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Questions and Answers
Which of the following procedures is normally performed in connection with a compilation engagement?
Which of the following procedures is normally performed in connection with a compilation engagement?
- Making inquiries of management concerning actions taken at board meeting
- Inquire of management about subsequent events
- Applying analytical review procedures
- Collect, classify and summarize financial information (correct)
The procedures employed in doing compilation are:
The procedures employed in doing compilation are:
- Designed to enable the accountant to express a negative assurance
- Less extensive than review procedures but more extensive than agreed-upon procedures
- Not designed to enable the accountant to express any form of assurance (correct)
- Designed to enable the accountant to express a limited assurance
An engagement to apply agreed-upon procedure engagement may be accepted, provided:
An engagement to apply agreed-upon procedure engagement may be accepted, provided:
- The CPA has audited the financial statements of the client.
- The CPA is independent with respect to the client. (correct)
- The adequacy of the procedures to be performed will be determined by the CPA.
- The distribution of the report will be limited only to specified parties involved. (correct)
Pronouncements of Auditing and Assurance Standards Council (AASC) do not cover:
Pronouncements of Auditing and Assurance Standards Council (AASC) do not cover:
Which of the following is an example of an assurance engagement?
Which of the following is an example of an assurance engagement?
Which of the following statements about assurance engagements is not correct?
Which of the following statements about assurance engagements is not correct?
Which of the following services provides a moderate level of assurance about the client's financial statements?
Which of the following services provides a moderate level of assurance about the client's financial statements?
The form of attestation that provides the highest form of assurance is a(n):
The form of attestation that provides the highest form of assurance is a(n):
In an engagement to perform agreed-upon procedures, an auditor is engaged to:
In an engagement to perform agreed-upon procedures, an auditor is engaged to:
The report on an agreed-upon procedures engagement should contain:
The report on an agreed-upon procedures engagement should contain:
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 cannot discuss the procedures with all the parties who will receive the report, he/she may:
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 cannot discuss the procedures with all the parties who will receive the report, he/she may:
Which of the following statements concerning consulting services is false?
Which of the following statements concerning consulting services is false?
Which of the following is the most appropriate action to be taken by a CPA who has been asked to perform a consulting services engagement concerning the analysis of a potential merger if he/she has little experience with the industry involved?
Which of the following is the most appropriate action to be taken by a CPA who has been asked to perform a consulting services engagement concerning the analysis of a potential merger if he/she has little experience with the industry involved?
The form of communication with a client in a consulting services engagement should be:
The form of communication with a client in a consulting services engagement should be:
The Philippine Standards on Auditing (PSA) require that a report be issued whenever a CPA firm:
The Philippine Standards on Auditing (PSA) require that a report be issued whenever a CPA firm:
A practitioner is associated with financial information when:
A practitioner is associated with financial information when:
If the auditor learns that an entity is inappropriately using the auditor’s name in association with financial information, he/she should:
If the auditor learns that an entity is inappropriately using the auditor’s name in association with financial information, he/she should:
Assurance engagements encompass the following types of services, except:
Assurance engagements encompass the following types of services, except:
A report on factual findings is the end product of the auditor when performing:
A report on factual findings is the end product of the auditor when performing:
What assurance is provided by the auditor in an agreed-upon procedures engagement?
What assurance is provided by the auditor in an agreed-upon procedures engagement?
The term 'accountant' has been used by Auditing and Assurance Standards Council to refer to a CPA in public practice who is engaged to:
The term 'accountant' has been used by Auditing and Assurance Standards Council to refer to a CPA in public practice who is engaged to:
Which of the following best describes relationships among auditing, attest, and assurance services?
Which of the following best describes relationships among auditing, attest, and assurance services?
When providing consulting services, the CPA acts primarily as a(n):
When providing consulting services, the CPA acts primarily as a(n):
Which of the following statements concerning consulting services is incorrect?
Which of the following statements concerning consulting services is incorrect?
In an engagement to perform agreed-upon procedures, an auditor is engaged to:
In an engagement to perform agreed-upon procedures, an auditor is engaged to:
Compilation is an example of which one of the following types of services?
Compilation is an example of which one of the following types of services?
Non-assurance engagements include all of the following except:
Non-assurance engagements include all of the following except:
In performing an assurance engagement, a professional accountant typically:
In performing an assurance engagement, a professional accountant typically:
Which of the following is not an assurance engagement?
Which of the following is not an assurance engagement?
Assurance engagements should exhibit the following elements except:
Assurance engagements should exhibit the following elements except:
Which of the following forms may be the subject matter of assurance engagements?
Which of the following forms may be the subject matter of assurance engagements?
Which of the following is not an element of assurance engagements?
Which of the following is not an element of assurance engagements?
Engagement risk is influenced by the risks associated with the following except:
Engagement risk is influenced by the risks associated with the following except:
Absolute assurance is not attainable as a result of such factors as:
Absolute assurance is not attainable as a result of such factors as:
A CPA should not submit unaudited financial statements of a non-public entity to a client or others unless, as a minimum, the CPA complies with the provisions applicable to:
A CPA should not submit unaudited financial statements of a non-public entity to a client or others unless, as a minimum, the CPA complies with the provisions applicable to:
This tax service includes the determination of the tax consequences of planned or potential transactions, followed by making suggestions on the most desirable course of action such as to legally minimize the tax liability while achieving the client’s objectives:
This tax service includes the determination of the tax consequences of planned or potential transactions, followed by making suggestions on the most desirable course of action such as to legally minimize the tax liability while achieving the client’s objectives:
You own Dude, Inc., which manufactures wooden tables. You need to hire some accountants to prepare your monthly financial statements. The preparation of your financial statements is referred to as a(n):
You own Dude, Inc., which manufactures wooden tables. You need to hire some accountants to prepare your monthly financial statements. The preparation of your financial statements is referred to as a(n):
Distribution of a report is always restricted when:
Distribution of a report is always restricted when:
The need for assurance services arises because:
The need for assurance services arises because:
Assurance services involve which of the following?
Assurance services involve which of the following?
Which of the following statements is true?
Which of the following statements is true?
Which of the following statements is true?
Which of the following statements is true?
Assurance engagements include the following, except:
Assurance engagements include the following, except:
The subject matter of an assurance engagement may include:
The subject matter of an assurance engagement may include:
Which of the following statements is true concerning evidence in an assurance engagement?
Which of the following statements is true concerning evidence in an assurance engagement?
An unqualified conclusion is not appropriate for either reasonable or limited assurance engagement when:
An unqualified conclusion is not appropriate for either reasonable or limited assurance engagement when:
The following statements relate to the performance of an assurance engagement other than an audit or review of historical financial information covered by PSAs and PSREs. Which is incorrect?
The following statements relate to the performance of an assurance engagement other than an audit or review of historical financial information covered by PSAs and PSREs. Which is incorrect?
Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the following factors, except:
Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the following factors, except:
Which of the following standards are to be applied, as appropriate, in the audit of historical financial information?
Which of the following standards are to be applied, as appropriate, in the audit of historical financial information?
Which of the following standards are to be applied to compilation engagements and engagements to perform agreed-upon procedures to information?
Which of the following standards are to be applied to compilation engagements and engagements to perform agreed-upon procedures to information?
The Philippine Standards on Review Engagements (PSREs) are to be applied in:
The Philippine Standards on Review Engagements (PSREs) are to be applied in:
PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to:
PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to:
The Philippine Standards on Assurance Engagements (PSAEs) are to be applied in:
The Philippine Standards on Assurance Engagements (PSAEs) are to be applied in:
The Philippine Standards on Quality Control (PSQCs) are to be applied to:
The Philippine Standards on Quality Control (PSQCs) are to be applied to:
These statements are issued by the AASC to provide interpretive guidance and practical assistance to auditors in the implementation of PSAs and to promote good practice.
These statements are issued by the AASC to provide interpretive guidance and practical assistance to auditors in the implementation of PSAs and to promote good practice.
For the purpose of expressing negative assurance in the review report, the practitioner should obtain sufficient appropriate evidence primarily through:
For the purpose of expressing negative assurance in the review report, the practitioner should obtain sufficient appropriate evidence primarily through:
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 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:
The following statements relate to a review of financial statements. Which is incorrect?
The following statements relate to a review of financial statements. Which is incorrect?
The following statements relate to a review of interim financial information performed by the entity's independent auditor. Which is incorrect?
The following statements relate to a review of interim financial information performed by the entity's independent auditor. Which is incorrect?
When performing a compilation engagement, the accountant is required to:
When performing a compilation engagement, the accountant is required to:
Each page of the financial information compiled by the accountant should include the following reference, except:
Each page of the financial information compiled by the accountant should include the following reference, except:
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:
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:
An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning:
An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning:
The following contain basic principles, essential procedures and related guidance, consistent with the concepts in the Framework, for the performance of assurance engagements, except:
The following contain basic principles, essential procedures and related guidance, consistent with the concepts in the Framework, for the performance of assurance engagements, except:
CPAs in public practice who perform assurance engagements are governed by the following, except:
CPAs in public practice who perform assurance engagements are governed by the following, except:
These are independent professional services that improve the quality of information for decision-making.
These are independent professional services that improve the quality of information for decision-making.
Which of the following statements best describes assurance services?
Which of the following statements best describes assurance services?
Which of the following best describes the objective of an assurance engagement?
Which of the following best describes the objective of an assurance engagement?
The degree of certainty that the practitioner has attained and wishes to convey is:
The degree of certainty that the practitioner has attained and wishes to convey is:
What level of assurance is provided by the auditor in an audit engagement?
What level of assurance is provided by the auditor in an audit engagement?
The level of assurance provided by an audit of detecting a material misstatement is referred to as:
The level of assurance provided by an audit of detecting a material misstatement is referred to as:
Of the following, which is the broadest concept?
Of the following, which is the broadest concept?
In performing attestation services, a CPA will normally:
In performing attestation services, a CPA will normally:
Which of the following is the single feature that most clearly distinguishes auditing, attestation, and assurance?
Which of the following is the single feature that most clearly distinguishes auditing, attestation, and assurance?
Which of the following services provides the highest level of assurance to third parties about a company's financial statements?
Which of the following services provides the highest level of assurance to third parties about a company's financial statements?
For assurance engagements regarding historical financial information, reasonable assurance engagements are called:
For assurance engagements regarding historical financial information, reasonable assurance engagements are called:
In some assurance engagements, the evaluation or measurement of the subject matter is performed by the responsible party. These engagements are called:
In some assurance engagements, the evaluation or measurement of the subject matter is performed by the responsible party. These engagements are called:
The following are characteristics of 'direct reporting' assurance engagements, except:
The following are characteristics of 'direct reporting' assurance engagements, except:
What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?
What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?
What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?
What type of assurance engagement is involved when the practitioner expresses a negative form of conclusion?
Assurance engagements involve:
Assurance engagements involve:
Which of the following statements concerning the assurance engagement’s three party relationships is incorrect?
Which of the following statements concerning the assurance engagement’s three party relationships is incorrect?
Which of the following statements concerning the intended user of a professional accountant's report is incorrect?
Which of the following statements concerning the intended user of a professional accountant's report is incorrect?
Which of the following is not one of the requirements before accepting an assurance engagement?
Which of the following is not one of the requirements before accepting an assurance engagement?
The following statements relate to the three parties involved in an assurance engagement. Which is correct?
The following statements relate to the three parties involved in an assurance engagement. Which is correct?
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?
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?
Criteria that are embodied in laws or regulations, or issued by authorized or recognized bodies of experts that follow a transparent due process are called:
Criteria that are embodied in laws or regulations, or issued by authorized or recognized bodies of experts that follow a transparent due process are called:
Which of the following is not a characteristic of suitable criteria?
Which of the following is not a characteristic of suitable criteria?
The criteria to be used for a particular engagement can either be established or specifically developed. Established criteria are those:
The criteria to be used for a particular engagement can either be established or specifically developed. Established criteria are those:
A practitioner should accept an assurance engagement only if:
A practitioner should accept an assurance engagement only if:
In an assurance engagement, this refers to the information obtained by the practitioner in arriving at the conclusions on which the conclusion is based.
In an assurance engagement, this refers to the information obtained by the practitioner in arriving at the conclusions on which the conclusion is based.
Assurance engagement risk is the risk:
Assurance engagement risk is the risk:
The following are components of assurance engagement risk, except:
The following are components of assurance engagement risk, except:
The predominant type of attestation service performed by CPAs is:
The predominant type of attestation service performed by CPAs is:
Which of the following characteristics is not considered necessary in determining whether the criteria are suitable?
Which of the following characteristics is not considered necessary in determining whether the criteria are suitable?
The assurance report is often addressed to the intended users which may be:
The assurance report is often addressed to the intended users which may be:
When performing an assurance service, professional accountants use standards or benchmarks to evaluate or measure the subject matter of an assurance engagement. This is known as:
When performing an assurance service, professional accountants use standards or benchmarks to evaluate or measure the subject matter of an assurance engagement. This is known as:
Which of the following services provides positive assurance through attestation?
Which of the following services provides positive assurance through attestation?
The three commonly-sought types of assurance services are:
The three commonly-sought types of assurance services are:
Positive assurance is expressed through:
Positive assurance is expressed through:
The subject matter of an assurance engagement can take the following forms except:
The subject matter of an assurance engagement can take the following forms except:
Which of the following statements best describes review services?
Which of the following statements best describes review services?
A review of a company's financial statements by a CPA firm:
A review of a company's financial statements by a CPA firm:
The objective of a review of financial statements is to:
The objective of a review of financial statements is to:
Which of the following is incorrect regarding a compilation engagement?
Which of the following is incorrect regarding a compilation engagement?
The type of assurance that is provided by the CPA on a compilation report is:
The type of assurance that is provided by the CPA on a compilation report is:
Which of the following statements concerning compilation engagement is incorrect?
Which of the following statements concerning compilation engagement is incorrect?
Assurance services differ from consulting services in that they:
Assurance services differ from consulting services in that they:
For assurance engagements which are neither audits nor reviews of historical financial information, the following standard applies:
For assurance engagements which are neither audits nor reviews of historical financial information, the following standard applies:
Unlike consulting services, in assurance services:
Unlike consulting services, in assurance services:
The attest function:
The attest function:
Which of the following is an assurance service?
Which of the following is an assurance service?
Non-assurance engagements include all of the following services, except:
Non-assurance engagements include all of the following services, except:
Unlike consulting services, assurance services:
Unlike consulting services, assurance services:
Identify the correct statement.
Identify the correct statement.
An attestation engagement is one in which a CPA is engaged to:
An attestation engagement is one in which a CPA is engaged to:
Study Notes
Fundamentals of Assurance Engagements
- Assurance services are independent professional services aimed at enhancing the quality of information for decision-making.
- The primary objective of assurance engagements is to enhance the credibility of information for intended users.
- Assurance engagement risk involves the risk of expressing an inappropriate conclusion regarding the subject matter information, potentially impacting decision-making.
Types of Assurance Services
- Audits provide a positive level of assurance, focusing on the fairness of financial statements.
- Reviews provide limited assurance and are less comprehensive than audits.
- Compilation engagements involve summarizing financial information without providing any assurance.
- Attestation services involve a written conclusion about the reliability of a written assertion made by another party.
Levels of Assurance
- High assurance is provided in audit engagements, while reasonable assurance applies to audits detecting material misstatement.
- Positive assurance indicates higher certainty, while limited or negative assurance indicates less certainty regarding conclusions drawn.
Components of Assurance Engagements
- Engagements typically involve three parties: a practitioner, a responsible party, and intended users.
- Suitable criteria are essential for consistent evaluation or measurement, including relevance, reliability, and neutrality.
Characteristics of Criteria
- Established criteria come from laws or recognized bodies and follow a transparent process, ensuring reliability.
- Characteristics of suitable criteria encompass completeness, neutrality, comparability, and relevance.
Engagement Acceptance Criteria
- Practitioners must ensure competency and independence and that the subject matter can be subjected to evidence-gathering procedures.
- The responsible party is primarily accountable for the subject matter in assurance engagements.
Relationships in Assurance Engagements
- The responsible party may also be an intended user; however, their roles can be within the same entity or different entities.
- The CPA is engaged to provide assurance and should not accept engagements requiring skills beyond their expertise.
Attest Function
- The attest function is critical; it includes preparing a written report and verifying the conclusions drawn by the CPA.
- Positive assurance is expressed through attestation, while negative conclusions fall under limited assurance categories.
Distinction Between Services
- Assurance services emphasize evaluation of information quality, while consulting services generally provide recommendations without direct content evaluation.
- A clear distinction exists between the roles of an auditor (assurance) and a consultant, as the former provides attestation on reliability.
Engagement Products
- The end product of an agreed-upon procedures engagement is a report on factual findings, whereas an assurance report addresses conclusions regarding the subject matter.
- A compilation engagement does not provide assurance, focusing instead on gathering and summarizing financial data with due care.
Conclusion
- Understanding the different service types, levels of assurance, criteria characteristics, and regulatory distinction between assurance and consulting services is vital for practice in auditing and assurance engagements.### CPA Services Overview
- CPAs often provide a combination of audit, tax, and consulting services to clients.
Engagement Types and Assurances
- Agreed-Upon Procedures: Involves executing predefined audit procedures and reporting factual findings.
- Compilation: Represents an accounting service rather than auditing, compiling financial information without providing assurance.
- Non-Assurance Engagements: Includes management consulting and preparation of tax returns without expressing a conclusion.
Assurance Engagement Characteristics
- Assurance engagements result in a conclusion about assertions made by a responsible party.
- Elements of Assurance Engagements: Must include subject matter, suitable criteria, and evidence. Professional fees are not a requisite element.
- Subject Matter: Can consist of historical financial information, systems, processes, and behaviors.
Assurance Level Insights
- Levels of assurance in engagements vary from low (compilation) to high (audit).
- Absolute assurance is elusive due to selective testing and limitations of control systems.
Professional Standards and Framework
- Philippine Standards on Assurance Engagements (PSAEs) apply to historical financial information audits while PSREs focus on review engagements.
- Philippine Standards on Quality Control are applicable across various services by CPAs.
Procedures and Principles
- Compilation engagements require accountants to gather and summarize financial data, though no assurance is provided.
- Assurance engagements are not limited to financial data; they also encompass non-financial information and processes.
Reporting and Communications
- Agreed-upon procedures limit report distribution to specified parties and focus solely on factual findings.
- Review engagements provide negative assurance, indicating the lack of material misstatements without comprehensive verification found in audits.
Other Key Regulations
- CPA engagements must adhere to the framework set by the AASC, including comprehensive standards for audits, reviews, and compilations.
- Disclosure of an engagement's nature (i.e., "unaudited") is crucial in maintaining transparency regarding the level of assurance provided.
Auditing and Assurance Scope
- Effective assurance services address potential biases in information, providing users with credible insights through evaluations against suitable criteria.
- Various forms of evidence contribute to assessments in assurance engagements, balancing relevance, reliability, and appropriateness.
Conclusion
- Assurance engagements facilitate enhanced credibility of information, addressing the complexities and biases inherent in financial reporting and operational processes.### Procedures and Reports
- Agreed-upon procedures involve a general description of the procedures performed and an expression of positive assurance.
- Auditors must state their independence from the entity being audited and identify the purpose of the procedures.
User Involvement
- Users of the report should participate in establishing the procedures to be performed.
- If the auditor cannot discuss procedures with all parties, they can:
- Discuss with representatives of involved parties.
- Review correspondence from those parties.
- Distribute a draft report to involved parties.
Consulting Services Independence
- Providing consulting services for audit clients does not automatically impair auditor independence.
- Consulting services are distinct from the auditor's role in attestation to the assertions of other parties.
- Many CPAs offer both audit/tax services and consulting services.
Communication in Consulting Engagements
- Communication in consulting engagements can be either written or oral.
- Written communication should involve sending copies to both management and the board of directors for transparency.
CPA Engagement in Consulting Services
- For consulting on a potential merger, if lacking experience, a CPA may:
- Accept the engagement but conduct research or seek advice for competence.
- Decline if lacking sufficient knowledge.
Reporting Requirements
- Philippine Standards on Auditing (PSA) mandate a report whenever a CPA firm performs an audit, is associated with financial statements, or performs SEC regulated work.
Association with Financial Information
- A practitioner is associated with financial information if they attach a report to it or consent to the use of their name professionally.
Inappropriate Use of Auditor's Name
- If an auditor discovers inappropriate use of their name with financial information, they should:
- Require management to cease this practice.
- Inform third-party users of the misuse.
- Seek legal advice if necessary.
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Test your knowledge of auditing theory through this multiple-choice quiz on the fundamentals of assurance engagements. Each question is designed to assess your understanding of independent professional services that enhance decision-making quality.
