DE LA SALLE UNIVERSITY MANILA

RVR COB DEPARTMENT OF ACCOUNTANCY

REVDEVT 3rd Term AY 13-14
Auditing Theory
Prof. Francis H.
Villamin
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OTHER ASSURANCE & NON ASSURANCE SERVICES

1. Which of the following represents the highest to lowest level of assurance provided by auditors in the
performance of the engagement?
a. An audit; a compilation; a review.
b. A compilation; a review; an audit.
c. A review; an audit; a compilation.
d. An audit; a review; a compilation.
2. Assurance services are independent professional services that improve the quality of information or
its
a. Context
b. Profitability
c. Reliability
d. Sufficiency
3. An auditor who was engaged to perform an examination of the financial statements of a non-public
entity has been asked by the client to refrain from performing various audit procedures and changed
the nature of the engagement to a review of financial statements. The client made the request
because of the significant cost of completing the examination. The auditor would most likely
a. Qualify the auditors report and refer to the scope limitation
b. View the request as an indication of possible irregularity
c. Complete the examination in progress
d. Honor the client request
4. The degree of certainty that the practitioner has attained and wishes to convey is
a. An assertion
b. A conveyance
c. An assurance
d. A declaration
5. When an accountant performs more than one level of service, he generally should issue a report that
is appropriate for:
a. The lowest level of service rendered
b. A compilation engagement
c. The highest level of service rendered
d. A review engagement
6. The primary standards for attestation services other than historical financial statements are the:
a. Accounting and Review Services
b. Attestation Standards
c. Generally Accepted Auditing Standards
d. Field Standards of Professional Conduct
7.

A practitioner who is performing an attestation engagement may ordinarily report upon the subject
matter or a(n):
a. Assertion about the subject matter
b. Control criterion
c. Reliability statement
d. Suitable criteria

8.

What type of attestation engagement is similar in terms of assurance provided to an audit of

historical financial statements?

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a.
b.
c.
d.

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Assessment
Detailed review
Evaluation
Examination

9. Which of the following statements is true concerning interim financial information?

a. An audit of interim financial information is required for SEC-registered companies.
b. The accountant needs to obtain sufficient knowledge of the entitys business and industry before
undertaking an engagement on interim financial information.
c. An accountant may not report on financial information presented separately from audited
financial statements.
d. Interim financial information may not be included as part of a note to the audited financial
statements.
10. What type of assurance is provided by an auditor when he issues a review report?
a. Limited
b. Neutral
c. None
d. Positive
11. The statement that the reviewer is not aware of any material modification that should be made to the
financial statements in order for them to be in conformity with GAAP is known as:
a. Reasonable assurance
b. Negligent performance
c. Negative assurance
d. Necessary ignorance
12. Which of the following is a major difference between a review and an audit of the financial
statements?
a. The scope of the procedures performed and the assurance provided.
b. The level of knowledge of professional standards needed to perform the procedures.
c. The type of accounting used- reviews are typically on non-GAAP accounting, while audits are
based upon GAAP accounting.
d. The type of company involved in reviews may only be publicly-held.
13. The circumstance most likely to make it impossible for a practitioner to issue a review report is when
the
a. Criteria are only available to specified users
b. Subject matter contains a departure from the criteria
c. Company faces a going concern uncertainty
d. Scope of the engagement has been significantly limited
14. The objective of a review of interim financial information is to provide the CPA with a basis for
a. Expressing a limited opinion that the financial information is presented in conformity with
generally accepted accounting principles
b. Expressing a compilation opinion on the financial statements
c.
Reporting whether material modifications should be made to such information to make it
conform with generally accepted accounting principles
d. Reporting limited assurance to the board of directors only
15. The review of unaudited financial statements consists of:
a. Internal control evaluation and management representation
b. Inquiry of management and documentation of internal controls
c. Analytical procedures and compliance with laws and regulations
d. Inquiry of management and analytical procedures
16. In a review of interim financial information of a publicly-held company, the CPA is expected to have
an understanding of all of the following, except the:
a. Industry in which the client operates
b. Clients internal control structure
c. Nature of the entitys organization
d. Entitys accounting practices

17. When performing a review of the financial statements of a non-public entity that CPA should:
a. Obtain an understanding of internal control
b. Inquire about actions taken at meetings of stockholders and board of directors
c. Send letters of audit inquiry to attorneys
d. Read the minutes of meetings of stockholder and board of directors

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18. An accountants standard report on a review of the financial statements of a nonpublic entity should
state that the accountant
a. Does not express an opinion or any form of limited assurance on the financial statements
b. Is not aware of any material modifications that should be made to the financial statements for
them to conform with GAAP
c. Obtained reasonable assurance about whether the financial statements are free of material
misstatement
d. Examined evidence on a test basis, supporting the amounts and disclosures in the financial
statements
19. Which of the following procedures is not appropriate to a review of interim financial information?
a. Confirm cash balances with all banks and depositories
b. Make inquiries concerning the accounting system and any significant changes in the internal
control structure
c. Perform analytical procedures to identify and provide a basis for inquiry about relationships and
individual items that appear unusual.
d. Read the minutes of meetings of stockholders, the board of directors, and committees of the
board.
20. In a review engagement, the independent accountants procedures include:
a. Examining bank reconciliation
b. Confirming accounts receivable with debtors
c. Reading the financial statements to consider whether they appear to conform to GAAP
d. Obtaining a letter of audit inquiry from all attorneys of record
21. Which of the following procedures is not normally performed by the accountant in a review
engagement of a non-public entity?
a. Communicating any material weaknesses discovered during the study and evaluation of internal
accounting control.
b. Reading the financial statements to determine whether they are in conformity with GAAP.
c. Writing an engagement letter to establish an understanding regarding the services to be
performed.
d. Issuing report stating that the review was performed.
22. Performing inquiry and analytical review procedures is the preliminary basis for an accountant to
issue
a. Compilation reports
b. Management advisory services report
c. Review report
d. Audit report
23. A review report states that
a. A review includes assessing the accounting principles used and significant estimates made by
management
b. A review includes examining on a test-basis
c. The accountant is not aware of any material modifications that should be made to the financial
statements
d. The accountant does not express an opinion or any other form of assurance
24. The use of negative assurance in audit reports of financial statements
a. Is a violation of the standards of reporting
b. Is encouraged by PSA
c. Helps in clarifying the degree of responsibility being assumed by the auditor
d. Is properly located in the opinion paragraph of the unqualified report

25. Henson, CPA, was engaged to review the financial statements of Ham Company, a non-public entity.
Evidence came to Hensons attention that indicated substantial doubt as to Hams ability to continue
as a going concern. The principal conditions and events that caused the substantial doubt have
been fully disclosed in the notes to Hams financial statements. Which of the following statements
best describes Albas reporting responsibility concerning this matter?
a. Henson is not required to modify the accountants review report.
b. Henson is not permitted to modify the accountants review report
c. Henson should issue an accountants compilation report instead of a review report
d. Henson should express a qualified opinion in the accountants review report

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26. The objective of a review of the interim financial information of a public company is to
a. Provide the accountant with a basis for expressing an opinion
b. Estimate the accuracy of financial statements from limited tests of accounting records
c. Provide the accountant with a basis for reporting to the board of directors or shareholders
d. Obtain corroborating evidence through inspection, observation, and confirmation
27. If requested to perform a review engagement for a non-public entity for which the accountant has
direct immaterial financial interest, the accountant is:
a. Not independent and therefore, may issue a review report but, not an auditors opinion
b. Not independent and, therefore, may not issue a review report
c. Not independent and, therefore, may not be associated with the financial statements
d. Independent because the financial interest is immaterial
28. An accountant is requested to issue a review report on the balance sheet of a non-public entity but
not on the other basic financial statements. The accountant may not do so
a. Because compliance with this request will result in an incomplete review
b. Because compliance with this request is a violation of ethical standards
c. If the scope has been restricted
d. If the review discloses material departure from GAAP
29. When providing a limited assurance that the financial statements of a non-public entity require no
material modifications in order to present them in accordance with GAAP, the accountant should
a. Understand the system of accounting controls
b. Test the accounting records that identify inconsistencies with the prior years financial statements
c. Understand the accounting principles of the industry in which the business entity operates
d. Develop an audit program
30. The statement that nothing came to our attention which would indicate that these statements are not
fairly presented expresses which of the following?
a. Disclaimer of opinion
b. Negative assurance
c. Negative confirmation
d. Piecemeal opinion
31. Which of the following would not be included in a CPAs report based upon a review of the financial
statements?
a. A statement that the review was in accordance with GAAS.
b. A statement that all information included in the financial statements is the representation of
management.
c. A statement describing the principal procedures performed.
d. A statement describing the auditors conclusions based on the results of the review.
32. In a review service where the client failed to follow GAAP
a. the accountant is not required to determine the effect of a departure if management has not done
so, but that fact must be disclosed in the report.
b. the accountant is required to determine the effect of a departure if management has not done so,
and that fact must be disclosed in the report.
c. the accountant is not required to determine the effect of a departure if management has not done
so, and that fact need be disclosed in the report.
d. the accountant is required to determine the effect of a departure if management has not done so,
and that fact need not be disclosed in the report.

33. The objective of a review of interim financial information of a public entity is to provide an
accountant with a basis for reporting whether
a. material modification in the financial statements should be made to conform with GAAP.
b. a reasonable basis exists for expressing an updated opinion regarding the financial statements
that were previously audited.
c. condensed financial statements should be included in a registration statement.
d. the financial statements are presented fairly in conformity with GAAP.
34. An accountant who reviews the financial statements should issue a report stating that a review
a. is substantially less in scope that an audit.
b. provides negative assurance that the internal control is functioning as designed.
c. provides only a limited assurance that the financial statements are fairly presented.
d. is substantially more in scope than a compilation.

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35. Before performing a review of a non-public entitys financial statements, an accountant should
a. make inquiries of the management
b. apply analytical review procedures to identify unusual fluctuations
c. obtain a sufficient level of knowledge about accounting principles and practices of the industry in
which the entity operates
d. inquire as to whether management has significantly omit disclosures in the financial statements.
36. In a review engagement, if the CPA believes that the financial statements lack a material disclosure
that the management refuses to include, the CPA should
a. issue a qualified opinion
b. issue an adverse opinion
c. express only limited assurance
d. disclose this departure in a separate paragraph
37. Which of the following procedures would normally be included in the review engagements?
a. Preparing bank transfer schedule
b. Inquiring about related party transactions
c. Assessing the internal control structure
d. Perform cut-off tests
38. Which of the following procedures is ordinarily performed by CPA in a review engagement of a nonpublic entity?
a. Analytical procedures designed to test the accounting records by obtaining corroborating
evidential matter
b. Inquiries concerning entitys procedures for recording and summarizing transactions
c. Analytical review designed to evaluate the effectiveness of internal control
d. Inquiries of the entitys legal counsel concerning contingent liabilities
39. Which of the following procedures is ordinarily performed by CPA in a review engagement of a nonpublic entity?
a. Verify changes in key account balances
b. Read minutes of board of directors meeting
c. Inspect open purchase order file
d. Search for unrecorded liabilities
40. Before an independent CPA agrees to change from audit engagement to a review engagement, he
should consider the
I. Additional audit effort necessary to complete the engagement.
II. Reason for the change.
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No

41. If the CPA is not familiar with the specialized industry accounting principles, but plans to obtain such
level of knowledge, which of the following engagements may be accepted?
I. Compilation
II. Review
III. Audit
a. I only
b. I and II only
c. All of the above
d. None of the above
42.
I.
II.
III.
a.
b.
c.

An accountant should perform analytical procedures in an engagement to do

Audit
Review
Compilation
Yes, Yes, Yes
No, Yes, No
Yes, Yes, No

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d. Yes, No, No
43.
a.
b.
c.
d.

Which of the following would not be included in the review engagements?

Obtaining representation letter
Considering whether financial statements conform with GAAP
Assessing control risk
Inquiring about subsequent events

44. Performing inquiry and analytical procedures that provide the accountant with a reasonable basis for
expressing limited assurance that there are no material modifications that should be made to the
financial statements in order for them to be in conformity with GAAP or with other comprehensive
basis of accounting is the definition of
a. compilation
b. audit
c. review
d. agreed-upon procedure
45. The objective of a review of financial statements is
a. To enable the auditor to express an opinion whether the financial statements are prepared, in all
material respects, in accordance with generally accepted accounting principles in the Philippines.
b. 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.
c. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect,
classify and summarize financial information.
d. 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 auditors attention that
causes the auditor to believe that the financial statements are not prepared, in all material
respects, in accordance with generally accepted accounting principles in the Philippines
(negative assurance).
46. Which statement is incorrect regarding the general principles of a review engagement?
a. The auditor is not required to comply with the Code of Professional Ethics for Certified Public
Accountants promulgated by the Board of Accountancy.
b. The auditor should conduct a review in accordance with PSRE.
c. The auditor should plan and perform the review with an attitude of professional skepticism
recognizing that circumstances may exist which cause the financial statements to be materially
misstated.
d. For the purpose of expressing negative assurance in the review report, the auditor should obtain
sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to
draw conclusions.
47. Which of the following is required to be performed in an audit but not in review engagement?
a. Complying with the Code of Professional Ethics for Certified Public Accountants promulgated
by the Board of Accountancy
b. Planning the engagement
c. Agreeing on the terms of engagement
d. Studying and evaluating internal control structure
48. Engagement letter for a review of financial statements least likely includes
a. the objective of the service being performed
b. the fact that the engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities, for example, fraud or defalcations that may exist
c. a statement that an audit is not being performed and that an audit opinion will not be expressed.
d. the fact that because of the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an unavoidable
risk that even some material misstatements may remain undiscovered.
49. Which statement is incorrect regarding procedures and evidence obtained in a review engagement?
a. The auditor should apply judgment in determining the specific nature, timing and extent of
review procedures.
b. The auditor should apply the same materiality considerations as would be applied if an audit
opinion on the financial statements were being given.
c. There is a greater risk that misstatements will not be detected in an audit than in a review.
d. The judgment as to what is material is made by reference to the information on which the auditor
is reporting and the needs of those relying on that information, not to the level of assurance
provided.
50. Which of the following procedures is not included in a review engagement on a nonpublic entity?
a. Inquiries of management

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b. Inquiries regarding events subsequent to the balance sheet date

c. Any procedures designed to identify relationships among data that appear to be unusual.
d. Communicating any material weaknesses discovered during the study and evaluation of internal
accounting control.
51. Which of the following is generally more important in a review than in a compilation?
a. Determining the accounting basis on which the financial statements are to be presented.
b. Gaining familiarity with industry accounting principles and practices.
c. Obtaining a signed engagement letter.
d. Obtaining a signed representation letter.
52. An auditors report would be designated as a special report when it is issued in connection with which
of the following financial statements?
a. Financial statements for an interim period that are subjected to a limited review.
b. Financial statements that are prepared in accordance with a comprehensive basis of accounting
other than GAAP.
c. Financial statements that purport to be in accordance with GAAP but do not include a statement
of cash flows.
d. Financial statements that are unaudited and are prepared from a clients accounting records.
53. A professional accountant issued the following statement in his report: ., nothing come to our
attention that causes us to believe that the accompanying financial statements are not presented
fairly, .
What is the nature of the report?
a. Special report on financial statements prepared under comprehensive basis of accounting.
b. Qualified audit report.
c. Review report.
d. Audit report with limited reporting objective.
54. Which of the following should the auditor perform in a review engagement?
a. Understand matters that are relevant to the financial statements.
b. Understand the entitys internal control system.
c. Observe the physical count of inventory.
d. Inquire of legal counsel of pending litigations.
55. In planning a review of financial statements, the auditor should obtain or update the knowledge of the
business. Which of the following is not one of these knowledge of the business?
a. Entitys organization
b. Nature of entitys assets, liabilities, revenues and expenses
c. Accounting system
d. Internal control

56. Which of the following is not a basis of the auditor in determining the specific nature, timing and
extent of review procedures?
a. Assessed level of control risk
b. The extent to which a particular item is affected by management judgment.
c. The materiality of transactions and account balances
d. Any knowledge acquired by carrying out reviews of the financial statements for prior periods
57. Which of the following is least likely done by the auditor in conducting a review of financial
statements?
a. Study of the relationships of the elements of the financial statements
b. Comparison of the financial statements with statements for prior period
c. Comparison of the financial statements with anticipated results and financial position
d. Comparison of inventory listing with physical inventory count
58. Which of the following is not included in the scope paragraph of a review report?
a. A statement that a review is limited primarily to inquiries and analytical procedures.
b. A reference to Philippine Standard on Auditing applicable to review engagement.
c. A statement that the review included an evaluation of reasonableness of accounting estimates
made by management.
d. A statement that an audit has not been performed.
59. Where do you find the following paragraph?

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.Nothing has come to our attention that causes us to believe that the accompanying financial
statements are not presented fairly, in all material respects in accordance with generally accepted
accounting principles in the Philippines.
a. Opinion paragraph of auditors report
b. Opinion paragraph of review report
c. Negative assurance paragraph
d. Scope paragraph of a review report
60. In a review engagement, if there has been a material scope limitation, the auditor should describe
the limitation in the review report and either
a. express a qualification of the negative assurance or not issue any assurance.
b. express a qualification of the negative assurance provided or give an adverse statement that the
financial statements are not presented fairly.
c. express an adverse statement that the financial statements are not presented fairly or the auditor
not issue any assurance.
d. not modify the negative assurance or not issue an assurance.
61. Mark, CPA, has significant indirect financial interest on Apollo Corporation. Apollo Corporation
engaged Mark to apply agreed-upon procedures on accounts receivable and thereafter submit a
Report of Factual Findings to Discount Finance. According to Philippine Standards on Auditing that
applies to this engagement, Mark:
a. should decline the engagement because of his lack of independence.
b. should convince Apollo Corporation to change the engagement to compilation due to his lack of
independence.
c. can accept the engagement, issue the Report of Factual Finding and state in the report his lack
of independence.
d. perform agreed-upon procedures and withhold the findings due to his lack of independence.
62. According to Philippine Standard on Auditing, the procedures employed in doing agreed-upon
procedures are:
a. designed to enable the accountant to express a limited assurance.
b. designed to enable the accountant to express a negative assurance.
c. designed to enable the accountant to provide identified user(s) findings.
d. less extensive than compilation procedures but more extensive than review procedures.

63. The objective of an agreed-upon procedures engagement is for the auditor to:
a. 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.
b. carry out procedures of a review nature to which the auditor and the entity and any appropriate
third parties have agreed and to report on factual findings.
c. carry out procedures of a review nature and to express limited assurance based on those agreed
procedures.
d. carry out procedures of an audit nature and is express limited assurance.
64. Which of the following ethical principles governing the auditors professional responsibilities for
agreed-upon procedures engagement is not required of auditors?
a. Technical standards
b. Confidentiality
c. Integrity
d. Independence
65. Which of the following is incorrect about agreed-upon procedures engagement?
a. An engagement to perform agreed-upon procedures may involve the auditor in performing
certain procedures concerning individual items of financial data.
b. Users of the agreed-upon procedures report assess for themselves the procedures and findings
reported by the auditor and draw their conclusion from the auditors work.
c. The auditor should be independent of the financial data or financial statements where agreed
procedures have to be applied.
d. The report is restricted to those parties that have agreed to the procedures to be performed.
66. Matters to be agreed in an agreed-upon procedures engagement include the following, except:

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a.
b.
c.
d.

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stated purpose of the engagement

limitations on distribution of the report of factual findings
anticipated form of the report and the level of assurance to be provided
nature, timing and extent of the specific procedures to be applied

67. The following procedures may be performed by CPAs in an engagement.

I. Consideration of internal control
II. Observation
III. Inquiry and Analysis
IV. Inspection
V. Confirmation
VI. Obtaining management representation letter
Which of the foregoing may be performed in an agreed-upon procedures engagement?
a. II and VI only
b. I, II and VI only
c. II, III, IV and V only
d. II, III, IV and VI only
68. The report on an agreed-upon procedures engagement needs to describe the purpose and the
procedures that have been agreed upon in sufficient details. The report should appropriately include
the title
a. Report of Agreed-Upon Procedures
b. Report of Factual Findings
c. Report of Agreed Procedures and Finding
d. CPAs Report of Agreed-Upon Procedures
69. Which of the following report is of limited distribution?
a. Review Report
b. Compilation Report
c. Report of Factual Findings
d. Audit Report
70. A CPAs report on applying agreed-upon procedures to prospective financial statements always
include a(n):
a. disclaimer of opinion
b. adverse opinion
c. restrictions on its distribution
d. unqualified opinion

71. Distribution of a report is always restricted when:

a. negative assurance is given
b. there is a positive expression of opinion
c. agreed-upon procedures have been performed
d. a review has been performed
72. Which of the following would not be appropriate to a report on an engagement to apply agreed-upon
procedures to specified financial statement items?
a. Indicate the intended distribution of the report
b. Provide an opinion on the specified elements, accounts or items
c. Enumerate the procedures performed
d. State that the report relates to the elements, accounts, or items specified
73. Which of the following is not appropriate for the accountants report on the results of applying
agreed-upon procedures to prospective financial statements?
a. State the accountants opinion on the results of applying the agreed-upon procedures.
b. Indicate the prospective financial statements reported on.
c. Indicate that the use of the report is limited to the specified user(s).
d. Indicate that the prospective results may not be achieved.
74. Which statement is incorrect regarding agreed-upon procedures?
a. Users of the report assess for themselves the procedures and findings reported by the auditor
and draw their own conclusions from the auditors work.
b. The report is restricted to those parties that have agreed to the procedures to be performed since
others, unaware of the reasons for the procedures, may misinterpret the results.
c. The auditor should conduct an agreed-upon procedures engagement in accordance with PSA
and the terms of the engagement.
d. Where the auditor is not independent, a statement to that effect need not be made in the report
of factual findings.

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75. The report on an agreed-upon procedures engagement needs to describe the purpose and the
agreed-upon procedures of the engagement in sufficient detail to enable the reader to understand the
nature and the extent of the work performed. The report of factual findings should not contain:
a. addressee (ordinarily the client who engaged the auditor to perform the agreed-upon
procedures).
b. identification of the purpose for which the agreed-upon procedures were performed.
c. a description of the auditors factual findings including sufficient details of errors and exceptions
found.
d. a statement that the procedures performed constitutes an audit, and, as such, an opinion is
expressed.

76. A report for an agreed upon procedures ordinarily includes:

a. Findings Yes; Negative Assurance Yes
b. Findings Yes; Negative Assurance No
c. Findings No; Negative Assurance Yes
d. Findings No; Negative Assurance No
77. Clients sometimes engage auditors to perform a specified set of procedures concerning an element
of a financial statement. This type of engagement is called
a. individual Account engagement
b. agreed-upon Procedures engagement
c. assurance service
d. compliance audit
78. A CPA who is not independent may issue a
a. compilation report
b. compilation report and review report
c. comfort letter
d. report of any type

79. Compilation is an example of which one of the following types of services?

a. Auditing
b. Review
c. Consulting
d. Accounting
80. Which statement is incorrect regarding compilation engagement?
a. This ordinarily entails reducing detailed data to a manageable and understandable form without a
requirement to test the assertions underlying that information.
b. The procedures employed are designed to enable the accountant to express limited assurance
on the financial information.
c. Users of the compiled financial information derive some benefit as a result of the accountants
involvement because the service has been performed with professional competence and due
care.
d. In all circumstances when an accountants name is associated with financial information
compiled by the accountant, the accountant should issue a report.
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