurance engagement, PSAE apply.

4.The Philippine Framework for Assurance Engagement

A.Contains 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.Establish standards and provides procedural requirements for the performance of assurance engagements.

5.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

6.Which statement does not accurately describe an assurance engagement?

A.The objective of assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified criteria and to express a conclusion that provides the intended user with a level of assurance about that subject matter.

B.Not all engagements performed by professional accountants are assurance engagements.

C.A particular engagement, to be an assurance engagement depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion.

D.An engagement in form of agreed-upon procedures result in the expression of factual findings.

7.The broad range of assurance engagements includes all, but which of the following? 1.) Engagements intended to provide high or moderate levels of assurance.

2.) Preparation of tax returns, though no conclusion is expressed. 3.) Attest and direct reporting engagements.

4.) Engagement to report externally, but not internally. 5.) Engagements in the private and public sector.

6.) Agreed-upon procedures engagement.

A.1,3, 4, 5C. 1,2, 4, 6

B. 1,3, 4,5,6D. 1,3,4, 6

8.Any services in which the CPA firm issues a written communication that express a conclusion with respect to the reliability of a written assertion that is the responsibility of another is a(n)

A.Accounting and bookkeeping serviceC. Attestation service

B.Management advisory serviceD. Tax service

9.The three types of attestation services are:

A.Audits, review, and compilations

B.Audits, compilations, and other attestation services

C.Reviews, compilations, and other attestation services

D.Audits, reviews, and other attestation services

10.Which of the following is not primary category of attestation report?

A.Compilation reportC. Review report

B.Special audit reportD. Audit report

11.Which of the following is an incorrect phrase?

A.Auditing is a systematic process.

B.Auditing subjectively obtains and evaluates evidence.

C.Auditing evaluates evidence regarding assertions.

D.Auditing communicates results to interested users.

12.Which of the following best describes the objective of an audit of financial statements?

A.To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.

B.To express an assurance as to the future viability of the entity whose financial statements are being audited.

C.To express an assurance about the management's efficiency or effectiveness in conducting the operations of entity.

D.To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an identified financial reporting framework.

13.The primarily 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.

14.The objective of a review of financial statements

A.Is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

B.Is 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 an identified financial reporting framework.

C.Is to carry out those 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. Is to use accounting expertise as opposed to auditing expertise tocollect,classify and summarize financial information.

D.Is to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

15.Which of the following procedures ordinarily performed during an audit are also performed in review?

A.Assessment of accounting and internal control systems

B.Test of controls

C.Tests of records and of responses to inquiries

D.Inquiry and analytical procedures

16.Which of the following is true of the report based on agreed-upon procedures?

A.The report is restricted to those parties who have agreed to the procedures to be performed.

B.The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s) presented in the financial information

C.The report states that the auditor has not recognized any basis that require revision of FS.

D.The report should state that the procedures performed are limited to analytical procedures and inquiry.

17.According to Philippine Standard on Auditing, the procedures employed in doing compilation are:

A.Designed to enable the accountant to express a limited assurance.

B.Designed to enable the accountant to express a negative assurance.

C.Not designed to enable the accountant to express any form of assurance.

D.Less extensive than review procedures but more extensive than agreed-upon procedures.

18.Which of the following are considered consulting services?

Advisory Services

Transaction Services

Assurance Services

A.No

Yes

Yes

B.Yes

Yes

No

C.Yes

No

Yes

D.Yes

Yes

Yes

19.A pervasive characteristics of a CPA's role in a consulting services engagement is that of being a (an)

A.Independent practitioner.

B.Computer expert.

C.Confidential reviewer.

D.Objective advisor.

20.Assurance services differ from consulting services in that they

I.Focus on providing service.

II.Involve monitoring of one party by another party.

A.I onlyC. Both I and II

B.II onlyD. Neither I and II

21.Users of financial statements demand independent audit because

A.Users demand assurance that fraud does not exist

B.Management may not be objective in reporting.

C.Users expect auditors to correct management errors.

D.Management relies on the auditor to improve internal control.

22.For assurance engagements regarding historical financial information, reasonable assurance engagements are called

A.AuditsC. Compilations

B.ReviewsD. Examinations

23.What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?

A.Reasonable assurance engagementC. Negative assurance engagement

B.Assertion-based engagementD. Limited assurance engagement

24.Indicate the level of assurance provided by audit and related services.

Audit

Review

Agreed-upon

procedures

Compilation

A

High

Moderate

None

None

B

High

None

None

None

C

Negative

Moderate

None

None

D

Absolute

High

Limited

None

25.Assurance engagement risk is the risk

A.That the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.

B.Of expressing an inappropriate conclusion when the subject matter information is not materially misstated.

C.Through loss from litigation, adverse publicity, or other events arising in connection with a subject matter reported on.

D.Of expressing an inappropriate conclusion when the subject matter information is either materially misstated or not materially misstated.

26.The following are components of assurance engagement risk, except

A.Inherent riskC. Detection risk

B.Control riskD. Business risk

27.Absolute assurance is generally not attainable as a result of such factors as:

the use of selective testing,

A

Yes

B

Yes

C

Yes

D

No

the inherent limitations of control systems

the fact that much of the evidence available to the CPA

Yes

Yes

Yes

Yes

is persuasive rather than conclusive

the use of judgment in gathering evidence and

Yes

Yes

No

Yes

drawing conclusions based on that evidence

Yes

No

No

No

28.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 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

29.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 available to 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 user.

30.An assurance engagement should exhibit the following elements except

A.A three party relationshipC. Appropriate professional fee

B.A conclusionD. A subject matter

31.Which of the following is incorrect regarding the "three-party relationship" element of assurance engagements?

A.Professional accountants as those persons who are members of an IFAC member body, which should be in public practice.

B.The responsible party and the intended user will often be from separate organizations but need not be.

C.The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for the subject matter.

D.The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose.

32.The subject matter of an assurance engagement may take many forms, including

A.DataC. Systems and processes

B.BehaviorD. All of these

33.When performing an assurance service, professional accountants use standards or benchmarks to evaluate the subject matter of an assurance engagement. These are referred to

A.CriteriaC. Conditions

B.NormsD. Gauges

34.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 criteriaC. Established criteria

B.Specifically developed criteriaD. General criteria

35.The criteria for evaluating quantitative information vary. For example, in the audit of historical financial statements by CPA firms, the criteria are usually

A.Generally accepted auditing standards.C. Generally accepted accounting principles.

B.Regulations of the Internal Revenue Service. D. Regulations of the SEC.

36.The decision as to whether the criteria are suitable involves considering whether the subject matter is capable of reasonably consistent evaluation or measurement using such criteria.The characteristics for determining whether criteria are suitable include the following, except

A.RelevanceC. Reliability:

B.Understandability:D. Sufficiency

37.Which of the following statements is true concerning evidence in an assurance engagement?

A.Sufficiency is the measure of the quantity of evidence.

B.Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.

C.The reliability of evidence is influenced not by its nature but by its source.

D.Obtaining more evidence may compensate for its poor quality.

38.The auditor communicates the results of his or her work through the medium of the

A.Engagement letterC. Management letter.

B.Audit reportD. Financial statements.

39.The auditor's opinion

A.Enhances the credibility of the financial statements.

B.Is an assurance as to the future viability of the entity.

C.Is an assurance as to the efficiency with which management has conducted the affairs of the entity, but not effectiveness.

D.Certifies the correctness of the financial statements.

40.Which of the following standards are to be applied, as appropriate, in the audit of historical engagements?

A.PSREsC. PSAEs

B.PSRSsD. PSAs