Main standards to govern review engagements

PSAs PSREs PSRSs PSAEs

Ans.
PSREs

Assurance services may include which of the following except?

Attesting to financial statements

Examination of the economy and efficiency of governmental operations
Evaluation of a division’s performance for management
Tax preparation services
Ans.
Tax preparation services

The objective of the ordinary examination of financial statements is the expression of an

opinion on the accuracy of such financial statements.

The independent auditor’s opinion is an assurance as to the future viability of the entity.

The first statement is false, the second statement is true

The first statement is true, the second statement is true
The first statement is false, the second statement is false
The first statement is true, the second statement is false
Ans.
The first statement is false, the second statement is false

Which of the following provides a positive form and high level of assurance?

An audit report on prospective financial information.

A review report on historical financial statements containing a phrase stating that nothing
comes to reviewer’s attention that would lead him to believe that the information is
misleading.

A compilation report on 3-year financial statements.

An audit report on external financial statements on which an adverse opinion is

expressed.
Ans.
An audit report on external financial statements on which an adverse opinion is expressed.

The independent auditor lends credibility to client financial statements by

Stating in the auditor’s management letter that the examination was made in accordance
with generally accepted auditing standards

Maintaining a clear-cut distinction between management’s representation and the

auditor’s representations

Attaching an auditor’s opinion to the client’s financial statements

Testifying under oath about client financial information

Ans.
Attaching an auditor’s opinion to the client’s financial statements

Assurance services are best described as

Independent professional services that improve the quality of information, or its context,
for decision makers.

The assembly of financial statements based on assumptions of a reasonable party.

Services designed to express an opinion on historical financial statements based on the

results of an audit.

Services designed for the improvement of operations, resulting in better outcomes.

Ans.
Independent professional services that improve the quality of information, or its context,
for decision makers.

It refers to the level of satisfaction as to reliability of an assertion being made by one

party for use by another party
Confidence level
Assurance level
Reasonableness level
Tolerable level
Ans.
Assurance level

Which of the following is least likely an application of maintaining an attitude of

professional skepticism?

The auditor does not consider representations from management as substitute for
obtaining sufficient appropriate audit evidence to be able to draw reasonable conclusions
on which to base the audit opinion.
In planning and performing an audit, the auditor assumes that management is dishonest.

The auditor is alert to audit evidence that contradicts or brings into question the
reliability of documents or management representations.

The auditor makes a critical assessment, with a questioning mind, of the validity
Ans.
In planning and performing an audit, the auditor assumes that management is dishonest.

Which statement is correct regarding assurance engagements?

It is an engagement in which a practitioner expresses a conclusion designed to enhance

the degree of confidence of the intended users other than the responsible party about the
outcome of the evaluation or measurement of a subject matter against criteria.

All engagements performed by professional accountants are assurance engagements.

Whether a particular engagement is an assurance engagement will depend upon whether

it exhibits all the following elements - a three party relationship, a subject matter and a
suitable criteria.

All of the above statements are correct

Ans.
It is an engagement in which a practitioner expresses a conclusion designed to enhance
the degree of confidence of the intended users other than the responsible party about the
outcome of the evaluation or measurement of a subject matter against criteria.

The document defines the elements and objectives not, by itself, establish standards or
provide procedural requirements for the performance of assurance engagements.

Philippine framework for Assurance Engagements

Philippine Standards on Auditing
Philippine Standards on Review Engagements
Philippine Auditing Practice Statements
Ans.
Philippine framework for Assurance Engagements

The decision of whether the criteria are suitable involves considering whether the subject
matter of the assurance engagement is capable of reasonably consistent evaluation or
measurement using such criteria. Which of the following characteristics is not considered
necessary in determining whether the criteria are suitable?

Relevance
Neutrality
Reliability
Sufficiency
Ans.
Sufficiency

After accepting an assurance engagement, a practitioner is not allowed to change the

engagement to a non-assurance engagement, or from a reasonable assurance engagement
to a limited assurance engagement, except when there is reasonable justification for the
change. Which of the following ordinarily will justify a request for a change in the
engagement?

I. A change in circumstances that affects the intended users’ requirements.

II. A misunderstanding concerning the nature of the engagement.
I only
II
onlyBoth
I and II
Neither I nor II
Ans.
Both I and II

Which of the following services would be most likely to be structured as an assurance

engagement?

Advocating a client’s position in tax matter

A consulting engagement to develop a new data base system for the revenue cycle.

An engagement to issue a report addressing an entity’s compliance with requirements of

specified laws.

The compilation of a client’s forecast information.

Ans.
An engagement to issue a report addressing an entity’s compliance with requirements of
specified laws.

The independent auditor’s responsibility in a regular audit is to express an opinion on the

financial statements. The auditor’s opinion:

Helps the company adopt sound accounting policies.

Assists the company in maintaining an adequate and effective system of accounts.
Helps establish the credibility of the financial statements.
Helps management safeguard the company assets.
Ans.
Helps establish the credibility of the financial statements.

Which of the following is broadest in scope?

Assurance services.
Attestation services.
Internal control audit.
Audits of financial statements.
Ans.
Assurance services.

Which of the following statements does not properly describe an element of the
theoretical framework of auditing?

The data to be audited can be verified

Short-term conflicts may exist between managers who prepare the data and auditors who
examine the data

Auditors act on behalf of management

An audit benefits the public

Ans.
Auditors act on behalf of management

The independent auditor lends credibility to client financial statements by

Stating in the auditor’s management letter that the examination was made in accordance
with generally accepted auditing standards

Maintaining a clear-cut distinction between management’s representation and the

auditor’s representations

Attaching an auditor’s opinion to the client’s financial statements

Testifying under oath about client financial information

Ans.
Attaching an auditor’s opinion to the client’s financial statements
Which of the following services is the broadest and most inclusive/

Audit
Attestation
Assurance
Compliance
Ans.
Assurance

The primary purpose of an independent financial statement audit is to

Provide a basis for assessing management's performance.

Comply with government regulatory requirements.

Assure management that the financial statements are unbiased and free from material
error.

Provide users with an unbiased opinion about the fairness of information reported in the
financial statements.
Ans.
Provide users with an unbiased opinion about the fairness of information reported in the
financial statements.

Which of the following is responsible for the fairness of representations made in financial
statements?
The independent auditor.
The internal auditor.
The client's management.
The audit committee.
Ans.
The client's management.

The auditor’s opinion

Guarantees the credibility of the financial statements.

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

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

Certifies the correctness of the financial statements.

Ans.
Is not an assurance as to the efficiency with which management has conducted the affairs
of the entity.

Which of the following statements is correct?

Practice statements have the same authority as assurance standards.

In the compilation of other than historical financial information, the PSAE is the primary
standard to govern.

In prospective financial information, forecasts primarily relate to expected events while

projections primarily relate to events based on hypothetical assumptions.

Agreed upon procedures engagement requires a report and an assurance to be conveyed

in the report.
Ans.
In prospective financial information, forecasts primarily relate to expected events while
projections primarily relate to events based on hypothetical assumptions.

Assurance services least likely involve

Improving the quality of information for decision purposes.

Improving the quality of the decision model used.

Improving the relevance of information.

Implementing a system that improves the processing of information.

Ans.
Implementing a system that improves the processing of information.

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

(1)Nonfinancial performance or condition

(2)Behavior
(3)Financial performance or condition
(4)Physical characteristics
(5)Systems and Processes
(1)Yes; (2)Yes; (3)Yes; (4)Yes; (5)Yes

(1)Yes; (2)Yes; (3)Yes; (4)No; (5)No

(1)Yes; (2)Yes; (3)No; (4)No; (5)Yes

(1)No; (2)Yes; (3)Yes; (4)No; (5)Yes

Ans.
(1)Yes; (2)Yes; (3)Yes; (4)Yes; (5)Yes

When a CPA expresses an opinion on the financial statements, his responsibilities extend
to

The underlying wisdom of the client’s management decision.

Active participation in the implementation of the advice given to the client.

An ongoing responsibility for the client’s solvency.

Whether the results of the client’s operating decisions are fairly presented in the financial
statements.
Ans.
Whether the results of the client’s operating decisions are fairly presented in the financial
statements.

Which of the following statements is (are) true regarding the provision of assurance
services?
(I) The third party who receives the assurance generally pays for the assurance received
(II) Assurance services always involve a report by one person to a third party on which an
independent organization provides assurance.
(III) Assurance services can be provided either on information or processes.

I and III
I and II
III only
I, II and III
Ans.
III only

The independent auditor’s opinion helps establish the credibility of the financial
statements.

The independent auditor’s opinion is an assurance as to the efficiency or effectiveness

with which management has conducted the affairs of the entity.

The first statement is false, the second statement is true

The first statement is true, the second statement is true
The first statement is false, the second statement is false
The first statement is true, the second statement is false
Ans.
The first statement is true, the second statement is false

The following are the general principles governing an audit of FS Audit, except

Independence
Professionalism
Confidentiality
Professional behavior
Ans.
Professionalism

Assurance engagements may include

A. Review engagements and examination of prospective financial information
B. The preparation of tax returns where no conclusion conveying assurance is
expressed
C. Consulting (or advisory) engagements, such as management and tax consulting
D. Engagements covered by Philippine Standards for Related Services, such as
agreed-upon procedures engagements and compilations of financial or other information

A only
A and B only
A, B and C only
A, B, C and D
Ans.
A only

The market for auditing services is driven by

The regulatory authority of the Securities and Exchange Commission.
A demand by external users of financial statements.
Pronouncements issued by the Auditing Standards and Practices Council.
Congress
Ans.
A demand by external users of financial statements.

Assurance engagements may include

Review engagements and examination of prospective financial information

The preparation of tax returns where no conclusion conveying assurance is expressed

Consulting (or advisory) engagements, such as management and tax consulting

Engagements covered by Philippine Standards for Related Services, such as agreed-upon

procedures engagements and compilations of financial or other information
Ans.
Review engagements and examination of prospective financial information

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

Sufficiency is the measure of the quantity of evidence

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

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

Obtaining more evidence may compensate for its poor quality.

Ans.
Sufficiency is the measure of the quantity of evidence

The Philippine Framework for Assurance Engagements

Contains basic principles, essential procedures, and related guidance for the performance of
assurance engagements.

Defines and describes the elements and objectives of an assurance engagement, and identifies
engagements to which PSAs, PSREs, and PSAEs apply.

Provides a frame of reference for CPAs in public practice when performing audits, reviews, and
compilations of historical financial information.

Establishes standards and provides procedural requirements for the performance of assurance
engagements.
Ans.
Defines and describes the elements and objectives of an assurance engagement, and identifies
engagements to which PSAs, PSREs, and PSAEs apply.

Level of assurance in a review engagement

High
Reasonable
Positive
Moderate
Ans.
Moderate

Which one of the following is not a provider of assurance services?

CPAs
Internal auditors
Government auditors
PICPA
Ans.
PICPA

The definition of auditing contained within A Statement of Basic Auditing Concepts

recognizes that auditing includes both a(n)

Documentation process and an evaluation process.

Evaluation process and a reporting process.

Investigative process and a reporting process.

Documentation process and a reporting process.

Ans.
Investigative process and a reporting process.

Objective of a review engagement (PSRE 2400)

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

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.

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
For the auditor to use accounting expertise, as opposed to auditing expertise, to collect, classify
and summarize financial information
Ans.
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

Independent auditing can best be described as a

Branch of accounting.

Discipline that attests to the results of accounting and other operations and data.

Professional activity that measures and communicates financial and business data.

Regulatory function that prevents the issuance of improper financial information.

Ans.
Discipline that attests to the results of accounting and other operations and data.

Which of the following is incorrect regarding the three party relationship element of
assurance engagement?

The responsible party is generally the addressee of the professional accountant results.

The responsible party and the intended user will often be from separate organizations.

The responsible party may not be the party who engages the professional accountant.

The responsible party may also be one of the intended users.

Ans.
The responsible party is generally the addressee of the professional accountant results.

All assurance engagements contain five basic elements. Which of the following is not
one of these elements?

A three party relationship involving a practitioner, a responsible party, and intended

users

A written assurance report in the form appropriate to a reasonable assurance engagement

or a limited assurance engagement

Engagement acceptance

Suitable criteria
Ans.
Engagement acceptance

In performing an attestation engagement, a CPA typically

Supplies litigation support services

Assesses control risk at a low level
Expresses a conclusion about an assertion
Provides management consulting advice
Ans.
Expresses a conclusion about an assertion

Which of the following is incorrect regarding the three party relationship element of
assurance engagement?

The intended user is generally the addressee of the professional accountant’s report.

The responsible party and the intended user will often be from separate organizations.

The responsible party may also be one of the intended users.

All of the above statements are correct

Ans.
All of the above statements are correct

Which one of the following is not a key attribute needed to perform assurance?

Subject matter knowledge

Independence
Established criteria or standards
Accounting skills
Ans.
Accounting skills

Which of the following is not a component of assurance services?

Information or a process on which the assurance services is provided.

Report to a third party

A user or a group of users who derive value from the service provided.
A service provider
Ans.
A user or a group of users who derive value from the service provided.

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

Financial performance or conditions

Behaviour
Systems and processes
All of the above
Ans.
All of the above
The decision of whether the criteria are suitable involves considering whether the
subject matter of the assurance engagement is capable of reasonably consistent
evaluation or measurement using such criteria. Which of the following characteristics
is not considered necessary in determining whether the criteria are suitable?
Relevance
Neutrality
Reliability
Sufficiency
Ans.
Sufficiency

Which of the following elements is most likely to be a component of a direct reporting

assurance engagement?

Low level of assurance

Absolute assurance
A written assertion
Auditor independence
Ans.
Auditor independence

The decision of whether the criteria are suitable involves considering whether the subject
matter of the assurance engagement is capable of reasonably consistent evaluation or
measurement using such criteria. Which of the following characteristics is not considered
necessary in determining whether the criteria are suitable?

Relevance
Neutrality
Reliability
Sufficiency
Ans.
Sufficiency
Which of the following is an example of an assurance engagement?

Management advisory services

Reporting on financial statements prepared using other comprehensive basis of

accounting.

Compilation of financial information

Preparation of tax returns

Ans.
Reporting on financial statements prepared using other comprehensive basis of
accounting.

Which of the following is not one of the elements of an assurance engagement?

Sufficient appropriate evidence

A subject matter

Suitable criteria

An opinion about whether the subject matter conforms, in all material respects, with the
identified criteria.
Ans.
An opinion about whether the subject matter conforms, in all material respects, with the
identified criteria.

In an assurance engagement, the outcome of the evaluation or measurement of a subject matter

against criteria is called

Subject matter information

Subject matter
Assurance
Conclusion
Ans.
Subject matter information

Suitable criteria are required for reasonably consistent evaluation or measurement of the subject
matter of an assurance engagement. Which of the following statements concerning the
characteristics of suitable criteria is correct?
Reliable criteria contribute to conclusions that are clear, comprehensive, and not subject to
significantly different interpretations.

Relevant 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.

Neutral criteria contribute to conclusions that are free from bias.

Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations.
Ans.
Neutral criteria contribute to conclusions that are free from bias.

Which of the following services provides a moderate level of assurance about the client’s
financial statements?

Forecasts and projections

Compliance with contractual agreement
Review
Compilation
Ans.
Review

The following are assurance engagements, except

Reasonable assurance engagement

Other assurance engagements
Limited assurance engagement
Tax services
Ans.
Tax services

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

Direct reporting engagements

Assertion-based engagements
Non-assurance engagements
Recurring engagements
Ans.
Assertion-based engagements

Which of the following services is the broadest and most inclusive?

Audit
Attestation
Assurance
Compliance
Ans.
Assurance

Different government agencies influence the practice of accountancy in the Philippines. Which
of the following statements is correct?

The Commission on Audit (COA) is principally tasked to keep the general accounts of the
government and preserve the vouchers and supporting papers thereto, and promulgate accounting
and auditing rules and regulations including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of
government funds and properties.

The Auditing and Assurance Standards Council (AASC) has the power to conduct an oversight
into the quality of audits of financial statements through the review of the quality control
measures instituted by auditors.

The Department of Budget and Management (DBM) aims to maintain price stability conducive to
a balanced and sustainable economic growth, and to promote and preserve monetary stability and
the convertibility of peso.

The Professional Regulatory Board of Accountancy (PRBOA) has the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
government, or any of its subdivisions, agencies, or instrumentalities, including government-
owned or controlled corporations and recommend measures to improve the efficiency and
effectiveness of government operations.
Ans.
The Commission on Audit (COA) is principally tasked to keep the general accounts of the
government and preserve the vouchers and supporting papers thereto, and promulgate accounting
and auditing rules and regulations including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of
government funds and properties.

Which of the following statements best describes assurance services?

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

Services designed to express an opinion on the fairness of historical financial statements based
on the results of an audit.

The preparation of financial statements or the collection, classification, and summarization of

other financial information.

Services designed for the improvement of operations, resulting in better outcomes.

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

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

(1)The use of testing
(2)The inherent limitations of internal control system
(3)The use of judgment
(4)Most audit evidence are persuasive rather than conclusive
(1)Yes; (2)Yes; (3)Yes; (4)No
(1)Yes; (2)Yes; (3)No; (4)Yes
(1)Yes; (2)Yes; (3)Yes; (4)Yes
(1)No; (2)Yes; (3)No; (4)Yes
Ans.
(1)Yes; (2)Yes; (3)Yes; (4)Yes

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

Sufficiency is the measure of the quantity of evidence

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

Obtaining more evidence may compensate for its poor quality.

Obtaining more evidence may compensate for its poor quality.

Ans.
Sufficiency is the measure of the quantity of evidence

What type of assurance engagement is involved when the practitioner expresses a positive form
of conclusion?

Limited assurance engagement

Positive assurance engagement

Reasonable assurance engagement

Absolute assurance engagement

Ans.
Reasonable assurance engagement

What are the three most commonly sought assurance services?

Audits, reviews and compilation

Audits, reviews and other assurance services

Reviews, compilations and other assurance services

Audits, compilations and other assurance services

Ans.
Audits, reviews and other assurance services

The objective of an agreed-upon procedures engagement

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

Is to enable the 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.

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 to collect, classify and summarize
financial information.
Ans.
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.

The Framework of PSA (PSA 120) applies to

Taxation
Consultancy
Agreed upon procedures
Accounting advice
Ans.
Agreed upon procedures

According to PSA 120, which of the following is an appropriate combination of procedures

required in completing a review engagement

Inquiry and observation

Inquiry and analytical procedures
Analytical procedures and inspection
Observation and analytical procedures
Ans.
Inquiry and analytical procedures
Engagements frequently performed by professional accountants that are not assurance
engagements include the following, except
Agreed upon procedures
Reasonable assurance engagement
MAS
Compilation of FS
Ans.
Reasonable assurance engagement

What type of assurance engagement is involved when the practitioner expresses a

negative form of conclusion?
Reasonable assurance engagement
Negative assurance engagement
Assertion-based assurance engagement
Limited assurance engagement
Ans.
Limited assurance engagement

Which statement is incorrect regarding related services?

Related services comprise agreed-upon procedures and compilation.

Audits and reviews are designed to enable the auditor to provide reasonable assurance
and limited assurance, respectively.

Engagement to undertake agreed-upon procedures is not intended to enable the auditor to

express assurance.

In a consultancy engagement, the accountant is engaged to use accounting expertise as

opposed to auditing expertise to collect, classify and summarize financial information.
Ans.
In a consultancy engagement, the accountant is engaged to use accounting expertise as opposed
to auditing expertise to collect, classify and summarize financial information.

Which of the following audits can be regarded as being solely a “compliance” audit?

BIR examiners’ examinations of the returns of taxpayers

COA auditors’ evaluation of the computer operations of government units
An internal auditor’s review of his employer’s payroll authorization procedures
An independent CPA firm’s audit of the local school district
Ans.
BIR examiners’ examinations of the returns of taxpayers
The framework for auditing and related services as addressed by PSA excludes

Review
Tax services
Compilation
Agreed upon procedure
Ans.
Tax services

Which of the following is not an assurance service?

Examination of prospective financial information

Audit of historical financial statements
Review of financial statements
Compilation of financial information
Ans.
Compilation of financial information

It refers to the level of satisfaction as to the reliability of an assertion being made by one party
for use by another party

confidence level
assurance level
reasonableness level
tolerable level
Ans.
assurance level

Which of the following best describes why an independent auditor is asked to express
an opinion on the fair presentation of financial statements?

It is difficult to prepare financial statements that fairly present a company’s financial

position and changes in financial position and operations without the expertise of an
independent auditor.

It is management’s responsibility to make available independent aid in the preparation of

the financial information shown in the financial statements.

The opinion of an independent party is needed because a company may not be objective
with respect to its own financial statements.

It is customary curtesy that shareholders of a company receive an independent report on

management’s status in managing affairs of the business.
Ans,
The opinion of an independent party is needed because a company may not be objective
with respect to its own financial statements.
 The primary objective of the ordinary examination of financial statements by a CPA
is the expression of an opinion.

He competence of management in accounting matters which is implied by whether the

opinion is qualified or not

The conformity of financial statements with the books of accounts

The conformity of financial statements with generally accepted auditing standards

applied on a basic consistent with that of the preceding year

The fairness with the financial statements present financial position and results of
operations
Ans.
The fairness with the financial statements present financial position and results of
operations

Auditing is a systematic process that includes all of the following except:

Communicating results to users

Procuring and evaluating evidence
Providing important managerial decisions for client
Comparing evidence regarding assertions to certain established criteria
Ans.
Providing important managerial decisions for client

The independent auditor’s responsibility in a regular audit is to express an opinion on

the financial statements. The auditor’s opinion;

Helps the company adopt sound accounting policies

Assist the company in maintaining an adequate and effective system of accounts.
Helps establish the credibility of the financial statements
Helps management safeguard the company assts.
Ans.
Helps establish the credibility of the financial statements

The primary reason for an audit by an independent, external audit firm is to

Satisfy government regulatory requirements

Guarantee that there are no misstatements in the financial statements and ensure that any
fraud will be discovered

Relieve management of responsibility for the financial statements

Provide increased assurance to users as to the fairness of the financial statements

Ans.
Provide increased assurance to users as to the fairness of the financial statements

An audit of the financial statements of Camden Corporations being conducted by an

external auditor. The external auditor is expected to

Express an opinion as to fairness of Camden’s financial statements.

Express an opinion as to attractiveness of Camden for investment purposes.
Certify to the correctness of Camden’s financial statements.
Critique the wisdom and legality of Camden’s business decisions.
Ans.
Express an opinion as to fairness of Camden’s financial statements.

Independence of the internal auditors would be least likely achieved if internal auditors
report to the

President
Controller
Audit Committee
BOD
Ans.
Controller

A primary purpose of an operational audit is to provide

a means of assurance that internal accounting controls are functioning as planned

The results of internal examination of financial and accounting matters to a company’s

top level management.

A measure of management performance in meeting organizational goal.

Aid to the independent auditor, who is conduction the examination of the financial
statements.

Ans.
A measure of management performance in meeting organizational goal.
This audit involves examination and evaluation of an agency’s costs and outputs of a
specific activity/program and its benefits and effects and determining whether these
achieve the intent of the legislation that established the program.

Program audit
Compliance audit
Fraud audit
Internal audit
Ans.
Program audit

Per Glossary of Terms (PSA), it is defined as an appraisal activity established or

provided as a service to the entity.

Financial statement audit

Value-added activity
Internal audit function
Servicing activity
Ans.
Internal audit function

Criteria in operational audits are normally objectives set by

A government regulatory body

The Company management
The Board of Directors
The Auditor
Ans.
The Board of Directors

The best description f the scope of internal auditing is that it encompasses

Primarily operational auditing

Both financial and operational auditing
Primarily the safeguarding of assets are verifying the existence of such assets
Primarily financial auditing.
Ans.
Both financial and operational auditing

Which of the following types of audits are most similar?

Operational audits and compliance audits
Independent financial statement audits and operational audits
Compliance audits and independent financial statement audits
Internal audits and independent financial statement audits
Ans.
Compliance audits and independent financial statement audits

Users of the audit report can reasonably expect the audited financial statements to be

Include complete information and contain all financial disclosures

Presented fairly according to the substance of GAAP
Free from all errors
All of the above
Ans.
Presented fairly according to the substance of GAAP

Internal audit department should be responsible to

The audit committee

Senior management
External auditor
Both the audit committee and senior mgt.
Ans.
Both the audit committee and senior mgt.

Not a main objective of operational audit

To assess entity’s performance

To identify areas for improvement
To make recommendations to improve performance
To recommend the use of information
Ans.
To recommend the use of information

Operational audits generally have been conducted by internal and COA auditors, but may
be performed by certified public accountants. A primary purpose of an operational audit
is to provide

A measure of management performance in meeting organizational goals.

The results of internal examinations of financial and accounting matters to a company’s

top level management.
Aid to the independent auditor, who is conducting the examination of the financial
statements.

A means of assurance that internal accounting controls are functioning as planned.

Ans.
A measure of management performance in meeting organizational goals.

These audits are similar in most respects

Operational and compliance

Operational and government
Financial and compliance
Financial and operational
Ans.
Financial and compliance

Usually an operational audit is performed

By independent external auditors

By a team consisting of an equal number of external and internal auditors.

Only when an operating division is experiencing declines in productivity of profitability.

By internal auditors at the request of top management or the board of directors.

Ans.
By internal auditors at the request of top management or the board of directors.

This audit uses laws and regulations as its established criteria.

Performance
Operational
Management
Compliance
Ans.
Compliance

It usually includes the components of compliance, performance and financial statements

audit

`Organizational audit
Enterprise audit
Comprehensive audit
Total audit
Ans.
Comprehensive audit

Since the main goal in fraud audit is not assurance but rather an investigation of
anomalies, this is of least concern.
Due care
Evidence
Skepticism
Materiality
Ans.
Materiality

An audit designed to determine to extent to which the desired results of an activity established
by the legislative or other authorizing body are being achieved.

Financial-related audit
Program results audit
Efficiency audit
Economy audit
Ans.
Program results audit

Criteria in operational audits are normally objectives set by

A government regulatory body

The Company management
The Board of Directors
The Auditor
Ans.
The Board of Directors

This audit involves a study of a specific unit of an organization for the purpose of
measuring its performance.

Compliance
Operational
External
Environmental
Ans.
Operational

Per Glossary of Terms (PSA), it is defined as an appraisal activity established or

provided as a service to the entity.

Financial statement audit

Value-added activity
Internal audit function
Servicing activity
Ans.
Internal audit function

Internal auditing relates to an

Audit which is performed by professional practitioner as an independent contractor

Audit which is incidentally concerned with the detection and prevention of fraud

Audit wherein the auditor should be independent of management both in fact and in
mental attitude

Audit which serves the needs f management

Ans.
Audit which serves the needs f management

Not one of the three phases in an operational audit

Planning
Review of internal control
Ans.
Review of internal control

Examination of evidence regarding an assertion to determine its correspondence to

established criteria carried out in a manner suitable to the court

Forensic audit
Fraud audit
Court audit
Legal audit
Ans.
Forensic audit
A primary purpose of an operational audit is to provide

a means of assurance that internal accounting controls are functioning as planned

The results of internal examination of financial and accounting matters to a company’s

top level management.

A measure of management performance in meeting organizational goal.

Aid to the independent auditor, who is conduction the examination of the financial
statements.
Ans.
A measure of management performance in meeting organizational goal.

Least likely an objective of operational audit

Increased revenue
Increased reliability of financial reporting
Increased productivity
Decreased costs
Ans.
Increased reliability of financial reporting

Internal auditors review the adequacy of the company’s internal control system
primarily to

Help determine the nature, timing, and extent of tests necessary to achieve audit
objectives

Determine whether the internal control system provides reasonable assurance that the
company’s objectives and he goals are met efficiently and economically

Ensure that material weaknesses in the system of internal control are corrected.

Determine whether the internal control

Ans.
Determine whether the internal control system provides reasonable assurance that the
company’s objectives and he goals are met efficiently and economically

Describe operational audit.

It requires constant review by internal auditors of the administrative controls as they
relate to operations of the company

It centers on the implementation of financial and accounting controls

It focuses on finding aspects of operations where controls could be implemented to

reduce operational waste

It is designed to verify the fairness of a company’s operational performance

Ans.
It focuses on finding aspects of operations where controls could be implemented to
reduce operational waste

Not belonging to the group of audits below

Performance
Operational
Management
Compliance
Ans.
Compliance

Widely-accepted established framework in evaluating the effectiveness of internal control

is that of

AASC
COSO
SEC
PFRS
Ans.
COSO

An audit committee in an entity is composed of outside directors who must be

independent of management. Which of the following qualifies?

Treasurer
President
Retired executive from a different company
Company consultant
Ans.
Retired executive from a different company
Per Glossary of Terms (PSA), functions of internal auditing include, among other things,
examining, evaluating and monitoring the adequacy and effectiveness of

Internal control
Overall operations
Financial reporting
Resource management
Ans.
Internal control

Which statement/s is correct (PSA 610)?

I. An internal audit function is not independent of the entity irrespective of its

degree of autonomy and objectivity.
II. The external auditor has sole responsibility for the opinion expressed on the
financial statements of an entity even in the presence of an entity’s internal
audit function.
III. The external auditor’s responsibility for the opinion may be reduced by the
external auditor’s use of the work of internal auditors.

I, II and III
I and II only
I and III only
II and III only
Ans.
I and II only

Criteria in operational audits, based on the Framework, are normally

Established criteria
Generally-accepted criteria
Specifically-developed criteria
Financial reporting standards
Ans.
Specifically-developed criteria

Which of the following best describes the operational audit?

It requires the constant review by internal auditors of the administrative controls as they
relate to operations of the company

It concentrates on implementing financial and accounting control newly organized

company.
It attempts and is designed to verify the fair presentation of a company’s results f
operations.

It concentrates on seeking out aspects of operations in which would be reduced by the

introduction of controls.
Ans.
It concentrates on seeking out aspects of operations in which would be reduced by the
introduction of controls.

The following are the general principles governing audit of financial statements:
I. Loyalty
II. Confidentiality
III. Objectivity
IV. Professionalism
V. Professional Behaviour
VI. Independence
I,II, III, IV V and VI
a. II, III IV V and VI only
II, III and V only
II, III , V and VI only
Ans.
II, III , V and VI only

An objective of operational audit is to assess whether

Internal control structure is designed and implemented

Financial statements fairly reflect the results of operations

Specific units of the entity are functioning effectively and efficiently

Information used for operations purposes are in conformity with GAAP

Ans.
Specific units of the entity are functioning effectively and efficiently

Internal auditing encompasses

Primarily operational auditing

Both financial and operational auditing
Primarily safeguarding of assets
Primarily financial auditing
Ans.
Both financial and operational auditing

This audit involves a review of an organization’s procedures to determine whether the

organization adheres to specific procedures, rules or regulations set by an authoritative
body.

Compliance
Operational
External
Environmental
Ans.
Compliance

Can perform fraud audit

External auditor
Internal auditor
Both A and B
Neither A nor B
Ans.
Both A and B

What are the two most important qualities for an operational auditor

Academic background and sufficient experiences

Independence ad competence
Competence and technical training
Personality and appearance
Ans.
Competence and technical training

Which of the following best describes an auditor’s professional skepticism?

Auditors must remember that they will be responsible for the financial statements once they are
audited.

Auditors should treat all management representations with suspicion until they are proven.

Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency
and appropriateness of audit evidence obtained.

Auditors expect that there will be material misstatements in the financial records being audited.
Ans.
Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency
and appropriateness of audit evidence obtained.

Determines the objectives of an internal audit Function

Auditor
GAAS
Management
GAAP
Ans,
Management

It refers to the functions and activities necessary for the performance of a major purpose
for which a government agency is established.

Program
Project
Expected results
Resources
Ans.
Program