I.

CASE: The following three statements are representative of attitudes and opinions
sometimes encountered by CPAs in their professional practices.
1. Today’s audit consists of test checking. This is dangerous because test checking
depends upon the auditor’s judgement which may be defective. An audit can be relied
upon only if every transaction is verified.
According to Wedemeyer (2010), risk in audit deals with the reality that auditors can
never be completely certain that the assertions they are auditing, be they single account
of full financial statements, and are entirely free of omissions or misstatements. Due to
the restrictions inherent in both accounting and auditing, it is impossible to be absolutely
certain that a material misstatement will not exist. I agree that audit relies on test
checking requiring significant judgment to ensure appropriate audit procedure and
opinion is made. Each of these judgments must be made by auditors throughout the
audit process and before the date on which an audit opinion is issued, based on
evidence that is reasonably available at that time. Ultimately, the auditor's opinion is
based on informed judgments and not on conclusive evidence. The auditor shall
conclude whether sufficient appropriate audit evidence has been obtained. In forming
an opinion, the auditor shall consider all relevant audit evidence, regardless of whether
it appears to corroborate or to contradict the assertions in the financial statements.

2. An audit by a CPA is essentially negative and contributes to neither the gross

national product nor the general well-being of society.
Buddery et al (2014) explains that audit is largely a publicly mandated service, designed
by government to support a public good; and this is the case whether audit is being
performed on a private corporate or a public. Audit is a service that can provide form
and structure to the trust that business and society need to operate. I disagree that
auditing is inherently negative and contributes neither to the gross national product nor
to society's overall well-being, given that it safeguards the assets and investments of
enterprises that make up the economy and the market in general. Good public sector
governance relies heavily on auditing. Auditors help public sector organizations achieve
accountability and integrity, enhance operations, and create confidence among citizens
and stakeholders by providing unbiased, objective assessments of whether public
resources are managed responsibly and effectively to accomplish intended goals.
Auditors perform an especially important function in those aspects of governance that
are crucial for promoting credibility, equity, and appropriate behavior of public sector
officials, while reducing the risk of public corruption. Auditing is concerned with the
verification of accounting data determining the accuracy and reliability of accounting
statements and reports
 3. It is important to read the notes to the financial statements even though they often
are presented in technical language and incomprehensible. The auditor may reduce his
exposure to third-party liability by stating something in the notes that contradicts
completely what he has presented in the balance sheet or income statement.
The first line of the provided number 3 statement is somehow true. Financial statements
often provide helpful and important information and should not be ignored. The notes to
the financial statement include critical information, that's why they should be carefully
studied. Notes written in technical vocabulary that are often used for complex subject
matter. As a result, it must be accepted that they will eventually be given in perfect
condition. The auditors' potential for third-party responsibility may be limited to the
extent that the notes incorporate further disclosures in the body of the accounting
records. It is important to note that disclosure would not be incompatible with anything.
The second line of the number 3 provided statement is incorrect in claiming that the
notes can be used to improve or dispute the company's financial statement
presentation. The financial accounts of a corporation are incomplete without notes. As a
result, if there appears to be a dispute in the financial statement presentation or if the
presentation is incomprehensible, this implies inadequate reporting and needs
qualification of the audit report.

Required: Evaluate each of the statement and indicate:

1. Areas of agreement with the statements, if any (explain).
Wedemeyer, P. (2010). A discussion of auditor judgment as the critical component in
audit quality – A practitioner's perspective. Int J Discl Gov 7, 320–333 (2010). Retrieved
September 2021 from: https://doi.org/10.1057/jdg.2010.19
2. Areas of misconception, incompleteness, or any fallacious reasoning included in the
statement if any.
Buddery et al. (2014). A vision for audit and a better society. Retrieved September 2021
from:
https://www.thersa.org/globalassets/pdfs/reports/rsa_enlightening_professions_10_2_1
4_.pdf
https://www.academia.edu/28776800/Summary_Chapter_1_Arab_1_

Framework in Auditing
ANSWER: A is correct because it corresponds to the outline of the level of
assurance provided by audit and related services. (PSA 120- Levels of assurance)
2. An assurance engagement should exhibit the following elements except
a. A three party relationship
b. Appropriate professional fee
b. A conclusion
d. A subject matter
ANSWER: B- The five elements of an assurance engagement are the three-party
relationship; appropriate subject matter; suitable criteria; appropriate evidence; and a
conclusion. (Reference: ICAEW: The five elements of an assurance engagement.)
3. The subject matter of an assurance engagement may take many forms, including
a. Data b. Systems and processes c. Behavior d. All of these
ANSWER: D- Choices a, b, and c are the subject matter of an assurance
engagement (Reference: PSA 100- Subject matter)
4. Engagements frequently performed by professional accountants that are not
assurance engagements include the following except
a. Agreed-upon procedures.
b. Compilation
c. Compliance audit
d. Management consulting
ANSWER: C- Not all engagements performed by practitioners are assurance
engagements. Other engagements frequently performed by members that are not
assurance engagements include the following: Agreed-upon procedures, Compilation,
and Management Consulting. (Reference: PSA 100- Scope of the Framework)

5. The following are assurance engagements except

a. Financial statements audit
c. Review of financial statements
b. Information system reliability services
d. Tax consulting
ANSWER: D- Tax consulting is an example of non-assurance engagement. PSA
100- Scope of the Framework)
Overview on Audit

In financial statement audits, the audit process should be conducted in

accordance with
a. The audit program
b. Philippine standard on auditing
c. Philippine accounting standards
d. Philippine Financial Reporting Standards
1. In financial statement audits, the audit process should be conducted in accordance
with
a. The audit program
b. Philippine standard on auditing
c. Philippine accounting standards
d. Philippine Financial Reporting Standards
ANSWER: B- The auditor should conduct an audit in accordance with PSA. PSAs
contain basic principles and essential procedures together with related guidance in the
form of explanatory and other material, including appendices. (Reference: OVERVIEW
OF FINANCIAL STATEMENT AUDIT- General Principles of an Audit)
2. The auditor’s opinion
a. Enhances the credibility of the financial statements.
b. Is an assurance as to the future viability of the entity.
c. Is an assurance as to the efficiency with which management has conducted the
affairs of
the entity, but not effectiveness.
d. Certifies the correctness of the financial statements.
ANSWER: A- Although the auditor’s opinion enhances the credibility of the financial
statements, the user cannot assume that the opinion is an assurance as to the future
viability of the entity nor the efficiency or effectiveness with which management has
conducted the affairs of the entity. (Reference: PSA 200- Objectives of Financial
Statement Audit)
3. It refers to the audit procedures deemed necessary in the circumstances to achieve
the objective of the audit.
a. Scope of an audit c. Objective of an audit
b. Audit program d. Reasonable assurance
ANSWER: A- The term “scope of an audit” refers to the audit procedures deemed
necessary in the circumstances to achieve the objective of the audit. Choices b,
c, and d are incorrect because their definitions do not correspond to the given
question. (Reference: PSA 200- Scope of an Audit
4. The risk that the auditor will not detect a material misstatement is
A. control risk
B. inherent risk
C. expected misstatement
D. none of the above
ANSWER: D- The Detection risk is the possibility that the procedures performed
by the auditor to reduce audit risk to an acceptably low level will not detect a
misstatement that exists and that could be material, either individually or when
aggregated with other misstatements. (PSA 200.9- Detection Risk
5. Evidence is considered competent when it
A. is relevant to the audit objective being tested
B. contains no material misstatement
C. signals the true state of an assertion
D. both A & C
Answer: D- Evidence is considered competent when it is both relevant and
reliable. Relevant whether the evidence relates to the specific audit objective
being tested. Reliable whether a particular type of evidence can be relied upon to
signal the true state of an assertion. (Reference: PSA 200.66- Appropriateness of
Audit Evidence)
Universe of CPA Services
1. It generally refers to an expert’s written communication of a conclusion about the
reliability of someone else’s assertions.
a. attestation
b. engagement
c. auditing
d. assurance
ANSWER: A- Attestation generally refers to an expert’s written communication of
a conclusion about the reliability of someone else’s assertions. Choices b, c, and
d are incorrect because their definitions do not correspond to the given question.
(Reference: AN INTRODUCTION TO THE UNIVERSE OF CPA SERVICES- Nature of
Auditing, Attestation and Assurance Services)
2. Which of the following types of audit uses as its criteria laws and regulations?
a. Operational audit c. Financial statement audit
b. Compliance audit d. Financial audit
ANSWER: B- Compliance Audits review adherence to laws, regulations, policies, and
procedures. Operational Audits examine the use of unit resources to evaluate whether
those resources are being used in the most effective and efficient manner. Financial
Audits - Focus on accounting and reporting of financial transactions. (Reference: Types
of Audits & Standards)
3. A review of any part of an organization’s procedures and methods for the purpose of
evaluating efficiency and effectiveness is classified as a (n)
a. Audit of financial statements
b. Operational audit
c. Compliance audit
d. . Production audit
ANSWER: B. Operational audits are focused on identifying opportunities to improve the
efficiency and effectiveness of an organization's operations. Compliance Audits review
adherence to laws, regulations, policies, and procedures. Production Audit is not part of
the Types of Audits. (Reference: Types of Audits & Standards)
4. In ____, the practitioner measures or evaluates the underlying subject matter against
the criteria and the practitioner presents the resulting subject matter information as part
of, or accompanying, the assurance report.
a. Direct engagement
b. Assurance engagement
c. attestation engagement
d. audit engagement
ANSWER: A- The definition given corresponds to the explanation of the nature of direct
Engagements. (Reference: Proposed ISAE 3000- Attestation and Direct Engagements.)
5. Which of the following types of audits is performed to determine whether an entity’s
financial statements are fairly stated in conformity with generally accepted accounting
principles?
a. Operational audit
b. Financial statement audit
c. Compliance audit d. Performance audit
ANSWER:B- A financial audit is an analysis of the fairness of the information contained
within an entity's financial statements. (Reference: Types of Audits & Standards)
San Jose, L. (n.d.). ASSURANCE ENGAGEMENTS. PHILIPPINE STANDARD ON
AUDITING 100. Retrieved from:
https://www.academia.edu/30086845/Philippine_Standard_on_Auditing_100_ASSURA
NCE_ENGAGEMENTS_PHILIPPINE_STANDARD_ON_AUDITING_100

Auditing and Assurance Standards Council (2009). OVERALL OBJECTIVES OF THE

INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE
WITH PHILIPPINE STANDARDS ON AUDITING. PHILIPPINE STANDARD ON
AUDITING 200* (REVISED AND REDRAFTED). Retrieved from:
https://aasc.org.ph/downloads/psa/publications/pdfs/psa-200-revised-and-redrafted.pdf
picpa.com.ph/attachment/52320199416420.pdf
https://www.ifac.org/system/files/publications/exposure-
drafts/IAASB_ISAE_3000_ED.pdf
https://www.homeworklib.com/qaa/1092683/the-fashion-shoe-company-operates-
a-chain-of
https://www.homeworklib.com/answers/1209719/5b-due-to-erratic-sales-of-its-
sole-product-a