Which of the following services would be most likely to be structured as an assurance engagement?

AUDITING THEORY

AT.3001-Assurance Engagements & Other Services of a Practitioner

R.C.P. SOLIMAN/K.J. UY MAY 2021

References: a. b.

Philippine Framework for Assurance Engagements PSA 120, Framework of Philippine Standards on Auditing

DISCUSSION QUESTIONS Ethical Principles and Quality Control Standards Introduction 5. 1.

Philippine Standards on Assurance Engagements defines and describes the elements and objectives of an assurance engagement. Philippine Framework for Assurance Engagements contain basic principles, essential procedures, and related guidance, consistent with the concepts in the Framework, for the performance of assurance engagements. a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect.

Definition and Objective of an Assurance Engagement 6.

Assurance services are best described as a. Independent professional services that improve the quality of information, or its context, for decision makers. b. The assembly of financial statements based on assumptions of a reasonable party. c. Services designed to express an opinion on historical financial statements based on the results of an audit. d. Services designed for the improvement of operations, resulting in better outcomes.

7.

Which of the following best describes the objective of an assurance engagement? a. To assist the company in improving the effectiveness and efficiency of its operations. b. To benchmark the company’s information with companies that are considered leaders in their industry. c. To assist the company in compiling information needed for the preparation of its financial statements. d. To enhance the credibility of information being provided by one party to another in such a way that the other party receiving the information will be able to use it in making informed decisions.

Services of a CPA in Public Practice 2.

Which of the following is not an assurance service? a. Audit of financial statements. b. Review of interim financial information. c. WebTrust engagement. d. Preparation of financial statements.

3.

Which of the following professional services would be considered an assurance engagement? a. An engagement to install web-based accounting system for a client. b. Preparation of tax returns and attachments based on information provided by the client. c. Performance of agreed-upon procedures related to application of the client with the SEC to increase its authorized shares. d. An engagement to report on compliance of a client with a debt covenant.

Demand for Assurance Services 4.

CPAs in public practice who perform assurance engagements are governed by the following, except a. Philippine Framework for Assurance Engagements b. Code of Ethics for Professional Accountants in the Philippines c. Philippine Standards on Related Services d. Philippine Standards on Quality Control

Which of the following statements does not describe a Scope of the Framework condition that creates a demand for auditing? a. Conflict between the information preparer and the 8. The following engagements may meet the definition of assurance engagement but are not covered by the user can result in biased information. Framework: b. Information can have substantial economic consequences for a decision maker. I. Engagements to testify in legal proceedings regarding accounting, auditing, taxation, or c. Expertise is often required for information other matters. preparation and verification. II. Engagements that include professional d. Users can directly assess the quality of information. opinions, views or wording from which a user

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AT.3001

EXCEL PROFESSIONAL SERVICES, INC. may derive some assurance, but those 12. Which of the following items can be a subject matter of opinions, views or wordings are incidental only an assurance engagement? to overall engagement, a written report is a. Historical or prospective financial information. expressly restricted in use by specified users, b. Performance of a basketball team. there is a written understanding with the users c. Enrollment system of a university. that the engagement is not intended to be an d. All of the above. assurance engagement, and the engagement is not represented as an assurance 13. When is a subject matter considered appropriate? engagement in the report. a. Identifiable, and capable of consistent evaluation or III. An assurance engagement which is part of a measurement against the identified criteria. larger consulting engagement. b. The information about it can be subjected to a. I, II, and III procedures and for gathering of sufficient b. III only appropriate evidence to support a conclusion. c. I and II only c. Either a or b. d. Neither I, II, nor III d. Both a and b. Reports on Non-Assurance Engagements

14. In an assurance engagement, the outcome of the evaluation or measurement of a subject matter against 9. A practitioner performed a non-assurance engagement criteria is called with a client. Which of the following statements are a. Subject matter allowed to be included in the report of the practitioner? b. Subject matter information a. A statement saying that the practitioner complied c. Assertion with the Framework for Assurance Engagements. d. Evidence b. Use of words such as “assurance,” “audit” or “review.” Criteria c. A conclusion designed to enhance the degree of confidence of intended users about the outcome of the evaluation or measurement of a subject matter 15. When performing an assurance engagement, CPAs use standards or benchmarks to evaluate or measure the against criteria. subject matter of an assurance engagement. These are d. None of the above. referred to in the framework as a. Evidence b. Subject Matter Engagement Acceptance c. Criteria d. Conclusion 10. A proposed assurance engagement can only be accepted when I. The CPA’s preliminary knowledge about the 16. Which of the following statements refer to the ‘Relevance’ characteristic of suitable criteria for engagement circumstances indicates that relevant assurance engagements? ethical requirements will be satisfied. a. Relevant factors that could affect the conclusions in II. The subject matter of the engagement is the context of the engagements are not omitted. appropriate, the criteria to be used are suitable b. Allows reasonably consistent evaluation or and are available to intended users, the measurement of the subject matter including when practitioner has access to sufficient appropriate used in similar circumstances by similarly qualified evidence to support the conclusion, and the practitioners. conclusion is to be contained in a written report. III. There is a rational purpose for the engagement. a. c. Contributes to conclusions that are free from bias. I, II, or III. d. Contributes to conclusions that assist decisionb. I and II only. making by the intended users. c. II and III only. d. I, II, and III. 17. Criteria that are embodied in laws, regulations, or issued by authorized or recognized bodies of experts Elements of an Assurance Engagement that follow a transparent due process are called a. Established criteria b. Specifically developed criteria Three Party Relationship c. Either a or b 11. Which of the following statements is incorrect regarding d. Neither a nor b the three-party relationship element of assurance engagement? 18. Criteria may be made available to intended users to a. The intended user is generally the addressee of the allow them to understand how the subject matter has professional accountant’s report. been evaluated or measured. b. The responsible party and the intended user will Criteria may also be available only to specific intended often be from separate organizations. users, for example the terms of a contract, or criteria c. The responsible party may also be one of the issued by an industry association that are available only intended users. to those in the industry. d. The practitioner is expected to perform audit a. Only Statement 1 is correct services only. b. Only Statement 2 is correct Subject Matter c. Both statements are correct d. Both statements are incorrect

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AT.3001

EXCEL PROFESSIONAL SERVICES, INC. c. d.

Evidence

Reasonable assurance engagement Absolute assurance engagement

19. In determining the nature, timing and extent of 25. Which of the following is (are) characteristic(s) of a evidence-gathering procedures, the CPA considers a. limited assurance engagement? Materiality a. A reduction in assurance engagement risk to a level b. Assurance engagement risk that is acceptable in the circumstances of the c. The quantity and quality of available evidence engagement but where that risk is greater than for d. All of the above a reasonable assurance engagement. b. The assurance report includes description of the 20. Which of the following statements is incorrect? engagement circumstances, and a negative form of expression of the conclusion. a. The practitioner plans and performs an assurance engagement with an attitude of professional c. Sufficient appropriate evidence is obtained but in skepticism recognizing that circumstances may which procedures are deliberately limited relative to exist that cause the subject matter information to a reasonable assurance engagement. be materially misstated. d. All of the above. b. Assurance engagement risk is the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated. According to Structure c. The assessment of materiality and the relative importance of quantitative and qualitative factors in 26. In some assurance engagements, the evaluation or a particular engagement are matters for the measurement of the subject matter performed by the practitioner’s judgement. responsible party, and the subject matter information is d. None of the above. in the form of an assertion by the responsible party that is made available to intended users. These 21. Which of the following is incorrect concerning evidence engagements are called in an assurance engagement? a. Direct reporting engagements a. Sufficiency is the measure of the quantity of b. Assertion-based engagements evidence. c. Non-assurance engagements b. Appropriateness or competence of evidence is the d. Recurring engagements measure of the quality of the evidence. c. Sufficiency and appropriateness of evidence are 27. The following are characteristics of direct reporting interrelated with each other. assurance engagements, except d. Obtaining more evidence may compensate for the a. The subject matter information is in the form of an poor quality of evidence. assertion by the responsible party that is made available to the intended users. Assurance Report b. The subject matter information is provided to the intended users in the assurance report. 22. Written assurance report is required for assurance c. The practitioner either directly performs the engagements. evaluation or measurement of the subject matter or obtains a representation from the responsible party Written report encompass hard copy reports and those that has performed the evaluation or measurement. in electronic format. d. The representation of the responsible party that has a. Only Statement 1 is correct performed the evaluation or measurement of the b. Only Statement 2 is correct subject matter is not available to the intended c. Both statements are correct users. d. Both statements are incorrect Limitations of Assurance Engagements 23. An unqualified conclusion is not appropriate when a. Circumstances prevent the practitioner from 28. Which of the following is not a limitation of assurance obtaining evidence required to reduce assurance services provided by professional accountants? engagement risk to the appropriate level. a. The practitioner does not test all of the b. The responsible party or the engaging party transactions. imposes a restriction that prevents the practitioner b. The evidence available are persuasive rather than from obtaining evidence required to reduce conclusive. assurance engagement risk to the appropriate level. c. The practitioner does not possess the qualifications c. Both a and b for some complex subject matters. d. Neither a nor b d. The practitioner uses judgment in evaluating the subject matter. Types of Assurance Engagements Non-Assurance Engagements According to Level of Assurance 24. What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion? a. Limited assurance engagement b. Positive assurance engagement

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29. Engagements frequently performed by professional accountants that are not assurance engagements include the following, except a. Agreed upon procedures b. Reasonable assurance engagement c. Management consulting

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AT.3001

EXCEL PROFESSIONAL SERVICES, INC. d.

Compilation of financial information

6. The conclusion of the practitioner fairness of the subject matter 30. In an engagement to perform agreed-upon procedures, information in accordance with the an auditor is engaged to in a. Carry out those procedures of an audit nature to a. Subject matter information which the auditor and the entity and any b. Specifically developed criteria appropriate third parties have agreed and to report c. Written assurance report on factual findings. d. Management representation b. Use accounting expertise as opposed to auditing expertise to collect, classify, and summarize financial information. 7. What level of assurance is provided c. Provide a moderate level of assurance that the audit engagement? a. Absolute information is free of material misstatement. b. High, but not absolute d. Provide a high, but not absolute, level of assurance c. Moderate that the information is free of material d. No assurance misstatement. 8.

- now do the DIY drill -

with regard to the or subject matter criteria is contained

by the auditor in an

In a direct reporting engagement, the responsible party

DO-IT-YOURSELF (DIY) DRILL 1.

Which of the following services would be most likely to be structured as an assurance engagement? a. Advocating a client’s position in tax matters. b. A consulting engagement to develop a new database system for the revenue cycle. c. An engagement to issue a report addressing an entity’s compliance with requirements of specified 9. laws. d. The compilation of a client’s forecast information.

is responsible for a. The subject matter only. b. The subject matter information only. c. Both subject matter and subject matter information. d. Subject matter information and may also be responsible to subject matter. 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 use of judgment in gathering and evaluating evidence and forming conclusions based on that evidence. d. The practitioner may not have the required assurance and knowledge and skills to gather an evaluate evidence.

2.

In an assurance engagement, the responsible party and the intended users a. Should be from different entities. b. Should be from the same entity. c. May be from the same entity or different entities. d. Are both responsible for determining the nature, timing and extent of the procedures to be performed.

3.

The subject matter of an assurance engagement may 10. Indicate the level of assurance review and related services take many forms, including a. b. a. b. c. d. Audit Reasonable Reasonable Nonfinancial performance Review Reasonable Limited or condition Yes Yes Yes No Agreed upon Behavior Yes Yes Yes Yes procedures None None Financial performance or Compilation None None condition Yes Yes No Yes Physical characteristics Yes No No No - end of AT.3001 Systems and processes Yes No Yes Yes

4.

5.

The characteristics for determining suitable include a. Relevance Yes Reliability Yes Completeness Yes Neutrality Yes Comparability Yes Understandability Yes

provided by audit, c. Limited Limited

d. Absolute Reasonable

None None

Limited None

-

whether criteria are b. Yes Yes Yes No Yes No

c. Yes Yes No No No No

d. Yes Yes Yes Yes No Yes

What criteria contributes to conclusions that are clear, comprehensive, and not subject to significantly different interpretations. a. Relevance b. Completeness c. Reliability d. Understandability

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AT.3001

Which of the following would be considered an assurance service engagement?

What are the types of assurance engagement?

What are the 5 elements of this assurance engagements?

What are the three 3 most commonly sought assurance services?