Framework on Philippine Standards on Auditing (PSA 120)

1. Are the following government agencies represented to Auditing and

Assurance Standards Council (AASC)?
A B C D
Board of Accountancy Yes Yes Yes Yes
Securities and Exchange Commission Yes Yes No No
Commission on Audit Yes Yes Yes Yes
Bangko Sentral ng Pilipinas Yes No Yes No

2. Which of the following is not correct regarding PSAs and Interpretations of

PSAs?
a. PSAs and Interpretations issued by the AASC apply whenever an
independent examination of financial statements of an entity conducted
for the purpose of expressing an opinion thereon.
b. PSAs and Interpretations may also have application as appropriate to
other related activities of auditors.
c. PSAs need only be applied to material matters.
d. The Interpretations will have the same authority as the PAPSs.

3. Each final standard, interpretations and statements adopted by the AASC

shall be submitted to the Professional Regulation Commission through the
Board of Accountancy for approval after which the pronouncements become
operative.
a. From the date of approval by the PRC.
b. From the effective date stated therein.
c. After 6 months from publication in the official gazette.
d. After15 days from approval of the PRC.

1. The framework of Philippine Standards on Auditing (PSA 120) distinguishes

audits from related services. Related services include all of the following,
except
a. Reviews c. Compilations
b. Agreed-upon procedures d. Management consulting.

2. In the context of the framework, the auditor’s satisfaction as to the reliability

of an assertion being made by one party for use by another party is called
a. Opinion c. Examination
b. Assurance d. Verification

3. What level of assurance is provided by the auditor in an audit engagement?

a. Absolute c. Moderate
b. High, but not absolute d. No assurance

4. What level of assurance is provided by the auditor in a review engagement?

a. No assurance c. Reasonable
b. High, but not absolute d. Moderate

5. What assurance is provided by the auditor in an agreed-upon procedures

engagement?
a. Reasonable c. Moderate
b. Absolute d. No assurance

6. In a compilation engagement, the accountant is engaged to use accounting

expertise as opposed to auditing expertise to collect, classify, and summarize
 financial information. What type of assurance is provided by the accountant
when he/she performs this engagement?
a. Positive assurance c. No assurance
b. Negative assurance d. Limited assurance

7. The following statements relate to a review of financial statements. Which is

incorrect?
a. The objective of a review of financial statements is to enable an
auditor to state whether, on the basis of procedures which do not provide
all the evidence that would be required in an audit, anything has come to
the auditor’s attention that causes the auditor to believe that the financial
statements are not prepared, in all material respects, in accordance with
an identified financial reporting framework.
b. A review comprises inquiry and analytical procedures which are designed to
review the reliability of an assertion that is the responsibility of one party
for use by another party.
c. A review ordinarily involves an assessment of accounting and internal
control systems, tests of records, and of responses to inquiries by
obtaining corroborating evidence through .inspection, observation,
confirmation, and computation.
d. The level of assurance provided in a review report is less than that given in an
audit report.

8. In an engagement to perform agreed-upon procedures, an auditor is engaged

to
a. Carry out those procedures of an audit nature to which the auditor
and the entity and any appropriate third parties have agreed and to report
on factual findings.
b. Use accounting expertise as opposed to auditing expertise to collect, classify,
and summarize financial information.
c. Provide a moderate level of assurance that the information is free of
material misstatement.
d. Provide a high, but not absolute, level of assurance that the information is
free of material misstatement.

9. Which of the following statements concerning compilation engagement is

incorrect?
a. In a compilation engagement, the accountant is engaged to use
accounting expertise as opposed to auditing expertise to collect, classify,
and summarize financial information.
b. The procedures employed in a compilation engagement enable the
accountant to express a moderate level of assurance on the compiled
financial information.
c. Users of the compiled financial information derive some benefit as a result
of the accountant’s involvement because the service has been performed
with due professional skill and care.
d. A compilation engagement ordinarily entails reducing detailed data to a
manageable and understandable form without a requirement to test the
assertions underlying that information.

10. An auditor is associated with financial information when

I. The auditor attaches a report to that financial information.

II. The auditor consents to the use of his/her name in a professional
connection.

a. I only c. Either I or II
b. II only d. Neither I or II
11. How did the framework of Philippines Standards on Auditing conceptually
describe an assurance?
a. It refers to the auditor’s satisfaction as to the reliability of an assertion
being made by one party for use by another party.
b. The level of assurance which may be provided is determined by the
reporting objective.
c. An assurance is expressed positively in the report.
d. Because of the inherent limitation in an audit, the assurance is of limited
one.

12. Which of the following authoritative sources for auditing standards for
members of the Accountancy profession in the Philippines?
I. Pronouncement on GAAS, issued by AASC.
II. Pronouncement on GAAS, issued by PICPA which are not
superseded or amended by statements issued by AASC.
III. Pronouncement issued by AICPA.
a. I only c. I and III only
b. I and II only d. I, II, and III

13. In the absence of pronouncements issued by the AASC and the PICPA,
published statements and guidelines by other authoritative bodies, like AICPA,
IAPC, and AFA are the basis of determining generally accepted auditing
standards. What effect do these pronouncements provide in determining the
generally accepted auditing standards?
a. Authoritative c. Persuasive
b. Alternative d. Parallel

4. Indicate the level of assurance provided by audit and related services

A B C D
Audit High High Negative Absolute
Review Moderate None Moderate High
Agreed-upon procedures None None None Limited
Compilation None None None None

5. Which of the following is a cause of information risk?

a. Voluminous data
b. Biases and motives of the provider of information
c. Remoteness of information
d. Each of the above is a cause of information risk

6. An audit approach that attempts to identify areas posing the highest

probability of financial statement errors and allocate audit resources to those
areas is known as
a. Risk-based auditing c. Controls-based auditing
b. Substantive-based auditing d. Error-based auditing

7. An operational audit is designed to

a. Assess the efficiency and effectiveness of management’s operating
procedures.
b. Assess the presentation of management’s financial statements in
accordance with generally accepted accounting principles.
c. Determine whether management has complied with applicable laws and
regulations
 d. Determine whether the audit committee of the board of directors is
effectively discharging its responsibility to oversee management’s
operations.

8. Which of the following statements is not a distinction between independent auditing

and internal auditing?
a. Independent auditors represent third party users external to the auditee
entity, whereas internal auditors report directly to management.
b. Although independent auditors strive for both validity and relevance of
evidence, internal auditors are concerned almost exclusively with validity.
c. Internal auditors are employees of the auditee, whereas independent
auditors are independent contractors.
d. The internal auditor’s span of coverage goes beyond financial auditing to
encompass operational and performance auditing.

9. To maximize independence, the director of internal auditing should report to

the
a. Audit committee c. Chief financial officer
b. Controller d. Director of information systems

10. Which of the following statements best describe the relationship between an
external auditor and an internal auditor?
a. An internal auditor is more likely to be concerned with internal accounting
control while an external auditor shall be more interested with operational
auditing.
b. Although the internal auditors and external auditor have differences in the
independence of there positions, they nevertheless serve similar types of
interest.
c. Both the internal auditor and external auditor have the same degree of
concern about financial status and results of operations.
d. The practitioners in the two fields use basically an identical approach,
however, there are differences in application of auditing techniques,
independence, and reporting.

11. If requested to perform a review engagement for a nonpublic entity in which

an accountant has an immaterial direct financial interest, the accountant is
a. Not independent and, therefore, may not be associated with the financial
statements.
b. Not independent and, therefore, may not issue a review report.
c. Not independent and, therefore, may issue a review report, but may not
issue an auditor’s opinion.
d. Independent because the financial interest is immaterial and, therefore,
may issue a review report.

12. Which of the following conditions is necessary for a practitioner to accept an

attest engagement to examine and report on an entity’s internal control over
financial reporting?
a. The practitioner anticipates relying on the entity’s internal control in a
financial statement audit.
b. Management presents its written assertion about the effectiveness of
internal control.
c. The practitioner is a continuing auditor who previously has audited the
entity’s financial statements.
 d. Management agrees not to present the practitioner’s report in a general
use document to stockholders.

13. Which of the following statements is correct concerning an auditor’s

responsibilities regarding financial statements?
a. Making suggestions that are adopted about the form and content of an
entity’s financial statements impairs an auditor’s independence.
b. An auditor may draft an entity’s financial statements based on
interpretation from management’s accounting system.
c. The fair presentation of audited financial statements in conformity with
GAAP is an implicit part of the auditor’s responsibilities.
d. An auditor’s responsibilities for audited financial statements are not
confined to the expression of the auditor’s opinion.

14. Norie, CPA, accepted an engagement to audit the financial statements of Paul
Resources, a nonpublic entity before the completion of the audit. Paul
Resources requested Norie to change the engagement to a compilation of
financial statements. Before Norie agrees to change the engagement, Norie
is required to consider the

Additional audit effort necessary Reason given for

to complete the audit Paul Resources
a. No No
b. Yes Yes
c. Yes No
d. No Yes