WESLEYAN UNIVERSITY PHILIPPINES

College of Business and Accountancy

Prelim Quiz 1

I. MULTIPLE CHOICE: Write the letter of your choice in capital letters before the corresponding number. Each choice has an
equal chance of being right but you must go for what is best for you. Choose wisely.

1. The framework for assurance engagements identifies

engagement to which the following standards apply, except, 8. Identify which is an element of an assurance
(PSAS) engagement:
A. Philippine Standards on Auditing I. Sufficient and appropriate evidence
B. Philippine Standards on Review Engagements (PSRES) II. Professional fees
C. Philippine Standards on Assurance Engagements A. Both
(PSAES) B. Neither
D. Philippine Standards on Related Services (PSRSs) C. I only
D. II only
2. Which is correct concerning the
framework for assurance engagements? 9. Classify the following parties relevant to an assurance
A. It provides a frame of reference against which audit engagement:
engagements are evaluated • Management of an audit client
B. It establishes specific guidelines and procedural • Auditor
requirements for the performance of assurance A. Both are responsible parties
engagements B. Both are intended users
C. It provides a frame of reference for accountants in C. Responsible party, practitioner
public practice when performing assurance D. Intended user, practitioner
engagements
D. It is intended for reference of public accountants only 10. Classify the following potential subject matters in an
assurance engagement:
3. Evaluate the following statements: • Cash flows of an entity
1. Assurance services help information users make • Effectiveness of an online payment system
decisions based on more credible information. A. Both are financial
II., Assurance services can enhance the usefulness of B. Both are systems and processes
information. C. Financial, systems and processes
A. Both are true D. Systems and processes, financial
B. True, false
C. Both are false 11 Classify the following statements:
D. False, true • Zero customer complaints and product recall.
• Performance of an entity
4. Evaluate the following statements: A. Both are subject matters (SM)
I. Philippine Standards on Related C Services is applicable B. Both are subject matter information (SMI)
to non-assurance services. C. SM, SMI
II. Non-assurance services lack one or more element (s) of D. SMI, SM
an assurance, engagement.
A. Both are true 12. Classify the following statements:
B. True, false • Adherence to SEC regulations
C. Both are false • Report on an entity's observance of the SEC regulations
D. False, true A. Both are subject matters (SM)
B. Both are subject matter information (SMI)
5. Evaluate the following statements: C. SM, SMI
I. Audit engagements are non-assurance services. D. SMI, SM
II. Review engagements are non-assurance services. 13. Evaluate the following statements
A. Both are true • Evidential matters are benchmarks used to evaluate or
B. True, false measure the subject matter including, where relevant,
C. Both are false benchmarks for presentation and disclosure.
D. False, true • Criteria refer to the information obtained by the
practitioner in arriving at the conclusions on which the
6. Which is an engagement in which a practitioner conclusion is based.
expresses a conclusion designed to enhance the degree of A. Both are true
confidence of the intended to other than the responsible B. True, false
party about the outcome of the evaluation or measurement C. Both are false
of a subject matter against criteria? D. False, true
A. Assurance engagement
B. Audit engagement 14. A criterion that is relevant
C. Attestation engagement A. Contributes to conclusions that assist decision-
D. Management consulting engagement making by the intended users.
B. Is sufficiently complete when relevant factors that could
7. Evaluate the following statements affect the conclusions in the context of the engagement
I. The preparation of tax returns where no conclusion circumstances are not omitted, Complete criteria include,
conveying assurance is expressed is non-assurance service. where relevant, benchmarks for presentation and disclosure
II. Consulting engagements are assurance services. C. Allows reasonably consistent evaluation or measurement
A. Both are true of the subject matter including, where relevant, presentation
B. True, false and disclosure, when used in similar circumstances by
C. Both are false similarly qualified practitioners
D. False, true
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D. Contributes to conclusions that are clear, D. All of the above are true about non-assurance services
comprehensive, and not subject to significantly different
interpretations 22 In an engagement to perform agreed-upon procedures,
an auditor is engaged to
15. Evaluate the possibility of obtaining the following A. Use accounting expertise as opposed to auditing
levels of assurance! expertise to collect, classify, and summarize financial
I. Absolute information.
II. Reasonable B. Provide a moderate level of assurance that the
III. Limited information is free of material misstatement.
A. All are possible C. Carry out those procedures of an audit to which the
B. All are impossible auditor and the entity and any appropriate third parties
C. Only I is possible have agreed and to report on factual findings.
D. Only I is impossible D. Provide a high, but not absolute level of assurance that
the information is free of material misstatement.
16. Evaluate the following reasons why a perfect level of
assurance is not possible: 23, Which of the following statements is true?
* the use of selective testing A. Having accepted an assurance engagement, a
* Much of the evidence available to the practitioner is practitioner may not change that engagement to a non-
conclusive rather than persuasive assurance engagement anytime the client requests for such
A. Both are true change.
B. True, false B. Under no circumstance can a practitioner who has
C. Both are false accepted an assurance engagement may change that
D. False, true engagement to a non-assurance engagement, or from a
reasonable assurance engagement to a limited assurance
17. Classify the following statements as to the level of engagement even with reasonable justification.
assurance: C. Having accepted an assurance engagement, a
I. The aim is a reduction in assurance engagement risk to an practitioner may not change that engagement to a non-
acceptably low level in the circumstances of the assurance engagement without reasonable justification.
engagement as the basis for a positive form of expression D. Having accepted an assurance engagement, a
of the practitioner's conclusion. practitioner may change that engagement to a non-
II. The aim is a reduction in assurance engagement risk to a assurance engagement without reasonable justification and
level that is acceptable in the circumstances of the disregards evidence obtained prior to the change.
engagement, but where that risk is greater than for a
reasonable assurance engagement, as the basis for a 24. Which of the following is not a distinction between a
negative form of expression of the practitioner's conclusion. compilation and a review?
A. Limited, Absolute a. The CPA must be independent as a prerequisite to
B. Reasonable, Limited performing a review engagement, but need not be
C. Limited, Reasonable independent to perform a compilation.
D. Absolute, Limited b. In conducting a review, the CPA must obtain
understanding of the client's internal control system;
18. Classify the following statements as to the form of the but this is not necessary for a compilation engagement.
conclusion related to the assurance given: I. In our opinion, c. Analytical procedures are applied in a review
internal control is effective, in all material respects, based engagement, but are not required in a compilation.
on XYZ criteria. d. A compilation offers no assurance, whereas a review
II. Based on our work described in this report, nothing has provides limited assurance.
come to our attention that causes us to believe that internal
control is not effective, in all material respects, based on 25. Which of the following functions to promulgate
XYZ criteria. auditing standards?
A. Negative, Positive A. National Accredited Professional Organization
B. Reasonable, Limited B. Financial Reporting Standards Council
C. Limited, Reasonable C. ACPAPP
D. Positive, Negative D. AASC

19, Which of the following procedures ordinarily 26. A financial statement audit.
performed during an audit are also performed in a review a. Confirms that the financial statement assertions are
engagement? accurate.
A. Assessment of accounting and internal control systems. b. Lends credibility to the financial statements.
B. As if doing something (AIDS) c. Confirms that financial statements are presented fairly.
C. Tests of records and responses to inquiries. d. Assures that fraud had been detected.
D. Inquiry and analytical procedures.
27 Suitable criteria are reasonably required for consistent
20. This is the risk that the practitioner expresses an evaluation or measurement of the subject matter of an
inappropriate conclusion when the subject matter assurance engagement. Which of the following statements
information is materially misstated. concerning the characteristics of suitable criteria is correct?
A. Audit risk A. Reliable criteria contribute conclusions that are clear,
B. Detection risk comprehensive, and not subject to significantly different
C. Assurance engagement risk interpretations.
D. Practitioner's risk b. Relevant criteria allow reasonably consistent evaluation
or measurement of the subject matter including where
21. Which of the following is true about non-assurance relevant, presentation and disclosure, when used in similar
services? circumstances by similarly qualified practitioners.
A. Audit engagements are non- assurance services c. Neutral criteria contribute conclusions that are free
B. Review engagements are non-Assurance services from bias.
C. Non-assurance services lack one or more element (s)
of an assurance Engagement
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d. Criteria are sufficiently complete when they contribute to d. The cause or reason why the reported condition occurred.
conclusions that are clear, comprehensive and not subject to
different interpretations. 32. When an auditor issues an unqualified opinion on an
entity's internal control, it is implied that the
28. The fair presentation of the financial statements in a. Entity has not violated provisions of the Foreign Corrupt
accordance with financial reporting standards is the Practices Act.
responsibility of the: b. Likelihood of management fraud is minimal.
a. The internal auditor c. Financial records are sufficiently reliable to permit
b. The external auditor the preparation of financial statements.
c. The Securities and Exchange Commission d. Entity's internal control system is in conformity with
d. The company's management criteria established by its audit committee.

29. The subject matter of an assurance engagement can take 33. The single feature that most clearly distinguishes
the following forms except: auditing, attestation, and assurance is
a. Historical. or prospective financial statements a. Type of service
b. Performance of an entity that could indicate efficiency b. Training required to perform the service
and effectiveness. c. Scope of services
c. The entity's internal control. d. CPA's approach to the service
d. Evaluation of a capital investment proposal.
34. Which of the following services of a professional
30. Philippine Standards on Auditing (PSA) is best accountant is considered to provide moderate level of
described to mean assurance that the subject matter is free from material
a. Acts to be performed by the auditor. misstatements?
b. Measures of the quality of the auditor's performance. a. Audit
c. Procedures to be used to gather evidence to support b. Agreed-upon procedures
financial statements. c. Review
d. Audit objectives generally determined on audit d. Compilation.
engagements.
35 Which of the following statements is not true regarding
31. One of the elements of a standard Audit finding is the competence of audit evidence?
"criteria". Which of the following best describes this a. Relevance is enhanced by an effective information
element of an audit finding? system.
a. What the auditor found, the status, condition. b. To be competent, evidence must be both valid and
b. The effect that implementing recommendation is relevant.
expected to achieve. c. Validity is related to the quality of the client's
c. The standard of performance, or what should be. information system.
d. Relevance must always relate to audit objectives.

II. TRUE OR FALSE: Write 'True' if the statement is correct, otherwise, write 'False'.
FALSE 1. Competent evidential matter supporting management's assertions should be convincing rather than merely persuasive.
FALSE 2. Effective internal control unlikely contributes to the reliability of the evidence created within the entity.
FALSE 3. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be
obtained.
TRUE 4. A client's accounting data cannot be considered a sufficient audit evidence to support the financial statements.
FALSE 5. The report issued in a non-assurance engagement must be expressed in a negative form.

-end-

Prepared by:

LEINELL BASTA MARIA, CPA

Course Instructor

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