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AUDITING THEORY

AT.0701 – Fundamentals of Assurance and Non-assurance Engagements

LECTURE NOTES
Introduction undergo quality review conducted by Quality Review
Committee (QRC) before granting renewal of accreditation.
Public practitioners offer a wide array of professional
services to various clients, profit or non-profit, private or
Death, Disability, Dissolution and Liquidation
public, mainly dealing with its financial aspects. These
may include the traditional audit and review of FSs, tax The death or disability of an individual CPA and/or the
compliance and consulting, transaction and financial dissolution and liquidation of a firm or partnership of CPAs
advisory services, etc. Categorically, these services can be shall be reported to the BOA, in the form of affidavit, not
classified into two: assurance and non-assurance. later than 30 days from the date of such death, dissolution
or liquidation.
Practice of Public Accountancy
Ownership of Working Papers
RA 9298 defines practice of public accountancy as when a
person is skilled in the knowledge, science and practice of Confidential and privileged and remain the property of
accounting and as a qualified person to render professional such CPA in the absence of a written agreement between

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services as a CPA to more than one client on a fee basis. the CPA and the client, to the contrary unless such

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documents are required to be produced through subpoena
CPAs in public accountancy shall practice under individual issued by any court, tribunal, or government regulatory or

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capacity, firm (sole proprietorship) or partnership name,
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and shall not include any fictitious name, indicates
specialization, or is misleading as to the type of Seal and Use of Seal

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organization (proprietorship or partnership). The SEC shall
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The auditor’s reports shall be stamped with said seal,
not register any corporation organized for the practice of
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indicating therein his/her current Professional Tax Receipt


public accountancy. A partner surviving the death or
(PTR) number, date/place of payment when filed with
withdrawal of all the other partners in a Partnership may
government authorities or when used professionally.
continue to practice under the Partnership name for a
period of not more than two years after becoming a sole
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Circular in form with a smaller circle within and in the


proprietor.
upper portion of the space between the circles shall be
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engraved the name of the individual CPA, firm or


Accreditation to Practice Public Accountancy
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partnership as the case maybe, the lower portion thereof


CPAs shall first obtain a certificate of accreditation from shall be engraved the CPA Registration Number of the
the BoA/PRC before they can be allowed to practice public individual CPA, proprietor of the firm and the signing
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accountancy after attaining a minimum of three years partner of the partnership and in the middle of the
meaningful experience. smaller circle shall be engraved the letters “CPA”.
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Meaningful Experience
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Affixing the CPA’s seal and signature is an indication of


Commerce Significant involvement in general compliance by the CPA of the requisite accounting and
and industry accounting, budgeting, tax administration, auditing standards and rules.
internal auditing, liaison with external
auditors, representing his/her employer
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Definition and Objective of an Assurance


before gov’t agencies on tax and matters Engagement
related to accounting functions; or
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Academe/ Teaching for at least three trimesters or In an assurance engagement, a practitioner expresses a
Education two semesters accounting related conclusion designed to enhance the degree of confidence
subjects. The accumulated teaching of the intended users other than the responsible party
experience on these subjects shall not be about the outcome of the evaluation or measurement of a
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less than three school years; or subject matter against criteria. Hence, an assurance
Government Significant involvement in general engagement is an independent professional service that
accounting, budgeting, tax administration, improves the quality (credibility) of information for
internal auditing, liaison with the CoA or decision makers.
any other related functions
Public practice At least one year as audit assistant and at Assurance services are very broad, and can be done by
least two years as auditor in charge of CPAs or by a variety of other professionals.
audit engagement covering full audit
functions of significant clients. Need for Unbiased Reporting and Independent
Assurance
Renewal of Certificate of Accreditation The demand for assurance services emanate from the
The registration shall be valid for a period of three years following reasons:
and may be renewed every three years on or before • Potential bias in providing information
September 30 in the year of expiry. The registration of • Remoteness between a user and the organization or
applicants approved during any month of the year shall trading partner
expire on December 31 in the third year following its • Complexity of the transactions, information or
approval. The BoA shall require public practitioners to processing systems

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• Investors need to manage their risk and thereby Appropriate subject matter
minimize financial surprises as consequences to
The subject matter, and subject matter information, of an
investors, and others, of relying on inaccurate
assurance engagement can take many forms, such as:
information can be quite significant. Assurance
a. Financial performance or conditions (for example,
engagements reduce information risks of the subject
historical or prospective financial statements)
matter.
b. Non-financial performance or conditions (for example,
performance key indicators of efficiency and
Types of Assurance Engagements
effectiveness of an entity)
1. As to level of assurance conveyed: c. Physical characteristics (for example, capacity of a
a. Reasonable assurance engagement. The objective facility)
is a reduction in assurance engagement risk to an d. Systems and processes (for example, an entity’s
acceptably low level as the basis for a positive internal control or IT system)
form of expression of the practitioner’s conclusion. e. Behavior (for example, corporate governance,
An example is audit of historical FSs. compliance with regulation, human resource practices)
b. Limited assurance engagement. The objective is a
reduction in assurance engagement risk to a level An appropriate subject matter is:
that is acceptable in the circumstances of the a. Identifiable, and capable of consistent evaluation or
engagement, but where that risk is greater than measurement against the identified criteria; and
for a reasonable assurance engagement, as the b. Such that the information about it can be subjected to
basis for a negative form of expression of the procedures for gathering sufficient appropriate
practitioner’s conclusion. An example is review of evidence to support a reasonable assurance or limited
historical FSs. assurance conclusion, as appropriate.
2. As to structure of engagement:

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Suitable criteria

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a. Assertion-based engagement. In this type of
engagement, the evaluation or measurement of Benchmarks used to evaluate or measure the subject

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the subject matter is performed by the responsible
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party, and the subject matter information is in the
form of assertion by the responsible party that is Examples of formal criteria are the following:

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made available to the intended users. • In the preparation of financial statements, the criteria
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Independent financial statements audit normally may be Philippine Financial Reporting Standards;
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falls under this type. • When reporting on internal control, the criteria may be
b. Direct reporting engagement. In this type of an established internal control framework; and
engagements, the practitioner either directly • When reporting on compliance, the criteria may be the
performs the evaluation or measurement of the applicable law, regulation or contract.
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subject matter, or obtains a representation from


the responsible party that has performed the Examples of less formal criteria are an internally developed
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evaluation or measurement that is not available to code of conduct or an agreed level of performance (such
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the intended users. The subject matter as the number of times a particular committee is expected
information is provided to the intended users in the to meet in a year).
assurance report.
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Suitable criteria are required for reasonably consistent


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Elements of an Assurance Engagement evaluation or measurement of a subject matter within the


context of professional judgment. Without the frame of
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The five elements of an assurance engagement are:


reference provided by suitable criteria, any conclusion is
a. A three party relationship involving a practitioner, a
open to individual interpretation and misunderstanding.
responsible party, and intended users;
b. An appropriate subject matter;
The criteria must have the following characteristics to be
c. Suitable criteria;
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considered suitable:
d. Sufficient appropriate evidence; and
a. Relevance – relevant criteria contribute to conclusions
e. A written assurance report in the form appropriate to a
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that assist decision- making by the intended users.


reasonable assurance engagement or a limited
b. Completeness – criteria are sufficiently complete when
assurance engagement.
relevant factors that could affect the conclusions in the
context of the engagement circumstances are not
Three-party Relationship
omitted. Complete criteria include, where relevant,
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Assurance engagements involve three separate parties: benchmarks for presentation and disclosure.
1. Practitioner – the person, who performs the c. Reliability – reliable criteria allow reasonably consistent
engagement, and is broader than the term “auditor” evaluation or measurement of the subject matter
which relates only to practitioners performing audit or including, where relevant, presentation and disclosure,
review engagements with respect to historical financial when used in similar circumstances by similarly
information. qualified practitioners.
2. Responsible party – is the person responsible for d. Neutrality – neutral criteria contribute to conclusions
a. Direct reporting engagement – subject matter; or that are free from bias.
b. Assertion-based engagement – a subject matter e. Understandability – understandable criteria contribute
information (the assertion), and may be the to conclusions that are clear, comprehensive, and not
subject matter. The responsible party may or may subject to significantly different interpretations.
not be the party who engages the practitioner (the
engaging party). The criteria need to be available to the intended users to
3. Intended users – for whom the assurance report is allow them to understand how the subject matter has been
prepared. The responsible party can be one of the evaluated or measured.
intended users, but not the only one.

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Sufficient appropriate evidence Non-assurance Engagements
Evidence is the information obtained by the practitioner in Engagements are considered non-assurance engagements
arriving at the conclusions on which the opinion is based. if they lack one or more of the five elements of an
assurance engagement.
The practitioner plans and performs an assurance
engagement with an attitude of professional skepticism. Common examples of non-assurance engagements are:
a. Agreed-upon procedures engagement;
In addition, the practitioner recognizes the existence of b. Compilations engagements;
assurance engagement risk (synonymous to audit risk) – c. Preparation of tax returns where no conclusion
the risk that the practitioner expresses an inappropriate conveying assurance is expressed;
conclusion when the subject matter information is d. Consulting (or advisory) engagements such as
materially misstated. management and tax consulting;
e. Engagements to testify in legal proceedings regarding
Written assurance report accounting, auditing, taxation or other matters; and
f. Engagements that include professional opinions not
The practitioner provides a written report containing a
intended to be an assurance report.
conclusion that conveys the assurance obtained about the
subject matter information.
Relevant Ethical Requirements
The practitioner’s conclusion can be worded depending on Relevant ethical requirements, to which the practitioners
the type of assurance engagement: are subject, ordinarily comprise Parts A and B of the Code
1. As to structure: of Ethics for Professional Accountants in the Philippines
a. Assertion-based engagement, either: together with national requirements that are more
i. In terms of the responsible party’s assertion restrictive.

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(for example: “In our opinion the responsible
party’s assertion that internal control is Fundamental Principles

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effective, in all material respects, based on
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XYZ criteria, is fairly stated”); or
and non-assurance engagements, are:
ii. Directly in terms of the subject matter and the

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a. Integrity – to be straightforward and honest in all
criteria (for example: “In our opinion internal
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professional and business relationships.
control is effective, in all material respects,
b. Objectivity – to not allow bias, conflict of interest or
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based on XYZ criteria”).


undue influence of others to override professional or
b. Direct reporting engagement – directly in terms of
business judgments.
the subject matter and the criteria.
c. Professional Competence and Due Care – to maintain
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2. As to level of assurance: professional knowledge and skill at the level required


a. Reasonable assurance engagement - positive form, to ensure that a client or employer receives competent
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for example: “In our opinion internal control is professional services based on current developments in
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effective, in all material respects, based on XYZ practice, legislation and techniques and act diligently
criteria.” and in accordance with applicable technical and
b. Limited assurance engagement - negative form, for professional standards.
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example, “Based on our work described in this d. Confidentiality – to respect the confidentiality of
report, nothing has come to our attention that information acquired as a result of professional and
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causes us to believe that internal control is not business relationships and, therefore, not disclose any
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effective, in all material respects, based on XYZ such information to third parties without proper and
criteria.” specific authority, unless there is a legal or
professional right or duty to disclose, nor use the
The conclusions above are examples of an “unqualified information for the personal advantage of the
conclusion”. However, not all conclusions are unqualified. professional accountant or third parties.
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e. Professional Behavior – to comply with relevant laws


The following table summarizes conclusions other than and regulations and avoid any action that discredits
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unqualified depending on the results of the engagement: the profession.


Engagement Results Significance Conclusion
Independence
Practitioner unable to obtain Material Qualified
sufficient appropriate Material and Disclaimer In addition to fundamental principles, the code also
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evidence Pervasive requires professional accountants to be independent when


Subject matter/subject Material Qualified performing assurance engagements. It is not required for
matter information contains Material and Adverse non-assurance engagements. Independence comprises
material misstatement Pervasive independence of mind and in appearance.

Limitations of Assurance Engagements Threat to Compliance with Fundamental Principles

The highest level of assurance that may be provided by the Many threats fall into the following categories:
practitioner is reasonable assurance (less than absolute) a. Self-interest threat – the threat that a financial or
as a result of the following factors: other interest will inappropriately influence the
a. Use of selective testing; professional accountant’s judgment or behavior;
b. Use of judgment; b. Self-review threat – the threat that a professional
c. Inherent limitations of internal control; accountant will not appropriately evaluate the results
d. Persuasive evidence rather than conclusive; and of a previous judgment made or service performed by
e. In certain cases, characteristics of the subject matter. the professional accountant, or by another individual
within the professional accountant’s firm or employing
organization, on which the accountant will rely when

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forming a judgment as part of providing a current 2. Safeguards in the work environment.
service; • firm-wide safeguards; and
c. Advocacy threat – the threat that a professional • engagement specific safeguards.
accountant will promote a client’s or employer’s
position to the point that the professional accountant’s Conceptual Framework Approach to Compliance with
objectivity is compromised; Fundamental Principles
d. Familiarity threat ─ the threat that due to a long or
The circumstances in which professional accountants
close relationship with a client or employer, a
operate may give rise to specific threats to compliance
professional accountant will be too sympathetic to their
with the fundamental principles. A conceptual framework
interests or too accepting of their work; and
that requires a professional accountant to identify,
e. Intimidation threat – the threat that a professional
evaluate and address threats to compliance with the
accountant will be deterred from acting objectively
fundamental principles, rather than merely comply with a
because of actual or perceived pressures, including
set of specific rules, which may be arbitrary, is, therefore,
attempts to exercise undue influence over the
in the public interest. If identified threats are other than
professional accountant.
clearly insignificant, a professional accountant should,
where appropriate, apply safeguards to eliminate the
Safeguards Against Threats
threats or reduce them to an acceptable level, such that
Safeguards that may eliminate or reduce such threats to compliance with the fundamental principles is not
an acceptable level fall into two broad categories: compromised.
1. Safeguards created by the profession, legislation or
regulation; and

Audit, Review and Related Services

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The following table presents comparison of audit, review and related services (comprising agreed-upon procedures and
compilation engagements).

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Nature of service
Objective
Audit
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To enable the auditor
Review
To enable a practitioner to
Agreed-upon
To enable the
Compilation
To enable the

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obtain reasonable state whether anything has auditor carry out accountant to use
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assurance about come to the practitioner’s procedures of an accounting expertise,
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whether the financial attention that causes the audit nature to which as opposed to
statements, as a whole, practitioner to believe that the auditor and the auditing expertise, to
are free from material the financial statements are entity and any collect, classify and
misstatement, whether not prepared, in all material appropriate third summarize financial
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due to fraud or error, respects, in accordance with parties have agreed information.
and to express an the applicable financial and to report on
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opinion thereon reporting framework factual findings.


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Level of Reasonable (High) Limited (Moderate) None None


assurance
Type of report Positive assurance Negative assurance Description of Identification of
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procedures information compiled


performed and
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factual findings
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Basic procedures Primarily, among Primarily inquiry and As agreed (Audit Reading the financial
others, risks analytical procedures nature) statements for
assessment procedures, obvious
tests of controls and misstatements
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substantive procedures
Independence Required Required Not required Not required
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- done -
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REVIEW QUESTIONS
RA 9298 – Public Accountancy b. “Juan de la Cruz and Associates”
1. Which one of the following is not a logical function of a c. “Cruz, Isidro, Martin, and Company"
CPA in public accounting practice? d. “Cruz, Isidro, Martin, Inc."
a. Performing assurance services
b. Supervision of internal audit staff. 7. Below are names of four CPA firms and pertinent facts
c. Tax practice. relating to them. Unless otherwise indicated, the
d. Management consulting services. individuals named are CPAs and partners, and there
are no other partners. Which firm name and related
2. Practice of Public Accountancy shall constitute in a facts indicate a violation of RA 9298 and its IRR?
person: a. Dee, Lim and Sy, CPAs (Dee died about five years
a. When involved in decision making requiring ago; Lim and Sy are continuing the firm).
professional knowledge in the science of accounting, b. Cruz and Reyes, CPAs (The name of V. Valdes,
as well as the accounting aspects of finance and CPA, a third partner, is omitted from the firm
taxation or when he/she represents his/her name).
employer before government agencies on tax and c. Gomez and Castro, CPAs (Gomez died about three
other matters relating to accounting. years ago; Castro is continuing the firm as a sole
b. When he/she is appointed in an accounting proprietorship).
professional group in government or in a d. P. Reyes and Co., CPAs (The firm has ten other
government-owned and/or controlled corporation, partners who are all CPAs).
including those performing proprietary functions,
where decision-making requires professional 8. CPAs, firms and partnerships of CPAs engaged in the

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knowledge in the science of accounting practice of public accountancy, including partners and

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c. When he or she is involved in teaching of staff members thereof, shall register with the
accounting, auditing, management advisory Commission and the Board and obtain certificate of

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services, accounting aspect of finance, business law,
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taxation and other technically related subjects. meaningful experience.
d. When a person is skilled in the knowledge, science

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A meaningful experience shall be considered as
and practice of accounting and as a qualified person
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satisfactory compliance with the requirements of
to render professional services as a CPA
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Section 28 if it is earned in academe/education and


shall include teaching for at least three (3) trimesters
3. The following are permitted by law to practice public
or two (2) semesters subjects in either financial
accountancy, except
accounting, business law and tax, auditing problems,
a. A corporation whose stockholders are all CPAs
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auditing theory, financial management and


b. A partnership of CPAs
management services. Provided the accumulated
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c. A solo practitioner
teaching experience on these subjects shall not be less
d. A partnership of CPAs, with some non-CPA staff
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than three (3) school years.


4. Which of the following is required for a partnership for A meaningful experience shall be considered as
public accountancy practice? satisfactory compliance with the requirements of
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a. At least one of the partners must be a CPA. Section 28 if it is earned in Public Practice and shall
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b. All partners must be PICPA members. include at least two years as audit assistant and at
c. All partners must be CPAs. least one years as auditor in charge of the audit
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d. Firm name must contain names of partners only. engagement covering full audit functions of significant
clients.
5. Which of the following statements concerning the use a. True, True, False c. True, False, False
of firm or partnership name is incorrect? b. True, False, True d. True, True, True
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a. In the case of an individual CPA, he/she shall do


business under his/her registered name with the 9. Individual CPAs, Firms or Partnerships of CPAs,
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BOA and the PRC and as printed in his/her CPA including partners and staff members thereof shall
certificate. register with the BOA and the PRC. If the application
b. In the case of a firm, it shall do business under its for registration of AB and Co., CPAs was approved on
duly registered and authorized firm name August 30, 2014, it shall file for renewal on or before
appearing in the registration documents issued by
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a. September 30, 2016 c. December 31, 2016


the Department of Trade and Industry (DTI) and b. September 30, 2017 d. August 30, 2017
other government offices and such firm name shall
include the real name of the sole proprietor as 10. Individual CPAs, Firms or Partnerships of CPAs,
printed in his/her CPA certificate. including partners and staff members thereof shall
c. In the case of a registered partnership, it shall do register with the BOA and the PRC. If Emong and
business under its name as indicated in its current Bobads, CPAs renewed its accreditation on August 30,
Articles of Partnership and Certificate of 2014, it shall file for renewal on or before
Registration issued by the Securities and Exchange a. September 30, 2016 c. December 31, 2017
Commission (SEC). b. September 30, 2017 d. August 30, 2017
d. A CPA shall practice only under an individual, firm,
or partnership name in accordance with Philippine 11. The death or disability of an individual CPA and/or the
laws and shall not include any fictitious name or is dissolution and liquidation of a firm or partnership of
misleading as to the type of the organization but CPAs shall be reported to the BOA not later than _____
may indicate specialization. days from the date of such death, dissolution or
liquidation.
6. The following firm names are allowed under RA No. a. 15 c. 60
9298, except b. 30 d. 90
a. “Juan de la Cruz, CPA”
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12. Which of the following statements concerning a. It is an engagement in which a practitioner
ownership of working papers is incorrect? expresses a conclusion designed to enhance the
a. All working papers made by a CPA and his/her staff degree of confidence of the intended users other
in the course of an examination remain the than the responsible party about the outcome of
property of such CPA in the absence of any the evaluation or measurement of a subject matter
agreement (written or oral) between the CPA and against criteria.
the client to the contrary. b. All engagements performed by professional
b. Working papers include schedules and memoranda accountants are assurance engagements.
prepared and submitted by the client of the CPA. c. Whether a particular engagement is an assurance
c. All working papers, except reports submitted by a engagement will depend upon whether it exhibits
CPA to his/her client shall be treated confidential all the following elements - a three party
and privileged. relationship, a subject matter and suitable criteria.
d. Working papers shall be treated confidential and d. All of the above
privileged and remain the property of the CPA
unless such documents are required to be 19. Assurance services least likely involve
produced through subpoena issued by any court, a. Improving the quality of information for decision
tribunal, or government regulatory or purposes.
administrative body. b. Improving the quality of the decision model used.
c. Improving the relevance of information.
13. The “CPA Registration Number” shall be engraved in d. Implementing a system that improves the
what part of the CPA’s seal? processing of information.
a. Upper portion of the space between the bigger and
smaller circle. 20. Which of the following refers to an assertion-based
b. Lower portion of the space between the bigger and reporting engagement type of assurance engagement?

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smaller circle. a. The objective is a reduction in assurance
c. Left and right portion of the space between the engagement risk to an acceptably low level as the

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bigger and smaller circle and in the middle of the
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smaller circle. practitioner’s conclusion.
d. Middle of the smaller circle. b. The objective is a reduction in assurance

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engagement risk to a level that is acceptable in the
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14. Affixing the CPA’s seal and signature is an indication of circumstances of the engagement, but where that
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CPA’s risk is greater than for a reasonable assurance


a. Compliance with the requisite accounting and engagement, as the basis for a negative form of
auditing standards and rules expression of the practitioner’s conclusion.
b. Independence with respect to the entity being c. In this type of engagement, the evaluation or
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audited. measurement of the subject matter is performed


c. Basic competence at the time of signing the by the responsible party, and the subject matter
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document. information is in the form of assertion by the


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d. Collection of the audit fees from the client. responsible party that is made available to the
intended users.
Definition, objective, demand and elements of an d. In this type of engagement, the practitioner either
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assurance engagement directly performs the evaluation or measurement


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15. This document defines the elements and objectives of the subject matter, or obtains a representation
not, by itself, establish standards or provide procedural from the responsible party that has performed the
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requirements for the performance of assurance evaluation or measurement that is not available to
engagements. the intended users. The subject matter
a. Philippine Framework for Assurance Engagements information is provided to the intended users in the
b. Philippine Standards on Auditing assurance report.
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c. Philippine Standards on Review Engagements


d. Philippine Auditing Practice Statements 21. Which of the following statements refers to “criteria”
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element of assurance engagement?


16. Statement 1: CPAs are the exclusive providers of a. Benchmarks used to evaluate or measure the
assurance engagements as the subject matter of subject matter.
assurance engagements is limited only to financial b. Information obtained by the practitioner in arriving
information of a business entity. at the conclusions on which the opinion is based.
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c. Contains a conclusion that conveys the assurance


Statement 2: Assurance engagements may be obtained about the subject matter information.
classified either as to level of assurance provided or d. The subject matter, and subject matter information
conveyed by the practitioner or as to structure of the (assertion), of an assurance engagement.
engagement.
a. True, true c. False, true 22. Which of the following statements is incorrect
b. True, false d. False, false regarding the three party relationship element of
assurance engagement?
17. The need for assurance services arises for all of the a. The intended user is generally, and may not be,
following reasons except: the addressee of the professional accountant’s
a. Potential bias in providing information. report.
b. Closeness between a user and the organization. b. The responsible party and the intended user will
c. Complexity of the processing systems. often be from separate organizations.
d. Remoteness between a user and the organization. c. The responsible party may also be one of the
intended users.
18. Which statement is (are) correct regarding assurance d. The intended user(s) is(are) always limited to the
engagements? addressee of the professional accountant’s report

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23. The subject matter of an assurance engagement may 30. Unlike consulting services, assurance services
take many forms, including: a. Make recommendations to management
a. b. c. d. b. Report on how to use information
Nonfinancial performance c. Report on the quality of information
or condition Yes Yes Yes No d. Are two-party contracts
Behavior Yes Yes Yes Yes
Financial performance or Assurance vs. Attestation vs. Audit
condition Yes Yes No Yes 31. Which of the following statements best describes the
Physical characteristics Yes No No No logical relationship among audits, attest engagements,
Systems and Processes Yes No Yes Yes and assurance engagements?
a. All attest engagements are audits, but not all
24. The characteristics for determining whether criteria are audits are attest engagements.
suitable include: b. All assurance engagements, including audits,
a. b. c. d. involve attestation.
Relevance Yes Yes Yes Yes c. An audit provides assurance but does not involve
Reliability Yes Yes Yes Yes attestation.
Completeness Yes Yes No Yes d. All audits are attest engagements, but not all
Neutrality Yes No No Yes attest engagements are audits.
Comparability Yes Yes No No
Feedback value Yes No No No 32. Attestation is any service that requires a CPA firm to
issue a report about the reliability of an assertion that
25. When the professional accountant has obtained is made by another party. Which of the following
sufficient appropriate evidence to conclude that the elements is the critical component that distinguishes
subject matter conforms in all material respects with an attest engagement from other forms of assurance

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identified suitable criteria, he or she can provide what engagements?
level of assurance? a. An accountable party

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a. None c. Moderate
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b. High d. Absolute c. A subject matter
d. An accountability relationship

o.
26. It is the risk that the practitioner expresses an
rs e
inappropriate conclusion when the subject matter Relevant Ethical Requirements
ou urc

information is materially misstated. 33. In order to achieve the objectives of the accountancy
a. Business risk c. Detection risk profession, professional accountants have to observe a
b. Assurance engagement risk d. Audit risk number of prerequisites or fundamental principles.
The fundamental principles include the following,
o

Audit, Review and Related Services except


27. The objective of a review engagement a. Objectivity and integrity
aC s

a. Is to enable the auditor to express an opinion b. Professional competence and due care
vi re

whether the financial statements are prepared in c. Professional behavior


all material respects, in accordance with an d. Confidence
identified financial reporting framework
y

b. Is to enable the auditor to state whether, on the 34. Statement 1: Independence is an attribute necessary
ed d

basis of procedures which do not provide all the to perform assurance services and is only required for
evidence that would be required in an audit, assurance services providers.
ar stu

anything has come to the auditor’s attention that


Statement 2: Independence standards are required
causes the auditor to believe that the financial
for audits of public companies, but not for audits of
statements are not prepared in all material
private companies.
respects, in accordance with an identified financial
a. True, true c. False, true
is

reporting framework.
b. True, false d. False, false
c. Is to carry out those procedures of an audit nature
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to which the auditor and the entity and any


35. This refers to the threat that a professional accountant
appropriate third parties have agreed and to report
will not appropriately evaluate the results of a previous
on factual findings.
judgment made or service performed by the
d. Is to use accounting expertise as opposed to
professional accountant, or by another individual within
auditing expertise to collect, classify and
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the professional accountant’s firm or employing


summarize financial information.
organization, on which the accountant will rely when
forming a judgment as part of providing a current
28. Indicate the level of assurance provided by audit,
service
review and related services (agreed-upon procedures
a. Self-interest threat c. Advocacy threat
and compilation)
b. Self-review threat d. Familiarity threat
a. b. c. d.
Audit High High Low Reasonable
36. It refers to the threat that a professional accountant
Review High Low Low Reasonable
will promote a client’s or employer’s position to the
Agreed-upon None None None Low point that the professional accountant’s objectivity is
Procedures compromised
Compilation None None None None a. Self-interest threat c. Advocacy threat
b. Self-review threat d. Familiarity threat
Assurance vs. Non-assurance Engagements
29. The following are assurance engagements, except 37. It refers to the threat that due to a long or close
a. Reasonable assurance engagement relationship with a client or employer, a professional
b. Other assurance engagements accountant will be too sympathetic to their interests or
c. Review engagement too accepting of their work; and
d. Tax services
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a. Self-interest threat c. Advocacy threat Statement 2: They fall into two broad categories: (a)
b. Self-review threat d. Familiarity threat Safeguards created by the profession, legislation or
regulation; and (b) Safeguards in the work
38. Intimidation threat environment.
a. is not a threat to independence, but only to a. True, True c. False, True
fundamental principles. b. True, False d. False, False
b. is the threat that a professional accountant will be
deterred from acting objectively because of actual 40. Safeguards created by the profession, legislation or
or perceived pressures, including attempts to regulation, include the following, except
exercise undue influence over the professional a. Educational, training and experience requirements
accountant. for entry into the profession
c. is the threat that a financial or other interest will b. Continuing education requirements
inappropriately influence the professional c. Legislation governing the independence
accountant’s judgment or behavior. requirements of the firm.
d. all of the above. d. Policies and procedures that emphasize the
assurance client’s commitment to fair financial
39. Statement 1: Safeguards are actions or other reporting
measures that may eliminate threats or reduce them
to an acceptable level. - now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

m
er as
1. Most of the large national CPA firms III. Assurance services can be provided either on
a. Offer audit, tax, and management advisory information or processes.

co
services. eH w a. I and III c. III only
b. Emphasize auditing to a lesser degree than do b. I and II d. I, II and III
smaller local and regional firms.

o.
c. Are organized as corporations to obtain the benefit 7. The subject matter of an assurance engagement may
rs e
of limited liability. take many forms, including
ou urc

d. Expect professional staff members to be a. Financial performance or conditions


accounting generalists as opposed to the b. Behavior
specialization of CPAs in smaller firms. c. Systems and processes
d. All of the above
o

2. A and C, CPAs, organized a partnership for the practice


aC s

of public accounting. Which of the following is the best 8. Which one of the following is not a provider of
name of the firm? assurance services?
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a. A and C, CPAs a. CPAs c. Governmental auditors


b. A and C, Inc. b. Internal auditors d. PICPA
c. A and C, Auditors and Tax Consultants
y

d. A and C, Members, PICPA 9. It refers to the level of satisfaction as to the reliability


ed d

of an assertion being made by one party for use by


3. Independent professional services that are provided on another party
ar stu

financial or other information that improve the quality a. Confidence level c. Reasonableness level
of decision making are known as b. Assurance level d. Tolerable level
a. Internal auditing
b. Financial auditing 10. The decision as to whether the criteria are suitable
is

c. Assurance services involves considering whether the subject matter is


d. Attestation services capable of reasonably consistent evaluation against or
Th

measurement using such criteria. The characteristics


4. Which of the following is not a component of assurance for determining whether criteria are suitable include
services? the following, except
a. Information or a process on which the assurance a. Relevance
services is provided. b. Reliability
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b. Report to a third party. c. Understandability


c. A user or a group of users who derive value from d. Sufficiency
the service provided.
d. A service provider. 11. Which statement is incorrect regarding audit, review
and related services?
5. Under IAASB Glossary of Terms, this refers to a a. Related services comprise agreed-upon procedures
professional accountant in public practice. and compilation.
a. Auditor c. Professional b. Audits and reviews are designed to enable the
b. Practitioner d. Public accountant auditor to provide reasonable assurance and
limited assurance, respectively.
6. Which of the following statements is (are) true c. Engagement to undertake agreed-upon procedures
regarding the provision of assurance services? is not intended to enable the auditor to express
I. The third party who receives the assurance assurance.
generally pays for the assurance received. d. In a consultancy engagement, the accountant is
II. Assurance services always involve a report by engaged to use accounting expertise as opposed to
one person to a third party on which an auditing expertise to collect, classify and
independent organization provides assurance. summarize financial information.

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12. Assurance services may include which of the following, c. The responsible party is the person or persons,
except? either as individuals or representatives of an
a. Attesting to financial statements entity, responsible for the subject matter.
b. Examination of the economy and efficiency of d. The intended user is the person or class of persons
governmental operations for whom the professional accountant prepares the
c. Evaluation of a division's performance for report for a specific use or purpose.
management
d. Tax preparation services 20. Safeguards in the work environment, include the
following except
13. Which of the following services would be most likely to a. Firm leadership that stresses the importance of
be structured as an assurance engagement? independence and the expectation that members
a. Advocating a client’s position in tax matter. of assurance teams will act in the public interest.
b. A consulting engagement to develop a new data b. External review of the firm’s quality control
base system for the revenue cycle. system.
c. An engagement to issue a report addressing an c. Policies and procedures to implement and monitor
entity’s compliance with requirements of specified quality control of assurance engagements.
laws. d. Policies and procedures that will enable the
d. The compilation of a client’s forecast information. identification of interests or relationships between
the firm or members of the assurance team and
14. Which of the following elements is most likely to be a assurance clients.
component of a direct reporting assurance
engagement? 21. In performing an attestation engagement, a CPA
a. Low level of assurance typically
b. Absolute assurance a. Supplies litigation support services

m
er as
c. A written assertion b. Assesses control risk at a low level
d. Auditor independence c. Expresses a conclusion about an assertion

co
eH w d. Provides management consulting advice
15. Which one of the following is not a key attribute
needed to perform assurance? 22. A service that always requires that a report is provided

o.
a. Subject matter knowledge to a third party is
rs e
b. Independence a. Assurance c. Audit
ou urc

c. Established criteria or standards b. Attestation d. Both B and C.


d. Accounting skills
23. Which of the following procedures ordinarily performed
16. Which of the following services is the broadest and during an audit are also performed in review?
o

most inclusive? a. Assessment of accounting and internal control


a. Audit c. Assurance systems
aC s

b. Attestation d. Compliance b. Test of controls


vi re

c. Tests of records and of responses to inquiries


17. This document defines the elements and objectives d. Inquiry and analytical procedures
not, by itself, establish standards or provide procedural
y

requirements for the performance of assurance 24. According to Philippine Standard on Auditing, the
ed d

engagements. procedures employed in doing compilation are:


e. Philippine Framework for Assurance Engagements a. Designed to enable the accountant to express a
ar stu

f. Philippine Standards on Auditing limited assurance.


g. Philippine Standards on Review Engagements b. Designed to enable the accountant to express a
h. Philippine Auditing Practice Statements negative assurance.
c. Not designed to enable the accountant to express
is

18. The framework for auditing and related services as any form of assurance.
addressed by PSA excludes d. Less extensive than review procedures but more
Th

a. Review c. Compilation extensive than agreed-upon procedures.


b. Tax services d. Agreed upon procedure
25. In an agreed upon procedures engagement, the CPA
19. Which of the following is incorrect regarding the provides what level of assurance?
“three-party relationship” element of assurance a. Moderate
sh

engagements? b. None
a. Professional accountants are those persons who c. Limited
are members of PICPA, who should be in public d. High, but not absolute
practice.
b. The responsible party and the intended user will ☺ - end of AT.0701 - ☺
often be from separate organizations but need not
be.

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