1.

The following are characteristics of "direct reporting" assurance engagements, except

A. The subject matter information is in the form of an assertion by the responsible party that is made available to
the intended users.
B. The subject matter information is provided to the intended users in the assurance report.
C. The practitioner either directly performs the evaluation or measurement of the subject matter or obtains a
representation from the responsible party that has performed the evaluation or measurement.
D. The representation of the responsible party that has per-formed the evaluation or measurement of the subject
matter is not available to the intended users.

2. What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?
A. Limited assurance engagement C. Reasonable assurance engagement
B. Positive assurance engagement D. Absolute assurance engagement

3. What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?
A. Reasonable assurance engagement C. Assertion-based assurance engagement
B. Negative assurance engagement D. Limited assurance engagement

4. A practitioner's assurance report contains the following conclusion:

“Based on our work described in this report, nothing has come to our attention that causes us to believe that
internal control is not effective, in all material respects, based on ABC criteria.”
What type of assurance engagement was performed?
A. Limited assurance engagement C. Negative assurance engagement
B. Reasonable assurance engagement D. Positive assurance engagement

5. In assertion-based 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

6. The following statements relate to the three parties involved in an assurance engagement. Which is correct?
A. The responsible party and the intended users should be from different entities.
B. A practitioner should decline a proposed assurance engagement when the subject matter requires specialized
skills and knowledge beyond those ordinarily possessed by the practitioner.
C. A responsible party is the person who is responsible for the subject matter or the subject matter information.
D. The responsible party, not the intended users, determines the nature of the procedures to be performed.

7. 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.

8. 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.

9. The following are components of assurance engagement risk, except

A. Inherent risk C. Detection risk
B. Control risk D. Business risk

10. An unmodified conclusion is not appropriate for either reasonable or limited assurance engagement when
A. Circumstances prevent the practitioner from obtaining evidence required to reduce assurance engagement risk
to the appropriate level.
B. The responsible party or the engaging party imposes a restriction that prevents the practitioner from obtaining
evidence required to reduce assurance engagement risk to the appropriate level.
C. Both A and B.
 D. Neither A nor B.

11. 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.

12. 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

13. Which of the following standards are to be applied, as appropriate, in the audit of historical financial information?
PSRES
A. PSREs C. PSRSs
B. PSAEs D. PSAs

14. Which of the following standards are to be applied to compilation engagements, engagements to apply agreed-upon
procedures to information, and other related services engagements as specified by the AASC?
A. PSRSs C. PSAES
B. PSAS D. PSRES

15. The Philippine Standards on-Review Engagements (PSREs) are to be applied in

A. The audit of historical financial information.
B. Assurance engagements dealing with subject matters other than historical financial information.
C. The review of historical financial information.
D. The review of both historical and prospective financial in-formation.

16. The Philippine Standards on Assurance Engagements (PSAEs) are to be applied in

A. Assurance engagements dealing with subject matters other than historical financial information.
B. Compilation engagements and agreements to apply agreed-upon procedures to information.
C. The audit or review of historical financial information.
D. Assurance engagements dealing with historical financial information.

17. The auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party is called
A. Opinion C. Examination
B. Assurance D. Verification

18. What level of assurance is provided by the auditor in an audit engagement?

A. Absolute C. Moderate
B. High, but not absolute D. No assurance

19. What level of assurance is provided by the practitioner in a review engagement?

A. No Assurance C. Reasonable
B. High, but not absolute D. Moderate

20. 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

21. In reviewing a company's financial statements, a practitioner is required to

A. Send bank confirmations.
B. Obtain knowledge of the client's industry.
C. Obtain a signed engagement letter from the client.
 D. Observe client's physical inventory.

22. In a review engagement, the practitioner performs which of the following?

Obtain an
Test of
understanding of Test of transactions
controls
internal control
A. Yes Yes No

B. Yes No Yes

C. No Yes Yes

D. No No No
23. A practitioner's review of an entity's financial
statements does not provide assurance that he/she will become aware of all significant matters that would be disclosed
in an audit. However, if the practitioner has become aware that information coming to his/her attention may be
materially misstated, the practitioner should
A. Carry out additional or more extensive procedures as are necessary to achieve limited assurance.
B. Withdraw immediately from the engagement.
C. Perform a complete audit and issue a modified auditor's report.
D. Downgrade the engagement to a compilation and issue the appropriate report.

24. The following statements relate to a review of interim financial information performed by the entity's independent
auditor. Which is incorrect?
A. Similar to a financial statement audit, a review of interim financial information is designed to obtain
reasonable assurance that the interim financial information is free from material misstatement.
B. A review of interim financial information does not provide a basis for expressing an opinion whether the
financial information is presented fairly, in all material respects, in accordance with an applicable financial
reporting framework.
C. In a review of interim financial information, the auditor should have an understanding of the entity and its
environment, including its internal control.
D. A review of interim financial information may bring significant matters affecting the interim financial
information to the auditor's attention, but it does not provide all of the evidence that would be required in an
audit.

25. A compilation engagement

A. Requires the practitioner to verify the accuracy or completeness of the information provided by management.
B. Requires the practitioner to gather evidence to express an opinion on the preparation of the financial
information.
C. Is not an assurance engagement.
D. Involves expression of a review conclusion on the preparation of the financial information.

26. PSRS 4410 (Revised), Compilation Engagements, applies to engagements where the practitioner assists management
in the preparation and presentation of
I. Historical or prospective financial information
II. Non-financial information
A. I only. C. Both I and II.
B. II only. D. Neither I nor II.

27. Which of the following professional services may a practitioner perform without being required to issue a compilation
or re-view report under PSRE 2400-Revised (Review Engagements) and PSRS 4410-Revised (Compilation
Engagements)?
I. Preparing a working trial balance.
II. Preparing standard monthly journal entries.
A. I only. C. Both I and II.
B. II only. D. Neither I nor II.

28. In a compilation engagement, the practitioner applies accounting and financial reporting expertise to assist
management in the preparation and presentation of financial information of an entity in accordance with an acceptable
financial reporting framework. What type of assurance is-provided by the practitioner when he/she performs this
engagement?
A. Positive assurance C. No assurance
B. Negative assurance D. Limited assurance

29. When performing a compilation engagement, the practitioner 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.

30. What assurance is provided by the auditor in an agreed-upon procedures engagement?

A. Absolute C. Moderate
B. Reasonable D. No assurance

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

A. 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.
B. Apply accounting and financial reporting expertise to assist management in the preparation and presentation
of financial information of an entity in accordance with an applicable financial reporting framework.
C. Provide a moderate level of assurance that the information is free of material misstatement.
D. Provide a high, but not absolute, level of assurance that the information is free of material misstatement.

32. A report may be based upon applying agreed-upon procedures to specified elements, accounts, or items of a financial
statement. The users of the report should participate in establishing the procedures to be performed. If the auditor can-
not discuss the procedures with all the parties who will receive the report, he/she may
I. Discuss the procedures to be applied with appropriate representatives of the parties involved.
II. Review relevant correspondence from the parties in-volved.
III. Distribute a draft of the type of report that will be issued to the parties involved.
A. I and II only C. II and III only
B. I and III only D. I, II, and III

33. An auditor may accept an engagement to perform specified procedures on the specific subject matter of specified
elements, accounts, or items of a financial statement if
A. The report does not list the procedures performed.
B. The financial statements are prepared in accordance with a special purpose framework.
C. Use of the report is restricted.
D. The auditor is also the entity's continuing auditor.

34. Reports on agreed-upon procedures are intended to be distributed

A. To only the involved parties, who are aware of the reasons for the procedures.
B. Only to the stockholders of the entity.
C. To any party to whom the client wishes.
D. Only to the entity's management.

35. An engagement to perform agreed-upon procedures may in-volve the auditor in performing certain procedures
concerning
I. Individual items of financial data.
II. A single financial statement.
III. A complete set of financial statements.
A. I and II only C. I and III only
B. II and III only D. I, II, and III

36. The report on an agreed-upon procedures engagement should contain

A. Identification of the purpose for which the agreed-upon procedures were performed.
B. An expression of positive assurance based on the specific procedures performed.
C. A statement that the auditor is independent of the entity.
D. A general description of the procedures performed.

37. Which of the following engagements does not require compliance with independence requirements?
A. Compilation of financial information.
B. Review of financial statements.
C. Examination of prospective financial information.
D. Audit of financial statements.

38. 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 C. Either I or II
B. II only D. Neither. I nor II

39. 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.

40. Professional judgment

A. Should be exercised in planning and 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.

1. An independent audit is important to readers of financial statements because it

a. Provides a measure of management's stewardship function
b. Measures and communicates the financial data included in financial statements
c. Objectively examines and reports on management's financial statements
d. Reports on the accuracy of information in the financial statements

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

3. The purpose of an audit of financial statements is to

a. Obtain an absolute level of assurance that the financial statements as a whole are free from material
misstatement.
b. Relieve management or those charged with governance of the responsibility for the preparation and
presentation of the financial statements in accordance with the applicable financial reporting framework.
c. Enhance the degree of confidence of intended users in the financial statements.
d. Assure the future viability of the entity by expressing an opinion on the entity's financial statements.

4. Independent auditing can best be described as

a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data. c. A regulatory
function that prevents the issuance of improper financial information.
d. A discipline which attests to the results of accounting and other functional operations and data.

5. The primary purpose of an independent financial statement audit is to:

a. Provide a basis for assessing management's performance
b. Comply with government 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

6. The audit process is

a. A special application of the scientific method of inquiry.
b. Regulated by the PICPA.
c. The only service a CPA is allowed to perform by law.
d. Performed only by CPAs.

7. 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

8. Which of the following is not among the factors that result to limitations of audit?
a. Use of testing
b. Going concern problem of the assurance client
c. Human error
d. Evidence is basically persuasive rather than conclusive

9. The market for auditing services is driven by

a. The regulatory authority of the Securities and Exchange Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing and Assurance Standards Council.
d. Congress.
 10. The independent auditor of the past differs from the auditor of today in that the past auditor was
more concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements. c. Improvement of accounting system.
d. Detection of fraud or irregularities.

11. The criteria for evaluating quantitative information vary. For example, in the case of
an independent audit of financial statements by CPA firms, the criteria are usually the:
a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. National Internal Revenue Code
d. Securities and Exchange Commission Regulations

12. 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 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.
b. To provide unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence.
c. To comply with all relevant PSAs in the preparation and presentation of the
entity's financial statements.
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.

13. 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.

14. Professional judgment:

a. Is necessary in the evaluation of management's judgments in applying the entity's applicable
financial reporting framework.
b. Should be exercised in planning and performing an audit of financial statements but need not be
documented.
c. 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.
d. Is not used in making decisions about materiality and audit risk.

15. The primary responsibility for the adequacy of disclosure in the financial statements rests with the:
a. Partner assigned to the audit engagement.
b. Management of the company.
c. Securities and Exchange Commission.
d. Auditor in charge of the field work.

16. Which of the following statements is correct concerning an auditor's responsibilities

regarding financial statements?
a. Making suggestions that are adopted about the form and content of an entity's financial statements
impairs an auditor's independence.
b. An auditor's responsibilities for audited financial statements are confined to the expression of
the auditor's opinion.
c. The fair presentation of audited financial statements in accordance with an applicable financial
reporting framework is an implicit part of the auditor's responsibilities.
d. The auditor's report should provide an assurance as to the future viability of the entity.

17. The auditor's judgment concerning the overall fairness of presentation of financial position, results
of operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality b. Generally accepted
accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control

18. An independent audit is important to readers of financial statements because of the following except:
a. Lends credibility to the financial statements.
b. Objectively examines and reports on management's financial statements
c. Measures and communicates the financial data included in financial statements
d. Provide users with an unbiased opinion about the fairness of information reported in the financial
statements

19. The auditor's judgment concerning the overall fairness of presentation of financial position, results
of operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality b. Generally accepted
accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control

20. In financial statement audits, the audit should be conducted in accordance with a. Philippine
Accounting Standards / Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Code of Ethics for CPAs in the Philippines
d. Philippine Standards on Auditing

21. Which of the following statements does not properly describe an element of the theoretical
framework of auditing?
a. An audit benefits the public.
b. The data to be audited are verifiable.
c. Auditor should maintain independence with respect to the audit client.
d. Remoteness of users.
 22. The auditor is required to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to fraud or error. In all cases when reasonable
assurance cannot be obtained, the auditor's report should contain a/an:
a. Unmodified opinion
b. Qualified or disclaimer of opinion
c. Qualified or adverse opinion d. Disclaimer of opinion

23. The benefits of an operational audit generally include all of the following except:
a. Decreased costs.
b. Increased revenue
c. Increased reliability of the financial statements.
d. Increased productivity.

24. 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
b. II only
c. Either I or II
d. Both I and II

25. One of the conditions that give rise to a demand for an external audit of financial statements is
expertise. Which of the following best describes the meaning of expertise as used in this context?
a. Auditors usually rely on the work of an expert as a basis for evaluating some assertions embodied in
the financial statements.
b. Users usually lack the necessary expertise to verify the reliability of the financial information.
c. As experts, auditors are expected to detect all material misstatements in the financial statements.
d. The readers of the financial statements must possess the necessary expertise to be able to understand
the financial statements.

26. Which of the following statements does not properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of evidence.
b. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.
c. Many financial statement assertions cannot be audited.
d. The work, under taken by the auditor is permeated by judgment.

27. An audit designed to evaluate the efficiency and effectiveness of an organization or some or part
thereof would not come under the title of
a. Performance audit.
b. Compliance audit.
c. Management audit.
d. Operational audit.

28. Inherent limitations in an audit stem from the following factors except
a. Incompetence of the auditor.
b. Most audit evidence is persuasive rather than conclusive.
c. Internal control limitation.
d. Use of testing.

29. Auditing services may include which of the following?

a. Attesting to financial statements
b. Evaluation of a division’s performance for management
c. Examination of the economy and efficiency of governmental operations
d. All of the above

30. 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. An audit; a review; a compilation.
c. A review; an audit; a compilation.
d. A compilation; a review; an audit.