Multiple Choice Questions: Review of Financial Statements

Multiple Choice Questions
1. Pronouncements of Auditing Assurance Standards Council (AASC) do not cover

a. Review engagement
b. Compilation engagement
c. Consultancy
d. Agreed-upon procedures engagement
2. Which of the following best describes “related services”?
a. Audit and Review of financial statements
b. Assurance and audit engagements
c. Compilation and agreed-upon procedures engagements
d. Review, compilation and agreed-upon procedures engagements
3. The auditor’s satisfaction as to the reliability of an assertion being made by one party is called:
a. Assurance
b. Audit risk
c. Precision
d. Materiality
Review of Financial Statements
4. Which of the following services provides moderate level of assurance?

a. Audit
b. Review
c. Agreed-upon procedures
d. Compilation
5. The objective of a review of financial statements is to
a. Express an opinion on the overall financial statements
b. Carry out audit procedures agreed on with the client and other users of report.
c. Assist the client in the preparation of the financial statements
d. State whether anything has come to the auditor’s attention that indicates that the financial
statements are not presented fairly
6. When performing a review of financial statements, the CPA is required to
a. Apply analytical procedures and make inquiries from third parties by sending confirmation
letters
b. Assess the effectiveness of the client’s accounting and internal control systems
c. Obtain corroborative evidence to support management’s responses to inquiries
d. Obtain understanding of the client’s business and industry
7. Which of the following procedures is not included in a review engagement of a non-public
entity?
a. Inquiries of management
b. Inquiries regarding subsequent events
c. Procedures designed to identify unusual fluctuations
d. A study and evaluation of internal control
8. When providing limited assurance that nothing came to the CPA’s attention that would indicate
that the financial statements are not in accordance with financial reporting standards, the CPA
should:
a. Obtain corroborative evidence to support management’s responses to inquiries
b. Test the accounting records that identify inconsistencies with the prior year’s financial
statements
c. Understand the accounting principles of the industry in which the business entity operates
d. Develop an audit program
9. Performing inquiry and analytical review procedures is the preliminary basis for an CPA to issue
a. Compilation reports
b. Review report
c. Management advisory services report
d. Audit report
10. 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 information
coming to his attention is incorrect, incomplete, or otherwise unsatisfactory, he would
a. Withdraw immediately from the engagement
b. Perform the additional procedures he deems necessary to achieve limited assurance
c. Perform a complete audit and issue a standard audit report with appropriate qualifications
d. Downgrade the engagement to a compilation and issue the appropriate report
11. If the CPA has to believe that the information subject to review may be materially misstated, the
CPA should
a. Express a qualified negative assurance
b. Express and adverse opinion
c. Withdraw from the engagement
d. Carry out additional or more extensive procedures
12. If there had been a material scope limitation on a review engagement, the CPA may
a. Express either qualified opinion or disclaim an opinion on the financial statements
b. Not provide any assurance on the financial statements
c. Issue the unqualified review report
d. Issue an audit report that contains an unqualified opinion about the financial statements.
Agreed-upon Procedures engagement
13. A report on factual findings is the end product of the auditor when performing
a. Examination
b. Audit
c. Review
d. Agreed-upon procedures
14. Which of the following is true of the report based on agreed-upon-procedures?
a. The report is restricted to those parties who have agreed tp the procedures tp be performed
b. The CPA provides the recipients of the limited assurance as to reasonableness of the
assertion(s) presented in the financial information
c. The report states that the auditor has not recognized any basis that requires revision of
financial statements
d. The report should state that the procedures performed are limited to analytical procedures
and inquiry
15. Engagement to apply agreed-upon procedures on certain accounts within a financial statements
may be accepted provided
a. The CPA has ex[ressed opinion on the financial statements taken as a whole
b. The CPA takes full resposibility for the adequacy of the procedures to be performed
c. The CPA provides only a limited assurance about the reliability of the financial statements
d. The distribution of the report is limited only to specified parties involved
16. An engagement to apply agreed-upon procedure engagement may be accepted, provided
a. The CPA has audited the financial statements of the client
b. The CPA is independent with respect to the client
c. The distribution of the report will be limited only to specified parties involved
d. The adequacy of the procedures to be performed will be determined by the CPA
17. Which of the following ethical principles does not apply to an agreed-upon procedure
engagement
a. Independence
b. Confidentiality
c. Professional behavior
d. Professional competence and due care
18. Which of the following is true of the report based on agreed-upon-procedures?
a. The report is restricted to those parties who have agreed to the procedures to be performed
b. The CPA provides the recipients of the report limited assurance as to reasonableness of the
assertion(s) presented in the financial information
c. The report states that the auditor has not recognized any basis that requires revision of
financial statements
d. The report should state that the procedures performed are limited to any analytical
procedures and inquiry
Compilation of Financial Statements
19. What level of assurance does an accountant give on compilation report?

a. None
b. Moderate
c. Low
d. High
20. The term “accountant” has been used by AASC to refer to a CPA in public practice who is
engaged to
a. Audit financial statements
b. Review financial statements
c. Apply agreed-upon procedures
d. Compile financial statements
21. Which of the following procedures would an accountant most likely perform in a compilation
engagement?
a. Collect, classify and summarized financial information
b. Apply analytical procedures
c. Assess risk components
d. Test the accounting records
22. Ethical principles governing compilation of financial statements include
Independence Competence Technical standards
a. Yes Yes Yes
b. Yes Yes No
c. Yes No No
d. No Yes Yes
23. The procedures employed in doing compilation are:
a. Designed to enable the accountant to express a limited assurance
b. Designed to enable the accountant to express a negative assurance
c. Not designed to enable the accountant to express any form of assurance
d. Less extensive than review procedures but more extensive that agreed-upon procedures
24. Which of the following is incorrect about a compilation engagement?
a. The CPA uses his auditing expertise to collect, classify and summarize financial information
b. The engagement ordinarily entails reducing detailed data to a manageable and
understandable form
c. The CPA should exercise due care
d. The procedure performed do not enable the accountants to express any form of assurance
25. Which of the following procedures is normally performed in connection with a compilation
engagement?
a. Inquire of management about subsequent events
b. Making inquiries of management concerning actions taken at board meeting
c. Applying analytical review procedures
d. Collect, classify and summarize financial information
26. What level of assurance does the CPA provide under the following engagements?
Agreed-upon
Audit Review procedure Compilation
a. Reasonable moderate none none
b. Reasonable limited low none
c. Moderate moderate none none
d. Reasonable negative none low
27. The use of negative assurance in audit reports on financial statements is
a. A violation of the professional standards
b. Encouraged by PICPA
c. A help in clarifying the degree of responsibility being assumed by the auditor
d. Properly located in the opinion paragraph of the unqualified report
28. 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. Negative assurance
b. Compilation opinion
c. Disclaimer of opinion
d. Explanatory paragraph
29. Which of the following statements is not true about the reports provided by a CPA?
a. In the audit engagement, the auditor provides high level of assurance that the financial
information is free of material misstatement
b. In a review engagement, the CPA’s moderate assurance is expressed in the form of negative
assurances
c. For agreed-upon procedures, the CPA provided a report on factual findings and no
assurance is expressed
d. In a compilation engagement, no assurance is expressed and the users of financial
information do not derive any benefit from the CPA’s involvement
30. An auditor is associated with the financial information when he:
Attaches report to the Consents to the use of his name in a professional
Financial information connection
a. Yes No
b. Yes Yes
c. No Yes
d. No No
31. The statements that nothing came to our attention which would indicate that these statements
are not fairly presented expresses which of the following?
a. Disclaimer of opinion
b. Negative assurance
c. Negative confirmation
d. Negative assurance
32. A CPA who is not independent may issue a
a. Review report
b. Special report
c. Report expressing a qualified opinion
d. Compilation report
33. A CPA should perform analytical procedure during engagement to
I Audit II Review III Compile
a. Yes, Yes, Yes
b. Yes, Yes, no
c. No, Yes, No
d. Yes, No, No
Assurance engagements
34. Which of the following statements about assurance engagement is not correct?
a. Assurance engagements are intended to enhance the credibility of information about a
subject matter by evaluating whether the subject conforms in all material respects with
suitable criteria
b. The subject matter of an assurance engagement may the many forms such as data systems
and processes or behavior
c. Not all engagements performed by professional accountants are assurance engagements
d. The Philippine Standards on Assurance Engagements issued by AASC describe the objectives
and elements of assurance engagements to provide either a high, moderate or low level of
assurance
35. Which of the following is an example of an assurance engagement?
a. Management advisory services
b. Reporting on financial statements prepared using other comprehensive basis of accounting
c. Compilation of financial information
d. Preparation of tax returns
36. Which of the following services provides a moderate level of assurance about the client’s
financial statements?
a. Forecasts and projections
b. Compliance with contractual agreement
c. Review
d. Compilation
37. Which of the following is not one of the elements of an assurance engagement?
a. Sufficient appropriate evidence
b. A subject matter
c. Suitable criteria
d. An opinion about whether the subject matter conform, in all material respects, with
identified criteria
38. According to PSA 3000, assurance engagement should exhibit five elements including
a. Financial information
b. A two party relationship
c. Financial reporting framework
d. A written assurance report
39. Subject matter of an assurance engagement may take many forms including
Data Systems Behavior
a. YES YES YES
b. YES NO YES
c. YES YES NO
d. NO YES YES
40. Which of the following is not one of the requirements before accepting an assurance
engagement?
a. The practitioner should be competent and independent
b. The practitioner should accept the engagement only if the subject matter is the
responsibility of another party
c. The practitioner should accept the engagement only if the subject matter is
identifiable and in the form that can be subjected to evidence gathering procedures
d. The responsible party and the intended user of assurance report should be from
differ organizations
41. Which of the following generalizations is incorrect about the reliability of evidence gathered by
practitioners?
a. Evidence from external sources is more reliable that that generated internally
b. Evidence generated internally is more reliable when subject to appropriate controls within
the entity
c. Evidence obtained indirectly by the practitioner is more likely reliable than that obtained
directly
d. Evidence in the form of documents and written representation is more likely to be reliable
42. Which of the following is false? PSAE 3000
a. Describes the objective and elements of assurance engagements intended to provide either
a high or moderate level of assurance
b. Establishes standards for and provides guidance to professional accountants in public
practice for the performance of engagements intended to provide a high level of assurance
c. Specifies the procedures that the professional accountant should adopt in the performance
of all assurance engagements
d. Acts as a framework for the development by the Auditing and Assurance Standards Council
of specific standards for particular type of assurance engagement
43. When a CPA is associated with the preparation of forecasts, all of the following should be
disclosed except:
a. Sources of information
b. Character of work performed
c. Major assumptions used
d. Probability of achieving the forecast
44. 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. Such prospective financial statements are known as
a. Pro-forma financial statements
b. Financial projections
c. Partial presentation
d. Financial Forecast
45. An examination of financial forecast is a professional service that involves
a. Assembling financial forecast that is based on management assumptions
b. Limiting the distribution of the accountants report to management and board directors
c. Assuming responsibility on the financial forecast
d. Evaluating the preparation of the financial forecast and the support underlying management
assumptions
46. 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 an
a. Qualified opinion
b. Adverse opinion
c. Unqualified with emphasis of a matter paragraph
d. Disclaimer of opinion

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Multiple Choice Questions

1. Pronouncements of Auditing Assurance Standards Council (AASC) do not cover

Review of Financial Statements

4. Which of the following services provides moderate level of assurance?

Agreed-upon Procedures engagement

Compilation of Financial Statements

19. What level of assurance does an accountant give on compilation report?

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