The auditor's standard report states that the financial statements are presented fairly

with reasonable assurance.

in all material respects.
without significant errors.
on a consistent basis.
Ans.
in all material respects.

Identify the appropriate type of opinion to issue when the auditor is satisfied that there is a
remote likelihood of a loss resulting from the resolution of an uncertainty.

Unqualified opinion.

Unqualified opinion with a separate explanatory paragraph.

Qualified opinion or disclaimer of opinion, depending on whether the uncertainty is adequately

disclosed.

Qualified opinion or disclaimer of opinion, depending upon the materiality of the loss.
Ans.
Unqualified opinion.

The element of the auditor's report that distinguishes it from reports that might be issued by
others is

Title
Addressee
Auditor's signature
Opinion paragraph
Ans.
Title

The auditor may address the report to all of the following, except:

the client company

the President and/or CEO of client company
the board of directors of client company
the stockholders of client company
Ans.
the President and/or CEO of client company

Which of the following statements is not included in the auditor’s responsibility section of the
standard audit report?

that the responsibility of the auditor is to express an opinion on the financial statements based on
the audit.
that the auditor’s responsibility is to express an opinion on the financial statements based on the
audit

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

that audit includes examining on a test-basis evidence supporting the amounts and disclosures in
the financial statements.
Ans.
that audit includes examining on a test-basis evidence supporting the amounts and disclosures in
the financial statements.

The introductory paragraph of the auditor’s report should

state that the management is responsible for the preparation and fair presentation of the financial
statements.

state the auditor’s responsibility to express an opinion on the financial statements.

refer to the summary of significant accounting policies and explanatory notes.

identify the name of the entity for whom the report is prepared.
Ans.
refer to the summary of significant accounting policies and explanatory notes.

Which of the following is not usually the addressee in an external audit report?

Partners in audit of a partnership

Taxpayers in audit of a government agency
Management in audit of public company
Those charged with governance of an entity
Ans.
Management in audit of public company

An auditor refers to significant related party transactions in a middle paragraph of the report. If
the ensuring opinion paragraph contains the words, “with the foregoing explanation,” the
auditor’s report would be considered a (an)

Unqualified opinion with appropriate reference to the middle paragraph.

Example of inappropriate reporting.
Adverse opinion.
Negative assurance opinion.
Ans.
Example of inappropriate reporting.

Which of the following statements is a basic element of the standard audit report?
The disclosures provide reasonable assurance that the financial statements are free of
material misstatements.

The auditor tested compliance to internal control by the client

An audit includes assessing significant estimates made by the management

The financial statements are consistent with those of the prior period
Ans.
An audit includes assessing significant estimates made by the management

The introductory paragraph of the standard audit report may include the following:
I. Identification of the entity whose financial statements have
been audited.
II. Statement that the financial statements have been audited.
III. Title of each of the financial statements that comprise the
complete set of financial statements.
IV. Reference to "basic financial statements" without indicating the
title of each of the financial statements.
V. Reference to the summary of significant accounting policies and
other explanatory notes
VI. Specific date and period covered by the financial statements.
VII. Reference to Philippine Standards on Auditing.

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?

I,II, IV, VI, VII

I, II, III, V, VI, VII
I, II, III, V, VII
I, III, V, VI
Ans.
I, II, III, V, VI

Which among the following is not an appropriate addressee of an independent auditor’s report?

Shareholders of the client company

Company engaging the auditor
Board of directors of the client company
President of the client company
Ans.
President of the client company

The auditing profession recognizes the need for uniformity in reporting as a means of
defending against lawsuits
standardizing the policies of various CPA firms
upgrading the communications skills of auditors
promoting credibility of the report in the global marketplace
Ans.
promoting credibility of the report in the global marketplace

Which is not referred to in the management’s responsibility paragraph?

Design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of financial statements

Effectiveness and efficiency of operating decisions

Selection and application of appropriate accounting policies

Making of reasonable accounting estimates

Ans.
Effectiveness and efficiency of operating decisions

Which of the following is not one of the basic elements of the auditor’s report

Title
Date of the report
Client’s address
Auditor’s signature
Ans.
Client’s address

Per PSA 700, the auditor’s report should be addressed

Only to the shareholders of the entity whose financial statements are being audited

Only to the board of directors of the entity whose financial statements are being audited

To the CEO or the CFO of the entity whose financial statements are being audited

Either to the shareholders or the board of directors of the entity whose financial statements are
being audited
Ans.
Either to the shareholders or the board of directors of the entity whose financial statements are
being audited

The audit report should not be dated

Earlier than the date on which the auditor obtains sufficient appropriate evidence
Earlier than the date of issuance of the financial statements
Earlier than the date of the issuance of the audit report.
Later than the balance sheet date.
Ans.
Earlier than the date on which the auditor obtains sufficient appropriate evidence

The date of the audit report is important because

The user has a right to expect that the auditor has performed certain procedures to detect
subsequent events that would materially affect the financial statements through the date of the
report

The auditor bills time to the client up to and including the audit report date, and the statement to
the client should reflect this date

PSAs require all audits to be performed on a timely basis

It should coincide with the date of the financial statements

Ans.
The user has a right to expect that the auditor has performed certain procedures to detect
subsequent events that would materially affect the financial statements through the date of the
report

The audit report date is important to users because it indicates the

Last day of the fiscal period.

Last day of the auditor’s responsibility for the review of significant events that occurred after the
date of the financial statements.

Date on which the financial statements were filed with the SEC.

Last day on which users may institute a lawsuit either client or auditor.
Ans.
Last day of the auditor’s responsibility for the review of significant events that occurred after the
date of the financial statements.

In which of the following circumstances may the auditor issue an unqualified standard audit
report?

There has been a departure from PFRS.

There has been a lack of consistency of applying PFRS.
The auditor relies on the report of another auditor.
There are questions about the continued existence of the entity.
Ans.
The auditor relies on the report of another auditor.
If an auditor is not independent of a client, the auditor should issue a(an)

unqualified opinion with an explanatory paragraph describing the lack of independence

explanatory letter accompanying the financial statements
disclaimer of opinion
qualified opinion because of the lack of independence
Ans.
disclaimer of opinion

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 only the auditor’s responsibility paragraph of the report.

Modify only the opinion paragraph of the report.
Modify both the auditor’s responsibility and opinion paragraphs of the report.
Modify the introductory, auditor’s responsibility and opinion paragraphs of the report
Ans.
Modify the introductory, auditor’s responsibility and opinion paragraphs of the report

An auditor may not issue a qualified opinion when

A scope limitation prevents the auditor from completing an important audit procedure.
The auditor’s report refers to the work of specialist.
An accounting principle at variance with PFRS is used.
The auditor lacks independence with respect to the audited entity.
Ans.
The auditor lacks independence with respect to the audited entity.

A CPA engaged to examine financial statements observes that the accounting for a certain
material item is not in conformity with generally accepted accounting principles, and that this
fact is prominently disclosed in the notes to the financial statements. The CPA does not agree
with this departure from PFRS and should

Not allow the accounting treatment for this item to affect the type of opinion because the
deviation from generally accepted accounting principles was disclosed.

Express an unqualified opinion and add an explanatory paragraph emphasizing the matter by
reference to the footnote.

Qualify the opinion because of the deviation from generally accepted accounting principles.

Disclaim an opinion.
Ans.
Qualify the opinion because of the deviation from generally accepted accounting principles.
Addition of an "emphasis of a matter" paragraph to what remains an unqualified opinion is least
likely for which of the following situations?

Related party transactions

Scope limitation.
A significant subsequent event.
An uncertainty.
Ans.
Scope limitation.

In extreme cases such as situations involving multiple uncertainties that are significant to the
financial statements, the auditor

may consider to express a disclaimer of opinion

may qualify his opinion instead of issuing an unqualified opinion with emphasis of matter
paragraph

may issue an adverse opinion because of their significance

may issue a “subject to” opinion because the situations related to uncertainties
Ans.
may consider to express a disclaimer of opinion

An auditor who qualifies an opinion because of an insufficiency of evidence should

describe the limitation in an explanatory paragraph. The auditor should also modify the

(1) Auditor’s responsibility paragraph

(2) Opinion paragraph

(3) Notes to the financial statements

(1) Yes (2) No (3) Yes
(1) No (2) Yes (3) No
(1) No (2) Yes (3) No
(1) Yes (2) Yes (3) No
Ans.
(1) Yes (2) Yes (3) No

In which of the following circumstances would an auditor usually choose between issuing a
qualified opinion of a disclaimer of opinion?
Departure from PFRS.
Inadequate disclosure of accounting policies.
Inability to obtain sufficient competent evidential matter.
Unreasonable justification for a change in accounting principles.
Ans.
Inability to obtain sufficient competent evidential matter.

When financial statements are presented wherein accounting principles have not been
applied consistently, an auditor, may issue a(an):

(1) Qualified Opinion

(2) Disclaimer of opinion

(1) Yes (2) Yes

(1) No (2) No
(1) Yes (2) No
(1) No (2) Yes
Ans.
(1) Yes (2) No

A choice between qualified or adverse opinion is made when the cause of misstatement is
I. Material disagreement with management on PFRS application (PFRS departure)
II. Inability to gather sufficient appropriate evidence because of restriction on
procedures (scope limitation)

I only
II only
Either I or II
Neither I nor I
Ans.
I only

A qualified opinion is expressed when a misstatement is

Material
Pervasive
Both material and pervasive
Highly material
Ans.
Material

Which of the following statements indicates a qualified opinion?

The financial statements do not present fairly in all material respects the financial position,
results of operations, and cash flows in conformity with GAAP.

The auditor does not express an opinion on the financial statements.

The financial statements present fairly in all material respects the financial position, results of
operations, and cash flows in conformity with GAAP.

Except for the effects of a matter, the financial statements present fairly in all material respects
the financial position, results of operations, and cash flows in conformity with GAAP.
Ans.
Except for the effects of a matter, the financial statements present fairly in all material respects
the financial position, results of operations, and cash flows in conformity with GAAP.

An auditor may reasonably issue an “except for” qualified opinion for

(1) Inadequate disclosure

(2) Scope limitation

(1) Yes (2) Yes

(1) Yes (2) No
(1) No (2) Yes
(1) No (2) No
Ans.
(1) Yes (2) Yes

If the scope of the examination has been satisfactory for all items except for one of material
amount, the auditor should issue a (an)

Unqualified opinion.
Qualified opinion.
Disclaimer of opinion.
Adverse opinion.
Ans.
Qualified opinion.

Under which of the following sets of circumstances might an auditor disclaim an opinion?

The financial statements contain a departure from PFRS, the effect of which is material.

The principal auditor decides to make reference to the report of another auditor who audited a
subsidiary.

There has been a material change between periods in the method of the application of accounting
principles.
There were significant limitations on the scope of the audit.
Ans.
There were significant limitations on the scope of the audit.

Should the auditor uncover circumstances during the audit that may cause suspicions of
management fraud, the auditor must

issue an adverse opinion.

issue a disclaimer
evaluate their implications and consider the need to modify audit procedures
withdraw from the engagement
Ans.
evaluate their implications and consider the need to modify audit procedures

If the financial statements, including accompanying notes, fail to disclose information that is
required by PFRSs, the auditor should express either a(an)

“Except for qualified opinion or adverse opinion.

Adverse opinion or a “subject to” qualified opinion.
“Subject to” qualified opinion or unqualified opinion with a separate explanatory paragraph.
Unqualified opinion with a separate explanatory paragraph or an “except for” qualified opinion.
Ans.
Adverse opinion or a “subject to” qualified opinion.

Restrictions imposed by a client prohibit the observation of physical inventories, which account
for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was
able to examine satisfactory evidence for all other items in the financial statements. The auditor
should issue a(an)

“Except for” qualified opinion.

Disclaimer of opinion.
Unqualified opinion with a separate explanatory paragraph.
Unqualified opinion with an explanation in the auditor’s responsibility paragraph.
Ans.
Disclaimer of opinion.

When disclaiming an opinion due to a client-imposed scope limitation, an auditor should

indicate in a separate paragraph why the audit did not comply with PSAs. The auditor
should also omit the

(1) Auditor’s responsibility paragraph

(2) Opinion paragraph

(1) No (2) Yes
(1) Yes (2) Yes
(1) No (2) No
(1) Yes (2) No
Ans.
(1) Yes (2) No

Per Glossary of Terms, it is a difference between the amount, classification, presentation,

or disclosure of a reported financial statement item and the amount, classification,
presentation, or disclosure that is required for the item to be in accordance with the
applicable financial reporting framework.

Fraud
Error
Departure
Misstatement
Ans.
Misstatement

When an auditor issues an adverse opinion, the implication is that the auditor

Does not know if the statements are presented fairly.

Does not believe the statements are fairly presented.
Is satisfied that the statements are presented fairly except for a specific aspect o them.
Is satisfied that the statements are presented fairly.
Ans.
Does not believe the statements are fairly presented.

An auditor concludes that there is substantial doubt about an entity's ability to continue as
a going concern. If the entity's disclosures about continued existence are adequate, the
audit report should include

(1) A disclaimer of opinion

(2) An unqualified opinion

(1) Yes (2) Yes

(1) No (2) No
(1) No (2) Yes
(1) Yes (2) No
Ans.
(1) No (2) Yes

An adverse opinion would be issued when a misstatement’s impact is

Immaterial
Material
Highly material
Shocking
Ans.
Highly material

An explanatory paragraph reads as follows:

The Company has adopted the first-in, first-out method of determining inventory costs,
whereas it previously used the weighted average method. Athough use of the first-in,
first-out method is in conformity with generally accepted accounting principles, in our
opinion the Company has not provided reasonable justification for seeking a change as
required by BIR.

The paragraph likely appears in:

An unqualified opinion
An unqualified opinion that emphasized the matter
A qualified opinion
A disclaimer of opinion
Ans.
A qualified opinion

Under which of the following circumstances would a disclaimer of opinion not be appropriate?

The auditor is engaged after fiscal year-end and is unable to observe physical inventories or
apply alternative procedures to verify their balances.

The auditor is unable to determine the amounts associated with illegal acts committed by the
client’s management.

The financial statements fail to contain adequate disclosure concerning related party transactions.

The client refuses to permit its attorney to furnish information requested in a letter of audit
inquiry.
Ans.
The financial statements fail to contain adequate disclosure concerning related party transactions.

An explanatory paragraph may be added to the audit report while at the same time issuing an
unqualified opinion in all cases except when:

the client has changed an accounting principle with the agreement of the auditor.
there is an immaterial departure from PFRS to ensure fair presentation with the agreement of the
auditor.

the audit opinion is partly based on the work of another auditor

the audit work has been materially limited by management.

Ans.
the audit work has been materially limited by management.

Which of the following circumstances may not result to a disclaimer of opinion?

A significant scope limitation in auditing the existence of inventories. The inventory amount
comprised 75 percent of the total assets of the client.

The auditor believes there are multiple uncertainties that are significant to the financial
statements.

The accounts receivable of the client comprised 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 results of alternative audit procedures

The auditor’s wife own very few number of common shares of the client.
Ans.
The accounts receivable of the client comprised 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 results of alternative audit procedures

A departure from PFRS is disclosed in a note to the financial statements. The auditor should:

Issue an unqualified opinion, with no explanatory paragraph, since the departure from PFRSs is
disclosed

Issue an unqualified opinion, but emphasize the matter in an explanatory paragraph

Issue a qualified opinion

Disclaim an opinion
Ans.
Issue a qualified opinion

If the auditor is unable to determine whether fraud or error has occurred because of limitations
imposed by the circumstances, the auditor would most likely issue a report that contains:

An unqualified opinion
an unqualified opinion with an emphasis of a matter paragraph
a qualified opinion
an adverse opinion
Ans.
a qualified opinion

When the financial statements contain a departure from PFRS, the effect of which is material, the
auditor should

Qualify the opinion and explain the effect of the departure from PFRS in a separate paragraph.

Qualify the opinion and distribute the departure from PFRS within the opinion paragraph.

Disclaim an opinion and explain the effect of the departure from PFRS in a separate paragraph.

Disclaim an opinion and describe the departure from PFRS within the opinion paragraph.
Ans.
Qualify the opinion and explain the effect of the departure from PFRS in a separate paragraph.

Grant Company’s financial statements adequately disclose uncertainties that concern future
events, the outcome of which are not reasonably estimable. The auditor’s report should include a
(an)

Unmodified opinion
“Subject to” qualified opinion“
Except for” qualified opinion
Adverse opinion
Ans.
Unmodified opinion

King, CPA, was engaged to audit the financial statements of Newton Company after its fiscal
year had ended. King neither observed the inventory count nor confirmed the receivables by
direct communication with debtors, but was satisfied concerning both after applying alternative
procedures. King’s auditor’s report most likely contained a(an)

Qualified opinion.
Disclaimer of opinion.
Unqualified opinion.
Unqualified opinion with an explanatory paragraph.
Ans.
Unqualified opinion.

An explanatory paragraph reads as follows:

On October 15, 2007, the Company emerged from bankruptcy. As discussed in the notes
the financial statements, the Company accounted for the reorganization using “fresh
accounting” and, as a result, the post-reorganization financial statements are not
comparable to the pre-organization financial statements
The paragraph likely is intended to:

Qualify an opinion
Emphasize a matter
Report an inconsistency
Indicate a departure from generally accepted accounting principles
Ans.
Emphasize a matter

If the current periods accounting policies have not been consistently applied in relation to
the opening balances and if the change has not been properly accounted for and disclosed,
the auditor’s report may include:

(1) Qualified Opinion;

(2) Adverse Opinion;

(3) Disclaimer of Opinion

(1) Yes; (2) No; (3) Yes
(1) Yes; (2) No; (3) Yes
(1) Yes; (2) Yes; (3) No
(1) No; (2) Yes; (3) No
Ans.
(1) Yes; (2) Yes; (3) No

Grant Company’s financial statements adequately disclosed uncertainties that concern future
events, the outcome of which are not susceptible of reasonable estimation. The auditor’s report
should include a(an)

Unqualified opinion.
“Subject to” qualified opinion.
“Except for” qualified opinion.
Adverse opinion.
Ans.
Unqualified opinion.

The emphasis of a matter paragraph is normally placed:

before the opinion paragraph

between the auditor’s responsibility and opinion paragraphs

After the opinion paragraph but before the section containing other reporting responsibilities.
After the opinion paragraph that contains the auditor’s qualification or disclaimer of opinion.
Ans.
After the opinion paragraph but before the section containing other reporting responsibilities.

PSA 701 provides guidance on the:

auditor’s report issued as a result of an audit of a complete set of general-purpose financial

statements

auditor’s report issued as a result of performing a special-purpose audit engagement

auditor’s report that contains an opinion other than unqualified and/or a modified report due to
an emphasis of matter

auditor’s report issued as a result of an audit of a single statement or specified account(s)

Ans.
auditor’s report that contains an opinion other than unqualified and/or a modified report due to
an emphasis of matter

When there are multiple uncertainties significantly affecting the financial statements, the
auditor’s report would most likely contain

an unqualified opinion
A qualified opinion
A disclaimer of opinion
An adverse opinion
Ans.
A disclaimer of opinion

Which of the following does not result to modification of opinion on financial statements?

Significant uncertainties affecting the financial statements

Going concern uncertainties
Limitations that are beyond the control of management.
Emphasis of a matter discussed in the notes to the financial statements.
Ans.
Limitations that are beyond the control of management.

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, auditor’s
responsibility, and opinion paragraphs, the

Magnitude of the portion of the financial statements examined by the other auditor.

Disclaimer of responsibility concerning the portion of the financial statements examined by the
other auditor.
Name of the other auditor.

Division of responsibility.
Ans.
Division of responsibility.

The auditor’s report on financial statements include the following sentences:

“………………………………… we draw attention to Note X to the financial statements.
The Company is the defendant in a lawsuit alleging infringement of certain patent rights
and claiming royalties and punitive damages. The Company has filed a counter action,
and preliminary hearings and discovery proceedings on both actions are in progress. The
ultimate outcome of the matter cannot presently be determined, and no provision for any
liability that may result has been made in the financial statements.”

The above statement:

is a qualification of an opinion
is an emphasis of a matter
is not appropriate
is a disclaimer of opinion
Ans.
is a qualification of an opinion

An auditor may not be able to express an unqualified opinion when the following
circumstances exist and, in the auditor’s judgment, the effect of the matter is or may be
material to the financial statements:

(1) There is a limitation on the scope of the auditor’s work;

(2) There is a disagreement with management regarding the acceptability of the

accounting policies selected, the method of their application or the adequacy of financial
statement disclosures.

(3) The auditor wants to give emphasis to an important matter affecting the financial
statements

(1) Yes; (2) Yes; (3) Yes

(1) Yes; (2) Yes; (3) No
(1) No; (2) Yes; (3) No
(1) No; (2) No; (3) Yes
Ans.
(1) Yes; (2) Yes; (3) No
If the auditor is unable to sufficient appropriate evidence concerning the opening
balances, the auditor’s report should include:

(1) Qualified Opinion;

(2) Adverse Opinion;

(3) Disclaimer of Opinion

(1) Yes; (2) No; (3) Yes
(1) No; (2) Yes; (3) Yes
(1) Yes; (2) Yes; (3) No
(1) No; (2) Yes; (3) No
Ans.
(1) Yes; (2) No; (3) Yes

An auditor 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

Is considered an “except for” qualification of the opinion.

Violates PSAs if this information is already disclosed in notes to the financial statements.

Necessitates a revision of the opinion paragraph to include the phrase “with the foregoing
explanation”.

Is appropriate and would not negate the unqualified opinion.

Ans.
Is appropriate and would not negate the unqualified opinion.

Eagle Company’s financial statements contain a departure from PFRSs because, due to unusual
circumstances, the statements would otherwise be misleading. The auditor should express an
opinion that is

Unqualified but not mention the departure in the auditor’s report.

Unqualified and describe the departure in a separate paragraph.

Qualified and describe the departure in a separate paragraph.

Qualified or adverse, depending on materiality, and describe the departure in a separate

paragraph.
Ans.
Unqualified and describe the departure in a separate paragraph.

Which of the following statements is correct about “emphasis of a matter paragraph”?

The addition of such paragraph is to be construed as a modification of the auditor’s report.

The addition of such paragraph does not affect the auditor’s opinion.
The paragraph would preferably be presented before the opinion paragraph.
The paragraph is normally used by the auditor to explain the reasons for lack of independence.
Ans.
The addition of such paragraph does not affect the auditor’s opinion.

An auditor may reasonably issue a qualified opinion for

(1) Disagreement with management regarding accounting policies;

(2) Scope Limitation

(1) Yes; (2) Yes
(1) No; (2) Yes
(1) Yes; (2) No
(1) No; (2) No
Ans.
(1) Yes; (2) Yes

In which of the following situations would an auditor ordinarily issue an unqualified audit
opinion without an explanatory paragraph?

The auditor wishes to emphasize that the entity had significant related party transactions.

The auditor decides to make reference to the report of another auditor as a basis, in part, for the
auditor’s opinion.

The entity issues financial statements that present financial position and results of operations, but
omits the statement of cash flows.

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.
Ans.
The auditor decides to make reference to the report of another auditor as a basis, in part, for the
auditor’s opinion.

When the financial statements contain material departures from PFRS and the auditor modifies
the opinion, the auditor describes the effects in
The opinion paragraph
In a separate explanatory paragraph
The introductory paragraph
The notes to the financial statements
Ans.
In a separate explanatory paragraph

Which of the following is a matter that do not affect the auditor’s opinion?

Emphasis of matter

Disagreement with management regarding acceptability of accounting policies and the methods
of their application

Scope limitations imposed by the client

Scope limitations imposed by circumstances

Ans.
Emphasis of matter

Principal auditor is

The auditor who audited and reported on the prior period's financial statements and
continues as the auditor for the current period.

A current period's auditor who did not audit the prior period's financial statements.

The auditor who was previously the auditor of an entity and who has been replaced by an
incoming auditor.

The auditor with responsibility for reporting on the financial statements of an entity when
those financial statements include financial information of one or more components
audited by another auditor.
Ans.
The auditor with responsibility for reporting on the financial statements of an entity when those
financial statements include financial information of one or more components audited by another
auditor.

The current period's auditor who did not audit the prior period's financial statements is called

Predecessor auditor
Other auditor
Incoming auditor
Principal auditor
Ans.
Incoming auditor
If the principal auditor decides to refer in the report to the audit made by another auditor

The principal auditor assumes responsibility for the report on the other auditor
The other auditor is relieved of responsibility for his report but not his work
The other auditor is responsible for his report and his work
The other auditor is relieved of responsibility for his work but not his report
Ans.
The other auditor is responsible for his report and his work

When part of the examination is to be performed by another auditor, the principal auditor may
decide to assume responsibility for the other auditor’s work and make no reference to such work
when:

The portion examined by the other auditor is material to the financial statements audited by the
principal auditor

The other auditor is not a correspondent of the principal auditor

It is impracticable for the principal auditor to review the other auditor’s work

The other auditor was retained by the principal auditor and worked under his supervision
Ans.
The other auditor was retained by the principal auditor and worked under his supervision

All of the following are considered modification of the report except

Unqualifed opinion with emphasis of a matter paragraph

Qualified or adverse opinion

Disclaimer of opinion

Report on consolidated financial statements where the principal auditor assumes responsibility
for the work of another auditor
Ans.
Report on consolidated financial statements where the principal auditor assumes responsibility
for the work of another auditor

Assume that Mr. Swabe, a principal auditor, decided to refer in his report the examination of
another auditor, he is required to disclose the

Portion of the financial statements examined by the other auditor.

Name of the other auditor.

Nature of his inquiry into the other auditor's professional standing and extent of his review of the
auditor's work.

Reasons why he is unwilling to assume responsibility for the other auditor's work.
Ans.
Portion of the financial statements examined by the other auditor.

In which of the following circumstances may the auditor issue an unqualified standard audit
report?

There has been a departure from PFRSs.

There has been a lack of consistency of applying PFRSs.
The auditor relies on the report of another auditor.
There are questions about the continued existence of the entity.
Ans.
The auditor relies on the report of another auditor.

When using the work of another auditor, the principal auditor should ordinarily perform the
following procedure

Obtain information regarding the professional competence of the other auditor in the context of
the specific assignment undertaken by the other auditor.

Advise the other auditor of the applicable independence requirements as regards both the entity
and the component and obtain representation as to his compliance with them.

Advise the other auditor of the applicable accounting, auditing and reporting requirements and
obtain representation as to compliance with them.

All of the above.

Ans.
All of the above.

Principal auditor is

The auditor who audited and reported on the prior period's financial statements and continues as
the auditor for the current period.

A current period's auditor who did not audit the prior period's financial statements.

The auditor who was previously the auditor of an entity and who has been replaced by an
incoming auditor.

The auditor with responsibility for reporting on the financial statements of an entity when those
financial statements include financial information of one or more components audited by another
auditor.
Ans.
The auditor with responsibility for reporting on the financial statements of an entity when those
financial statements include financial information of one or more components audited by another
auditor.

Jewel, CPA, audited Infinite Co.'s prior year financial statements. These statements are
presented with those of the current year for comparative purposes without Jewel's
auditor's report, which expressed a qualified opinion. In drafting the current year's
auditor's report, Grain, CPA, the successor auditor, should

I. Not name Jewel as the predecessor auditor.

II. Indicate the type of report issued by Jewel.
III. Indicate the substantive reasons for Jewel's qualification.

I only
I and II only.
II and III only
I, II, and III
Ans.
I, II, and III

They are not presented as complete financial statements capable of standing alone, but are an
integral part of the current period financial statements intended to be read only in relationship to
the current period figures.

Corresponding figures
Comparative financial statements
Prior period figures
Comparatives
Ans.
Corresponding figures

When reporting on comparative financial statements, an auditor ordinarily should change the
previously issued opinion on the prior year's financial statements if the

Prior year's financial statements are restated to conform with generally accepted accounting prin -
ciples.

Auditor is a predecessor auditor who has been requested by a former client to reissue the
previously issued report.

Prior year's opinion was unqualified and the opinion on the current year's financial statements is
modified due to a lack of consistency.

Prior year's financial statements are restated following a purchase method

Ans.
Prior year's financial statements are restated to conform with generally accepted accounting prin -
ciples.

Unaudited financial statements for the prior year presented in comparative form with
audited financial statements for the current year should be clearly marked to indicate their
status and

I. The report on the prior period should be reissued to accompany

the current period report.
II. The report on the current period should include as a separate
paragraph a description of the responsibility assumed for the prior period's
financial statements.

I only
II only.
Both I and II.
Either I or II.
Ans.
Either I or II.

An auditor expressed a qualified opinion on the prior year's financial statements because of a
lack of adequate disclosure. These financial statements are properly restated in the current year
and presented in comparative form with the current year's financial statements. The auditor's up -
dated report on the prior year's financial statements should

Be accompanied by the auditor's original report on the prior year's financial statements.
Continue to express a qualified opinion on the prior year's financial statements.
Make no reference to the type of opinion expressed on the prior year's financial statements.
Express an unqualified opinion on the restated fi nancial statements of the prior year.
Ans.
Express an unqualified opinion on the restated fi nancial statements of the prior year.

A client is presenting comparative (two-year) financial statements. Which of the following is

correct concerning reporting responsibilities of a continuing auditor?

The auditor should issue one audit report that is on both presented years.

The auditor should issue two audit reports, one on each year.

The auditor should issue one audit report, but only on the most recent year.

The auditor may issue one audit report on both presented years, or two audit reports, one on each
year.
Ans.
The auditor should issue one audit report that is on both presented years.
An auditor’s report on comparative financial statements should be dated as of the date of the

Issuance of the report.

Completion of the auditor’s recent field work.
Latest financial statements
Last subsequent event disclosed in the statements.
Ans.
Completion of the auditor’s recent field work.

Jewel, CPA, audited Infinite Co.’s prior year financial statements. These statements are
presented with those of the current year for comparative purposes without Jewel’s
auditor’s report, which expressed a qualified opinion. In drafting the current year’s
auditor’s report, Grain, CPA, the successor auditor, should
I. Not name Jewel as the predecessor auditor.
II. Indicate the type of report issued by Jewel.
III. Indicate the substantive reasons for Jewel’s qualification.

I only
I and II only
II and III only
I, II, and III
Ans.
I, II, and III

The predecessor auditor, who is satisfied after properly communicating with the successor
auditor, has reissued a report because the audit client desires comparative financial statements.
The predecessor auditor's report should make

Reference to the report of the successor auditor only in the scope paragraph.

Reference to the work of the successor auditor in the scope and opinion paragraphs.

Reference to both the work and the report of the successor auditor only in the opinion paragraph.

No reference to the report or the work of the successor auditor.

Ans.
No reference to the report or the work of the successor auditor.

A client is presenting comparative (two- year) financial statements. Which of the following is
correct concerning reporting responsibilities of a continuing auditor

The auditor should issue one audit report that is on both presented years.

The auditor should issue two audit reports, one on each year

The auditor should issue one audit report, but only on the most recent year
The auditor may issue either one audit reports on both presented years, or two audit reports, one
on each year
Ans.
The auditor should issue one audit report that is on both presented years.

Before reissuing the prior year's auditor's report on the financial statements of a former
client, the predecessor auditor should obtain a letter of representations from the

(1) Former client's management

(2) Successor auditor

(1) Yes; (2) Yes

(1) Yes; (2) No
(1) No; (2) Yes
(1) No; (2) No
Ans.
(1) Yes; (2) Yes

Unaudited financial statements for the prior year presented in comparative form with
audited financial statements for the current year should be clearly marked to indicate their
status and

I. The report on the prior period should be reissued to accompany

the current period report.
II. The report on the current period should include as a separate
paragraph a description of the responsibility assumed for the prior period's
financial statements.

I only
II only.
Both I and II.
Either I or II.
Ans.
Either I or II.

They are presented as complete financial statements capable of standing alone, but not an
integral part of the current period financial statements intended to be read nly in relationship to
the current period figures.

Corresponding figures
Comparative financial statements
Prior period figures
Comparatives
Ans.
Comparative financial statements

They are not presented as complete financial statements capable of standing alone, but are an
integral part of the current period financial statements intended to be read only in relationship to
the current period figures.

Corresponding figures
Comparative and financial statements
Prior period figures
Comparatives
Ans.
Corresponding figures

An auditor concludes that there is a material inconsis tency in the other information in an annual
report to shareholders containing audited financial statements. If the auditor concludes that the
financial statements do not require revision, but the client refuses to revise or eliminate the
material inconsistency, the auditor may

Revise the auditor's report to include a separate ex planatory paragraph describing the material
inconsistency.

Issue an "except for" qualified opinion after discussing the matter with the client's board of
directors.

Consider the matter closed since the other informa tion is not in the audited financial statements.

Disclaim an opinion on the financial statements af ter explaining the material inconsistency in a
separate explanatory paragraph.
Ans.
Revise the auditor's report to include a separate ex planatory paragraph describing the material
inconsistency.

If an amendment to other information in a document containing audited financial statements is

necessary and the entity refuses to make the amendment, the auditor would consider issuing:

Qualified or adverse opinion

Qualified or disclaimer of opinion
Unqualified opinion w/ explanatory paragraph
Unqualified opinion.
Ans.
Unqualified opinion w/ explanatory paragraph

The “other information” in a published report containing audited financial statements may be
relevant to an independent auditor’s examination. With respect to “other information”
The auditor’s responsibility does not extend beyond the financial information identified in the
report

The auditor is obligated to perform auditing procedures to corroborate “other information”

contained in a document

The auditor need not be concerned with the “other information”

The auditor must include the “other information” in the report

Ans.
The auditor’s responsibility does not extend beyond the financial information identified in the
report

When audited financial statements are presented in a client’s document containing other
information, the auditor should

Perform inquiry and analytical procedures to ascertain whether the other information is
reasonable.

Add an explanatory paragraph to the auditor’s report without changing the opinion on the
financial statements.

Perform the appropriate substantive auditing procedures to corroborate the other information.

Read the other information to determine that it is consistent with the audited financial
statements.
Ans.
Read the other information to determine that it is consistent with the audited financial
statements.

This exists when other information contradicts information contained in the audited financial
statements.

material misstatement of fact

material error
material inconsistency
material difference
Ans.
material inconsistency

It exists when other information, not related to matters appearing in the audited financial
statements, is incorrectly stated or presented.

Material inconsistency
Material misstatement of fact
Material weaknesses
Misstatement
Ans.
Material misstatement of fact

It exists when other information, contradicts information in the audited financial statements

Material inconsistency
Material misstatement of fact
Material weaknesses
Misstatement
Ans.
Material inconsistency

They are not presented as complete financial statements capable of standing alone, but are an
integral part of the current period.

Corresponding figures
Supplementary report
Comparative financial statements
Notes of financial statements
Ans.
Corresponding figures

An auditor concludes that there is a material inconsistency in the other information in an annual
report to shareholders containing audited financial statements. If the auditor concludes that the
financial statements do not require revision, but the client refuses to revise or eliminate the
material inconsistency, the auditor may

Issue an “except for” qualified opinion after discussing the matter with the client’s board of
directors

Consider the matter closed since the other information is in the audited financial statements

Disclaim an opinion on the financial statements after explaining the material inconsistency in a
separate explanatory paragraph

Revise the auditor’s report to include a separate paragraph describing the material inconsistency
Ans.
Revise the auditor’s report to include a separate paragraph describing the material inconsistency

An auditor concludes that there is a material inconsis tency in the other information in an annual
report to shareholders containing audited financial statements. If the auditor concludes that the
financial statements do not require revision, but the client refuses to revise or eliminate the
material inconsistency, the auditor may

Revise the auditor's report to include a separate ex planatory paragraph describing the material
inconsistency.
Issue an "except for" qualified opinion after discussing the matter with the client's board of
directors.

Consider the matter closed since the other informa tion is not in the audited financial statements.

Disclaim an opinion on the financial statements af ter explaining the material inconsistency in a
separate explanatory paragraph.
Ans.
Revise the auditor's report to include a separate ex planatory paragraph describing the material
inconsistency.

Other information that contradicts information contained in the audited financial statements is
called

Anomaly
Misstatement of fact
Error
Inconsistency
Ans.
Inconsistency

S1. The auditor’s opinion on financial statements normally covers the other
information
S2. The other information may undermine the credibility of the audited financial
statements when there are material inconsistencies

True True
True False
False True
False False
Ans.
False True

Per PSA 720 : Financial and non-financial information (other than the financial
statements and the auditor’s report thereon) which is included, either by law,
regulation or custom, in a document containing audited financial statements and the
auditor’s report thereon

Supplementary information
Other Information
Annual reports
Other matter
Ans.
Other Information
If an amendment to other information in a document containing audited financial statements is
necessary and the entity refuses to make the amendment, the auditor would consider issuing:

Qualified or adverse opinion

Qualified or disclaimer of opinion
Unqualified opinion with explanatory paragraph
Unqualified opinion.
Ans.
Unqualified opinion with explanatory paragraph

Other information that is unrelated to matters appearing in the audited financial statements that is
incorrectly stated or presented is called
Anomaly
Misstatement of fact
Error
Inconsistency
Ans.
Misstatement of fact

An auditor's report would be designated as a special report when it is issued in connection with
financial statements that are

For an interim period and are subjected to a limited review.

Unaudited and are prepared from a client's accounting records.
Prepared in accordance with a comprehensive basis of accounting other than PFRS.
Purported to be in accordance with generally accepted accounting principles but do not include
a presentation of the Statement of Cash Flows.
Ans.
Prepared in accordance with a comprehensive basis of accounting other than PFRS.

Other comprehensive basis of accounting may include all of the following except

That used by entity to prepare its income tax return.

The cash receipts and disbursement basis of accounting.
The accrual basis of accounting.
The financial reporting provision of a government regulatory agency.
Ans.
The accrual basis of accounting.

An auditor’s special report on financial statements prepared in conformity with the basis of
accounting should include a separate explanatory paragraph before the opinion paragraph that

Justifies the reasons for departing from GAAP.

States whether the financial statements are fairly presented in conformity with another
comprehensive basis of accounting.
Refers to the note to the financial statements that describes the basis of accounting.

Explains how the results of operations differ from financial statements prepared in conformity
with GAAP.
Ans.
Refers to the note to the financial statements that describes the basis of accounting.

PSA 800 “the auditor’s report on special purpose audit engagements” does not apply to a

Audit of financial statements prepared in accordance with GAAP in the Philippines.

Audit of financial statements prepared in accordance with the cash receipts and cash
disbursement basis of accounting.

Audit engagement that involves expression of an opinion on one or more components of the
financial statements.

Reports on summarized financial statements derived from annual audited financial statements.
Ans.
Audit of financial statements prepared in accordance with GAAP in the Philippines.

When reporting on financial statements prepared on the same basis of accounting used for
income tax purposes, the auditor should include in the report a paragraph that

States the basis of accounting used

Justifies the use of the income tax basis of accounting.

Emphasizes that the financial statements are not intended to have been audited in accordance
with PSA.

Refer to the authoritative pronouncements that explain the income tax basis of accounting being
used.
Ans.
States the basis of accounting used

Other comprehensive basis of accounting may include all of the following except

That used by entity to prepare its income tax return.

The cash receipts and disbursement basis of accounting.
The accrual basis of accounting.
The financial reporting provision of a government regulatory agency.
Ans.
The accrual basis of accounting.

An auditor’s report on financial statements prepared on the cash receipts and disbursements basis
of accounting should include all of the following except
A reference to the note to the financial statements that describes the cash receipts and
disbursements basis of accounting.

A statement that indicates the basis of accounting used

An opinion as to whether the financial statements are presented fairly in conformity with the
cash receipts and disbursements basis of accounting.

All of the above statements are correct

Ans.
All of the above statements are correct

Which statement is correct regarding report on a component of financial statements?

This type of engagement may be undertaken as a separate engagement or in conjunction with an

audit of the entity’s financial statements.

In determining the scope of the engagement, the auditor need not to consider those financial
statement items that are interrelated and which could materially affect the information on which
the audit opinion is to be expressed.

The auditor’s examination will ordinarily be less extensive that if the same component were to be
audited in connection with a report on the entire financial statements.

When an adverse opinion or disclaimer of opinion on the entire financial statements has been
expressed, the auditor may report on components of the financial statements even if those
components are so extensive as to constitute a major portion of the financial statements.
Ans.
This type of engagement may be undertaken as a separate engagement or in conjunction with an
audit of the entity’s financial statements.

An auditor is engaged to report on selected financial data that are included in a client- prepared
document containing audited financial statements. Under these circumstances, the report on the
selected data should

Be limited to data derived from the audited financial statements.

Be distributed only to senior management and the board f directors
State that the presentation is a comprehensive basis of accounting other than GAAP.
Indicate that the data are not fairly stated in all material respects.
Ans.
Be limited to data derived from the audited financial statements.

Engagements to express an opinion on the entity’s compliance with contractual agreements

should be undertaken only when

The overall aspects of compliance relate to accounting and financial matters

The financial statements are prepared in conformity with other comprehensive basis of
accounting

The contract specifically requires the auditor to express an opinion as the entity’s compliance

The CPA’s report will be in the form of negative assurance

Ans.
The overall aspects of compliance relate to accounting and financial matters

Reports are considered special report when issued in connection with

Compliance with aspects of regulatory requirements related to audited financial statements.

Pro-forma financial presentations designed to demonstrate the effect of hypothetical transactions.

Feasibility studies presented to illustrate an entity’s results of operations.

Interim financial information reviewed to determine whether material modifications should be

made to the financial statements to conform with GAAP.
Ans.
Compliance with aspects of regulatory requirements related to audited financial statements.

Reports are considered special reports when issued in connection with

Compliance with aspects of contractual provisions.

Pro forma financial presentations designed to demonstrate the effect of hypothetical transactions

Feasibility studies presented to illustrate an entity’s results of operations

Interim financial information reviewed to determine whether material modifications should be

made to conform with GAAP/PFRS
Ans.
Compliance with aspects of contractual provisions.

Reports are considered special reports when issued in connection with

Compliance with contractual requirements related to audited financial statements.

Pro forma financial presentations designed to demonstrate the effect of hypothetical transactions

Feasibility studies presented to illustrate an entity’s results of operations

Interim financial information reviewed to determine whether material modifications should be

made to conform with PFRS
Ans.
Compliance with contractual requirements related to audited financial statements.
Which of the following types of audits may include in its audit opinion the following phrase –
“consistent, in all material respects”.

Compliance audit
Consistency audit
Audit of summarized financial statement
Audit of unabridged financial statement.
Ans.
Audit of summarized financial statement

Engagements to express an opinion on the entity’s compliance with contractual agreements

should be undertaken only when

the overall aspects of compliance relate to accounting and financial matters.

the financial statements are prepared in conformity with other comprehensive basis of
accounting.

the contract specifically requires the auditor to express an opinion as to entity’s compliance.

the CPA’s report will be in the form of negative assurance.

Ans.
the overall aspects of compliance relate to accounting and financial matters.

Hardy, CPA, asked to express an opinion on Gold, Inc. summarized financial information. Hardy
may accept this engagement only if

Hardy also audits Gold’s complete financial statements.

Gold’s financial statements are prepared in conformity with GAAP.
Hardy’s report is available for distribution to Gold’s other employees.
Field owns controlling interest in Gold.
Ans.
Hardy also audits Gold’s complete financial statements.

An auditor may report on condensed financial statements that are derived from complete
financial statements if the

Condensed financial statements re distributed to stockholders along with the complete financial
statements.

Auditor described the additional procedures performed on the condensed financial statements.

Auditor indicates whether the information in the condensed financial statements is fairly stated in
all material respects in relation to the complete financial statements from which it has been
derived.
Condensed financial statements are presented in comparative form with the prior year’s
condensed financial statements.
Ans.
Auditor indicates whether the information in the condensed financial statements is fairly stated in
all material respects in relation to the complete financial statements from which it has been
derived.

The auditor’s report on summarized financial statements should include

An opinion as to whether the information in the summarized financial statements is presented

fairly, in all material respects.

An opinion as to whether the information in the summarized financial statements is consistent

with the audited financial statements from which it was derived.

A statement of negative assurance.

A description of the auditor’s factual findings including sufficient details of errors and
exceptions found.
Ans.
An opinion as to whether the information in the summarized financial statements is consistent
with the audited financial statements from which it was derived.

An auditor concludes that there is substantial doubt about an entity's ability to continue as
a going concern. If the entity's disclosures about continued existence are adequate, the
audit report should include

(1) A disclaimer of opinion

(2) A qualified opinion

(1) Yes; (2) Yes
(1) No; (2) No
(1) No; (2) Yes
(1) Yes; (2) No
Ans.
(1) No; (2) No

Which of the following situation, the effect of which is significant, least likely require a decision
of whether to issue a qualified or adverse opinion?

Any disagreement with entity management regarding the acceptability of the accounting policies
selected by the management.

Limitation on the scope of the auditor's work.

Unjustified changes in accounting policies.

Inadequate disclosures of financial information.
Ans.
Limitation on the scope of the auditor's work.