INTEGRATED CPA REVIEW – AUDITING J. RAMIREZ, JD c.

“Fundamentals of Auditing and Assurance Services”

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.

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.

3. Philippine Standards on Auditing

a. Relate to the filing requirements and enforcement activities of the SEC.
b. Describe procedures to be applied in specific areas of audit activity to eliminate inconsistencies in
audit practice.
c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function.
d. Interpret standards that provide guidelines or measures of quality for an independent audit.

4. The Philippine Standards on Auditing issued by AASC

a. Apply to independent examination of financial statements of any entity when such examination is
conducted for the purpose of expressing an opinion.
b. Must not apply to other related activities of auditors.
c. Need to be applied on all audit related.
d. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA,
even though such a departure may result to more effective achievement of the objective of an
audit.

5. Which of the following best describes the objective of an assurance engagement?

a. To improve the company’s outcomes
b. To compare the company’s information and polices to those of other entities
c. To enhance the credibility of information in order to improve the likelihood that the information
will meet the needs of an intended user
d. To provide consulting and advisory services.

6. Assurance services differ from consulting services in that they

I. Focus on providing advice
II. Involve monitoring of one party by another
a. I only
b. II only
c. Both I and II
d. Neither I nor II

7. As used in PSA, which of the following statements best describes "assertions"?

a. Assertions are the representations of management as to the reliability of the information system.
b. Assertions are the auditor's findings to be communicated in the audit report.
c. Assertions are the representations of management as to the fairness of the financial statements
d. Assertions are found only in the footnotes to the financial statements.

8. Which of the following mostly describes the function of AASC?

a. To monitor full compliance by auditors to PSAs.
b. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in
audit practice.
c. To promulgate auditing standards, practices and procedures that shall be generally accepted by
the accounting profession in the Philippines.
d. To undertake continuing research on both auditing and financial accounting in order to make
them responsive to the needs of the public.
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9. Which statement does not accurately describe an assurance engagement?

a. The objective of an assurance engagement is for a professional accountant to evaluate or measure
a subject matter that is the responsibility of another party against identified suitable 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, it 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

10. The Philippine Framework for Assurance Engagements identifies two types of assurance engagement a
practitioner is permitted to perform: a reasonable assurance engagement and a limited assurance
engagement. Which of the following is the objective of a reasonable assurance engagement?
a. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a negative form of expression of the practitioner’s conclusion.
b. A reduction in assurance engagement risk to a very low level in the circumstances of the
engagement as a basis for a disclaimer of the practitioner’s conclusion.
c. A reduction in assurance engagement risk to an acceptably low level that is acceptable in the
circumstances of the engagement as a basis for a positive form of expression of the practitioner’s
conclusion.
d. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a qualified form of the practitioner’s conclusion.

11. How many members of AASC are needed to approve the exposed draft as Philippine Standards on
Auditing?
a. Majority of the regular members
b. At least eight
c. At least ten
d. At least twelve

12. It refers to the level of satisfaction as to the reliability of an assertion being made by one party for
use by another party
a. Confidence level
b. Assurance level
c. Reasonableness level
d. Tolerable level

13. The following are the elements of an assurance engagement except:

a. Suitable criteria
b. An appropriate subject matter.
c. A two-party relationship involving a practitioner and intended users.
d. Sufficient appropriate evidence.

14. When performing an assurance service, professional accountants use standards or benchmarks to
evaluate or measure the subject matter of an assurance engagement. This element of an assurance
engagement is called:
a. Criteria.
b. Conclusion.
c. GAAP.
d. Assertion.

15. The subject matter of an assertion may include:

a. Historical or prospective financial information.
b. Internal controls.
c. Compliance with regulation.
d. All of the following.

16. In an assurance engagement, the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose is the:
a. Intended user.
b. Responsible party.
c. Management.
d. Client.

17. Which of the following is expected of AASC to do?

a. AASC should normally expose a proposed interpretation of statements
b. AASC should normally expose its opinion on specific queries from a practicing CPA
c. When it is deemed necessary to expose for a comment on proposed interpretations of statements,
the exposure period is understandably shorter than those of the regular drafts of standards
d. To make the statements on Philippine Standards on Auditing operative, the final statement shall
be submitted to the Board of Accountancy for approval

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18. The suitability of the criteria to which the professional accountant will base his evaluation of
the subject matter partly depends on:
a. b. c. d.
Relevance Yes Yes Yes No
Reliability Yes Yes Yes Yes
Understandability Yes No Yes No
Neutrality NO No Yes Yes

19. Professional judgment

a. Should be exercised in planning an performing an audit of financial statements but need not be
documented
b. Can be used as the justification for the decisions made by the auditor that are not supported by the
facts and circumstances of the engagement
c. Is necessary in the evaluation of management’s judgments in applying the entity’s applicable financial
reporting framework
d. Is not used in making decisions about materiality and audit risk

20. Reasonable assurance means

a. Gathering of all available corroborating evidence for the auditor to conclude that there are
no material misstatements in the financial statements, taken as a whole
b. Gathering of the audit evidence necessary for the auditor to conclude that the financial
statements, taken as a whole, are free from any misstatements
c. Gathering of the audit evidence necessary for the auditor to conclude that the financial
statements are free of material unintentional misstatements
d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole

21. An audit in accordance with PSAs is performed on the premise that management and, where
appropriate, those charged with governance have responsibilities that are fundamental to the conduct
of the audit. Which of the following is not one of those responsibilities?
a. To comply with all relevant PSAs in the preparation and presentation of the entity’s financial
statements
b. To provide the auditor with all information, such as records and documentation, and other
matters that are relevant to the preparation and presentation of the financial statements
c. To provide unrestricted access to those within the entity from whom the auditor determines
it necessary to obtain audit evidence
d. To design, implement, and maintain internal control relevant to the preparation and presentation
of financial statements that are free from material misstatement, whether caused by fraud or
error

22. The auditor is required to maintain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a. A belief that management and those charged with governance are honest and have integrity
relieves that auditor of the need to maintain professional skepticism
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating
the results thereof
c. Professional skepticism is necessary to the critical assessment of audit evidence
d. Professional skepticism is an attitude that includes questioning contradictory

23. Every independent audit engagement involves both auditing standards and auditing procedures. The
relationship between the two may be illustrated by how they apply from engagement to engagement.
The best representation of this application is that, from one audit engagement to the next
a. Both auditing standards and auditing procedures are applied uniformly
b. Auditing standards are applied uniformly but auditing procedures may vary
c. Auditing standards may vary but auditing procedures are applied uniformly
d. Auditing standards are applied uniformly but auditing procedures are optional

24. Generally accepted accounting principles (GAAP) are distinguished from generally auditing standards
(GAAS) in that
a. GAAP are the principles for presentation of financial statements and underlying transactions, while
GAAS are the standards that the auditors should follow when conducting an audit
b. GAAP are the principles auditors follow when conducting an audit, while GAAS are the standards
for presentation of financial statements and underlying transactions
c. GAAP are promulgated by the SEC, while GAAS are promulgated by the FRSC
d. When GAAP are violated, sufficiently strong GAAS may make up for most GAAP deficiencies

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25. The primary purpose of an independent financial statement audit is to
a. Provide a basis for assessing management's performance.
b. Comply with state and federal regulatory requirements.
c. Assure management that the financial statements are unbiased and free from material error.
d. Provide users with an unbiased opinion about the fairness of information reported in the financial
statements.

26. Independent auditing can best be described as a

a. Branch of accounting.
b. Discipline that attests to the results of accounting and other operations and data.
c. Professional activity that measures and communicates financial and business data.
d. Regulatory function that prevents the issuance of improper financial information.

27. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any fraudulent activity has been corrected.

28. Internal auditing often extends beyond examinations leading to the expression of an opinion on the
fairness of financial presentation and includes audits of efficiency, effectiveness, and
a. Internal control.
b. Evaluation.
c. Accuracy.
d. Compliance.

29. Which of the following statements is not a distinction between independent auditing and
internal auditing?
a. Independent auditors represent third party users external to the auditee entity, whereas internal
auditors report directly to management.
b. Although independent auditors strive for both validity and relevance of evidence, internal auditors
are concerned almost exclusively with validity.
c. Internal auditors are employees of the auditee, whereas independent auditors are independent
contractors.
d. The internal auditor's span of coverage goes beyond financial auditing to encompass operational
and performance auditing.

30. The best description of the scope of internal auditing is that it encompasses
a. Primarily operational auditing.
b. Both financial and operational auditing.
c. Primarily the safeguarding of assets and verifying the existence of such assets.
d. Primarily financial auditing.

31. Which of the following best describes the operational audit?

a. It requires the constant review by internal auditors of the administrative controls as they relate to
operations of the company.
b. It concentrates on implementing financial and accounting control in a newly organized company.
c. It attempts and is designed to verify the fair presentation of a company's results of operations.
d. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction
of controls.

32. The purpose of a compliance audit for a governmental entity is to determine whether
a. Financial statements comply with GAAP and whether the entity is operating efficiently.
b. Financial statements comply with GAAP and the entity has complied with applicable laws and
regulations.
c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP.

33. Government auditing often extends beyond examinations leading to the expression of opinion on the
fairness of financial presentation and includes audits of efficiency, effectiveness, and
a. Internal control
b. Evaluation
c. Accuracy
d. Compliance

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34. In government auditing, the three elements of expanded scope auditing are
a. Goal analysis, audit of operations, audit of systems
b. Financial and compliance, economy and efficiency, program results
c. Pre-audit, post audit, internal audit
d. National government audit, local government audit, corporation audit

35. An operational audit is designed to

a. Assess the efficiency and effectiveness of management’s operating procedures.
b. Assess the presentation of management's financial statements in accordance with generally
accepted accounting principles.
c. Determine whether management has complied with applicable laws and regulations.
d. Determine whether the audit committee of the board of directors is effectively discharging
its responsibility to oversee management's operations.

36. 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.

37. 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

38. For the purpose of expressing negative assurance in the review report, the practitioner should obtain
sufficient appropriate evidence primarily through
a. Inquiry and confirmation
b. Analytical procedures and substantive tests of details of transactions and account balances
c. Confirmation and tests of controls
d. Inquiry and analytical procedures

39. Which of the following best describes review services?

a. Review engagements focus on providing assurance on the assertions contained in the financial
statements of a public company.
b. Review engagements focus on providing assurance on the internal controls of a public company.
c. Review engagements focus on providing limited assurance on financial statements of a private
company.
d. Review engagements focus on providing advice in a three-party contract

40. In an engagement to perform agreed-upon procedures, an auditor is engaged to

a. Use accounting expertise as opposed to auditing expertise to collect, classify, and summarize
financial information.
b. Provide a moderate level of assurance that the information is free of material misstatement.
c. Provide a high, but not absolute, level of assurance that the information is free of material
misstatement.
d. 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.

41. 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 for without a requirement to test the assertions underlying that information.

42. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to
auditing expertise to collect, classify, and summarize financial institution. What type of assurance is
provided by the accountant when he/she performs this engagement?
a. Positive assurance
b. Negative assurance
c. No assurance
d. Limited assurance

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43. Independence is not a requirement for which of the following engagements?
Compilation Review Agreed-upon Procedures
a. No Yes No
b. No No No
c. Yes No Yes
d. Yes Yes Yes

44. Which of the following engagements require compliance with the requirements of the Code of Ethics
for Professional Accountants in the Philippines?
Compilation Review Agreed-upon Procedures
a. No Yes No
b. No No No
c. Yes No Yes
d. Yes Yes Yes

45. Which of the following statements is correct concerning an auditor’s responsibilities regarding financial
statements?
a. An auditor’s responsibilities for audited financial statements are confined to the expression of the
auditor’s opinion.
b. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of
the auditor’s responsibilities.
c. Making suggestions that are adopted about the form and content of an entity’s financial
statements impairs an auditor’s independence.
d. The auditor’s report should provide an assurance as to the future viability of the entity.

46. Which of the following best describes why an independent auditor is asked to express an opinion on
the fair presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company’s financial position,
cash flow, and operations without the expertise of an independent auditor
b. It is management’s responsibility to seek available independent aid in the appraisal of the financial
information shown in its financial statements
c. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements
d. It is customary courtesy that all stockholders of a company receive an independent report
on management’s stewardship in managing the affairs of the business

47. When a CPA expresses an opinion on financial statements, his or her responsibilities extend to
a. The underlying wisdom of the client’s management decisions.
b. Whether the results of the clien’s operating decisions are fairly presented in the financial
statements.
c. Active participation in the implementation of the advice given to the client.
d. A ongoing responsibility for the client’s solvency.

48. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of
the following factors, except
a. The use of selective testing
b. The fact that much of the evidence available to the practitioner is persuasive rather than conclusive
c. The practitioner may not have the required assurance knowledge and skills to gather and evaluate
evidence
d. The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence

49. In “auditing” accounting data, the concern is with

a. Determining whether recorded information properly reflects the economic events that occurred
during the accounting period.
b. Determining if fraud occurred.
c. Determining if taxable income has been calculated correctly.
d. Analyzing the financial information to be sure that it complies with government requirements.

50. Although a CPA does not guarantee his findings, his opinion is nevertheless valuable to various third
parties. The value of the CPA’s opinion lies in the fact that
a. He has the qualifications required by law to be a CPA.
b. He is under the supervision of the Professional Regulatory Board of Accountancy.
c. He has gathered sufficient, competent, evidential matter to support his opinion.
d. He has followed generally accepted auditing standards.

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