Questions and Answers
Which responsibility belongs to management in relation to financial statements?
What is NOT a part of management's responsibility regarding financial statements?
Which of the following is a communication responsibility of an auditor?
Which statement best describes the relationship between auditor's and management's responsibilities?
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What responsibility does management have concerning internal control?
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What information must management provide to the auditor?
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Why are reasonable accounting estimates important for management?
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What should management ensure regarding access for auditors?
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What is the primary purpose of assurance services?
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How many parties are typically involved in assurance services?
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In assurance services, who are the primary focus of the information provided?
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What is the form of communication typically used in consulting services?
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Which of the following statements is true regarding consulting services?
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What distinguishes consulting services from assurance services regarding outputs?
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Which of the following is a characteristic of assurance services regarding competing interests?
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What is typically a non-assurance service?
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What should an auditor evaluate if the audit evidence is deemed insufficient and inappropriate?
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What does an auditor primarily seek to achieve through the requirements expressed in the PSAs?
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What is the purpose of the application and other explanatory material within the PSAs?
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Which of the following is NOT a component of the content structure of the PSAs?
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What must an auditor consider in addition to the PSAs when performing an audit?
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Why may application and explanatory material include additional considerations for small entities?
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How are the requirements expressed in the PSAs intended to influence an auditor's work?
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What role do the objectives within individual PSAs serve?
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What does detection risk relate to in an audit?
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How does the assessed risk of material misstatement affect detection risk?
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Which factor does NOT assist in enhancing the effectiveness of an audit?
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What can be said about detection risk in relation to audits?
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What is essential for compliance with relevant PSAs during an audit?
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Which of the following does NOT reduce the possibility of selecting an inappropriate audit procedure?
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What is the role of professional skepticism in auditing?
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In what way does the nature of audit procedures affect detection risk?
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Under what circumstance may an auditor depart from a relevant requirement?
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What is the primary goal of obtaining reasonable assurance in an audit?
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Which of the following characteristics is NOT typically associated with a smaller entity?
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What is a common qualitative characteristic of smaller entities?
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What attitude should auditors have when conducting an audit?
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Which of the following describes 'owner-manager' in the context of smaller entities?
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Which of the following actions is required to reduce audit risk?
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Which of the following is a key consideration for auditors of smaller entities?
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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.
