MODULE 1
AUDITING CONCEPTS
PSA BASED QUESTIONS
1. The primary purpose of an independent audit of financial statements is to
A. provide a basis for assessing management‘s performance.
B. comply with laws and regulations.
C. assure management that the financial statements are unbiased and free from
material misstatements.
D. provide users with an unbiased opinion about the fairness of information
presented in the financial statements.
2. Which of the following statements best describes a review service?
A. A review engagement focuses on providing assurance on the assertions
contained in the financial statements of a public company.
B. A review engagement focuses on providing assurance on the internal controls of
a public company.
C. A review engagement focuses on providing limited assurance on financial
statements of a private company.
D. A review engagement focuses on providing advice in a three-party contract.
3. Professional skepticism dictates that when management makes a statement to the
auditor, the auditors should
A. disregard the statement because it ranks low of the evidence quality scale.
B. corroborate the evidence with other supporting documentation whenever
possible.
C. require that the statement be put in writing.
D. believe on the statement in order to maintain the professional client-auditor
relationship.
4. In performing a financial statement audit, which of the following would an auditor
, least likely consider?
A. Internal control
B. Compliance with GAAP
C. Quality of managements‘ business decisions
D. Fairness of the financial statement amounts
5. The level of assurance provided by an audit of detecting a material misstatement is
referred to as:
, A. Absolute assurance.
B. High assurance.
C. Negative assurance
D. Reasonable assurance.
6. An audit involves ascertaining the degree of correspondence between assertions
and established criteria. In the case of financial statement audit, which of the
following is not a valid criterion?
A. Accounting standards generally accepted in the Philippines.
B. International Accounting Standards.
C. Authoritative financial reporting framework.
D. Philippine Standards on Auditing.
7. Which of the following statements is (are) true regarding the provision of assurance
services?
I. The third party who receives the assurance generally pays for the
assurance received.
II. Assurance services always involve a report by one person to a third party on
which an independent organization provides assurance.
III. Assurance services can be provided either on information or processes.
A. I and II.
B. I and III.
C. III only.
D. I, II, and III.
8. Which of the following is least likely an objective of an assurance engagement?
A. The engagement is intended to prevent the issuance of materially misleading
information.
B. The engagement is intended to enhance the credibility of information about a
subject matter.
C. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended users with a level of assurance about the
subject matter.
D. The engagement is intended to provide a level of assurance to be issued by a
professional accountant about the information of being in conformity, in all
material respects, with suitable criteria.
9. The broad range of assurance engagements includes all, but which of the following?
1.) Engagements intended to provide high or moderate levels of assurance.
2.) Preparation of tax returns, though no conclusion is expressed.
, 3.) Attest and direct reporting engagements.
4.) Engagements to report externally, but not internally.
5.) Engagements in the private and public sector.
6.) Agreed-upon procedure engagement.
A. 2, 4, 5
B. 2, 4, 6
C. 2, 5, 6
D. 4, 6
10. Which statement does not accurately describe an assurance engagement?
A. The objective of an assurance engagement is for a professional accountant to
evaluate or measure a subject matter that is the responsibility of another party
against identified suitable criteria, and to express a conclusion that provides the
intended user with a level of assurance about that subject matter.
B. Not all engagements performed by professional accountants are assurance
engagements.
C. A particular engagement, to be an assurance engagement, depends upon
whether it exhibits all the following elements: a two-party relationship, a subject
matter, suitable criteria, and a conclusion.
D. An engagement in form of agreed-upon procedures result in the expressions of
factual findings.
11. Which of the following is not an element of an assurance engagement?
A. A subject matter.
B. Suitable criteria.
C. A conclusion.
D. A two-party relationship.
12. A draft of statement, studies or standards should be discussed by the Council en
banc. How many members of AASC are required to approve the draft for exposure?
A. Majority
B. Ten
C. Eight
D. Twelve
13. Theoretically, it is possible to provide an infinite range of assurance from a very low
level of assurance to an absolute level of assurance in practice, the professional
accountants cannot provide absolute assurance because of the following, except:
A. The professional accountants employ testing process.
AUDITING CONCEPTS
PSA BASED QUESTIONS
1. The primary purpose of an independent audit of financial statements is to
A. provide a basis for assessing management‘s performance.
B. comply with laws and regulations.
C. assure management that the financial statements are unbiased and free from
material misstatements.
D. provide users with an unbiased opinion about the fairness of information
presented in the financial statements.
2. Which of the following statements best describes a review service?
A. A review engagement focuses on providing assurance on the assertions
contained in the financial statements of a public company.
B. A review engagement focuses on providing assurance on the internal controls of
a public company.
C. A review engagement focuses on providing limited assurance on financial
statements of a private company.
D. A review engagement focuses on providing advice in a three-party contract.
3. Professional skepticism dictates that when management makes a statement to the
auditor, the auditors should
A. disregard the statement because it ranks low of the evidence quality scale.
B. corroborate the evidence with other supporting documentation whenever
possible.
C. require that the statement be put in writing.
D. believe on the statement in order to maintain the professional client-auditor
relationship.
4. In performing a financial statement audit, which of the following would an auditor
, least likely consider?
A. Internal control
B. Compliance with GAAP
C. Quality of managements‘ business decisions
D. Fairness of the financial statement amounts
5. The level of assurance provided by an audit of detecting a material misstatement is
referred to as:
, A. Absolute assurance.
B. High assurance.
C. Negative assurance
D. Reasonable assurance.
6. An audit involves ascertaining the degree of correspondence between assertions
and established criteria. In the case of financial statement audit, which of the
following is not a valid criterion?
A. Accounting standards generally accepted in the Philippines.
B. International Accounting Standards.
C. Authoritative financial reporting framework.
D. Philippine Standards on Auditing.
7. Which of the following statements is (are) true regarding the provision of assurance
services?
I. The third party who receives the assurance generally pays for the
assurance received.
II. Assurance services always involve a report by one person to a third party on
which an independent organization provides assurance.
III. Assurance services can be provided either on information or processes.
A. I and II.
B. I and III.
C. III only.
D. I, II, and III.
8. Which of the following is least likely an objective of an assurance engagement?
A. The engagement is intended to prevent the issuance of materially misleading
information.
B. The engagement is intended to enhance the credibility of information about a
subject matter.
C. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended users with a level of assurance about the
subject matter.
D. The engagement is intended to provide a level of assurance to be issued by a
professional accountant about the information of being in conformity, in all
material respects, with suitable criteria.
9. The broad range of assurance engagements includes all, but which of the following?
1.) Engagements intended to provide high or moderate levels of assurance.
2.) Preparation of tax returns, though no conclusion is expressed.
, 3.) Attest and direct reporting engagements.
4.) Engagements to report externally, but not internally.
5.) Engagements in the private and public sector.
6.) Agreed-upon procedure engagement.
A. 2, 4, 5
B. 2, 4, 6
C. 2, 5, 6
D. 4, 6
10. Which statement does not accurately describe an assurance engagement?
A. The objective of an assurance engagement is for a professional accountant to
evaluate or measure a subject matter that is the responsibility of another party
against identified suitable criteria, and to express a conclusion that provides the
intended user with a level of assurance about that subject matter.
B. Not all engagements performed by professional accountants are assurance
engagements.
C. A particular engagement, to be an assurance engagement, depends upon
whether it exhibits all the following elements: a two-party relationship, a subject
matter, suitable criteria, and a conclusion.
D. An engagement in form of agreed-upon procedures result in the expressions of
factual findings.
11. Which of the following is not an element of an assurance engagement?
A. A subject matter.
B. Suitable criteria.
C. A conclusion.
D. A two-party relationship.
12. A draft of statement, studies or standards should be discussed by the Council en
banc. How many members of AASC are required to approve the draft for exposure?
A. Majority
B. Ten
C. Eight
D. Twelve
13. Theoretically, it is possible to provide an infinite range of assurance from a very low
level of assurance to an absolute level of assurance in practice, the professional
accountants cannot provide absolute assurance because of the following, except:
A. The professional accountants employ testing process.
