CHAPTER 11

Other Reporting Responsibilities

PSA 800

Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose

Frameworks

1. Financial statements prepared in accordance with a financial reporting framework designed to meet
the financial information needs of specific users are referred to as

A. Special purpose financial statements

B. Special purpose framework

C. General purpose financial statements

D. Specific purpose financial statements

Special purpose financial statements are financial statements prepared in accordance with a special
purpose framework.

Special purpose framework is a financial reporting framework designed to meet the financial
information needs of specific users.

2. The following are examples of special purpose frameworks, except

A. A tax basis of accounting for a set of financial statements that accompany an entity’s tax return.

B. The cash receipts and disbursement basis of accounting for cash flow information that an entity may
be requested prepare for creditors,

C. Philippine Financial Reporting Standards (PFRS) promulgated by the Financial Reporting Standards
Council

D. The financial reporting provisions of a contract (for example a financing agreement).

The following financial reporting frameworks are often identified as the applicable financial reporting
framework in legislative and regulatory requirements governing until the preparation of general,
purpose financial statements'

 International Financial Reporting Standards (IFRS) promulgated by the International Accounting

Standards Board (IASB).
 International Public Sector Accounting Standards (PFRS) promulgated by the International
Public Sector Accounting Standards Board.
  Philippine Financial Reporting Standards (PFRS) promulgated by the Financial Reporting
Standards Council (FRSC)

3. An auditor's report on financial statements prepared in accordance with the financial

reporting provisions of a contract (that is, a special purpose framework) to comply with the
provisions of that contract should include all of the following, except

A. An opinion as to whether the financial statements are presented fairly, in all material in
accordance the financial reporting provisions of the contract.
B. A statement that Indicates the basis of accounting used.
C. An opinion as to whether the basis of accounting used is appropriate under the
circumstances.
D. Reference to the note to the financial statements that de-scribes the basis of presentation.

The auditor's report on financial statements prepared in accordance with the financial reporting
provisions of a contract should include a statement that indicates the basis of accounting used or should
refer to the note to the financial statements giving that in-formation. The opinion should state whether
the financial statements are prepared, in all material respects, in accordance with the identified basis of
accounting. There is no requirement to express an opinion on the propriety of the basis of accounting
used.

The following is an example of an auditor's report on a complete set of financial statements prepared in
accordance with the financial reporting provisions of a contract: (Illustration 1, Appendix, PSA 800)

We have audited the accompanying financial statements of ABC Company, which comprise the balance
sheet as at December 31, 20X1, and the income statement, statement of changes in equity and cash
flow statement for the year then ended, and a summary of significant accounting policies and other
explanatory information. The financial statements have been prepared by management based on the
financial reporting provisions of Section Z of the contract dated January I, 20X 1 between ABC Company
and DEF Company ("the contract").

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements in accordance with the
financial reporting provisions of Section Z of the contract, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and per-form the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements of ABC Company Section Z of the contract for the year ended
December 31, 20X1 are prepared, in all material respects, in accordance with the financial reporting
Provisions 01

Basis of Accounting and Restriction on Distribution and Use

Without modifying our opinion, we draw attention to Note X to the financial statements which describes
the basis of accounting. The financial statements are prepared to assist ABC Company to com-ply with
the financial reporting provisions of the contract referred to above. As a result, the financial statements
may not be suitable for another purpose. Our report is intended solely for ABC Company and DEF
Company and should not be distributed to or used by parties other than ABC Company or DEF Company.

4. When an auditor reports on financial statements prepared on an entity's income tax basis, the
auditor's report should

A. State the basis of presentation of the financial statements.

B. Disclaim an opinion on whether the statements were examined in accordance with Philippine
Standards on Auditing (PSAs).

C. Not express an opinion on whether the statements are presented in accordance with the tax basis of
accounting used

D. Include an explanation of how the results of operations differ from the cash receipts and
disbursements basis of accounting.

The auditor's report should state the basis of accounting used or should refer to the note to the financial
statements giving that information.

Answer B is incorrect because the audit should be conducted in accordance with Philippine Standards on
Auditing (PSAs).
Answer C is incorrect because the auditor should express an opinion on whether the financial
statements are prepared, in all material respects, in accordance with the identified basis of accounting.

Answer D is incorrect because the auditor's report only the note to the financial statements that
explains the basis of accounting used.

5. An auditor is reporting on a statement of cash receipts and disbursements. This statement is best
referred to in the opinion paragraph by which of the following descriptions?

A. "Results of operations arising from cash transactions."

B. "Cash receipts and disbursements."

C. “Income statement resulting from cash transactions."

D. "Statement of cash flows."

The opinion paragraph of a report on a statement of cash receipts and disbursements states, In our
opinion, the financial statement presents fairly, in all material respects, the cash receipts and
disbursements of ABC Company for the year ended December 31, 20X1 in accordance with the cash
receipts and disbursements basis of accounting described in Note X."

6. In an audit of special purpose financial statements, the auditor shall obtain an understanding of

I. The purpose for which the financial statements are pre-pared.

II. The intended users.

III. The steps taken by management to determine that the applicable financial reporting framework is
acceptable in the circumstances.

A. I only

B. II and III only

C. I and II only

D. I, II, and III

7. An auditor's report on financial statements prepared on the cash receipts and disbursements basis of
accounting should in dude all of the following, except

A. A statement that the audit was conducted in accordance with Philippine Standards on Auditing.

B. A reference to the note to the financial statements that describes the cash receipts and
disbursements basis of accounting.
C. A statement that the cash receipts and disbursements basis of accounting is not a comprehensive
basis of accounting.

D. An opinion as to whether the financial statements are presented fairly, in all material respects, in
accordance with the cash receipts and disbursements basis of accounting.

Answers A, B, and V are incorrect because a statement that the audit was conducted in accordance with
Philippine Standards on Auditing (PSAs), a reference to the note to the financial statements that
describes the basis of presentation, and an opinion as to whether the statements are fairly presented
should be included in the auditor's report.

PSA 805

Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or

Items of a Financial Statement

8. A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial
statements) to audit an entity's

A. B. C . D.

Schedule of Accounts Receivable Yes No Yes No

Schedule of Participation No Yes Yes No

An audit engagement to express an opinion on one or more components of a financial statement (for
example, accounts receivable, inventory or a schedule of profit participation) may be undertaken as a
separate engagement or in conjunction with an audit of the entity’s financial statements.

9. Which of the following statements is correct with respect to an auditor's report expressing an opinion
on a specific element on a financial statement?

A. The auditor who has expressed an adverse opinion on the financial statements as a whole can never
express an un-modified opinion on -a specific element in these financial statements.

B. The materiality determined for a specific element of a financial statement may be lower than the
materiality deter- mined for the entity's complete set of financial statements,

C. Such a report can only be issued if the auditor is also engaged to audit the entire set of financial
statements.

D. The attention devoted to the specific element is usually less than it would be if the financial
statements as a whole were audited.

Answer A is incorrect because, when an adverse opinion or a disclaimer of opinion has been expressed
on the entire set of financial statements, it would be appropriate to express an unmodified opinion on
the specific element only if:
• The auditor is not prohibited by law or regulation from doing so;

• That opinion is expressed in an auditor's report that is not published together with the auditor's report
containing the adverse opinion or disclaimer of opinion; and

• The specific element does not constitute a major portion of the entity's complete set of financial
statements.

Answer C is incorrect because an engagement to audit one or more components of financial statements
may be undertaken as a separate engagement or in conjunction with an audit of the entity's financial
statements.

Answer D is incorrect because a special purpose audit engagement to report on one or more
components of financial statements ordinarily be more extensive than if the same component(s) were
to be audited in connection with a report on the financial statements taken as a whole.

10. An auditor may express an opinion on an entity's accounts receivable balance even if the auditor
has disclaimed an opinion on the financial statements taken as a whole provided the

A. Report on the accounts receivable is presented separately from the disclaimer of opinion on the
financial statements.

B. Auditor also reports on the current asset portion of the entity's statement of financial position.

C. Use of the report on the accounts receivable is restricted.

D. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the financial
statements.

The standard states that when an adverse opinion or disclaimer of opinion on the entire financial
statements has been expressed, the auditor should report on elements of the financial statements only
if those elements are not so extensive as to constitute a major portion of the financial statements.
Because an engagement to audit a financial statement element does not result in a report on the
financial statements taken as a whole, a separate report should be presented containing the auditor's
opinion on the financial statement element audited.

Answer B is incorrect because a report may be presented on one or more financial statement elements
audited.

Answer C is incorrect because the standard does not require restriction on the distribution of the report
on the financial statement element audited.

Answer D is incorrect because a separate report on the element audited should be presented.
Moreover, the report need not describe the reason for the disclaimer of opinion on the financial
statements.
11. When an auditor is requested to express an opinion on the rental and royalty income of an entity,
the auditor may

A. Accept the engagement provided the auditor will comply with relevant ethical requirements,
including those pertaining to independence, relating to financial statement audit engagements and all
PSAs relevant to the audit.

B. Accept the engagement provided distribution of the audit report is limited to the entity's
management

C. Not accept the engagement unless also engaged to audit the full financial statements of the entity.

D. Not accept the engagement because to do-so would be tantamount to agreeing to express a
piecemeal opinion.

Answer B is incorrect because the standard does not require it restrictions on the distribution and use of
the auditor's report.

Answer C is incorrect because this engagement may be undertaken as a separate engagement or in

conjunction with an audit of them entity's financial statements.

Answer D is incorrect because the auditor is allowed to express an opinion on one or more financial
statement elements if he/she has not expressed an adverse opinion or disclaimer of opinion on the
financial statements taken as a whole or if the elements to be reported on are not so extensive as to
constitute a major portion the financial statements.

12. The following statements are ordinarily included in the separate auditor's report on an entity's
compliance with agreements, except

A. "We conducted our audit in accordance with Philippi Standards on Auditing."

B. "In our opinion, the financial statements of the Company are presented fairly, in all material respects,
In accordance with Philippine Financial Reporting Standards."

C. “An audit involves performing procedures to obtain audit evidence the amounts and disclosure in the
financial statements”

D.” We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis
for our opinion”.

PSA 810

ENGAGEMENT TO REPORT ON SUMMARY FINANCIAL STATEMENTS

13. An auditor may report on summary financial statements that are derived from complete audited
financial statements if the
A. Auditor indicates whether the information in the summary financial statements is consistent with the
audited financial statements from which it was derived.

B. Summary financial statements are distributed only to management and the board of directors.

C. Auditor describes the additional review procedures performed on the summary financial statements.

D. Summary financial statements are presented in comparative form with the prior year’s summarized
financial statements.

According to the Standard, the auditor’s report on summary financial statements shall include the
following basic elements:

1. A title clearly indicating it is the report of an independent auditor;

2. An addressee;

3. An introductory paragraph that;

a) Identifies the summary financial statements on which the auditor is reporting, including the
title of each statement included in the summary financial statements;

b) identifies the audited financial statements;

c) Refers to the auditor's report on the audited financial statements, the date of that report, and
the fact that an un-modified opinion is expressed on the audited financial statements;

d) If the date of the auditor's report on the summary financial statements is later than the date
of the auditor's report on the audited financial statements, states that the summary financial
statements and the audited financial statements do not reflect the effects of events that occurred
subsequent to the date of the auditor's report on the audited financial statements; and

e) A statement indicating that the summary financial statements do not contain all the
disclosures required by the financial reporting framework applied in the preparation of the audited
financial statements, and that reading the summary financial statements is not a substitute for reading
the audited financial statements.

4. A description of management's responsibility for the summary financial statements, explaining that
management is responsible for the preparation of the summary financial statements In accordance with
the applied criteria.

5. A statement that the auditor is responsible for expressing opinion on the summary financial
statements based on the procedures required by the PSA.

6. A paragraph clearly expressing an opinion.

7. The auditor's, signature.

8. The date of the auditor's report.

9. The auditor's address.

14. In the auditor's report on summary financial statements that are derived from an entity's audited
financial statements, a CPA should indicate that the

A. CPA has audited and expressed an opinion on the complete financial statements.

B. CPA expresses limited assurance that the financial statements are presented in accordance with PFRS.
C. Summary financial statements are not fairly presented in all material respects.

D. Summary financial statements are prepared in accordance with special purpose financial reporting
framework.

PSRE 2400

Engagements to Review Financial Statements

15. In a review engagement, the practitioner and the client should agree on the terms of the
engagement. The agreed terms would be recorded in an engagement letter or other suitable form such
as a contract. The engagement letter should include all of the following, except

A. A provision that the engagement cannot be relied upon to disclose errors, fraud, or illegal acts.

B. A provision that any errors, fraud, or noncompliance with laws and regulations that come to the
practitioner's attention need not be reported.

C. A sample of the report expected to be rendered.

D. The objective of the service to be performed.

Although a review engagement cannot be relied upon to disclose whether fraud, errors, or
noncompliance with laws and regulations exist, the engagement letter should indicate to the client that
the Practitioner will inform management or the board of directors of any material matters that will
come to the practitioner's attention. Matters that would be included in the engagement letter include:

• The objective of the service to be performed.

 Management's responsibility for the financial statements. The scope of the review, including
reference to PSRE 2400.
 Unrestricted access to whatever records, documentation, and other information requested in
connection with the review.
 A sample of the report expected to be rendered.
 The fact that the engagement cannot be relied upon to disclose errors, illegal acts, or other
irregularities, for example, fraud or defalcations that may exist.
  A statement that the audit is not to be performed and that an audit opinion will not be
rendered. To emphasize this point and to avoid confusion, the practitioner may also consider
pointing out that a review engagement will not satisfy any statutory or third party requirements
for an audit.

16. Which of the following procedures should a practitioner perform during an engagement to review an
entity's financial statements?

A. Examining cash disbursements in the subsequent period for unrecorded liabilities.

B. Sending bank confirmation letters to the entity's financial institutions.

C. Obtaining a client representation letter from members of management.

D. Communicating material internal control weaknesses during the assessment of control risk.

A review of financial statements consists principally of inquiries and analytical procedures. When
considered appropriate, the practitioner should obtain written representations from member'
management who have responsibility for financial and accounting matters.

Answers A, B, and D are incorrect because examining subsequent cash disbursements, sending
confirmation requests to financial institutions, and communicating material weaknesses in internal
control are performed in an audit.

17. Which of the following procedures is a practitioner least likely to perform during a review
engagement?

A. Comparing the financial statements with anticipated results in budgets and forecasts.

B. Studying the relationships of financial statement elements expected to conform to predictable

patterns.

C. Inquiring of management about actions taken at the board of directors' meetings.

D. Observing the safeguards over access to and use of assets and records.

A review does not include performance of the following procedures:

• Obtaining an understanding of internal control or assessing control risk.

• Testing accounting records or responses to inquiries by obtaining corroborating evidence.

• Other tests ordinarily performed in an audit.

Procedures for the review of financial statements will ordinarily include:

• Obtaining an understanding of the entity's business and the industry in which it operate.
 Inquiries concerning the entity's accounting principles and practices.
• Inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions,
accumulating information for disclosure in the financial statements and preparing financial statements.
• Inquiries concerning all material assertions in the financial statements.

•Analytical procedures designed to identify relationships and individual items that appear unusual. Such
procedures would include:

• Comparison of the financial statements with statements for prior periods.

• Comparison of the financial statements with anticipated results and financial position.

• Study of the relationships of the elements of the financial statements that would be expected
to conform to a predictable pattern based on the entity's experience or industry norm.

• Inquiries concerning actions taken at meetings of shareholders, the board of directors, committees of
the board of directors and other meetings that may affect the financial statements.

• Reading the financial statements to consider, on the basis of information coming to the auditor's
attention, whether the financial statements appear to conform with the basis of accounting indicated.

• Obtaining reports from other auditors if any and if considered necessary, who have been engaged to
audit or review the financial statements of components of the entity.

• Inquiries of persons having responsibility for financial and accounting matters concerning, for
example:

• Whether all transactions have been recorded.

 Whether the financial statements have been prepared in accordance with the basis of
accounting indicated.
 Changes in the entity's business activities and accounting principles and practices.
 Matters as to which questions have arisen in the course of applying the foregoing procedures.
 Obtaining written representation from management when considered appropriate.

18. Which of the following inquiries or analytical procedures ordinarily may is performed in an
engagement to review an entity's financial statements?

A. Inquiries concerning the entity's procedures for recording and summarizing transactions.

B. Analytical procedures designed to test the accounting records by obtaining corroborating evidential
matter.

C Analytical procedures designed to test management's assertions regarding continued existence.

D. Inquiries of the entity's attorney concerning contingent liabilities.

19. Which of the following procedures is usually performed by the practitioner in a review engagement
of an entity?

A. Sending a letter of inquiry to the entity's lawyer.

B. Confirming a significant percentage of receivables by direct communication with debtors.

C. Comparing the financial statements with statements for comparable prior periods.

D. Communicating material weaknesses in the design or implementation of internal control.

20. Which of the following procedures most likely would not be included in a review engagement of an
entity?

A. Assessing control risk.

B. Considering whether the financial statements are in accordance with Philippine Financial Reporting
Standards.

C. Obtaining a management representation letter.

D. Inquiring about subsequent events.

21. Providing limited assurance that the financial statements of an entity require no material
modifications to be in accordance with Philippine Financial Reporting Standards, the practitioner should

A. Confirm with the entity's lawyer that material loss contingencies are disclosed.

B. Understand the accounting principles of the industry in which the entity operates.

C. Develop audit programs to determine whether the entity's financial statements are fairly presented.
D. Assess the risk that a material misstatement could occur in a financial statement assertion

22. Which of the following would not be included in a practitioner's report based upon a review of an
entity's financial statements?

A. A statement that the financial statements are the responsibility of the company's management.

B. A statement describing the principal procedures performed.

C. A statement that the review was conducted in accordance with Philippine Standards on Auditing.

D. A statement describing the practitioner's conclusions based upon the results of the review.

The review report includes a statement that the review was conducted in accordance with the Philippine
Standard on Review Engagements 2400. Moreover, the report indicates that a review consists principally
of inquiries and analytical procedures and provides less assurance than an audit. An example of an
unqualified review report follows:
We have reviewed the accompanying balance sheet of ABC Company at December 31, 20X1, and the
related statements of income, changes in equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our responsibility is to issue a report
on these financial statements based on our review.

We conducted our review in accordance with the Philippine Standard on Review Engagements 2400.
This Standard requires that we plan and perform the review to obtain moderate assurance as to
whether the financial statements are free of material misstatement. A review is limited primarily to
inquiries of company personnel and analytical procedures applied to financial data and thus provide less
assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit
opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying
financial statements are not presented fairly, in all material respects, in accordance with Philippine
Financial Reporting Standards.

23. The date of the review report should

A. Not be earlier than the date on which the financial statements were approved by management.

B. Be earlier than the date on which the financial statements were approved by management.

C. Coincide with the date of the financial statements.

D. Not be later than the date of the financial statements.

According to the standard, a practitioner should date the review report as of the date the review is
completed, which includes performing procedures relating to events occurring up to the date of the
report. However, since the practitioner's responsibility is to report on the financial statements as
prepared and presented by management, the practitioner should not date the report earlier than the
date on which the financial statements were approved by management.

24. During an engagement to review the financial statements of an entity, a practitioner becomes aware
of a material departure port be ca if the practitioner decides to modify the review report because
management will not revise the financial statements the practitioner should

A. Express negative assurance on accounting principles not conforming with Philippine Financial
Reporting Standards.

B. Express positive assurance on accounting principles tort forming With Philippine Financial Reporting
Standards.

C. Express a qualified opinion.

D. Express a qualification of the negative assurance provided or give an adverse statement that the
financial statements are not presented fairly, in all material respects, in accordance with PFRS.
If the practitioner becomes aware of a material departure from PFRS, he/she should describe the nature
of the departure in a separate paragraph, including, unless impracticable, a quantification of the
possible effect(s) on the financial statements. In addition, the practitioner should either:

a) Express a qualification of the negative assurance provided in the report; or

b) When the effect of the departure is so material and pervasive that a qualification is believed to be
inadequate to disclose the misleading or incomplete nature of the financial statements, give an adverse
statement that the financial statements are not presented fairly, in all material respects, in accordance
with Philippine Financial Reporting Standards.

Answer A is incorrect because the practitioner should provide negative assurance when his/her review
procedures did not disclose material departures from PFRS. The review report should state that nothing
has come to the practitioner's attention based on review that causes the practitioner to believe the
financial statements are not presented fairly, in all material respects, in accordance with Philippine
Financial Reporting Standards.

The Standard gives the following examples of review reports modified because of departures from PFRS.

Qualification for a Departure from PFRS

We have reviewed the accompanying balance sheet of ABC Company at December 31, 20XX, and the
related statements of income, changes in equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our responsibility is to issue a report
on these financial statements based on our review.

We conducted our review in accordance with the Philippine Standard on Review Engagements 2400.
This Standard requires that we plan and perform the review to obtain moderate assurance as to
whether the financial statements are free of material misstatement. A review is limited primarily to
inquiries of company personnel and an analytical procedure applied to financial data and thus provides
less assurance than an audit. We have not performed an audit and, accordingly, we do not express an
audit opinion.

Management has informed us that inventory has been stated at its cost which is in excess of its net
realizable value. Management's computation, which we have reviewed, shows that inventory, if valued
at the lower of cost and net realizable value as required by generally accepted accounting principles in
the Philippines, would have been decreased by Pxxxx, and net income and shareholders' equity would
have been decreased by Pxxxx.

Based on our review, except for the effects of the overstatement of inventory described in the previous
paragraph, nothing has come to our attention that causes us to believe the accompanying financial
statements are presented fairly, in a material respects, in accordance with Philippine Financial Reporting
Standards.
Adverse Report for a Departure from PFRS

We have reviewed the balance sheet of ABC Company at December 31, 20XX, and the related
statements of income, changes in equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our responsibility is to issue a report
on these financial statements based on our review.

We conducted our review in accordance with the Philippine Standard on Review Engagements 2400.
This Standard requires that we plan and perform the review to obtain moderate assurance as to
whether the financial statements are free of material misstatement. A review is limited primarily to
inquiries of company personnel and analytical procedures applied to financial data and thus provide less
assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit
opinion.

As noted in Note X, these financial statements do not reflect the consolidation of the financial
statements of subsidiary companies, the investment in which is accounted for on a cost basis. Under
generally accepted accounting principles, the financial statements of the subsidiaries are required to be
consolidated.

Based on our review, because of the pervasive effect on the financial statements of the matter
discussed in the preceding paragraph, the accompanying financial statements are not presented fairly,
in all material respects, in accordance with Philippine Financial Reporting Standards.

25. If there has been a significant limitation on the practitioner’s review of an entity's financial
statements, the practitioner should describe the limitation and

I. Express a qualification of the negative assurance.

II. Provide no assurance.

A. I only

B. II only

C. Either I or II

D. Neither I nor II

The Standard provides that if there has been, a material scope limitation, the review report should
describe the limitation and either:

a) Express a qualification of the negative assurance provided regarding the possible adjustments to the
financial statements that might have been determined to be necessarily had the limitation not existed;
or

b) When the possible effect of the limitation is so significant and pervasive that the practitioner
concludes that no level of assurance can be provided, not provide any assurance.
26. For the purpose of expressing negative assurance in the review report, the practitioner should
obtain sufficient appropriate evidence primarily through

A. Inquiry and Confirmation

B. Analytical procedures and substantive tests of details of transactions and account balances

C. Confirmation and tests of controls

D. Inquiry and analytical procedures

27. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February
2008, applies to

A. Reviews of any historical financial information of an audit client

B. Reviews of any historical financial boner other than the entity's auditor

C. Reviews of historical financial or other information by a practitioner other than the entity’s auditor.

D. Reviews of historical financial or other information of an audit client.

PSRE 2400 (Engagements to Review Financial Statements) and PSRE 2410 (Review of Interim Financial
Information Performed by the Independent Auditor of the Entity) were amended by the AASC in
February 2008. The objective of the amendments made is to clarify to which engagements each of the
standards is to be applied. The effect of the amendments is summarized as follows:

• PSRE 2400 applies to reviews of historical financial information by a practitioner other than the
entity’s auditor.
• PSRE 2410 applies to reviews of historical financial information by the entity’s auditor.
• Reviews of other historical information fall under PSAE 3000 (Revised), Assurance Engagements
other than Audits or Reviews of Historical Financial Information.

28. A practitioner's review of an entity's financial statements does not provide assurance that he/she
will become aware of all significant matters that would be disclosed in an audit. However if the
practitioner has become aware that information coming to his/her attention may be materially
misstated, the practitioner should

A. Carry out additional or more extensive procedures as are necessary to achieve limited assurance.

B. Withdraw immediately from the engagement.

C. Perform a complete audit and issue a modified auditor's report.

D. Downgrade the engagement to a compilation and issue the appropriate report.

According to PSRE 2400, if the practitioner has reason to believe that the information subject to review
may be materially misstated he/she should carry out additional or more extensive procedures are
necessary to be able to express negative assurance or confirm that a modified report is required.

PSRE 2410

Review of Interim Financial Information Performed by the Independent Auditor of the Entity

29. Which of the following statements concerning the objective of an engagement to review interim
financial information is correct?

A. To obtain reasonable assurance that the interim financial information is free from material
misstatement.

B. To enable the auditor to express a conclusion whether, on the basis of the review, anything has come
to the auditor’s attention that causes the auditor to believe that the interim financial information is not
prepared, in all material respects, in accordance with an applicable financial reporting framework.

C. To provide a basis for expressing an opinion whether the interim financial information is presented
fairly, in all material respects, in accordance with an applicable financial reporting framework.

D. The objective of a review of interim financial information is similar to that of an audit conducted in
accordance with PSAs.

According to PSRE 2410, “The objective of an engagement to review interim financial information is to
enable the auditor to express a conclusion whether, on the basis of the review, anything has come to
the auditor’s attention that causes the auditor to believe that interim financial information is not
prepared, in all material respects, in accordance with an applicable financial reporting framework.”

Answer A is incorrect because a review of interim financial information, in contrast to an audit, is not
designed to obtain reasonable assurance that the interim financial information is free from material
misstatement. A review consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. It does not provide all of the
evidence that would be required in an audit.

Answer C is incorrect because a review of interim financial information does not provide a basis for
expressing an opinion whether the financial information is presented fairly, in all material respects, in
accordance with an applicable financial reporting framework.

Answer D is incorrect because the objective of a review of interim financial information differs
significantly from that of an audit conducted in accordance with PSAs.

30. Which of the following procedures ordinarily should be Wed when an independent auditor conducts
a review of interim financial information of an entity?
A. Verify changes in key account balances

B. Perform cut-off tests for cash receipts and disbursements

C. Read the minutes of the board of directors' meetings.

D. Inspect the open purchase order fie.

31. An independent audits( who conducts a review of an entity’s interim financial information should
have an understanding as the entity and its environment, inducing its internal control as it relates to the
preparation of both annual and interim financial information. This enables the auditor to

I. Identify the types of potential misstatements and consider the likelihood of their occurrence.

II. Select the inquiries, analytical and other review procedures.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

32. The following procedures are ordinarily performed in an engagement to review interim financial
information, except

A. Tests of the accounting records through inspection, observation, or confirmation.

B. Obtaining an understanding of the entity and its environment, including its internal control, as it
relates to the preparation of both annual and interim financial information.

C. Inquiring of members of management responsible for financial and accounting matters

D. Communicating with other auditors who are performing a review of the interim financial information
of the reporting entity's significant components.

Procedures for performing a review of interim financial information are ordinarily limited to making
inquiries, primarily of per-sons responsible for financial and accounting matters, and applying analytical
and other review procedures. A review ordinarily does not require tests of the accounting records
through inspection, observation, or confirmation.

Answers B, C, and D are incorrect because they describe interim that are ordinarily performed in an
engagement to review interim financial information.

The following procedures are ordinarily performed in conducting a review of interim financial
information:
• Reading the minutes of the meetings of shareholders, those charged with governance, and other
appropriate committees to identify matters that may affect the interim financial information, and
inquiring about matters dealt with at meetings for which minutes are not available that may affect the
interim financial information.

• Considering the effect, if any, of matters giving rise to modification of the audit or review report,
accounting adjustments or unadjusted misstatements, at the time of the previous audit or reviews:

• Communicating, where appropriate, with other auditors who are performing a review of the interim
financial in-formation of the reporting entity's significant components.

• Inquiring of members of management responsible for financial and accounting matters.

• Applying analytical procedures to the interim financial in-formation designed to identify relationships
and individual items that appear to be unusual and that may reflect a material misstatement in the
interim financial information.

• Reading the interim financial information, and considering whether anything has come to the auditor's
attention that causes the auditor to believe that the interim financial in-formation is not prepared, in all
material respects, in accordance with applicable financial reporting framework.

PSRS 4400

Engagements on Agreed-upon Procedures

33. A report may be based upon apply g agreed-upon procedures in to specified elements, accounts or
items of a financial statement. The users of the report should participate in establishing the procedures
to be performed. If the auditor cannot discuss the procedures with all the parties who will receive the
report, he/she may

I. Discuss the procedures to be applied with appropriate representatives of the parties involved.

II. Review relevant correspondence from the parties involved.

III. Distribute a draft of the type of report that will be issued to the parties involved.

A. I and II only

B. I and III only

C. II and III only

D. I, III and III

PSRS 4400 (Engagements on Agreed-upon Procedures) states, "In certain circumstances, for example,
when the procedures have been agreed to between the regulator, industry representatives and
representatives of the accounting profession, the auditor may not be able to discuss the procedures
with all the parties who will receive the report. In such cases, the auditor may consider, for ex-ample,
discussing the procedures to be applied with appropriate representatives of the parties involved,
reviewing relevant correspondence from such parties or sending them a draft of the type of report that
will be issued."

34. An auditor may accept an engagement to perform specified procedures on the specific subject
matter of specified elements, accounts, or items of a financial statement if

A. The report does not list the procedures performed.

B. The financial statements are prepared in accordance with a special purpose framework.

C. Use of the report is restricted.

D. The auditor is also the entity's continuing auditor.

PSRS 4400 states that 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 A is incorrect because the report should include a listing of the specific procedures performed.

Answer B is incorrect because the financial statements need not be prepared in accordance with a
special purpose framework.

Answer D is incorrect because the auditor need not be the entity's continuing auditor.

35. An engagement to perform agreed-upon procedures may involve the auditor in performing certain
procedures concerning

I. Individual items of financial data.

II. A single financial statement.

III. A complete set of financial statements.

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

36. The report on an agreed-upon procedures engagement should contain

A. Identification of the purpose for which the agreed-upon procedures were performed.

B. An expression of positive assurance based on the specific procedures performed.

C. A statement that the auditor is independent of the entity.

D. A general description of the procedures performed.

According to PSRS 4400, the report on an agreed-upon procedures engagement needs to describe the
purpose and the agreed-upon procedures of the engagement in sufficient detail to enable the users of
the report to understand the nature and extent of the work performed. Answer B is incorrect because
the report should include a statement that the procedures performed do not constitute either an audit
or a review and, as such, no assurance is expressed.

Answer C is incorrect because the report should contain a statement that the auditor is not independent
of the entity if such is the case.

Answer D is incorrect because the report should include a listing of the specific procedures performed.

37. An agreed-upon procedures engagement may involve the auditor in performing certain procedures
concerning

I. Individual items of financial data.

II. A financial statement.

III. A complete set of financial statements.

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

PSRS (Philippine Standards. on Related Services) 4400 [Engagements to Perform Agreed-upon

Procedures Regarding Financial In-formation] states, "An engagement to perform agreed-upon
procedures may involve the auditor in .performing certain procedures concerning individual items of
financial data (for example, ac-counts payable, accounts receivable, purchases from related parties and
sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even
a complete set of financial statements."

38. Negative assurance may be expressed when an accountant is engaged to report agreed-upon
procedures to specified

I. Elements of a financial statement.

II. Accounts of a financial statement.

A. I only
B. II only

C. Both I and II

D. Neither I nor II

According to PSRS 4400, the objective of an agreed-upon procedures engagement is for the auditor to
carry out 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. The accountant does not provide negative or
other fortes of assurance. Users of the report assess for themselves the procedures and findings of the
accountant and draw their own conclusions.

39. An accountant may accept an engagement to apply agreed-upon procedures that are not sufficient
to express an opinion on one or more financial statements provided that

A. The accountant is also the entity's continuing auditor.

B. Distribution of the accountant's report is restricted.

C. The financial statements are prepared in accordance with a special purpose financial reporting
framework.

D. The accountant's report does not enumerate the procedures performed.

An accountant may accept an agreed-upon procedures engagement provided that the parties involved
have a clear understanding of the procedures to be performed and the report is to be restricted to those
parties that have agreed to the procedures to be performed. This is to prevent misinterpretation of the
results by those who are unaware of the reasons for the procedures performed.

Answer A is incorrect because the accountant need not be the entity's continuing auditor.

Answer B is incorrect because the financial statements need not be prepared using a special purpose
financial reporting framework. Answer D is incorrect because the accountant's report should include a
listing of the specific procedures performed.

40. Which of the following is least likely to be included in an agreed-upon procedures engagement
report?

A. Identification of the purpose for which the agreed-upon procedures were performed.

B. A summary of procedures performed.

C. Limited assurance on the information presented.

D. Use of the report is restricted.

The accountant's report should include a statement that the procedures performed do not constitute
either an audit or a review and, as such, no assurance is expressed.
According to PSRS 4400, the report of factual findings should contain:

a) Title;

b) Addressee (ordinarily the client who engaged the auditor to perform the agreed-upon procedures);

c) Identification of specific financial or non-financial information to which the agreed-upon procedures

have been applied;

d) A statement that the procedures performed were those agreed-upon with the recipient;

e) A statement that the engagement was performed in accordance with the Philippine Standard on
Related Services applicable to agreed-upon procedures engagements;

f) A statement that the auditor is not independent if such is the case;

g) Identification of the purpose for which the agreed-upon procedures were performed;

h) A listing of the agreed-upon procedures performed;

i) A description of the auditor's factual findings including sufficient details of errors and exceptions
found;

j) A statement that the procedures performed do not constitute either an audit or a review and, as such,
no assurance is expressed;

k) A statement that had the auditor performed additional procedures, an auditor or a review, other
matters might have come to light that would have been reported;

l) A statement that the report is restricted to those parties that have agreed to the procedures to be
performed;

m) A statement (when applicable) that the report relates only to the elements, accounts, items or
financial and non-financial in-formation specified and that it does not extend to the entity's financial
statements taken as a whole;

n) Date of the report;

o) Auditor's address;

p) and Auditor's signature.

PSRS 4410

Engagements to Compile Financial Information

41. When performing a compilation engagement, required to

A. Assess internal controls.

B. Make inquiries of management to assess completeness of the information provided.

C. Verify matters and explanations.

D. Obtain a general knowledge of the business and operations of the entity.

According to PSRS 4410 (Engagements to Compile Financial Information), "The accountant should obtain
a general knowledge of the business and operations of the entity and should be familiar with the
accounting principles and practices of the industry in which the entity operates and with the form and
content of the financial information that is appropriate in the circumstances." The standard further
provides that, "The accountant ordinarily obtains knowledge of these matters through experience with
the entity or inquiry of the entity's personnel."

PSRS 4410, par. 13, provides that the accountant is not ordinarily required to:

a) make any inquiries of management to assess the reliability and completeness of the information
provided;

b) Assess internal controls;

c) Verify any matters; or

d) Verify any explanations.

42. Independence is a requirement for which of the following engagements?

A B C D

Compilation No No Yes Yes

Review Yes No No Yes

Agreed-upon Procedures No No Yes Yes

Independence is not a requirement for compilation and agreed-upon procedures engagements.

However, where the accountant or auditor is not independent, a statement to that effect would be
made in the report.

43. Which of the following engagements require compliance with the requirements of the Code of Ethics
for Professional Accountants in the Philippines?

A B C D

Compilation Yes No No Yes

Review Yes No No Yes

Agreed upon procedure No Yes No Yes

44. An accountant who performs a compilation engagement

A. Should read the compiled information and consider whether it appears to be appropriate in form and
free from obvious material misstatements.

B. Should use his/her auditing expertise in 'testing the assertions underlying the compiled financial
information.

C. Include in his/her report a listing of the specific procedures performed.

D. Need not obtain an acknowledgment from management of its responsibility for the appropriate
presentation of the financial information.

45. Each page of the financial information compiled by the accountant should include the following
reference, except

A. "Unaudited"

B. "Compiled without Audit or Review"

C. "Refer to Compilation Report"

D. "Compiled, Negative Assurance Expressed"

According to PSRS 4410 (Engagements to Compile Financial In-formation), the financial information
compiled by the accountant should contain a reference such as:

• Unaudited;

• Compiled without Audit or Review; or

• Refer to Compilation Report on each page of the financial information or on the front of the complete
set of financial statements.

46. The objective of a compilation engagement is

A. For the accountant to use accounting expertise, as opposed to auditing expertise; to collect, classify,
and summarize financial information.

B. For the auditor to carry out 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.

C. To enable an auditor to state, on the basis of the procedures which do not provide all the evidence
that would be required in an audit, anything has come to the auditor's attention that causes the auditor
to believe that the financial statements are not prepared, in all material respects, in accordance with an
identified financial reporting framework.
D. For the auditor to provide a high, but not absolute, level of assurance that the financial information is
free of material misstatement.

PSRS 4410, (Engagements to Compile Financial Information) states, "The objective of a compilation
engagement is for the accountant to use accounting expertise, as opposed to auditing expertise, to
collect, classify and summarize financial information."

Answer B is incorrect because it describes the objective of an agreed-upon procedures engagement.

Answer C is incorrect because it describes negative (or limited) assurance provided in a review
engagement.

Answer D is incorrect because an audit provides a high, but not ab-solute level of assurance that the
financial information is free of material misstatement.

47. When compiling an entity's financial statements, an accountant would be least likely to

A. Obtain an acknowledgement from management of its responsibility for the financial statements.

B. Perform analytical procedures designed to identify relationships that appear to be unusual.

C. Plan the work.

D. Read the compiled financial statements and consider whether they appear to include adequate
disclosure.

Analytical procedures are necessary in review and audit engagements, not in compilation engagements.

Answer A is incorrect because, according to PSRS 4410, the accountant should obtain an
acknowledgment from management of its responsibility for the appropriate presentation and of its
approval of the financial information.

Answer C is incorrect because the work should be planned to ensure that an effective engagement will
be performed.

Answer D is incorrect because the accountant should read the compiled financial statements and
consider whether they are free from obvious material misstatements, including:

• Mistakes in the application of PFRS.

• Nondisclosure of PFRS and any known departures therefrom.

• Nondisclosure of any other significant matters of which the accountant has become aware.

48. When compiling the financial statements of an entity, an accountant should

A. Understand the accounting principles and practices of the entity's industry.

B. Inquire of key personnel concerning related parties and subsequent events.

C. Perform ratio analyses of the financial data of comparable periods.

D. Review agreements with financial institutions for on cash balances.

PSRS 4410 states, "The accountant should obtain general knowledge of the business and operations of
the entity and should be familiar with the accounting principles and practices of the industry in which
the entity operates and with the form and content of the financial information that is appropriate in the
circumstances."

Answers B and D are incorrect because inquiries concerning related parties and subsequent events, and
procedures to obtain corroborating evidence about restrictions on cash balances are appropriate in an
audit.

Answer C is incorrect because analytical procedures such as ratio analyses are appropriate in review and
audit engagements.

49. Which of the following should not be included in an accountant's report based upon the compilation
of an entity's financial statements?

A. A statement that a compilation of the company's financial statements was made in accordance with
the PSA applicable to compilation engagements.

B. A statement that management is responsible for the financial statements.

C. A statement that the accountant has not audited or reviewed the statements.

D. A statement that the accountant does not express an opinion but provides only negative assurance
on the statements.

The accountant's report should indicate that since no audit or review was performed, no assurance is
expressed.

PSRS 4410 gives the following examples of compilation reports:

Example of a Report on an Engagement to Compile Financial Statements

On the basis of information provided by management we have compiled, in accordance with the
Philippine Standard on Related Services applicable to compilation engagements, the balance sheet of
ABC Company as of December 31, 20XX and statements of income and cash flows for the year then
ended. Management is responsible for these financial statements. We have not audited or reviewed
these financial statements and accordingly express no assurance thereon.

Example of a Report on an Engagement to Compile Financial Statements with an Additional Paragraph

that Draws Attention to a Departure from the Applicable Financial Reporting Framework
On the basis of information provided by management we have compiled, in accordance with the
Philippine Standard on Related Services applicable to compilation engagements, the balance sheet of
XYZ Company as of December 31, 20XX and the related statements of income, changes in equity and
cash flows for the year then ended. Management is responsible for these financial statements. We have
not audited or reviewed these financial statements and accordingly express no assurance thereon.

We draw attention to Note X to the financial statements because management has elected not to
capitalize the leases on plant and machinery which is a departure from generally accepted accounting
principles in the Philippines.

50. In performing a compilation of financial statements of an entity, the accountant decides that
modification of the report is not adequate to indicate deficiencies in the financial statement taken as a
whole, and the client is not willing to correct the deficiencies. The accountant should therefore

A. Express an adverse audit opinion.

B. Express a qualification of the negative assurance.

C. Withdraw from the engagement.

D. Perform a review of the financial statements.

PSRS 4410 states that if the accountant becomes aware that information supplied by management is
incorrect, incomplete, or otherwise unsatisfactory, he/she should request management to provide
additional information or correct the deficiencies. The accountant should withdraw from the
engagement if management refuses to do so.

Answers A and B are incorrect because the accountant should not express any form of assurance on
compiled financial statements.

Answer D is incorrect because the accountant has no responsibility to upgrade the engagement to a
review.

PSAE 3400

The Examination of Prospective Financial Information

51. "Prospective financial information" means financial information based on assumptions about events
that may occur in the future and possible actions by an entity. It can be in the form of a projection, a
forecast, or a combination of both. A forecast

A. Presents estimates given one or more hypothetical assumptions.

B. Is based on assumptions reflecting conditions expected to exist and courses of action expected to be
taken.

C. Unlike a projection, may contain a range.

D. Is based on the most conservative estimates.

According to PSAE (Philippine Standards on Assurance Engagements) 3400 [The Examination of

Prospective Financial information), a "forecast" means prospective financial information prepared on
the basis of assumptions as to future events which management expects to take place and actions
management expects to take as of the date the information is prepared (best estimate assumptions).

A "projection," as defined in the standard, means prospective financial information prepared on the
basis of:

a) Hypothetical assumptions about future events and management actions which are not necessarily
expected to take place, such as when some entities are in a start-up phase or are considering a major
change in the nature of operations; or

b) A mixture of best-estimate and hypothetical assumptions.

Answer A is incorrect because, as indicated above, a projection (not a forecast) is based on hypothetical
assumptions about future events and management actions which are not necessarily expected to take
place.

Answer C is incorrect because both forecasts and projections can be expressed in terms of a range.

Answer D is incorrect because a forecast is based on the entity's best-estimate assumptions.

52. The party responsible for assumptions identified in the preparation of prospective financial
statements is usually

A. The client's management.

B. The client's independent auditor.

C. The reporting accountant.

D. A third-party lending institution.

According to PSAE 3400, management is responsible for the preparation and presentation of the
prospective financial information, including the identification and disclosure of the assumptions on
which it is based. The auditor examines and reports on the prospective financial information to enhance
its credibility whether it is intended for use by third parties or for internal purposes.

Answers B, C, and D are incorrect because the party responsible for assumptions identified in the
preparation of prospective financial information is usually the entity's management.

53. 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, result of operations, and cash flows. Such
prospective financial statements are known as
A. Partial presentations

B. Financial projections

C. Financial forecasts

D. Pro forma financial statements

Financial projections are prepared on the basis of hypothetical assumptions which are not necessarily
expected to take place.

54. An examination of a financial forecast is a professional service that involves

A. Assuming responsibility to update management on key events for one year after the report's date.

B. Compiling or assembling a financial forecast that is based on management's assumptions.

C. Limiting the distribution of the accountant's report to management and the board of directors.

D. Evaluating the preparation of a financial forecast and the support underlying management's
assumptions.

Prospective financial information includes financial forecasts and projections. The examination of
prospective financial information requires the accountant to obtain sufficient appropriate evidence as to
whether:

a) Management's best-estimate assumptions on which the prospective financial information is based are
not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with
the purpose of the information;

b) The prospective financial information is properly prepared on the basis of the assumptions.

c) The prospective financial information is properly presented and all material assumptions are
adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or
hypothetical assumptions; and

d) The prospective financial information is prepared on a consistent basis with historical financial
statements, using appropriate accounting principles.

Answer A is incorrect because the accountant does not have responsibility to update management on
key events after the report's date.

Answer B is incorrect because an examination of a financial forecast entails evaluation of its preparation
and the support underlying management's assumptions.

Answer C is incorrect because there is no requirement to restrict distribution of forecasts.

55. The accountant should not accept, or should withdraw from, an engagement to examine prospective
financial information when

I. The assumptions are clearly unrealistic.

II. The accountant believes that the prospective financial information will be inappropriate for its
intended use.

A. I only

B. II only

C Either I or II

D. Neither I nor II

PSAE 3400 states, "The auditor should not accept, or should withdraw from, an engagement when the
assumptions are clearly unrealistic or when the auditor believes that the prospective financial
information will be inappropriate for its intended use."

56. When the examination of prospective financial information is affected by conditions that preclude
application of one or more procedures considered necessary in the circumstances, the auditor should
withdraw from the engagement or

A. Disclaim the opinion

B. Express an adverse opinion

C. Express a qualified opinion

D. Issue an unmodified report

A limitation on the scope of the accountant's examination of prospective financial information may lead
to either withdrawal of the accountant from the engagement or disclaimer of the opinion.

57. When the accountant believes that the presentation and disclosure of the prospective financial
information is not adequate, the auditor should

I. Express a qualified or adverse opinion.

II. Withdraw from the engagement.

A. I only

B. II only

C. Either I or II

D. Neither I nor II
PSAE 3400 states, "When the auditor believes that the presentation and disclosure of the prospective
financial information is not adequate, the auditor should express a qualified or adverse opinion in the
report on the prospective financial information, or withdraw from the engagement as appropriate."

58. The report on an examination of prospective financial information should include

A. A statement that the accountant is responsible for the prospective financial information, including the
assumptions on which it is based.

B. A statement of positive assurance as to whether the assumptions provide a reasonable basis for the
prospective financial information.

C. Appropriate caveats concerning the achievability of the results indicated by the prospective financial
information.

D. A statement that the examination was conducted in accordance with GAAS in the Philippines.

According to PSAE 3400, the report on an examination of prospective financial information should
include the following:

a) Title;

b) Addressee;

c) Identification of the prospective financial information;

d) A reference to the Philippine Standard on Assurance Engagements applicable to the examination of

prospective financial information;

e) A statement that management is responsible for the prospective financial information including the
assumptions on which it is based;

f) When applicable, a reference to the purpose and/or restricted distribution of the prospective financial
information;

g) A statement of negative assurance as to whether the assumptions provide a reasonable basis for the
prospective financial information;

h) An opinion ass to whether prospective financial information is properly prepared on the basis of the
assumptions and is presented in accordance with the relevant financial reporting framework;

i) Appropriate caveats concerning the achievability of the results indicated by the prospective financial
information;

j) Date of the report which should be the date the procedures have been completed;

k) Auditor's address; and

I) Signature.

59. Before accepting an engagement to examine prospective financial information, the auditor would
consider

I. The intended use of the information.

II. The nature of the assumptions.

III. The period covered by the information.

A. I only

B. II only

C. I and III only

D. I, II, and III

PSAE 3400 states that before accepting an engagement to examine prospective financial information,
the auditor would consider, among other things:

• The intended use of the information.

• Whether the information will be for general or limited distribution.

• The nature of the assumptions, that is, whether they are best-estimate or hypothetical assumptions.

• The elements to be included in the information.

• The period covered by the information.

60. Which of the following statements concerning an examination of prospective financial information is
incorrect?

A. The auditor should consider the period of time covered by the financial information.

B. The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate
whether all significant assumptions required for the preparation of the prospective financial information
have been identified.

C. The auditor need not obtain written representations from management.

D. The auditor should consider the extent to which reliance on the entity's historical financial
information is justified.

According to PSAE 3400, "The auditor should obtain written representations from management
regarding the intended use of the prospective financial information, the completeness of significant
management assumptions and management's acceptance of its responsibility for the prospective
financial information."
KEY ANSWERS 16. C 31. C 46. A

1. A
17. D 32. A 47. B

2. C
18. A 33. D 48. A

3. C
19. C 34. C 49. D

4. A
20. A 35. D 50. C

5. B
21. B 36. A 51. B

6. D
22. C 37. D 52. A

7. C
23. A 38. D 53. B

8. C
24. D 39. B 54. D

9. B
25. C 40. C 55. C

10. A
26. D 41. D 56. A

11. A
27. B 42. A 57. C

12. B
28. A 43. D 58. C

13. A
29. B 44. A 59. D

14. A
30. C 45. D 60. C

15. B