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Department of Accountancy: Page - 1
Department of Accountancy: Page - 1
MODULE IV
AUDIT REPORT
1. General purpose financial statements are financial statements prepared in accordance with a financial reporting
framework that is designed to:
4. PSA 800, “The Independent Auditor’s Report on Special Purpose Audit Engagements” least likely applies to
auditor’s report issued as a result of an audit of:
5. The auditor’s judgment regarding whether the financial statements give a “true and fair view” or “are
presented fairly”, in all material respects, is made I the context of:
A. The auditor should evaluate the conclusions drawn from the audit evidence obtained during the course
of the audit
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B. The auditor evaluates whether the financial statements are free from any misstatements
C. The auditor evaluates whether sufficiently appropriate audit evidence has been obtained to eliminate
the risk of material misstatements
D. The auditor verifies that all errors that misstate the financial statements have been corrected by the
client
7. In evaluating whether the financial statements have been prepared and presented in accordance with the
specific requirements of the applicable financial reporting framework for particular classes of transactions,
account balances and disclosures, the audit should consider:
A. That the accounting estimates made by the management are reasonable in the circumstances
B. That the information presented in the financial statements, including accounting policies, is relevant,
reliable, comparable and understandable
C. That the accounting policies selected and applied are consistent with the financial reporting
framework
D. All of the choices given are to be considered
8. Which of the following is least likely considered by the auditor when he has to evaluate the fair presentation of
the financial statements?
A. Whether the financial statements, after any adjustments made by the management as a result of audit
process, are consistent with the auditor’s understanding of the entity and its environment
B. Whether the financial statement, including the disclosures faithfully represents the underlying
transactions and events in a manner that gives a true and fair view of, in all material respects, the
information conveyed in the financial statements within the context of the financial reporting
framework
C. Whether the results of analytical procedures performed at or near end of the audit help to corroborate
conclusion formed during the audit
D. Whether the financial statements are approved by the client’s board of directors
9. If the auditor encounter circumstances that lead him to conclude that compliance with a specific requirements
results to financial statements that are misleading, the auditor
A. Consistency promotes creditability in the global market place by making more readily identifiable those
audits that have been conducted in accordance with globally recognized standards
B. Consistency in the form promotes the expression of unqualified opinion
C. Consistency lessens the auditor’s legal and civil liabilities
D. The audit report eliminate some disclosures required in the financial statements
11. The auditing profession recognizes the need for uniformity in reporting as a means of
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12. What is the descriptive word in the title of an audit report issued on a complete set of general- purpose
financial statement which affirms that auditor has met all the relevant ethical requirements?
A. Audit
B. Opinion
C. Independent
D. Report
13. The auditor’s standard report should always include in its title the word:
A. Standard
B. Independent
C. Opinion
D. Audit
14. The auditor’s report may be addressed to any of the following, except the clients
A. Stockholders
B. Chief executive officer
C. Board of directors
D. Partners
15. The introductory paragraph of the standard audit report may include the following:
Which of the foregoing are specifically required by the applicable standards on auditing to be included or referred
to in the introductory paragraph of the standard audit report?
A. A,B,D,F,G
B. A,B,C,.E,F,G
C. A,B,C,E,F,G
D. B,C,E,F
16. The purpose of the introductory paragraph in the standard unqualified report is
17. The complete set of general- purpose financial statements that are prepared in accordance with PFRS
comprises off:
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A. Balance sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement
B. Statement of Assets and Liabilities, Income Statement, Statement of Changes in Retained Earnings, Cash
Flow Statement
C. Balance Sheet, Income Statement, Cash Flow Statement, Summary of Significant Accounting Policies and
Other Explanatory Notes
D. Balance Sheet, Income Statement, Cash Flow Statement, Statement of changes in Equity, Summary of
Accounting Policies and Other Explanatory Notes
18. When an entity presents, together with the financial statements, supplementary information that cannot be
clearly differentiated form the financial statements because of its nature and how it is presented, such
supplementary information
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A. The auditors opinion may or may not cover the supplementary information
B. It is important for the auditor to be satisfied that any supplementary information that is not covered by the
financial statements
C. The supplementary information that cannot be differentiated from the financial statements is covered by the
auditor’s opinion
D. Supplementary information that is presented as an integral part of the financial statements always needs to
be specifically referred to in the introductory paragraph of the auditor’s report
20. Which of the following is not specifically referred to in the second paragraph of the standard audit report as
management’s responsibilities?
A. Designing, implementing and maintaining internal control relevant to the preparation and fair presentation
of financial statements
B. Effectiveness and efficiency of operating decisions
C. Selecting and applying appropriate accounting policies
D. Making accounting estimates that are reasonable in the circumstances
22. Which paragraph(s) of the standard auditor’s report affirms the responsibility of the management with respect
to the entity’s financial statements?
A. First paragraph
B. Second paragraph
C. Second and Third paragraphs
D. Third paragraph
23. How are management’s responsibility and the auditors responsibility represented in the applicable paragraph(s)
of the standard auditor’s report?
Management Auditor
A. Explicit Explicit
B. Implicit Implicit
C. Implicit Explicit
D. Explicit Implicit
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25. The existence of audit risk is recognized by the statement in the scope paragraph- auditors responsibility of the
auditors standard report that the
26. The standard audit report explains that a financial audit includes all of the following except
A. Examining support for the amounts and disclosures in the financial statements.
B. Assessing the level of control risk.
C. Assessing the accounting principles used and significant estimates made by management.
D. Evaluating the overall financial statement presentation.
27. Which of the following statements is a basic element of the standard audit report?
A. The disclosures provide reasonable assurance that the financial statements are free of material
misstatements.
B. The auditor tested compliance to internal control by the client.
C. An audit includes assessing significant estimates made by the management.
D. The financial statements are consistent with those of the prior period.
28. The auditor’s report should describe an audit by addressing some concerns that may include:
A. A,B,C,D,E
B. A,B,C
C. A,C,E
D. A,B,D
29. The audit report date is important to users of financial statements because it indicates
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30. The standard audit report refers to GAAS and PFRS in which paragraph(s)?
GAAS PFRS
A. Scope only Opinion only
B. Introductory only Scope and opinion only
C. Introductory and scope only Opinion
D. Introductory only All paragraphs
31. The auditor’s judgment of whether financial statements are fairly presented is made within in the context of:
32. The auditor’s standards report states that the financial statements are presented fairly
33. How are other reporting responsibilities addressed within the auditor’s report?
A. They should be addressed in a separate section that follows the opinion paragraph.
B. They should be addressed within the introductory paragraph.
C. They should be addressed within the scope paragraph.
D. They should be addressed within the scope paragraph and separately described in a separately described in
a separate paragraph
A. The auditor’s signature is either in the name of the audit firm, the personal name of the auditor, or both, as
appropriate.
B. The auditor’s signature is either in the name of the audit firm or the personal name of the auditor, but not
both.
C. In addition to the auditor’s signature, the auditors may be required to declare the auditors professional
accountancy designation.
D. The auditor’s report filed with the Securities and Exchange Commission (SEC) must be manually signed.
35. Which of the following information is (are) required when an auditor’s report issued on financial statements to
be filed with the Securities and Exchange Commission?
A. 1,2,3,4,5
B. 2,4,5
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C. 1,3,4,5
D. 2,3,4,5
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38. How is the auditor’s report on the financial statements that require final approval by stockholders before such
financial statements are issued publicly dated?
A. The auditor’s report should be dated coinciding the date of approval of the financial statements by the
stockholders.
B. The auditor’s report should be dated after the approval of the financial statements by the stockholders.
C. The date of the auditor’s report should coincides the date of approval of the financial statements by the
board of directors.
D. The audit report should be dual dated, the first date coinciding the approval by the board of directors and
the second date to coincide with the approval by the stockholders.
A. naming the location in the country where the auditor practices his profession.
B. including the complete mailing address of the auditor.
C. identifying the country from where the auditor had secured his professional license.
D. the auditors address is omitted in the report
40. Which of the following is ordinarily true of a modification of the audit report by adding an emphasis of matter
paragraph?
A. The modification by adding an emphasis of matter paragraph is an “except for “qualification of opinion.
B. The emphasis of matter paragraph is a “subject to “qualification of opinion.
C. The emphasis of matter paragraph would ordinarily refer to the fact that the auditor’s opinion is not
qualified.
D. The emphasis of matter paragraph is presented before the opinion paragraph.
41. When additional language is added to the auditor’s report without modifying the opinion, the additional
language should be included in:
A. A one- paragraph report is generally used when the auditor is not independent.
B. A modification of the audit report that involves modified wordings may contain an unqualified opinion.
C. An addition of another paragraph to an otherwise standard audit report always requires a modification of
an unqualified opinion.
D. An unqualified opinion may be issued though the audit report requires an additional explanatory
paragraph.
43. An auditory includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being
reported on had significant transactions with related parties. The inclusion of this separate paragraph.
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44. An auditor concludes that there is substantial doubt about an entity’s to continue as a going concern for a
reasonable period of time. If the entity’s disclosures concerning this matter are adequate, the audit report
should include a (an)
45. Under certain circumstances, the CPA may wish to emphasize specific matters regarding the financial
statements even though he or she intends to express an unqualified opinion. Normally such an explanatory
information should be included in
46. Salmon company’s financial statements adequately disclose uncertainties that concern future events, the
outcome of which cannot reasonably be estimated. The auditor’s report should include a (an)
A. unqualified opinion
B. “except for” qualifies opinion
C. “subject to “qualified opinion
D. adverse opinion
47. The paragraphs of the report which is modified for uncertainties are the sameas the standard unqualified report.
The explanatory paragraph as a form of the modification to describe the uncertainly is added as the
A. First paragraph
B. Last paragraph
C. Third paragraph with the opinion paragraph last
D. Second paragraph with the opinion paragraph last
As discussed in Note X to the financial statements, company is a defendant in a lawsuit alleging infringement
of certain patient rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome
of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result
upon adjudication has been made in the accompanying financial statements.
A. Unqualified
B. Disclaimer
C. Qualified
D. Adverse
49. The audit report issued by Lozano and Co., CPAs, included the following paragraph that followed the opinion
paragraph:
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Without qualifying our opinion we draw attention to Note 11 to the financial statements.
The Company is the defendant in a lawsuit alleging infringement of certain patent rights. . .
This paragraph is considered:
50. In extreme cases such as situations involving multiple uncertainties that are significant to the financial
statements, the auditor
51. A client company has issues that cause substantial doubt regarding the entity’s ability to continue as a going
concern. IF this is the only major audit issue, which type of opinion will the auditor usually refrain from
issuing?
A. Adverse
B. Unqualified with explanatory language
C. Clean opinion
D. Disclaimer of opinion
52. Which of the following situations, the effect of which is significant, least likely require a decision of whether to
issue a qualified or adverse opinion?
A. Any disagreement with entity management regarding the acceptability of the accounting policies selected
by the management.
B. Limitation on the scope of the auditors work.
C. Inadequate disclosures of financial information.
D. Unjustified changes in accounting policies.
53. The auditor may continue to express unqualified opinion though there are modifications made in the audit
report. Which of the following situations, would the auditor likely modify his opinion?
A. The existence of multiple uncertainties that are adequately describe in the notes to financial statements.
B. The prior year’s financial statements were audited by other CPAs.
C. An important subsidiary whose financial statements were included in the consolidated financial
statements were audited by other CPAs.
D. A substantial doubt about the client’s ability to continue as a going concern that is adequately disclosed
in the financial statements.
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55. Which of the following is not a reason to issue a modified audit report with opinion other than unqualified
opinion?
56. Which of the following situations may likely require a modified audit report with modified wordings or an
emphasis of matter paragraph?
57. Which of the following circumstances may not result to a disclaimer of opinion?
A. A significant scope limitation in auditing the existence of inventories. The inventory amount
comprises 75 percent of the total assets of the client.
B. The auditor believes that there are multiple uncertainties that are significant to the financial
statements.
C. The accounts receivable of the client comprises 80 percent of the total assets. The auditor was
instructed by the client not to confirm account balances. The auditor, however, was satisfied by
the result of alternative audit procedures.
D. The auditor’s wife owns very a few numbers of common shares of the client.
60. An explanatory paragraph may be added to the audit report while at the same time issuing an unqualified
opinion in all cases except when:
A. The client has change an accounting principle with the agreement of the auditor.
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B. There is an immaterial departure from GAAP to ensure fair presentation with the agreement of the
auditor.
C. The audit opinion is partly based on the work of another auditor.
D. The audit work has been significantly limited by the management.
61. Under which of the following sets of circumstances might an auditor disclaim an opinion?
A. The financial statements contain the departure from PFRS, the effect which is material.
B. The principal auditor decides to make reference to the report of another auditor who audited a
subsidiary.
C. There has been a material change between periods in the method of the application of accounting
principles.
D. There were significant limitations on the scope of the audit.
62. If an auditor engages to audits a client’s financial statements after the annual physical inventory count was
made and the accounting records are not sufficiently reliable to enable the auditor to become satisfied as to
the year-end inventory balances, the opinion to be express is
64. If the scope of the auditors procedures in conducting an audit is significantly restricted by the client
management, the audit opinion will most likely be a(n):
A. Adverse opinion
B. Qualified opinion
C. Unqualified with explanatory paragraph
D. Disclaimer of opinion
65. The auditor would most likely disclaim his opinion because of
66. Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned about
the possibility that management is trying to prevent discovery of misstated information. In such cases,
PSA 701 has encouraged the auditor to issue a:
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67. An explanatory paragraph or modified wordings may be added to the audit report while at the same
issuing an unqualified opinion in all cases except when:
A. the client has changed an accounting principle with the agreement of the auditor.
B. there is an immaterial departure from PFRS to ensure fair presentation with the agreement of the
auditor.
C. the audit opinion is partly based on the work of the other auditor.
D. the audit work has been materially limited by management.
65. The most common case in which conditions beyond the client’s and auditor’s control cause a scope
restriction is an engagement
66. An audit report contains the following paragraphs: “Because of the inadequacies in the company’s
accounting records during the year ended June 30, 2008, it was not practicable to extend our auditing
procedures to the extent necessary to enable us to obtain certain evidential matter as it relates to
classification of certain items in the consolidated statement of operations.” This paragraph most likely
describes
70. Which of the following circumstances least likely result to either a qualified opinion or auditor disclaiming his
opinion?
A. The auditor is unable to carry out an audit procedure believed to be desirable; the auditor believed to
be desirable; the auditor carried out alternative audit procedures to support the management’s assertion
B. The auditor believed the clients accounting records are inadequate.
C. A client-imposed scope limitation with respect with the audit of inventory.
D. Circumstances did not permit the auditor to perform certain required procedure.
71. Addition of an “emphasis of a matter” paragraph to what remains an unqualified opinion is least likely
required for which of the following situations?
72. When the scope of the auditor’s work has been limited, the audit report should contain a(n):
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73.When there is a limitation on the scope of the auditors work that requires a modification of the audit report:
74. Which of the following least likely requires an expression of unqualified opinion with qualified opinion
with modified wordings or an emphasis of matter paragraph?
A. The financial statements of prior period, which are presented for comparative purposes, were audited
by other CPAs.
B. The auditors have substantial doubt of the ability of the entity to continue as a going concern.
C. The entity change the measurement of certain significant transaction from one GAAP to another
GAAP.
D. The auditors failed to observe physical inventory count; however, the auditor was satisfied that the
inventory amount was fairly presented by doing alternative audit procedures.
75. When there is a limitation in the scope of the audit results to a disclaimer of opinion, the following
paragraphs are modified except:
A. materially misstated
B. materially misleading
C. presented fairly
D. do not present fairly
76. The expression of a qualified opinion means that the financial statements, taken as a whole, in all materials
respects, are
A. Material misstated.
B. Materially misleading
C. Presented fairly
D. Do not present fairly
77. When the auditor cannot perform certain required procedures and the amounts is so material that a
disclaimer of opinion rather than a qualified opinion is required
A. The financial statements do not present fairly in all material respects, the financial position, results of
operations, and cash flows in conformity with PFRS.
B. The auditor does not express an opinion on the financial statements.
C. The financial statements present fairly, in all material respect the financial position, results of
operations, and cash flows in conformity with PFRS.
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D. Except of the effects of the matter, the financial statements present fairly, in all material respects, the
financial position, results of operations, and cash flows in conformity of PFRS.
79. An auditor who qualifies an opinion because of his inability to obtain sufficient evidential matter should
describe the limitation in an explanatory paragraph that is inserted between the scope responsibility of the
auditor and opinion paragraphs. The auditor should refer to the limitation in the:
Scope
(Responsibility Notes to the
Of the auditor) Opinion financial
Paragraph Paragraph Statements
A. YES NO YES
B. NO YES NO
C. YES YES NO
D. YES YES YES
80. Which of the following circumstances requires the auditor to omit the sentence stating the responsibility of
the auditor’s report?
81. When the client is not following PFRS, and the auditor believes that adherence to PFRS would result to
misleading statements, the opinion paragraph of the audit report
82. In which of the following conditions is an unqualified audit opinion least likely issued?
A. The auditor believes that a substantial doubt about the entity’s ability to continue as a going concern
exist.
B. The auditor believes that the inventory is valued at market values that accurately reflect market
conditions and materially exceed cost.
C. The audit is conducted with no circumstance or imposed scope limitation.
D. PFRS are not consistently applied from year to year.
83. Once the auditor has determined that an exception is material enough to warrant a qualification of his
auditor’s report, he must then determine if the exception is sufficiently material to negate an overall
opinion. If the auditor is applying this decision process to an exception based on a departure from the
Philippine financial reporting standards, he is deciding
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84. An auditor who is reporting on financial statements that contain a material departure from PFRS should
include in his audit report a separate explanatory paragraph and
A. not modifies the opinion paragraph as long as the departure is adequately disclosed in a footnote.
B. disclaim an opinion on the financial statements.
C. express a qualified or adverse opinion
D. express a qualified opinion or disclaim an opinion.
85. When the auditor knows that the financial statement may be misleading because they are not prepared in
conformity with Philippine financial reporting standards, he must issue a(n)
A. a qualified opinion
B. an adverse opinion
C. a disclaimer of opinion
D. a qualified or an adverse opinion, depending on the materiality of the item in question.
86. An auditor should disclose the substantive reasons for expressing an adverse opinion in an explanatory
paragraph
87. A qualified opinion report can be used only when the auditor believes that the overall financial statements
are
A. fairly stated
B. not fairly stated
C. materially not stated
D. materially misleading
88. If the auditor believes that a required material disclosure is omitted from the financial statements, the auditor
should decide between issuing a(n)
89. An auditor is confronted with an exception sufficiently material to warrant departure from the standard
wording of an unqualified report. If the exception relates to a departure from the Philippine financial
reporting standards, the auditor must decide between a(n)
90. In which of the following situation would a decision of selecting between a qualified or adverse opinions be
inappropriate?
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91. When the auditor qualifies his opinion due to his disagreement with the client in applying accounting
policies, the auditor modifies.
92. Which of the following circumstances requires the modification of both the auditor’s responsibility, and the
auditor’s opinion paragraphs of the auditor’s report?
93. In which of the following situations would an auditor ordinarily choose between expressing a qualified
opinion or an adverse opinion?
A. The auditor did not observe the entity’s physical inventory and it’s unable to be satisfied about its
balance by another auditing procedures.
B. Conditions that cause the auditor to have substantial doubt about the entity’s ability to continue as a
going concern are not disclosed.
C. There has been a change in accounting principles; the material effect on the comparability of the
entity’s financial statements has been properly disclosed in the financial statements.
D. The auditor is unable to apply the necessary procedures concerning an inventor’s share on an investee’s
earnings recognized on the equity method
94. How should the auditor address the comparatives that are presented as corresponding figures?
A. The comparatives are specifically identified in the audit report because the auditor’s opinion on the current
period financial statement applies also to the corresponding figures.
B. The comparatives are specifically identified in the introductory paragraph and in the opinion paragraph.
C. The comparatives are not specifically identified because the auditor’s opinions applies to the current year’s
financial statements as a whole, including the corresponding figures.
D. The comparatives are referred to the opinion paragraph as the auditor applies to both the current year’s
financial statements and corresponding figures.
95. Which of the following circumstances requires an issuance of unqualified opinion with modified wordings?
A. A significant uncertainty that may affect the financial statements of the future period is adequately
disclosed in the financial statements.
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B. The auditor agrees with the client for a change in accounting policy that significantly affects the
financial statements.
C. An insignificant scope limitation in the work of the auditor.
D. The successor auditor reports on the current year financial statements. The prior-year’s financial
statements that were presented as comparatives were audited by another CPA.
96. When the management prepares financial statements on the basis of going concerns, the auditor should issue
a(n)
A. qualified opinion
B. unqualified opinion with explanatory paragraph.
C. disclaimer of opinion
D. adverse opinion
97. If an amendment is necessary in the other information and the entity refuses to make the amendment, the
auditor, depending on particular circumstances, may do any of the following, except:
A. Describe the material inconsistency as an emphasis of the matter in a paragraph following the opinion
paragraph.
B. The auditor may not issue the auditor’s report.
C. The auditor may withdraw from the engagement.
D. The auditor to issue either a qualified or adverse opinion.
98. An auditor concludes that there is a substantial doubt about the entity’s ability to continue as a going
concern for a reasonable period of time. If the entity’s financial statements adequately disclosed this
financial difficulty, the auditor’s report is required to include in the explanatory paragraphs that specifically
mentions
99. When there is uncertainty about the company’s ability to continue as going concern, the auditor’s concern is
the possibility that the client may not be able to continue its operation or meet its obligations for a
“reasonable period of time”. For this purpose, a reasonable period of time is considered not to exceed
100. When the auditor concludes that there is a substantial doubt about the entity’s ability to continue as a going
concern, he should issue a(n)
A. unqualified opinion with explanatory paragraphs provided that there is an adequacy of disclosures in
the financial statements.
B. qualified opinion with an explanatory paragraph, regardless of the adequacy of disclosures in the
financial statements.
C. adverse opinion, regardless of the adequacy of disclosures in the financial statements.
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D. standard unqualified report, provided that the client has made adequate disclosures in the financial
statements.
QUIZZERS
1. Which of the following representations does an auditor make explicitly and implicitly when issuing an
unqualified opinion?
Conformity with PFRS Adequacy of Disclosure
A. Explicitly Explicitly
B. Implicitly Implicitly
C. Implicitly Explicitly
D. Explicitly Implicitly
2. Materiality is:
A. Addressed within a practitioner’s attestation and audit reports.
B. Expressed in terms of pesos.
C. Measured using guidelines established by the FRSC.
D. Not applicable to attestation engagements.
3. Which one of the following is an example of the contents of an opinion paragraph found in a disclaimer of
opinion?
A. “Except for…”
B. “Nothing came to our attention…”
C. The financial statements for not present fairly…’
D. None of these represents a disclaimer of opinion.
4. An auditor issued an audit report that was dual dated for a subsequent event occurring after the
management’s approval of the financial statements but before issuance of the auditor’s report. The auditor’s
responsibility for events occurring subsequent to the completion of fieldwork was
A. Extended to subsequent events occurring through the date of issuance of the report.
B. Extended to include all events occurring since the date of approval of the financial statement by
the management.
C. Limited to the specific event referenced.
D. Limited to include only events occurring up to the date of the last subsequent referenced.
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5. A n auditor has been asked to report on the balance sheet of Jane Company but not on the other basic
financial statements. The auditor will have access to all information underlying the basic financial
statements. Under these circumstance, the auditor
A. May accept the engagement but should disclaim an opinion because of his inability to apply the
procedures that are considered necessary in the circumstance.
B. May accept the engagement because such engagements merely involve limited reporting objective.
C. Should refuse the engagement because there is a client-imposed scope limitation.
D. Should refuse the engagement because of a departure from generally accepted auditing standards.
6. The use of a negative assurance in the audit reports for historical financial statements is
A. A violation of the standards of reporting.
B. Supported by PSAs and their interpretations.
C. Allowed if the auditor’s opinion is unqualified.
D. Properly located in the a opinion paragraph of the unqualified report.
7. Which of the following is true of the notes to financial statements that are prepared in accordance with
PFRS?
A. Notes are not required, but are typically included by all companies.
B. Notes are not required, since they only give additional information contained I the financial
statements.
C. Notes are integral part of the financial statements.
D. Notes are not encompassed in the auditors’ opinion of the financial statements since they are
supplementary information.
8. If the balance sheet of a publicity-held company is dated December 31, 2010, the audit report is dated
March 6, 2011, and both are released to the public on March 15, 2011, this indicates that the auditor has
searched for material subsequent transactions and events that occurred up to
A. December 21, 2010
B. March 15, 2011
C. March 6, 2011
D. None of these
9. The three main types of audit opinion other than the unqualified report are the
10. In the scope – responsibility of the auditor paragraph of the audit report, the use of the term “material
misstatements” conveys that auditors are responsible to search for
A. Minor misstatements.
B. Significant misstatements.
C. Fraudulent misstatements.
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D. All misstatements.
11. The guidelines which enable auditors to decide when something is immaterial, material, or highly material
are provided by
A. The AASC through its Philippine Standard on auditing.
B. The FRSC through its statements on Financial Accounting Standards.
C. The Securities and Exchange Commission.
D. Auditor’s judgment.
12. When financial statements of prior period are presented on a comparative basis with financial statements of
the current period, the continuing auditor is responsible for
A. Expressing dual dated opinions.
B. Updating the report on the previous financial statements only if there has not been a change in the
opinion.
C. Updating the report on the previous financial statements only if the previous report was qualified
and the reasons for the qualification no longer exists.
D. Updating the report on the previous financial statements regardless of the opinion previously
issued.
13. If a principal auditor decides to assume responsibility for another auditor’s work, the principal auditor
should consider performing all of the following procedures except:
A. Performing a peer review of the other auditor.
B. Reviewing the audit program of the other auditor.
C. Reviewing the working papers of the other auditor.
D. Discussing the audit procedures and the results of the audit with other auditor.
14. When the audited financial statements of the prior year are presented together with those of the current
year, the continuing auditor’s report should cover
A. Both years.
B. Only the current year.
C. Only the current year, but the prior year’s report should be presented.
D. Only the current year, but the prior year’s report should be referred to.
15. As a further attempt to appear that the auditor is independent, the addressee of the audit report is usually
the:
A. Client company.
B. Board of directors of client company.
C. President and/or CEO of client company.
D. Stockholders of client company.
16. Which of the following is not a true statement? “in the opinion paragraph of the standard unqualified
report, the auditor is required to state
A. An opinion about the financial statements taken as a whole.”
B. A conclusion about whether the company follows Philippine financial reporting standards.”
C. Whether the management has or has not made adequate disclosure.”
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17. In the auditor’s responsibility – scope paragraph of the audit report, the use of the term “reasonable
assurance” is intended to indicate that
A. No misstatements exist in the financial statements.
B. No material misstatements exist in the statements.
C. There is a possibility that material misstatements still exists in the financial statements.
D. There is a possibility that immaterial statements still exists in the financial statements.
19. Most auditors believe that the financial statements are “presented fairly” when the statements are in
accordance with Philippine financial reporting standards, but it is also necessary to
20. Whenever an auditor issues an unqualified opinion, the implication that the auditor
A. Does not know if the statements are presented fairly.
B. Does not believe the statements are presented fairly.
C. Is satisfied that the statements are presented fairly except for a specific aspect of them.
D. Is satisfied that the statements are presented fairly.
22. When a misstatement in the financial statements exists, but is unlikely to affect the decisions of a
reasonable user, it would be appropriate to issue a(n)
A. Unqualified opinion.
B. Qualified opinion.
C. Disclaimer of opinion.
D. Adverse opinion.
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B. Knowledge of the misstatement would affect a decision of a reasonable user of the statements.
C. It affects more than one account on the statements.
D. It affects only one account on the statements.
24. If a misstatement is immaterial relative to the financial statements of the entity for the current period and is
not expected to have a material effect in future periods, it is appropriate to issue a(n)
A. Unqualified opinion.
B. Qualified opinion.
C. Adverse opinion.
D. Disclaimer opinion.
25. The only unqualified reports which use modified wording are those involving
A. The use of other auditors.
B. Material uncertainties.
C. Substantial doubt about going concern.
D. Lack of consistent application of PFRS.
26. When the principal auditor decides to refer to another auditor in his/her report, the report should always
include.
A. A qualified or adverse opinion.
B. A disclaimer of opinion regarding the financial statements audited by the other auditor.
C. The percentage and monetary amounts of the portion of the financial statements examined by the
other auditor.
D. Reference to a footnote where the division of the responsibility between the principal auditor and
the other auditor is described in detail.
27. A principal auditor decides not to take responsibility for the work of another CPA who audited for a wholly
– owned subsidiary of the principal auditor’s client. The total assets and revenues of the subsidiary
represent 30% and 24% of the related consolidated totals. What type of opinion should the auditor
generally issue?
A. Unqualified opinion.
B. Adverse opinion.
C. Qualified opinion.
D. Disclaimer of opinion.
28. When a principal auditor decides to make reference to the examination of another auditor, the principal
auditor’s report should clearly indicate the
A. Principal auditor’s qualification on the overall fairness of the financial statements, taken as a
whole, “subject to” the work and report of the other auditor.
B. Procedures that were performed by the other auditor in connection with the other auditor’s
examination.
C. Division of responsibility between that portion of the financial statements covered by the
examination made by the other auditor.
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D. Procedures that were performed by the principal auditor to obtain satisfaction as to the
reasonableness of the examination made by the other auditor.
29. The principal auditor is satisfied with the independence and professional reputation of the other auditor
who has audited a subsidiary but wants to indicate the division of responsibility. The principal auditor
should modify.
A. Only the introductory paragraph.
B. Only the scope – auditor’s responsibility paragraph.
C. The introductory, scope – auditor’s responsibility and opinion paragraphs.
D. Only the opinion paragraphs.
30. Francis and Company, CPAs, acted as the principal auditor, however, since Francis and Company, CPAs,
did not have the resources, it hired other CPA firm to audit a subsidiary of the client located in Bukidnon.
Francis is willing to take the responsibility for the work of the other CPA firm, which type of audit reports
is Francis and Company most likely to issue?
A. Standard unqualified report.
B. Unqualified with explanatory language.
C. Qualified with explanatory language.
D. Disclaimer of opinion.
31. When the report of a principal auditor makes reference to the examination made by another auditor, the
other auditor may be named if an expressed permission to do so is given and:
A. The report of the principal auditor names the other auditor in both the scope and opinion
paragraphs.
B. The principal auditor accepts responsibility for the work of the other auditor.
C. The report of the other auditor is presented together with the report of the principal auditor.
D. The other auditor is not an associate or correspondent firm whose work is done at the request of
the principal auditor.
32. When a client declines to disclose essential information in the financial statements or their accompanying
notes, the auditor should?
A. Provide the information in the audit report, if practicable, and qualify his opinion because of a
scope limitation.
B. Provide the information in the audit report, if practicable, and qualify his opinion because of a
departure from PFRS.
C. Issue a disclaimer of opinion because the client has interfered with the auditor’s function of
assessing the adequacy of disclosure.
D. Issue an unqualified opinion but inform the readers by including the omitted information in an
emphasis of matter paragraph.
33. Magsombol, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and
reported on the financial statements of a significant subsidiary of the corporation. MAgsombol is satisfied
with the independence and professional reputation of the other auditor, as well as the quality of his
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examination. With respect to Magsombol’s report on the consolidated financial statements, taken as a
whole, Magsombol
A. Must not refer to the examination of the other auditor.
B. Must refer to the examination of the other auditor.
C. May refer to the examination of the auditor.
D. May refer to the examination of the other auditor, in which case Magsombol must include in the
auditor’s report on the consolidated financial statements a qualified opinion.
34. If a company’s financial statements violate PFRS for an immaterial item which is expected to become
material in the future, the auditor is likely to issue:
35. In performing an audit, the auditor found that the client had changed the estimated useful life of its assets.
The auditor believed that the change in useful lives of the assets is realistic. The appropriate report is:
A. Unqualified standard report.
B. Unqualified with explanatory language.
C. Qualified.
D. Disclaimer.
36. In which the following circumstances would the auditor most likely issue an unqualified opinion?
A. Client company’s financial statements show a significant net loss for each of the last three years,
including the current fiscal period.
B. The financial statements have not been prepared in accordance with Philippine financial reporting
standards.
C. The auditor is not independent during the fiscal period under audit.
D. The scope of the auditor’s examination has been restricted due to circumstances which are beyond
the control of either the auditor or the client.
37. Comparative financial statements include the prior-year statements that were audited by a predecessor
auditor whose report is not presented. If the predecessor’s report was unqualified, the successor should:
A. Express the opinion on the current year statements alone and make no reference to the prior year’s
statements.
B. Indicate in the auditor’s report that the predecessor auditor expressed an unqualified opinion.
C. Obtain a letter of representation from the predecessor concerning any matters that might affect the
successor’s opinion.
D. Request that the predecessor auditor reissue the prior report.
38. The “unqualified report with explanatory paragraph” and the “unqualified report with modified wording”
A. Arise as a result of an incomplete audit.
B. Arise when the financial statements are not quite “presented fairly”.
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39. Which of the following is not a cause of an explanatory paragraph or modified wordings to be added to the
standard unqualified report?
A. Emphasis of a matter.
B. Reports involving other auditors.
C. Auditor disagrees with client’s departure from PFRS.
D. Lack of consistent application of PFRS.
40. When determining whether an exception is highly material, the extent to which the exception affects
different parts of the financial statements must be considered. This is referred to as
A. Materiality.
B. Pervasiveness.
C. Financial analysis.
D. Ratio analysis.
41. In order to make materiality decisions when a condition requiring a departure from an unqualified report
exists, the auditor must evaluate
A. The magnitude of the error on the account involved.
B. The effect on the financial statement which contains the erroneous account.
C. The effect of the error on both the income statement and the balance sheet.
D. All effects on the financial statements.
42. In which of the following situations would an auditor ordinarily express an unqualified audit opinion with
an explanatory paragraph?
A. The auditor wishes to emphasize that the entity had significantly lost a market share.
B. The auditor decides not to refer to the report of another auditor as a basis, in part, for the auditor’s
opinion.
C. The entity issues financial statements that present financial position and results of operations, but
omits the required notes to financial statements.
D. At the client’s request, the client’s attorney has refused to respond to the auditor’s inquiries about
ongoing litigation.
43. A report other than an unqualified report must be issued whenever any of the three conditions requiring a
departure from an unqualified report
A. Exists
B. Exists and is material
C. Exists, is material, and is within management’s control
D. Exists, is material, and is within either management’s or the editor’s control
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45. Which of the following opinion is appropriate if a company has a probable and material loss contingency,
and the company has accrued the loss in the financial statements?
A. Adverse opinion.
B. Qualified opinion.
C. Standard unqualified opinion.
D. Unqualified opinion with explanatory language.
46. Which of the following conditions most likely requires the auditor to consider issuing a going concern
modification?
A. A decrease in profitability as compared to the previous year.
B. A loss contingency related to a lawsuit.
C. Default on a loan agreement.
D. A material related-party transaction.
47. Which of the following, by itself, would not cause uncertainty about the ability of a company to continue as
a going concern?
A. A significant net loss.
B. Inability to its obligation as they come due.
C. The occurrence of uninsured catastrophes.
D. Legal proceeding that might jeopardize the entity’s ability to continue operating.
48. JJ, CPA, has performed most of the audit of Macmood Company’s financial statements and qualified as the
principal auditor. RT, CPA, did the remainder of the work. JJ wishes to assume full responsibility for RT’s
work. Which of the following statements is correct?
A. In such circumstance, when appropriate requirements have been met, JJ should issue a standard
unqualified opinion on the financial statements.
B. Such assumption of responsibility violates the profession’s standards.
C. In such circumstance, when appropriate requirements have been met, JJ should issue an
unqualified opinion but should make appropriate reference to RT in the audit report.
D. JJ should normally qualify his audit report on the basis of the scope limitation as there is another
auditor involved in the audit.
49. Which of the following is a change which does not affect consistency and therefore does not require an
explanatory paragraph?
A. Change in accounting principle, such as a change from LIFO to FIFO.
B. Change in reporting entity, such as the inclusion of an additional company in combined financial
statements.
C. Change in an accounting estimates, such as a decrease in the life of an asset for depreciation
purposes.
D. Correction of errors by changing from non-PFRS to PFRS.
50. If an auditor is not independent of a client, the auditor should issue a(n):
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51. Whenever an auditor issues an adverse opinion, the implication is that the auditor
A. Does not know if the statements are presented fairly.
B. Does not believe the statements are presented fairly.
C. Is satisfied that the statements are presented fairly except for a specific aspect within the financial
statements.
D. Is satisfies that the statements are presented fairly.
52. When a misstatements in the financial statements would affect a user’s decision but the overall statements
are fairly stated, it would be appropriate to issue a(n):
A. Unqualified opinion.
B. Qualified opinion.
C. Adverse opinion.
D. Disclaimer opinion.
53. Which of the following is most accurate with respect to the CPA’s responsibility in considering a going
concern question on financial statement audits?
A. Based on audit procedures performed, assess whether there is substantial doubt about the entity’s
ability to continue as a going concern.
B. Perform analytical procedures aimed particularly at assessing whether bankruptcy is probable.
C. Issue a report with a “going concern” modification when failure is at least reasonably probable.
D. Determine that related uncertainties are properly disclosed and make no mention in the audit
report.
55. The auditor’s best course of action with respect to “other financial information” included in an annual
report containing the auditor’s report is to
A. Include in the auditor’s report, that the “other financial information” is unaudited.
B. Consider whether the “other financial information” is accurate by performing a limited review.
C. Obtain written representations from management as to the material accuracy of the “other
financial information.”
D. Read and consider the manner of presentation of the “other financial information.”
56. A CPA is not able to confirm a large account receivable, but he has satisfied himself as to the proper
statement of the receivable by means of alternative auditing procedures. The auditor’s report on the
financial statements should include
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A. A description of the limitation on the scope of his examination and the alternative auditing
procedures used, but an opinion qualification is not required.
B. An opinion qualification, but reference to the use of alternative auditing procedures is not
required.
C. Both a scope qualification and an opinion qualification.
D. Neither a comment on the use of alternative auditing procedures nor an opinion qualification.
57. An auditor expressed a qualified opinion on a company’s prior year financial statements because of a
material departure from PFRS in the prior year. The company has properly restated last year’s financial
statements and presents them in comparative form with the current year’s financial statements. The
auditor’s updated report on the prior year’s financial statements should:
A. Express an unqualified opinion on the restated financial statements of the prior year.
B. Continue to express a qualified opinion on the prior year’s financial statements.
C. Include the auditor’s qualified opinion from the prior year.
D. Not mention the opinion on the prior year’s financial statements.
58. An auditor would express an unqualified opinion with an explanatory paragraph added to the audit report
for:
An Unjustified Material Weakness in
Accounting Change The Internal Control
A. YES YES
B. YES NO
C. NO YES
D. NO NO
59. Which of the following statements appropriately distinguishes a disclaimer of opinion from an adverse
opinion?
A. A disclaimer of opinion indicates that the auditor is not able to gather enough evidence to render
an opinion on the financial statements, while an adverse opinion indicates that the financial
statements are materially misstated.
B. A disclaimer of opinion indicates that the financial statements are materially misstated, while an
adverse opinion indicates that the auditor is not able to gather enough evidence to render an
opinion on the financial statements.
C. The opinions are generally equivalent, except an adverse opinion includes a going concern
paragraph.
D. Adverse opinion indicates that the financial statements are materially misstated, while a disclaimer
indicates that the financial statements are “so pervasively erroneous” that no opinion can be given.
60. A departure from PFRS with a material effect on the financial statements is most likely to result in a(n):
A. Disclaimer of opinion.
B. Qualified opinion.
C. Standard unqualified opinion.
D. Unqualified opinion with explanatory language.
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61. When a CPA has concluded that an action should be taken to prevent future reliance on his report, he
should
A. Advise his client to make appropriate disclosure of the newly discovered facts and their impact on
the financial statements to persons who are known to be currently relying or who are likely to rely
on the financial statements and the related auditor’s report.
B. Recall the financial statements and issue revised statements and include an appropriate opinion.
C. Advise the client and others not to rely on the financial statements and make appropriate
disclosure of the correction in the statements of a subsequent period.
D. Recall the financial statements and issue a disclaimer of opinion which should generally be
followed by revised statements and a qualified opinion.
62. In which circumstances would an auditor be most likely to express an adverse opinion?
A. The chief executive officer refuses the auditor’s access to minutes of the board of director’s
meeting.
B. Tests of controls show that the client’s internal control is so ineffective that it cannot be relied
upon.
C. The financial statements are not in conformity with FRSC Statements regarding the capitalization
of leases.
D. Information comes to the auditor’s attention that raises substantial doubt about the client’s ability
to continue as a going concern.
63. An auditor’s report would be designated as a special report when it is issued in connection with financial
statements that are:
A. For an interim period and are subject to a limited review.
B. Unaudited and are prepared from a client’s accounting records.
C. Prepared in accordance with a comprehensive basis of accounting other than Philippine financial
reporting standards.
D. Purported to be in accordance with generally accepted accounting principles but not include a
presentation of the Statement of Cash Flows.
64. The opinion paragraph of a CPA’s report states: “In our opinion, with the exception of the effects of not
observing inventory in one of the client’s Mactan warehouses, as discussed in the preceding paragraph, the
financial statements present fairly, in all material respects…” This paragraph expresses a[n]:
A. Unqualified opinion
B. Adverse opinion due to scope limitation
C. Qualified opinion due to scope limitation
D. Opinion modified because of an uncertainty
65. Which of the following subsequent events will be least likely to result to an adjustment on the financial
statements?
A. Culmination of event s affecting the realization value of accounts receivable owned as of the
balance sheet date.
B. Culmination of events affecting the realization of inventories owned as of the balance sheet date.
C. Material changes in the settlement of liabilities which were estimated as of the balance sheet date.
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D. Material changes in the quoted market prices of listed investment securities since the balance sheet
date.
66. As auditor was unable to obtain sufficient component evidential matter concerning certain transactions
because a fire burned down the client’s office building destroying all the company’s records. Given these
circumstances, the auditor would choose between a[n]:
A. A qualified opinion and an unqualified opinion with an explanatory paragraph
B. Unqualified opinion with an explanatory paragraph and an adverse opinion
C. Adverse opinion and a disclaimer of opinion
D. Disclaimer of opinion and qualified opinion
68. In his Letter to Stockholders in the annual report, the president of Better Vision’s states that his year was
the most profitable year in the company’s history. Actually the company did better profit-wise, last year
according to the audited financial statements. What type of opinion should the auditor issue?
A. An unqualified opinion with an emphasis of a matter paragraph noting the inconsistency.
B. A disclaimer of opinion because the additional information accompanying the financial statements
wasn’t audited.
C. An adverse opinion because the annual report does not present fairly the financial condition of the
company.
D. An “except for” qualification because the President’s letter is not part of the audited financial
statements.
70. Soon after Patricia’s audit report was issued, Patricia learned of certain related party transactions that
occurred during the year under audit. These transactions were not disclosed in the notes to the financial
statements. Patricia should
A. Plan to audit the transactions during the next engagement
B. Recall all the copies of the audited financial statements
C. Determine whether the lack of disclosure would affect the auditor’s report
D. Ask the client to disclose the transactions in subsequent interim statements
71. When an auditor mentions consistency in the audit report, a reader of the financial statements may infer
A. That PFRS have not been consistently observed in the current period in relation the preceding
objective
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72. As a result of management’s refusal to permit the auditor to physically examine inventory, the auditor has
not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with
PFRS. The auditor must depart from the unqualified audit report because
A. The financial statements have not been prepared in accordance with PFRS
B. The scope of the audit has been restricted by circumstances beyond either the client’s or auditor’s
control
C. The auditor has lost independence
D. The scope of the audit has been restricted
74. Management of Blue Company has decided not to account for a material transaction in accordance with the
provisions of an FRSC standard. In setting forth its reasons in a note to the financial statement,
management has clearly demonstrated that due to unsual circumstances had the financial statements been
presented in accordance with the PFRS, they would be misleading. The auditor’s report should include an
explanatory separate paragraph and contain a[n]
A. Adverse opinion
B. Unqualified opinion
C. “except for” qualified opinion
D. “subject to” qualified opinion
75. In the “management discussion and analysis [MD&A]” contained in the 2008 annual report of Concorde
Corporation, the management started that the total assets were P4.95 billion and net profit was P500
million. The audited sales and net profit, however, were P3.8 billion and P450 million respectively. The
financial statements reflected the audited figures and the CPA planned to issue an unqualified opinion.
Upon noting inconsistencies between the data in the annual report and the audited financial statements,
however, the CPA should
A. Refer to the inconsistency in the audit report and issue a qualified audit opinion
B. Issue an unqualified opinion without an explanatory paragraph, because the MD&A is not covered
in the audit report
C. Issue an unqualified audit opinion with an explanatory paragraph describing the inconsistency
D. Render an adverse opinion on the basis that management had intentionally misrepresented
reported sales and net profit
76. The adverse opinion report will be issued by the independent auditors when they
A. Suspect that the client has not followed Philippine financial reporting standards
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B. Suspect that the client’s financial statements are not in conformity with the generally accepted
auditing standards
C. Have knowledge that the financial statements are not in conformity with Philippine financial
reporting standards (PFRS)
D. Have knowledge that the generally accepted auditing standards (GAAS) were not followed
77. A post audit review, conducted by another audit partner, revealed that the audit team had failed to examine
or confirm securities held in safekeeping. The amounts involved were material in relation to reported net
assets. The unqualified audit report, along with the audited financial statements had been released two
months earlier. Based on this information, the audit team should
A. Request the client for permission to examine or confirm the securities
B. Notify person is known to be relying on the audit report that the report can no longer be relied
upon
C. Draft a revised audit report containing a qualified opinion due to a scope restriction
D. Ignore the finding inasmuch as the financial statements and audit report have already been
released
79. The last severe type of report for disclosing departures from an unqualified report is the
A. Adverse opinion
B. Qualified opinion
C. Disclaimer opinion
D. Report on unaudited financial statements
80. Which of the following statements is correct with respect to explanatory paragraphs in report on an audit of
financial statements?
A. They always precede the opinion paragraph
B. They always follow the opinion paragraph
C. They always precede the scope paragraph
D. Sometimes they precede and sometimes they follow the opinion paragraph
81. Of two major categories of scope restrictions, (1) those caused by client and (2) those caused by conditions
beyond the control of either the client or auditor, the effect on the auditor’s judgment
A. The same for either
B. More serious for 1 than for 2
C. More serious for 2 than for 1
D. Negligible
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82. Whenever an auditor issues a qualified opinion, the implication is that the auditor
A. Does not know if the statements are presented fairly
B. Does not believe the statements are presented fairly
C. Is satisfied that the statements are presented fairly “except for” a specific aspect of them
D. Is satisfied that the statements are presented fairly
83. Whenever an auditor issues a disclaimer of opinion, the implication is that the auditor
A. Does not know if the statements are presented fairly
B. Does not believe the statements are presented fairly
C. Is satisfied that the statements are presented fairly “except for” a specific aspect of them
D. Is satisfied that the statements are presented fairly
84. Which of the following best describes the auditor’s responsibility for “other information” that is, together
with the audited financial statements and the auditor’s report, included in the annual report to stockholders?
A. The auditor has no obligation to read the “other information”
B. The auditor has no obligation to corroborate the “other information”, but should read the “other
information” to determine whether it is materially inconsistent with the financial statements
C. The auditor should extend the examination to the extent necessary to verify the “other
information”
D. The auditor must modify the auditor’s report to state that the “other information is unaudited” or
“not covered by the auditor’s report.
85. If the inventory comprises the largest balance on the financial statements, a large misstatement that is so
material would cause the auditor to issue a[n]
A. Unqualified opinion
B. Adverse opinion
C. Qualified opinion
D. Disclaimer of opinion
86. When a known or suspected misstatement with the highest level of materiality exists on the financial
statements, the auditor must issue
A. An adverse opinion
B. A disclaimer of opinion
C. Either a qualified opinion or an adverse opinion, depending on which condition exist
D. Either an adverse opinion or a disclaimer of opinion, depending on which conditions exist
87. When a disclaimer of opinion is issued because the auditor lacks independence
A. No report title is included in the report
B. A one-paragraph audit report is issued
C. The only reason cited for issuing the disclaimer of opinion is the lack of independence
D. All of the choices are required
88. Under which of the following circumstances would an unqualified audit opinion, followed by an
explanatory paragraph, not be appropriate?
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A. The auditor wishes to emphasize that the client has entered into material transactions with related
parties. The substance of the related party transactions is properly disclosed in the audited
financial statements
B. The client has completed material transactions with related parties and the auditor is unable to
persuade the management to properly reflect the economic substance of the transaction in the
financial statements.
C. The client has used a method of revenue recognition that is a variance with promulgated
accounting standards. The auditor, however, agrees with the departure on the basis that the use of
the promulgated standard would make the financial statements materially misleading.
D. The auditor believes that substantial doubt exist concerning the ability of the client to continue as a
going concern
89. The auditor is determined to lack independence, a disclaimer of opinion must be issued
A. In all cases
B. Only if it is highly material
C. Only if it is material
D. If the client requests it
91. When comparing misstatements with a measurement based, the auditor must consider the pervasiveness of
the misstatement. An example of a pervasive misstatement would be
A. An understatement of inventory, caused by an oversight
B. An understatement of retained earnings, caused by a miscalculation of dividends payable
C. A misclassification of notes payable as a long-term liability when it shoul be current
D. A miscalculation of salary expense as a selling expense when it should be allocated equally to
both selling and administrative expense
92. Kim, an independent auditor was engaged to perform an examination of the financial statements of Sue Inc.
one month after its fiscal year had ended. Although the inventory count was not observed by Kim, and
accounts receivable were not confirmed by direct communication with debtors, Kim was able to gain
satisfaction by applying alternative auditing procedures. Kim’s auditor’s report will probably contain
A. A standard unqualified opinion
B. An unqualified opinion and an explanatory middle paragraph
C. Either a qualified opinion or a disclaimer of opinion
D. An “expect for” qualification
93. The peso amount of some misstatements cannot be accurately measured. If, for example, the client is
unwilling to disclose an existing law suit, the materiality question that the auditor must evaluate in such a
situation is
A. What effect will it have on net income
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
95. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity’s
ability to continue as going concern would most likely be mitigated by evidence relating to the
96. After an audit report containing an unqualified opinion on a non-public client’s financial statements was
issued, the client decided to sell the shares of a subsidiary that accounts for 30% of its revenue and 25% of
its net income. The auditor should
A. Determine whether the information is reliable and, if determined to be reliable, request that revised
financial statements be issued
B. Notify the entity that the auditor’s report may no longer be associated with the financial statements
C. Describe the effects of this subsequently discovered information in a communication with persons
known to be relying on the financial statements
D. Take no action because the auditor has no obligation to make any further inquiries
97. A client company has changed its method of inventory valuation from an unacceptable one to one in
conformity with Philippine financial reporting standards. The auditor’s report on the financial statements
in the year of the change should include
A. No reference to consistency
B. A reference to a prior period adjustment in the opinion paragraph
C. An explanatory paragraph explain the change
D. A justification for making the change and the impact of the change on reported income
98. The client has presented all the required financial statements with the exception of the statement of cash
flows. The auditor has completed the audit and is satisfied that everything, with the exception of the
missing statement, is presented fairly. Accordingly, the auditor
A. Must issue a qualified opinion
B. Must issue an adverse opinion
C. May issue an unqualified opinion
D. May issue either an unqualified or qualified opinion
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
99. An audit report continued the following wording: “In our opinion, except for the omission of the segment
information referred to in the preceding paragraph…” This excerpt was taken from a[n]
A. Unqualified audit opinion with an explanatory paragraph added to emphasize a matter
B. Unqualified audit opinion with an explanatory paragraph added to describe a material uncertainty
C. Audit opinion qualified due to a departure from PFRS
D. Adverse audit opinion
100.For the report containing a disclaimer for lack of independence, the disclaimer is in the
A. Fourth or opinion paragraph
B. Scope-responsibility of the auditor paragraph
C. First and only paragraph
D. Explanatory paragraph
101.Should a situation arise where all audit procedures considered necessary in the circumstances were
performed and the auditor would otherwise issue an unqualified report, and then it was discovered that the
auditor has not fulfilled the independence requirements specified by the Code of Ethics, the audit report
issued
A. May still be the unqualified opinion
B. Must be a disclaimer opinion
C. May either be an unqualified or disclaimer of opinion
D. Must be an adverse opinion
102.An auditor’s examination reveals a misstatement in segment information that is material in relation to the
financial statements taken as a whole. If the client refuses to make modifications to the presentation of
segment information, the auditor should issue a[n]
A. “Except for” opinion
B. Adverse opinion
C. Unqualified opinion
D. Disclaimer of opinion
104.When there is a significant change in accounting principle, an auditor’s report should refer to the lack of
consistency in
A. The scope paragraph
B. An explanatory paragraph between the second paragraph between the second paragraph and the
opinion paragraph
C. The opinion paragraph
D. An explanatory paragraph following the opinion paragraph
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
105.If the client has been inconsistent in applying PFRS from year one to year two and the auditor does not
concur with the appropriateness of the change, the auditor will issue a[n]
A. Disclaimer
B. Qualified opinion
C. Adverse opinion
D. Unqualified opinion
106.When a principal auditor decides to make reference to another auditor’s examination, the principal
auditor’s report should always indicate clearly, in the introductory, scope, and opinion paragraphs, the
A. Magnitude of the portion of the financial statements examined by the other auditor
B. Disclaimer of responsibility concerning the portion of the financial statements examined by the
other auditor
C. Name of other auditor
D. Division of responsibility
108.Items that materially affect the comparability of financial statements generally require disclosure in the
footnotes. If the client refuses to properly disclose the item, the auditor may be required to issue
A. The disclaimer
B. A qualified opinion
C. An unqualified opinion
D. An adverse opinion
109.A statement in a report such as “Nothing came to our attention that would lead us to question the fairness of
the presentations” is referred to as
A. The unqualified opinion
B. A disclaimer of opinion
C. Negative assurance
D. Positive assurance
110.An auditor may issue the standard audit report when the
A. Auditor refers to the findings of an expert
B. Financial statements are derived and condensed from complete audited financial statements that
are filed with a regulatory agency
C. Financial statements are prepared on the cash receipts and disbursements basis of accounting
D. Principal auditor assumes responsibility for the work of another auditor
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
111.Several types of “special audit reports” are issued by CPAs. Which one of the following circumstances
would not require the issuance of such a special report?
A. Client’s financial statements are prepared using the cash basis
B. Client’s financial statements are prepared using the accrual basis
C. The CPA has been retained to audit only the current assets
D. The CPA has been retained to review the internal control system, not the financial statements
112.In which of the following situation would an auditor ordinarily issue an unqualified audit opinion without
an explanatory paragraph?
A. The auditor wishes to emphasize that the entity had significant related party transactions
B. The auditor decides to make reference to the report of another auditor as a basis, in part, for the
auditor’s opinion
C. The entity issues financial statements that present financial position, the results of operations, and
the changes in stockholders’ equity but intentionally omits the statement of cash flows
D. The auditor has substantial doubt about the entity’s ability to continue as a going concern, but the
circumstances are fully disclosed in the financial statements
113.Comparative financial statements include the financial statements of the prior year that were audited by a
predecessor auditor whose report is not presented. If the predecessor’s report was qualified, the successor
should
A. Indicate the substantive reasons for the qualification in the predecessor’s audit opinion
B. Request the client to reissue the predecessor’s report on the prior year’s statements
C. Issue an updated comparative audit report indicating the division of responsibility
D. Express an opinion only on the current year’s statements
114.Which of the following events occurring after the issuance of an auditor’s report most likely would cause
the auditor to make further inquiries about the previously issued financial statements?
A. A technological development that could affect the entity’s future ability to continue as a going
concern
B. The discovery of information regarding a contingency that existed before the financial statements
were issued
C. The entity’s sale of a subsidiary that accounts for 30 percent of the entity’s consolidated sales.
D. The final resolution of a lawsuit that was fully explained in a footnote
115.A principal auditor decides not to refer to the audit by another CPA who audited a subsidiary of the
principal auditor’s client. After making inquiries about the other CPA’s professional reputation and
independence, the principal auditor most likely would
A. Add an explanatory paragraph to the auditor’s report indicating that the subsidiary’s financial
statements are not material to the consolidated financial statements
B. Document in the engagement letter that the principal auditor assumes no responsibility for the
other CPA’s work and opinion
C. Obtain written permission from the other CPA to omit the reference in the principal auditor’s
report
D. Contact the other CPA and review the audit programs and working papers pertaining to the
subsidiary
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
116.The Fragile Company’s financial statements contained a departure from Philippine financial reporting
standards because, due to unusual circumstances, the statements would have otherwise been misleading.
The auditor should express an opinion that is
A. Unqualified but not mention the departure in the auditor’s report
B. Unqualified and describe the departure in a separate paragraph
C. Qualified an describe the departure in a separate paragraph
D. Qualified or adverse, depending on materiality, and describe the departure in a separate paragraph
117. When a predecessor auditor reissues the report on the prior period’s financial statements at the request of
the former client, the predecessor audit should
A. Indicate in the introductory paragraph of the reissued report that the financial statements of the
subsequent period were audited by another CPA
B. Obtain an updated management representation letter and compare it to that obtained during the
prior period audit
C. Add an explanatory paragraph to the reissued report stating that the predecessor has not performed
additional auditing procedures concerning the prior period’s financial statements
D. Review the current year’s financial statements for reasonableness
118.Miller Company uses the first-in, first-out method of costing for its international subsidiary’s inventory and
the last-in, first-out method of costing for its domestic inventory. Under these circumstances, Miller should
issue an auditor’s report with an
A. “except for” qualified opinion
B. Unmodified opinion
C. Explanatory paragraph as to consistency
D. Opinion modified as to consistency
119.When the audited financial statements are presented in a client’s document containing other information,
the auditor should
A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable
B. Add an explanatory paragraph to the auditor’s report without changing the opinion on the financial
statements
C. Perform the appropriate substantive auditing procedures to corroborate the other information
D. Read the other information to determine that it is consistent with the audited financial statements
120.When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate explanatory paragraph and modify the respective paragraphs
Introductory Scope Opinion
A. YES NO NO
B. YES YES NO
C. NO YES YES
D. NO NO YES
121.If an accounting change has no material effect on the financial statements in the current year but the change
is reasonably certain to have a material effect in later years, the change should be
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
A. Treated as a consistency modification in the auditor’s report for the current year
B. Disclosed in the notes to the financial statements of the current year
C. Disclosed in the notes to the financial statements and referred to in the auditor’s report for the
current year
D. Treated as a subsequent event
122.When comparative financial statements are presented, the fourth reporting standard, which refers to
financial statements “taken as a whole”, should be considered to apply to the financial statements of the
A. Periods presented plus one preceding period
B. Current period only
C. Current period and those of the other periods presented
D. Current and immediately preceding period only
123.An auditor’s report includes a statement that “the financial statements do not present fairly the financial
position in conformity with Philippine financial reporting standards”. This auditor’s report was probably
issued in connection with financial statements that were
A. Prepared on a comprehensive basis for accounting other than PFRS
B. Restricted for use by management
C. Misleading
D. Condensed
124.In relation to the “The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern”, an
independent auditor is responsible to
A. Predict whether the entity will be in business one year from the balance sheet date
B. Evaluate whether there is substantial doubt about the entity’s ability to continue as a going
concern
C. Weigh mitigating factors against contrary information about the entity’s ability to continue as a
going concern
D. Report the entity’s ability to continue as a going concern to senior management and to the board of
directors
125. An auditor is unable to determine the amounts associated with illegal acts committed by a client. The
auditor would most likely issue
A. Either a qualified opinion or a disclaimer of opinion
B. An adverse opinion
C. Either a qualified opinion or an adverse opinion
D. A disclaimer of opinion
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