Consulting vs Assurance Services
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Questions and Answers

Which responsibility belongs to management in relation to financial statements?

  • Reviewing the audit findings
  • Designing the audit plan
  • Preparing the financial statements in accordance with the applicable financial reporting framework (correct)
  • Conducting the audit of financial statements

    • What is NOT a part of management's responsibility regarding financial statements?

  • Conducting internal audits (correct)
  • Selecting and applying appropriate accounting policies
  • Making reasonable accounting estimates
  • Identifying applicable financial reporting frameworks

    • Which of the following is a communication responsibility of an auditor?

  • Communicating with those charged with governance (correct)
  • Conducting financial training seminars
  • Designing internal control procedures
  • Preparing the financial statements

    • Which statement best describes the relationship between auditor's and management's responsibilities?

    <p>Management is responsible for preparation, while the auditor confirms that preparation was accurate.</p> Signup and view all the answers

    What responsibility does management have concerning internal control?

    <p>To design, implement, and maintain relevant internal controls</p> Signup and view all the answers

    What information must management provide to the auditor?

    <p>All records and documentation relevant to the audit</p> Signup and view all the answers

    Why are reasonable accounting estimates important for management?

    <p>They help to prepare financial statements accurately within the applicable framework.</p> Signup and view all the answers

    What should management ensure regarding access for auditors?

    <p>Unrestricted access to all necessary personnel for audit evidence</p> Signup and view all the answers

    What is the primary purpose of assurance services?

    <p>To improve quality or context of information by enhancing its credibility</p> Signup and view all the answers

    How many parties are typically involved in assurance services?

    <p>Three parties</p> Signup and view all the answers

    In assurance services, who are the primary focus of the information provided?

    <p>The decision makers and users of that information</p> Signup and view all the answers

    What is the form of communication typically used in consulting services?

    <p>Either written or oral communication</p> Signup and view all the answers

    Which of the following statements is true regarding consulting services?

    <p>They are designed to improve a client’s condition directly</p> Signup and view all the answers

    What distinguishes consulting services from assurance services regarding outputs?

    <p>Consulting outputs are designed to improve the client’s condition directly</p> Signup and view all the answers

    Which of the following is a characteristic of assurance services regarding competing interests?

    <p>They may have competing interests between management and users</p> Signup and view all the answers

    What is typically a non-assurance service?

    <p>Compiling financial or other information</p> Signup and view all the answers

    What should an auditor evaluate if the audit evidence is deemed insufficient and inappropriate?

    <p>Other relevant audit evidence</p> Signup and view all the answers

    What does an auditor primarily seek to achieve through the requirements expressed in the PSAs?

    <p>The objectives specified in the PSAs</p> Signup and view all the answers

    What is the purpose of the application and other explanatory material within the PSAs?

    <p>To provide further explanation and guidance for requirements</p> Signup and view all the answers

    Which of the following is NOT a component of the content structure of the PSAs?

    <p>Case studies</p> Signup and view all the answers

    What must an auditor consider in addition to the PSAs when performing an audit?

    <p>Philippine Auditing Practice Statements (PAPSs)</p> Signup and view all the answers

    Why may application and explanatory material include additional considerations for small entities?

    <p>To provide tailored guidance for specific circumstances</p> Signup and view all the answers

    How are the requirements expressed in the PSAs intended to influence an auditor's work?

    <p>They provide mandatory methods that must be followed.</p> Signup and view all the answers

    What role do the objectives within individual PSAs serve?

    <p>They focus the auditor on the desired outcome.</p> Signup and view all the answers

    What does detection risk relate to in an audit?

    <p>The effectiveness of audit procedures and their implementation</p> Signup and view all the answers

    How does the assessed risk of material misstatement affect detection risk?

    <p>Higher risks result in lower acceptable detection risk</p> Signup and view all the answers

    Which factor does NOT assist in enhancing the effectiveness of an audit?

    <p>Random assignment of personnel</p> Signup and view all the answers

    What can be said about detection risk in relation to audits?

    <p>Detection risk must always be acknowledged</p> Signup and view all the answers

    What is essential for compliance with relevant PSAs during an audit?

    <p>Compliance with all PSAs relevant to the audit</p> Signup and view all the answers

    Which of the following does NOT reduce the possibility of selecting an inappropriate audit procedure?

    <p>Avoidance of supervision during the audit process</p> Signup and view all the answers

    What is the role of professional skepticism in auditing?

    <p>To enhance the auditor's judgment</p> Signup and view all the answers

    In what way does the nature of audit procedures affect detection risk?

    <p>The application's effectiveness is more critical than procedure nature</p> Signup and view all the answers

    Under what circumstance may an auditor depart from a relevant requirement?

    <p>The specific procedure is ineffective for the audit circumstances.</p> Signup and view all the answers

    What is the primary goal of obtaining reasonable assurance in an audit?

    <p>To ensure financial statements are free from material misstatement.</p> Signup and view all the answers

    Which of the following characteristics is NOT typically associated with a smaller entity?

    <p>Complex financial transactions.</p> Signup and view all the answers

    What is a common qualitative characteristic of smaller entities?

    <p>Few personnel with a wide range of duties.</p> Signup and view all the answers

    What attitude should auditors have when conducting an audit?

    <p>Professional skepticism, assuming material misstatements may exist.</p> Signup and view all the answers

    Which of the following describes 'owner-manager' in the context of smaller entities?

    <p>A person managing the entity while being an owner.</p> Signup and view all the answers

    Which of the following actions is required to reduce audit risk?

    <p>Gather sufficient appropriate audit evidence.</p> Signup and view all the answers

    Which of the following is a key consideration for auditors of smaller entities?

    <p>The simplicity of transactions and record-keeping.</p> Signup and view all the answers

    Study Notes

    Consulting vs. Assurance Services

    • Primary Purpose: Assurance services aim to improve the quality and credibility of information, while consulting services focus on recommending better uses of information for improved outcomes.
    • Number of Parties: Assurance typically involves three parties (the client, management, and users) whereas consulting involves only the CPA and the client.
    • Focus: Assurance targets decision-makers and their information use, while consulting emphasizes direct outcomes for the client.
    • Output Objectives: Assurance indirectly enhances the decision-maker's condition through credible information; consulting directly improves client conditions via findings and recommendations.
    • Competing Interests: Competing interests may exist in assurance services between management and financial statement users, but not in consulting services.
    • Communication: Assurance findings are typically communicated through written reports, while consulting may involve both written and oral communication.

    Categories of Services/Engagements

    • Assurance Services: Includes audits of financial statements, reviews of financial statements, and examinations of prospective financial statements.
    • Non-Assurance Services: Comprises agreed-upon procedures, compilation of financial information, tax return preparation without conclusions, and other communications and reports.

    Management Responsibility for Financial Statements

    • Preparation and Presentation: Management must ensure financial statements comply with applicable reporting frameworks and include necessary disclosures.
    • Internal Control: Management is responsible for designing and maintaining internal controls to prevent material misstatements.
    • Providing Information: Management must provide auditors with relevant records and unfettered access to individuals for audit evidence gathering.

    Auditor Responsibilities

    • Detection Risk: Defined as the risk that material misstatements may not be detected by auditor procedures. It depends on the nature, timing, and extent of audit methods.
    • Reducing Detection Risk: Effective audit procedures can reduce but not eliminate detection risk. Important factors include planning, personnel assignment, professional skepticism, and supervision.
    • Conducting Audits: Auditors must comply with Philippine Standards on Auditing (PSAs) and consider Philippine Auditing Practice Statements (PAPSs) for guidance.

    PSAs Structure

    • Objectives: Each PSA outlines goals aimed at guiding auditors toward desired outcomes.
    • Requirements: Expressed using "shall," these help auditors achieve their objectives.
    • Guidance Material: Application and explanatory information supports understanding and application of PSA requirements.

    Considerations for Smaller Entities

    • Characteristics: Smaller entities often display concentrated ownership, uncomplicated transactions, simple record-keeping, limited internal controls, and minimal management levels.
    • Owner-Manager: The individual responsible for daily operations in smaller entities is often termed the owner-manager.

    General Principles of Financial Statement Audit

    • Professional Skepticism: Auditors must approach audits with skepticism, recognizing that misstatements may exist and conducting their evaluations accordingly.

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    Description

    This quiz explores the distinctions between assurance and consulting services. It examines their primary purposes, focusing on how assurance services improve quality through information, while consulting services recommend information uses for better outcomes. Test your understanding of these critical concepts in the field.

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