AUDIT ASSURANCE AND PRINCIPLES

QUIZ NO. 2

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

2. The accuracy of information included in the footnotes that accompany the audited financial
statements of a company whose shares are traded on a stock exchange is the primary responsibility
of
a. The stock exchange officials.
b. The company's management.
c. The independent auditor.
d. The Securities and Exchange Commission.

3. The responsibility for adopting sound accounting policies, maintaining adequate internal control,
and making fair representations in the financial statements rests
a. With management
b. With the independent auditor
c. Equally with management and the auditor
d. With the internal audit department.

4. Audit standards require an auditor to:

a. Perform procedures that are designed to detect all instances of fraud.
b. Provide reasonable assurance that the financial statements are not materially misstated.
c. Issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have
occurred.
d. Design the audit program to meet financial statement users' expectations concerning fraud.

5. Which of the following is not likely a threat to independence?

a. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third
parties.
b. Long association of a senior member of the assurance team with the assurance client.
c. Threat of replacement over a disagreement with the application of an accounting principle.
d. Owning immaterial indirect financial interest in an audit client.

6. An auditor who believes that a material irregularity may exist should initially
a. Consult legal counsel.
b. Discuss the matter with those believed to be involved in the perpetration of the material irregularity.
c. Discuss the matter with a higher level of management.
d. Withdraw from the engagement.

7. Which of the following statements is correct concerning the auditor's responsibility with respect to
illegal acts?
a. An auditor must design tests to detect both direct-effect and indirect-effect illegal acts.
b. An auditor must design tests to detect both immaterial and material direct-effect illegal acts.
c. An auditor must design tests to obtain reasonable assurance of detecting material direct-effect
illegal acts.
d. An auditor must design tests to detect both material direct-effect and material indirect-effect illegal
acts.

8. The failure of the auditor to meet generally accepted auditing standards is

a. An accepted practice.
b. A suggestion of negligence.
c. An evidence of negligence.
d. Tantamount to criminal behavior.

9. Management’s assertions in the financial statements are relevant to the audit process because:
a. They provide evidence that auditors have prepared financial statements in accordance with GAAP
b. They embody the audit procedures that will be performed by the audit engagement team.
c. They include representations of financial statements in accordance with the applicable reporting
criteria
d. They relate to regulator’s expectations about audit results.

10. Similar to auditors in the CPA realm, internal auditors also strive to possess:
a. Independence
b. Competence
c. Objectivity
d. All of the above

11. The objective of the ordinary audit of financial statements is the expression of an opinion on:
a. The fairness of the financial statements in all material respects.
b. The accuracy of the financial statements.
c. The accuracy of the annual report.
d. The accuracy of the balance sheet and income statement.

12. Management assertions are:

a. Directly related to the financial reporting framework used by the company.
b. Stated in the footnotes to the financial statements.
c. Explicitly expressed representations about the company’s financial condition.
d. Provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

13. Which of the following statements best describes assurance services?

a. Independent professional services that are intended to enhance the credibility of information to
meet the needs of an intended user.
b. Services designed to express an opinion on the fairness of historical financial statements based on
the results of an audit.
c. The preparation of financial statements or the collection, classification, and summarization of other
financial information.
d. Services designed for the improvement of operations, resulting in better outcomes.

14. Which of the following is not an assurance service?

a. Examination of prospective financial information
b. Audit of historical financial statements
c. Review of financial statements
d. Compilation of financial information

15. 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?
a. Reliable criteria contribute to conclusions that are clear, comprehensive, and not subject to
significantly different interpretations.
b. 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.
c. Neutral criteria contribute to conclusions that are free from bias.
d. Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations.

16. In an assurance engagement, the outcome of the evaluation or measurement of a subject matter
against criteria is called
a. Subject matter information
b. Subject matter
c. Assurance
d. Conclusion

17. 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
a. Direct reporting engagements
b. Assertion-based engagements
c. Non-assurance engagements
d. Recurring engagements

18. What type of assurance engagement is involved when the practitioner expresses a positive form
of conclusion?
a. Limited assurance engagement
b. Positive assurance engagement
c. Reasonable assurance engagement
d. Absolute assurance engagement

19. What type of assurance engagement is involved when the practitioner expresses a negative form
of conclusion?
a. Reasonable assurance engagement
b. Negative assurance engagement
c. Assertion-based assurance engagement
d. Limited assurance engagement

20. 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.
21. 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.

22. 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.

23. The Philippine Framework for Assurance Engagements

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. Establishes standards and provides procedural requirements for the performance of assurance
engagements.

24. 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.

a. I only c. Both I and II

b. II only d. Neither I nor II

25. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February
2008, applies to
a. Reviews of any historical financial information of an audit client.
b. Reviews of any historical financial information by a practitioner other than the entity’s auditor.
c. Reviews of historical financial or other information by a practitioner other than the entity’s auditor.
d. Reviews of historical financial or other information of an audit client.
26. When performing a compilation engagement, the accountant is required to
a. Assess internal controls.
b. Make inquiries of management to assess the reliability and completeness of the information
provided.
c. Verify matters and explanations.
d. Obtain a general knowledge of the business and operations of the entity.

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

28. 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

29. A practitioner should accept an assurance engagement only if

a. The subject matter is in the form of financial information.
b. The criteria to be used are not available to the intended users.
c. The practitioner’s conclusion is to be contained in a written report.
d. The subject matter is the responsibility of either the intended users or the practitioner.

30. A practitioner is associated with financial information when

I. The practitioner attaches a report to that financial information.
II. The practitioner consents to the use of his/her name in a professional connection.

a. I only
b. II only
c. Either I or II
d. Neither I nor II

31. The auditor is required to comply with all PSAs relevant to the audit of an entity’s financial
statements. A PSA is relevant to the audit when
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist.

a. I only c. Either I or II
b. II only d. Both I and II

32. The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.
IV. To detect all misstatements, whether due to fraud or error.
a. I and II only
b. II and IV only
c. I, II, and III only
d. I, II, III, and IV

33. 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 the 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 audit evidence
obtained.

34. The members of the Professional Regulatory Board of Accountancy shall be appointed by the
a. Philippine Institute of CPAs (PICPA).
b. Professional Regulation Commission (PRC).
c. President of the Philippines.
d. Association of CPAs in Public Practice (ACPAPP).

35. The following statements relate to the submission of nominations to the Board of Accountancy.
Which is correct?
a. The Accredited National Professional Organization of CPAs (APO) shall submit its nominations to
the president of the Philippines not later than sixty (60) days prior to the expiry of the term of an
incumbent chairman or member.
b. The APO shall submit its nominations to the PRC not later than thirty (30) days prior to the expiry of
the term of an incumbent chairman or member.
c. If the APO fails to submit its own nominee(s) to the PRC within the required period, the PRC in
consultation with the Board of Accountancy shall submit to the president of the Philippines a list of five
(5) nominees for each position.
d. There should be adequate documentation to show the qualifications and primary field of
professional activity of each nominee.

36. The following statements relate to the term of office of the chairman and members of the Board of
Accountancy (BOA). Which is false?
a. The chairman and members of the BOA shall hold office for a term of three (3) years.
b. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of
the term only.
c. No person who has served two successive complete terms as chairman or member shall be eligible
for reappointment until the lapse of two (2) years.
d. Appointment to fill up an unexpired term is not to be considered as a complete term.

37. The Board of Accountancy has the power to conduct an oversight into the quality of audits of
financial statements through a review of the quality control measures instituted by auditors in order to
ensure compliance with the accounting and auditing standards and practices. This power of the BOA
is called
a. Quality assurance review c. Appraisal
b. Peer review d. Quality control

38. Which of the following shall be issued to examinees who pass the CPA licensure examination?
a. Certificate of registration and death certificate.
b. Professional identification card and warrant of arrest.
c. Certificate of registration and professional identification card.
d. Warrant of arrest and death certificate.

39. Which of the following statements concerning the issuance of Certificates of Registration and
Professional Identification Cards to successful examinees is correct?
a. The Certificate of Registration issued to successful examinees is renewable every three (3) years.
b. The Professional Identification Card issued to successful examinees shall remain in full force and
effect until withdrawn, suspended or revoked in accordance with RA 9298.
c. The BOA shall not register and issue a Certificate of Registration and Professional Identification
Card to any successful examinee of unsound mind.
d. The BOA may, after the expiration of three (3) years from the date of revocation of a Certificate of
Registration, reinstate the validity of a revoked Certificate of Registration.

40. Which of the following statements concerning the use of firm or partnership name is incorrect?
a. In the case of an individual CPA, he/she shall do business under his/her registered name with the
BOA and the PRC and as printed in his/her CPA certificate (for example, Juan Puruntong, CPA).
b. In the case of a firm, it shall do business under its duly registered and authorized firm name
appearing in the registration documents issued by the Department of Trade and Industry (DTI) and
other government offices and such firm name shall include the real name of the sole proprietor as
printed in his/her CPA certificate (for example, Arnulfo Gumamela and Associates).
c. In the case of a registered partnership, it shall do business under its name as indicated in its current
Articles of Partnership and Certificate of Registration issued by the Securities and Exchange
Commission (SEC) (for example, Tanya, Sam, and Jervi, CPAs).
d. A CPA shall practice only under an individual, firm, or partnership name in accordance with
Philippine laws and shall not include any fictitious name but may indicate specialization.

41. A partner surviving the death or withdrawal of all the other partners in a partnership may continue
to practice under the partnership name for a period of not more than _____ years after becoming a
sole proprietor.
a. 1 c. 3
b. 2 d. 4

42. The death or disability of an individual CPA and/or the dissolution and liquidation of a firm or
partnership of CPAs shall be reported to the BOA not later than _____ days from the date of such
death, dissolution or liquidation.
a. 15 c. 60
b. 30 d. 90

43. Which of the following statements concerning a CPA’s disclosure of confidential client information
is ordinarily correct?
a. Disclosure may be made to any party on consent of the client.
b. Disclosure should not be made even if such disclosure will protect the CPA’s professional interests
in legal proceedings.
c. Disclosure should be made only if there is a legal or professional duty to make the disclosure.
d. Disclosure may be made to any government agency without subpoena.

44. Listed below are names of four CPA firms and pertinent facts relative to each firm. Unless
otherwise indicated, the individuals named are CPAs and partners, and there are no other partners.
Which is a violation of the Implementing Rules and Regulations of RA 9298?
a. Tin, Ton and Tan, CPAs (Tin died about five years ago; Ton and Tan are continuing the firm.)
b. Pol and Bon, CPAs (The name of Cua, a third partner, is omitted from the partnership name.)
c. Joni and Jona, CPAs (Joni died about three years ago; Jona is continuing the firm as a sole
proprietor.)
d. Elias and Co., CPAs (The firm has ten other partners who are all CPAs).

45. Which of the following statements best explains why the CPA profession has found it essential to
establish ethical standards and means for ensuring their observance?
a. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous
acts.
b. Ethical standards that emphasize excellence in performance over material rewards establish a
reputation for competence and character.
c. A distinguishing mark of a profession is its acceptance of responsibility to the public.
d. A requirement for a profession is to establish ethical standards that stress primarily a responsibility
to clients and colleagues.

46. A study, appraisal, or review by the BOA or its duly authorized representatives, of the quality of
audit of financial statements through a review of the quality control measures instituted by an
Individual CPA, Firm or Partnership of CPAs engaged in the practice of public accountancy.
a. Peer review
b. Quality review
c. Analytical review
d. Administrative review

47. 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. A measure of management performance in meeting organizational goals.
b. The results of internal examinations of financial and accounting matters to a company’s top-level
management.
c. Aid to the independent auditor, who is conducting the examination of the financial statements.
d. A means of assurance that internal accounting controls are functioning as planned.

48. Governmental auditing often extends beyond examinations leading to the expression of opinion on
the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and
also
a. Accuracy.
b. Evaluation.
c. Compliance.
d. Internal control.
49. Which of the following terms best describes the audit of a taxpayer’s return by a BIR auditor?
a. Operational audit.
b. Internal audit.
c. Compliance audit.
d. Government audit.

50. Which of the following professionals has primary responsibility for the performance of an audit?
a. The managing partner of the firm.
b. The senior assigned to the engagement.
c. The manager assigned to the engagement.
d. The partner in charge of the engagement.