No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile Telephone Gmail : 0927 283 8234 : (043) 723 8412 : icarecpareview@gmail.com AT 05-01 – Fundamental Principles of Assurance Services 1. It refers to an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. a. Assurance Engagement b. Attestation Engagement c. Audit Engagement d. Non-assurance Engagement 2. Which of the following is not included in the elements of an assurance engagement? a. Appropriate subject matter b. Sufficient appropriate evidence c. Written report d. Professional fees 3. Which of the following statements about the three-party relationship in an assurance engagement is incorrect? a. The term practitioner is broader than the term auditor as used in Philippine Standards on Auditing (PSAs) and Philippine Standards on Review Engagements (PSREs). b. The intended users may include the responsible party, but the responsible party cannot be the only intended user. c. The organization represented by the responsible party and the intended users may or may not be the same. d. The responsible party may include the intended users, but the intended users cannot be the only responsible party. 4. Statement 1: Subject matter refers to the nature of the assertion the practitioner gathers sufficient evidence. Statement 2: Subject matter information pertains to the outcome of the evaluation or measurement of the subject matter. Statement 3: The subject matter of an assurance engagement may be financial, nonfinancial, physical characteristics, systems and processes, or behavior. a. All statements are correct. b. All but one of the statements are incorrect. c. All but two of the statements are incorrect. d. All statements are incorrect. 5. Which of the following is most difficult to use as criteria across multiple assurance engagements? a. Financial reporting framework of a foreign jurisdiction b. COSO internal control framework c. Governmental requirements for compliance d. Requirements for operational effectiveness and efficiency 6. Suitable criteria must contribute to conclusions that are clear, comprehensive, and not subject to significantly different interpretations. This characteristic of criteria is called ___________. a. Reliability b. Understandability 1P a g e JABELLAR/AIBAY/AJABINAL/RBERCASIO/JMAGLINAO/ASARMIENTO No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile Telephone Gmail : 0927 283 8234 : (043) 723 8412 : icarecpareview@gmail.com c. Neutrality d. Relevance 7. Jason, CPA, and Rain, CPA, were both engaged to express an opinion on Coffee Corp.’s financial statements prepared based on PFRS for SMEs. As this criteria is expected to be ________, Jason and Rain should’ve arrived at similar conclusions, provided similar set of circumstances and procedures. a. Reliable b. Neutral c. Relevant d. Understandable 8. All information gathered by the practitioner in evaluating the subject matter against criteria, on which the conclusion is based. a. Subject matter b. Subject matter information c. Evidence d. Criteria 9. Statement 1: Sufficiency is the measure of the quantity of evidence, affected by the risk of the subject matter information being materially misstated, and the quality of such evidence. Statement 2: The relationship between the quantity of evidence and its quality is direct (the higher the quality, more would be required). Statement 3: Appropriateness is the measure of the quality of evidence, its relevance and reliability. a. All statements are correct. b. All but one of the statements are incorrect. c. All but two of the statements are incorrect. d. All of the statements are incorrect. 10. Materiality is a very important concept for assurance engagements. For example, in an engagement to provide assurance on financial information, the more risks that the practitioner considers to be present under client’s circumstances, the _______ the materiality level that he/she defines. At the same time, the ________ material the information is to intended users, the more procedures and evidence that the practitioner should gather related to it. a. Lower, less b. Lower, more c. Higher, less d. Higher, more 11. It refers to the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated. a. Assurance engagement risk b. Audit risk c. Risk of material misstatement d. Risk of non-detection 12. In an assurance engagement, a practitioner may express an inappropriate conclusion in two scenarios. Beta risk refers to ___________. a. Expressing an inappropriate conclusion when the subject matter information is not materially misstated. 2P a g e JABELLAR/AIBAY/AJABINAL/RBERCASIO/JMAGLINAO/ASARMIENTO No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile Telephone Gmail : 0927 283 8234 : (043) 723 8412 : icarecpareview@gmail.com b. Expressing an inappropriate conclusion when the subject matter information is materially misstated. c. Expressing an appropriate conclusion when the subject matter information is not materially misstated. d. Expressing an appropriate conclusion when the subject matter information is materially misstated. 13. Which of the following statements in relation to cost-benefit consideration of gathering evidence in assurance engagements is always correct? a. In gathering evidence, the practitioner chooses the procedure that provides the most reliable evidence. b. In gathering evidence, the practitioner chooses the procedures that incurs the least cost. c. In the absence of alternative procedures, the practitioner is required to perform evidence-gathering procedures, even if the cost of performing them exceeds the benefit derived from the engagement. d. The decision whether to remove an evidence-gathering procedure depends on its usefulness and the matter of difficulty or expense involved in performing the procedure. 14. The attitude of having a questioning mind, being alert to possible misstatements, and being critical of evidence gathered, especially those that contradicts other evidence or representations by the responsible party, and most important to detect fraud / fraud scenarios. a. Professional judgment b. Professional skepticism c. Professional license d. Professional behavior 15. Which of the following statements relating to generalizations about reliability of evidence is incorrect? a. Evidence obtained from external and independent sources is more reliable than internal evidence. b. Evidence obtained from a system of effective internal controls is more reliable that those from ineffective controls. c. Evidence that exists in documentary form is more reliable than those obtained orally or from results of inquiry. d. Evidence provided by photocopies is more reliable than those provided by facsimiles. 16. When the subject matter information is presented fairly, in all material respects, in relation to the established criteria, the type of opinion expressed is __________. a. Unmodified/unqualified b. Qualified c. Adverse d. Disclaimer 17. When a practitioner wishes to reduce assurance engagement risk to an acceptably low level, the form of conclusion expressed in the report is ___________, providing a __________ level of assurance. a. Positive, reasonable b. Positive, limited c. Negative, reasonable 3P a g e JABELLAR/AIBAY/AJABINAL/RBERCASIO/JMAGLINAO/ASARMIENTO No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile Telephone Gmail : 0927 283 8234 : (043) 723 8412 : icarecpareview@gmail.com d. Negative, limited 18. This refers to representations about the evaluation or measurement of the subject matter, either made available to intended users or otherwise. a. Assertion b. Assurance c. Evidence d. Professional skepticism 19. Which of the following most likely performs the evaluation or measurement of the subject matter in a direct reporting engagement? a. Practitioner b. Responsible party, where assertions are made available to intended users. c. Responsible party, where assertions are not made available to intended users. d. Both A and C. 20. It is a characteristic required from a professional providing assurance service to one or multiple clients, which, aside from subject matter expertise, improves the reliability of the reports issued. a. Objectivity b. CPA license c. Professional competence d. Independence 21. Which of the following statements is always correct? a. All assurance engagements are attestation in nature. b. All audit engagements are assurance engagements, but not all audit engagements involve attestation. c. All attestation engagements are assurance engagements, and all audit engagements involve attestation. d. All audit engagements involve attestation, but not all attestation engagements involve assurance. 22. Which of the following engagements below is non-assurance in nature? a. Audit of historical financial statements b. Examination of prospective financial statements c. Reporting on a client’s accounting information systems d. Providing tax management advisory 23. Which of the following pronouncements apply to all engagements covered by the Auditing and Assurance Standards Council (AASC)? a. Philippine Framework on Assurance Engagements (PFAEs) b. Philippine Standards on Auditing (PSAs) c. Philippine Standards on Assurance Engagements (PSAEs) d. Philippine Standards on Quality Management (PSQM) 24. When a practitioner’s conclusion is expressed in a report on factual findings, the type of engagement is most likely a. Audit b. Assurance c. Agreed-upon procedures d. Compilation *End of Handout* 4P a g e JABELLAR/AIBAY/AJABINAL/RBERCASIO/JMAGLINAO/ASARMIENTO
