AC10-31 Module 1 Preface

Question 1

-Authority Attaching to Philippine Standards Issued by the AASC
-collectively referred to as the AASC’s Engagement Standards

Answer 1

Philippine Standards on Auditing (PSAs); Philippine Standards on Review Engagements (PSREs); Philippine Standards on Assurance Engagements (PSAEs); Philippine Standards on Related Services (PSRSs)

Question 2

Audit of historical financial information (Standards)

Answer 2

Philippines Standards on Auditing (PSAs)

Question 3

Review of historical financial information (Standards)

Answer 3

Philippine Standards on Review Engagements (PSREs)

Question 4

Assurance engagements dealing with subject matters other than historical financial information (Standards)

Answer 4

Philippine Standards on Assurance Engagements (PSAEs)

Question 5

Deals with:
-compilation engagements
-engagements to apply agreed-upon procedures to information
-other related services engagements as specified by the AASC

Answer 5

Philippine Standards on Related Services (PSRSs)

Question 6

to be applied for all services falling under the AASC’s engagements standards

Answer 6

Philippine Standards on Quality Control (PSQC)

Question 7

applicable to engagements in the Public Sector

Answer 7

Philippine Standards

Question 8

-issued to provide guidance and practical assistance to professional accountants in implementing Philippine Standards
-promote good practice

Answer 8

Philippine Practice Statements

Question 9

-he/she should be aware of and consider Practice Statements applicable to the engagement

Answer 9

professional accountants

Question 10

-does not itself establish standards or provide procedural requirements for the performance of assurance engagements.

Answer 10

Framework

Question 11

In addition to the Framework and PSAs, PSREs and PSAEs, practitioners who perform assurance engagements are governed by

Answer 11

*The Philippine Code of Ethics for Professional Accountants; and
*Philippine Standards on Quality Control (PSQCs)

Question 12

means an agreement in which a particular 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

Answer 12

Assurance engagement

Question 13

refers to the outcome of the evaluation or measurement of a subject matter

Answer 13

Subject matter information

Question 14

the evaluation or measurement of the subject I performed by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that is made available to intended users

Answer 14

assertion-based engagements

Question 15

type of assurance engagement where the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users in the assurance report

Answer 15

direct reporting engagements

Question 16

two types of assurance engagements

Answer 16

-reasonable assurance engagement
-limited assurance engagement

Question 17

the objective is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion

Answer 17

Reasonable assurance engagement

Question 18

the objective is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where the risk is greater than for a reasonable assurance engagement, as a basis for a negative form of expression of the practitioner’s conclusion

Answer 18

Limited assurance engagement

Question 19

non-assurance engagements that are not covered by the framework

Answer 19

1. Engagements covered by the PSRSs such as agreed-upon procedures engagements and
   compilations of financial or other information.
2. The preparation of tax returns where no conclusion conveying assurance is expressed.
3. Consulting (or advisory) engagements, such as management and tax consulting.

Question 20

elements of an assurance engagement

Answer 20

1. A three-party relationship involving:
   ● A practitioner;
   ● A responsible party; and
   ● Intended users.
2. An appropriate subject matter;
3. Suitable criteria;
4. Sufficient appropriate evidence; and
5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement.

Question 21

to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework

Answer 21

objective of an audit of financial statements

Question 22

1. The OBJECTIVE of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
2. The auditor should comply with relevant ethical requirements relating to audit engagements.
3. The auditor should conduct the audit in accordance with PSAs.
4. “Scope of an audit” refers to the audit procedures that, in the auditor’s judgment and based on PSAs, are deemed appropriate in the circumstances to achieve the objective of the audit.
5. The auditor should plan and perform an audit with an attitude of PROFESSIONAL SKEPTICISM recognizing that circumstances may exist that cause the financial statements to be materially misstated.
6. In forming the audit opinion, the auditor obtains sufficient appropriate evidence to be able to draw conclusions on which to base that opinion.
7. The auditor’s opinion enhances the credibility of financial statements by providing a high, but not absolute, level of assurance.
8. Absolute assurance in auditing is not attainable as a result of such factors as:
   ● The need for judgment;
   ● The use of testing;
   ● The inherent limitations of any accounting and internal control systems; and
   ● The fact that most of the evidence available to the auditor is persuasive, rather than conclusive, in nature.
9. While the auditor is responsible for forming and expressing an opinion on the financial
   statements, the responsibility for the preparation and presentation of the financial statements in accordance with the applicable financial reporting framework is that of the entity’s MANAGEMENT, with oversight from those charged with governance.

Answer 22

Objective and General Principles governing an audit of Financial Statements

Question 23

-responsible for forming and expressing an opinion on the financial statements
-should comply with relevant ethical requirements relating to audit engagements
-should conduct the audit in accordance with PSAs

Answer 23

auditor

Question 24

refers to the audit procedures that, in the auditor’s judgment and based on PSAs, are deemed appropriate in the circumstances to achieve the objective of the audit

Answer 24

Scope of an audit

Question 25

an attitude an auditor should have; recognizing that circumstances may exist that cause the financial statements to be materially misstated

Answer 25

professional skepticism

Question 26

auditor obtains sufficient appropriate evidence to be able to draw conclusions on which to base that opinion

Answer 26

forming audit opinion

Question 27

enhances the credibility of financial statements by providing a high, but not absolute, level of assurance

Answer 27

auditor’s opinion

Question 28

Absolute assurance in auditing is not attainable as a result of such factors as:

Answer 28

*The need for judgment; *The use of testing; *The inherent limitations of any accounting and internal control systems; and *The fact that most of the evidence available to the auditor is persuasive, rather than conclusive, in nature.

Question 29

responsible for the preparation and presentation of the financial statements in accordance with the applicable financial reporting framework

Answer 29

Entity's Management

Question 30

to enable a practitioner to state whether, on the basis of procedures which do not provide all the evidence that would be require in an audit

Answer 30

objective of a review of financial statements

Question 31

anything has come to the practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework

Answer 31

negative assurance

Question 32

-comprises inquiry and analytical procedures -does not ordinarily involve 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, which are procedures ordinarily performed during an audit

Answer 32

review

Question 33

1. The objective of a review of financial statements is to enable a practitioner to state whether, on the basis of procedures which do not provide all the evidence that would be require in an audit, anything has come to the practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework (negative assurance) 2. 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. 3. A review does not ordinarily involve 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, which are procedures ordinarily performed during an audit. 4. The level of assurance provided in a review report is less that that given in an audit report.

Answer 33

Engagements to review financial statements

Question 34

1. In an engagement to perform agreed-upon procedures, an auditor is engaged to 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. 2. The recipients of the report must form their own conclusion from the report of the auditor. 3. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures, may misinterpret the results.

Answer 34

Engagements to perform agreed-upon procedures regarding financial information

Question 35

an auditor is engaged to 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

Answer 35

engagement to perform agreed-upon procedures

Question 36

-the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify, and summarized financial information -ordinarily entails reducing detailed data to manageable and understandable form without a requirement to test the assertions underlying that information

Answer 36

compilation engagement

Question 37

they derived some benefit as a result of the accountant’s involvement because the service has been performed with due professional skill and care

Answer 37

Users of compiled financial information