CHAPTER 12

1. The pronouncements of the Auditing and Assurance Standards Council (AASC) do not cover
Consultancy
2. Which of the following best describes “related services”?
Compilation and agreed
3. The auditor’s satisfaction as to the reliability of an assertion being made by one party is called:
Assurance
4. The concept of limited assurance is provided for in which of the following engagements?
Review
5. A CPA may issue a review report
Only if the CPA’s report contains
6. Which of the following statements best describes a review engagement?
A review engagement focuses on providing limited assurance
7. The objective of a review of financial statements is to
State whether
8. When performing a review of financial statements, the CPA is required to
Obtain understanding
9. Which of the following procedures is not included in a review engagement?
A study
10. When providing limited assurance that nothing came to the CPA’s attention that would indicate
that the financial statements are not in accordance with the applicable financial reporting
framework, the CPA should
Understand
11. Assurance provided by a review is substantially less than an audit. Which of the following
statements is true regarding these services?
A review requires less evidence than an audit
12. When performing an engagement to review an entity’s financial statements, the practitioner
most likely would
Ask
13. Inquiry and analytical procedures are the preliminary basis for a CPA to issue
A review report
14. Which of the following procedures is not included in a review engagement?
Communicating
15. A review does not provide assurance that the CPA will become aware of all significant matters
that would be disclosed in an audit. However, if the CPA becomes aware that the information
coming to his attention is incorrect, incomplete, or otherwise unsatisfactory, he should
Perform the additional
16. If the CPA has reasons to believe that the information subject to review may be materially
misstated, the CPA should
Carry out
17. The review of a company’s financial statements by a CPA firm
Is substantially
18. A practitioner’s unmodified report on a review of the financial statements should state that
Nothing
19. If there had been a material scope limitation on a review engagement, the CPA may
Not provide
20. If the financial statements reviewed contain material misstatements, the practitioner’s review
report should;
Either a or b
21. The statement that “nothing came to our attention which would indicate that these statements
are not fairly presented” expresses which of the following?
Negative assurance
22. A practitioner has accepted an engagement in which inquiry and analytical procedures will be
employed. These procedures will form the basis for the issuance of
A review report on
23. A report on factual findings is the end product of the auditors when performing
Agreed-upon procedures
24. An agreed-upon procedures engagement is one in which
The practitioner and management or a third party agree that the engagement
25. Which of the following is true of the report based on agreed-upon procedures?
The report is restricted
26. Engagement to apply agreed-upon procedures on certain accounts within a financial statement
may be accepted provided
The distribution
27. An engagement to apply agreed-upon procedure engagement may be accepted, provided
The client takes full responsibility
28. Which of the following ethical principles does not apply to an agreed-upon procedure
engagement?
Independence
29. Which of the following is true of the report based on agreed-upon procedures?
The report is restricted
30. A summary of findings rather than assurance is most likely to be issued on which engagement?
Agreed-upon procedures
31. Which statement is incorrect regarding agreed-upon procedures?
Where the auditor
32. Distribution of which of the following types of reports is limited?
Agreed-upon procedures
33. A CPA is not required to comply with the “Code of Ethics for Professional Accountants”
promulgated by the Board of Accountancy when performing
None of the above
34. What level of assurance does an accountant give on a compilation report
None
35. Which of the following procedures would a CPA most likely perform in a compilation
engagement?
Collect
36. Ethical principles governing compilation of financial statements include
No Yes No
37. The procedures employed in doing compilation are:
 Not designed
38. Which of the following is incorrect about a compilation engagement?
The CPA uses his auditing
39. Which of the following procedures is normally performed in connection with a compilation
engagement?
Assemble
40. What level of assurance does the CPA provide under the following engagements?
High Moderate Nine None
41. The use of negative assurance in audit reports on financial statements is
A violation
42. When an independent CPA is associated with the financial statements of a publicly held
company but has not audited or reviewed the financial statements, the appropriate form of
report that must be issued must include a(n)
Disclaimer of opinion
43. Which of the following statement is not true about the reports provided by a CPA?
In a compilation
44. An auditor is associated with the financial information when he:
Yes Yes
45. A CPA who is not independent may issue a
Compilation report
46. A CPA should perform analytical procedures during engagement to
Yes, Yes, No
47. In a compilation engagement, if the accountant becomes aware of material misstatements, the
accountant should try to agree appropriate amendments with the entity. If such amendments
are not made and the financial information is considered to be misleading, the accountant
should
Withdraw
48. Your accounting firm has accepted a compilation engagement from a client in which your firm is
not independent. In that case you:
May accept the engagement and disclose the lack of independence
49. The concept of reasonable assurance is provided for in which one of the following
engagements?
Audit
50. Which of the following engagements would result in a conclusion that represents positive
assurance?
Examination
51. The distribution of which of the following types of reports is unrestricted?
Audits and reviews
52. Which of the following statements about assurance engagements is not correct?
The Philippine Standards
53. Which of the following is an example of an assurance engagement?
Reporting
54. Which of the following services provides a moderate level of assurance about the client’s
financial statements?
 Review
55. Which of the following is not one of the elements of an assurance engagement?
An opinion
56. According to PSAE 3000, assurance engagements should exhibit five elements including
A written assurance report
57. Subject matter of an assurance engagement may take many forms including
Yes, Yes, Yes
58. Which of the following is not one of the requirements before accepting an assurance
engagement?
The responsible party
59. Which of the following generalizations is incorrect about the reliability of evidence gathered by
practitioners?
Evidence obtained indirectly
60. Which of the following is false? PSAE 3000
Specifies the procedures
61. When a CPA is associated with the preparation of forecasts, all of the following should be
disclosed except:
Probability
62. Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its
knowledge and belief, an entity’s expected financial position, results of operations, and cash
flows. This prospective financial information is known as
Financial projection
63. In an engagement to examine prospective financial information, the auditor should obtain
sufficient appropriate evidence as to whether:
I, II, III and IV
64. Financial forecast is a
Prospective financial information prepared on the basis of assumptions as to future events
65. An examination of financial forecast is a professional service that involves
Evaluating
66. When an accountant examines financial forecast that fails to disclose several significant
assumptions used to prepare the forecast, the accountant should describe the assumption in
the accountant’s report and issue a report that contains a(n):
Adverse opinion
67. Accepting an engagement to examine financial projection most likely would be appropriate if
the projection will be distributed to
A bank
68. Which of the following is correct concerning prospective financial statements?
Any type of prospective financial statements would normally be appropriate for limited use
69. Financial forecasts are based on:
No, Yes, No
70. When the auditor believes that the presentation and disclosure of the prospective financial
information is not adequate, the auditor should
Either a or b
71. The party responsible for assumptions identified in the preparation of prospective financial
statements is usually
The client’s management