AUDITING THEORY TEST BANK
ASSURANCE SERVICES
1. Which of the following statements best describes assurance services?
A. Independent professional services that are intended to enhance the
credibility of information to meet the needs of an intended user.
B. Services designed to express an opinion on the fairness of historical financial
statements based on the results of an audit.
C. The preparation of financial statements or the collection, classification, and
summarization of other financial information.
D. Services designed for the improvement of operations, resulting in better outcomes.
2. Which of the following is not an assurance service?
A. Examination of prospective financial information
B. Audit of historical financial statements
C. Review of financial statements
D. Compilation of financial information
3. 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?
A. Reliable criteria contribute to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations.
B. Relevant criteria allow reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when used in similar
circumstances by similarly qualified practitioners.
C. Neutral criteria contribute to conclusions that are free from bias.
D. Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations.
4. In an assurance engagement, the outcome of the evaluation or measurement of a subject
matter against criteria is called
A. Subject matter information
B. Subject matter
C. Assurance
D. Conclusion
5. What type of assurance engagement is involved when the practitioner expresses a positive
form of conclusion?
A. Limited assurance engagement
B. Positive assurance engagement
C. Reasonable assurance engagement
D. Absolute assurance engagement
6. What type of assurance engagement is involved when the practitioner expresses a
negative form of conclusion?
A. Reasonable assurance engagement
B. Negative assurance engagement
C. Assertion-based assurance engagement
D. Limited assurance engagement
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.
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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. 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.
10. The Philippine Framework for Assurance Engagements
A. Contains basic principles, essential procedures, and related guidance for the
performance of assurance engagements.
B. Defines and describes the elements and objectives of an assurance
engagement, and identifies engagements to which PSAs, PSREs, and PSAEs
apply.
C. Provides a frame of reference for CPAs in public practice when performing audits,
reviews, and compilations of historical financial information.
D. Establishes standards and provides procedural requirements for the performance of
assurance engagements.
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11. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in
February 2008, applies to
A. Reviews of any historical financial information of an audit client.
B. Reviews of any historical financial information by a practitioner other than
the entity s auditor.
C. Reviews of historical financial or other information by a practitioner other than the
entity s auditor.
D. Reviews of historical financial or other information of an audit client.
12. When performing a compilation engagement, the accountant 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.
13. Inquiries and analytical procedures ordinarily form the basis for which type of
engagement?
A. Agreed-upon procedures.
B. Audit.
C. Examination.
D. Review.
14. A practitioner should accept an assurance engagement only if
A. The subject matter is in the form of financial information.
B. The criteria to be used are not available to the intended users.
C. The practitioner s conclusion is to be contained in a written report.
D. The subject matter is the responsibility of either the intended users or the practitioner.
15. 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.
16. Which of the following best describes the reason why independent auditors report on
financial statements?
A. A management fraud may exist and it is more likely to be detected by independent
auditors.
B. Different interests may exist between the company preparing the
statements and the persons using the statements.
C. A misstatement of account balances may exist and is generally corrected as the result
of the independent auditors work.
D. Poorly designed internal control may be in existence.
17. Which of the following professionals has primary responsibility for the performance of an
audit?
A. The managing partner of the firm.
B. The senior assigned to the engagement.
C. The manager assigned to the engagement.
D. The partner in charge of the engagement.
18. What is the proper organizational role of internal auditing?
A. To serve as an independent, objective assurance and consulting activity that
adds value to operations.
ASSURANCE SERVICES
1. Which of the following statements best describes assurance services?
A. Independent professional services that are intended to enhance the
credibility of information to meet the needs of an intended user.
B. Services designed to express an opinion on the fairness of historical financial
statements based on the results of an audit.
C. The preparation of financial statements or the collection, classification, and
summarization of other financial information.
D. Services designed for the improvement of operations, resulting in better outcomes.
2. Which of the following is not an assurance service?
A. Examination of prospective financial information
B. Audit of historical financial statements
C. Review of financial statements
D. Compilation of financial information
3. 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?
A. Reliable criteria contribute to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations.
B. Relevant criteria allow reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when used in similar
circumstances by similarly qualified practitioners.
C. Neutral criteria contribute to conclusions that are free from bias.
D. Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations.
4. In an assurance engagement, the outcome of the evaluation or measurement of a subject
matter against criteria is called
A. Subject matter information
B. Subject matter
C. Assurance
D. Conclusion
5. What type of assurance engagement is involved when the practitioner expresses a positive
form of conclusion?
A. Limited assurance engagement
B. Positive assurance engagement
C. Reasonable assurance engagement
D. Absolute assurance engagement
6. What type of assurance engagement is involved when the practitioner expresses a
negative form of conclusion?
A. Reasonable assurance engagement
B. Negative assurance engagement
C. Assertion-based assurance engagement
D. Limited assurance engagement
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.
, Page |2
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. 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.
10. The Philippine Framework for Assurance Engagements
A. Contains basic principles, essential procedures, and related guidance for the
performance of assurance engagements.
B. Defines and describes the elements and objectives of an assurance
engagement, and identifies engagements to which PSAs, PSREs, and PSAEs
apply.
C. Provides a frame of reference for CPAs in public practice when performing audits,
reviews, and compilations of historical financial information.
D. Establishes standards and provides procedural requirements for the performance of
assurance engagements.
, Page |3
11. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in
February 2008, applies to
A. Reviews of any historical financial information of an audit client.
B. Reviews of any historical financial information by a practitioner other than
the entity s auditor.
C. Reviews of historical financial or other information by a practitioner other than the
entity s auditor.
D. Reviews of historical financial or other information of an audit client.
12. When performing a compilation engagement, the accountant 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.
13. Inquiries and analytical procedures ordinarily form the basis for which type of
engagement?
A. Agreed-upon procedures.
B. Audit.
C. Examination.
D. Review.
14. A practitioner should accept an assurance engagement only if
A. The subject matter is in the form of financial information.
B. The criteria to be used are not available to the intended users.
C. The practitioner s conclusion is to be contained in a written report.
D. The subject matter is the responsibility of either the intended users or the practitioner.
15. 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.
16. Which of the following best describes the reason why independent auditors report on
financial statements?
A. A management fraud may exist and it is more likely to be detected by independent
auditors.
B. Different interests may exist between the company preparing the
statements and the persons using the statements.
C. A misstatement of account balances may exist and is generally corrected as the result
of the independent auditors work.
D. Poorly designed internal control may be in existence.
17. Which of the following professionals has primary responsibility for the performance of an
audit?
A. The managing partner of the firm.
B. The senior assigned to the engagement.
C. The manager assigned to the engagement.
D. The partner in charge of the engagement.
18. What is the proper organizational role of internal auditing?
A. To serve as an independent, objective assurance and consulting activity that
adds value to operations.
