ssc:AT 01_OVERVIEW OF ASSURANCE AND AUDITING SERVICES AY 2019-2020

SAN CARLOS COLLEGE

COLLEGE OF ACCOUNTANCY AND BUSINESS ADMINISTRATION
COMPREHENSIVE REVIEW ON Auditing theory

AT01 – OVERVIEW OF ASSURANCE AND AUDITING SERVICES

EXERCISES
OVERVIEW OF ASSURANCE SERVICES
Basic Concepts and Definition
1. 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
2. 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 RESA 0516
A. Assurance engagement C. Audit engagement
B. Attestation engagement D. Management consultancy
3. Which of the following services is (are) considered to provide assurance as to the credibility of information
provided to its users?
I. Compilation engagement
II. Information system reliability engagement
III. Tax compliance services
IV. Compliance audit
A. I and II D. III and IV
B. II and III E. None from A, B, C and D
C. III and IV KGA UCP2017
4. Which of the following statements best describes a review service?
A. A review engagement focuses on providing assurance on the assertions contained in the financial
statements of a public company.
B. A review engagement focuses on providing assurance on the internal controls of a public company.
C. A review engagement focuses on providing limited assurance on financial statements of a private
company.
D. A review engagement focuses on providing advice in a three-party contract.
5. A summary of findings rather than assurance is most likely to be issued on which engagement?
A. Agreed-upon procedures C. Examination
B. Compilation D. Review
6. Which of the following is not an element of an assurance engagement?
A. Sufficient appropriate evidence C. A subject matter RESA 0516
B. Appropriate professional fees D. A written assurance report
7. Which of the following best describes Business Performance Measurement Services, as an assurance
engagement?
A. An engagement that provides assurance whether the financial and non-financial information being
reported from the entity’s performance measurement system is reliable and whether the
performance measures being used are accurately leading the entity toward meeting its strategic
goals and objectives.
B. An engagement involving evaluation of the quality of health care medical services and outcome. It
looks into health care delivery system, the medical services provided and quality attributes
associated with those services.
C. An engagement that provides assurance that an information system has been designed and operated
to produce reliable data including tests of the system to determine whether the system protects
against potential causes of data defects.

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D. An engagement that provides a seal to web sites in the Internet. The seal assures the user that the
web site owner has met established criteria related to business practices, transaction integrity and
information processes.
E. An assurance service that focuses on the needs of the elderly and whether caregivers are providing
services that meet specified objectives or at an acceptable level. KGA UCP2017
8. Statement 1: CPAs are the exclusive providers of assurance engagements as the subject matter of
assurance engagements is limited only to financial information of a business entity.
Statement 2: Assurance engagements may be classified either as to level of assurance provided or
conveyed by the practitioner or as to structure of the engagement.
A. True, true C. False, true
B. True, false D. False, false PRTC0516
9. I. Subject matter is benchmark used to evaluate or measure the subject matter.
II. Criteria may be in a formal or informal form. Example of informal criteria is law, regulation or
contract.
A. True, true C. False, true
B. True, false D. False, false KGA UCP2017
10. Which of the following best describes "related services"? Salosagcol 2014
A. Audit and Review of financial statements
B Assurance and audit engagements
C. Compilation and agreed-upon procedures engagements
D. Review, compilation and agreed-upon procedures engagements.
11. An assurance engagement should have which of the following elements?
Subject matter Criteria
A. Yes No
B. No Yes
C. Yes Yes
D. No No
12. For assurance engagements regarding historical financial information, reasonable assurance
engagements are called
A. Audits C. Compilations
B. Reviews D. Examinations
13. Which of the following procedures is not included in a review engagement of a non-public entity?
A. inquiries of management
B. inquiries regarding subsequent events
C. procedures designed to identify unusual fluctuations
D. a study and evaluation of internal control Salosagcol 2014
14. The person, persons or class of persons for whom the practitioner prepares the assurance report.
A. General public C. Audit committee
B. Responsible party D. Intended users
15. Which of the following statement is incorrect regarding assurance engagements?
I. The highest assurance that an assurance engagement can provide is absolute assurance
II. A subject matter, to be appropriate, must be identifiable and capable of consistent evaluation.
A. I only C. Both I and II
B. II only D. Neither I nor II KGA UCP2017
16. In performing attestation services, a CPA will normally:
A. improve the quality of information, or its context, for better use of the decision makers.
B. recommend how to use the information.
C. perform market analyses and cost estimates.
D. states a conclusion about a written assertion.
17. Attestation is any service that requires a CPA firm to issue a report about the reliability of an assertion
that is made by another party. Which of the following elements is the critical component that distinguishes
an attest engagement from other forms of assurance engagements? PRTC0516
A. An accountable party C. A subject matter
B. A written assertion D. An accountable relationship
18. In direct reporting assurance engagements, the evaluation or measurement of the subject matter against
criteria is performed by the
A. Intended users C. Practitioner
B. Responsible party D. AASC KGA UCP2017
19. A service that always requires that a report is provided to a third party is
A. Assurance C. Audit
B. Attestation D. Both B and C.

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20. The subject matter of an assurance engagement may include

Financial Internal Compliance
Information Controls with Regulation
A. Yes Yes Yes
B. No No No
C. Yes No Yes
D. No Yes No
OVERVIEW OF AUDITING SERVICES
21. An audit involves ascertaining the degree of correspondence between assertions and established criteria.
In the case of financial statement audit, which of the following is not a valid criterion?
A. Philippine Standards on Auditing
B. International Accounting Standards
C. Authoritative financial reporting framework
D. Accounting standards generally accepted in the Philippines Salosagcol 2014
22. Broadly defined, the subject matter of any audit consists of
A. Financial statements C. Assertions
B. Economic data D. Operating data
23. Which of the following best describes an operational audit?
A. It requires a constant review of the administrative controls by internal auditors 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 of verifying 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.
24. Which of the following groups could be involved in an operational audit?
Internal Government
CPA Firms Auditors Auditors
A. Yes Yes Yes
B. Yes No No
C. No No Yes
D. Yes Yes No
25. Upon completion of a typical audit, the auditor has
A. total assurance that all material errors and irregularities have been found.
B. high level of assurance that all material errors and irregularities have been found.
C. a low level of assurance that all material errors and irregularities have been found.
D. no assurance that all material errors and irregularities have been found.
26. Auditing is a systematic process that includes all of the following except:
A. Systematic process
B. Assertions about economic actions and events
C. Objectively obtaining and evaluating assurance
D. Degree of correspondence between those assertions and GAAP. PRTC0516
27. For an internal auditor to render impartial and unbiased judgments, he or she must be independent of
the entity’s
A. Stockholders
B. Personnel and operating activities (i.e., the line functions of the organizations)
C. Independent (external) auditors
D. Board of directors PRTC0516
28. Which of the following types of audits are most similar?
A. Operational audits and compliance audits
B. Independent financial statements audit and operational audits
C. Compliance audit and independent financial statements audit
D. Internal audits and independent financial statements audit
29. In government auditing, the three elements of expanded scope auditing are:
I. Financial and compliance IV. Economy and efficiency
II. Post audit analysis V. Financial statements audit
III. Program results VI. Internal audit
A. I, II and III D. I, III and IV
B. II, III and IV E. II, V and VI KGA UCP2017
C. II, III and VI
30. Which of the following types of audit uses laws and regulations as its criteria?
A. Operational audit C. Compliance audit
B. Financial statement audit D. Performance audit

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31. Which of the following statements is not a distinction between independent auditors and internal
auditors?
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.
32. In internal auditing, which of the following is not within its scope? KGA UCP2017
A. Appraisal of controls C. Protection of assets
B. Recommendations for improvement D. Verification of external reports
33. I. Internal auditors are independent CPAs who offer their professional services to different clients on
a contractual basis.
II. Assertions made by the auditee in an independent financial statements audit is that the company
has complied with all relevant laws and regulations.
A. True, true C. False, true
B. True, false D. False, false KGA UCP2017
34. The purpose of an internal audit is
I. To evaluate the adequacy and effectiveness of company's internal controls.
II. To determine the extent to which assigned responsibilities are actually carried out.
III. To collect evidence on whether the company is continuing as a going concern.
A. I and II only C. II and III only
B. I and III only D. I, II, and III
35. 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 C. Evaluation
B. Compliance D. Internal Control

End of Exercises

“”Life is 10% what happens to you and 90% how you react to it”

QUIZZER (DO-IT-YOURSELF DRILL)

1. 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
2. Indicate the level of assurance provided by the following:
I. Independent Financial Statements Audit
II. Review of Financial Statements
III. Tax Planning Services
IV. Agreed-upon Procedures
A. None, reasonable, reasonable, limited
B. Absolute, limited, none, none
C. Reasonable, high, none, none
D. High, moderate, none, none
E. High, limited, limited, none KGA UCP2017
3. 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

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4. The objective of a review of financial statements is to

A. Express an opinion on the overall financial statements
B. Carry out audit procedures agreed on with the client and other users of report.
C. Assist the client in the preparation of the financial statements
D. State whether anything has come to the auditor's attention that indicates that the financial
statements are not presented fairly.
5. Unlike consulting services, assurance services
A. Make recommendations to management
B. Report on how to use information
C. Report on the quality of information
D. Are two-party contracts
6. Which of the following statements is incorrect regarding the three party relationship element of assurance
engagements?
A. The intended users is generally, and may not be, the addressee of the professional accountant’s
report.
B. The responsible party and the intended user will often be from separate organizations.
C. The responsible party may also be one of the intended users.
D. The intended user(s) is (are) always limited to the addressee of the professional accountant’s
report.
7. 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 C. Non-assurance engagements
B. Assertion-based engagements D. Recurring engagements
8. Which one of the following is not a part of the attest process?
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicating the conclusions reached
9. Assurance provided by a review is substantially less than an audit. Which of the following statements is
true regarding these services?
A. A review requires more substantive evidence than an audit.
B. An audit requires less evidence related to internal control than a review.
C. A review requires less evidence than an audit.
D. None of the above statements is true.
10. Whether a particular engagement is an assurance engagement will depend upon whether it exhibits all
the following elements, except:
A. Suitable criteria
B. A written assurance report
C. Subject matter
D. Assertions KGA UCP2017
11. The auditor communicates the results of his or her work through the medium of the:
A. Audit engagement letter C. Management letter
B. Audit report D. Notes to financial statements
12. Which of the following is not a similarity between external and internal auditors?
A. Both must be independent of the company.
B. Both must be competent.
C. Both follow a similar methodology in performing their audits.
D. Both consider risk and materiality deciding the extent of their tests and evaluating results.
13. A typical objective of an operational audit is to determine whether an entity's
A. financial statements fairly present financial position and cash flows.
B. financial statements present fairly the results of operations.
C. financial statements fairly present financial position, results of operations, and cash flows.
D. specific operating units are functioning efficiently and effectively.
14. I. Internal audit mainly comprise operational and compliance audits.
II. External auditors are limited only to perform FS audit.
Which of the statement is incorrect?
A. I only C. Both I and II
B. II only D. Neither I nor II

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15. An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an
entity's operating activities in relation to specified objectives is a(n):
A. External audit C. Operational audit
B. Compliance audit D. Financial statement audit

16. Which of the following is not related to the audit services of CPAs?
A. systematic process
B. ascertains the degree of correspondence between assertions and subject matter.
C. Objective evidence gathering and evaluation
D. None, all of the following are related. KGA UCP2017

17. Which of the following groups could not be involved in an operational audit?
A. External auditors C. Government auditors
B. Internal auditors D. All of the above could be involved

18. Which of the following statements is an incorrect description of the role internal auditors?
A. Internal auditors should review the means of minimizing risks and assist management processes.
B. Internal auditors should assess risks within the business operations and those from outside the
business.
C. Internal auditors should appraise the economy and efficiency with which resources are employed.
D. Internal auditors should have authority and responsibility for the activities they audit.

19. A governmental audit may extend beyond an audit leading to the expression of an opinion on the fairness
of financial presentation to include
Program Economy and
Results Compliance Efficiency
A. Yes Yes Yes
B. Yes Yes No
C. Yes No Yes
D. No Yes Yes

20. An audit designed to determine the extent to which the desired results of an activity established by the
legislative or other authorizing body are being achieved
A. Economy audit C. Program-results audit
B. Efficiency audit D. Financial-related audit

End of Handouts

“”In the end, it’s not the years in your life that count. It’s the life in your years” – Abraham Lincoln

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