Since 1977

AUDITING THEORY L. R. CABARLES/J.M. D. MAGLINAO

AT.2817—Forming the Auditor's Opinion and Report Contents MAY 2020

Suggested Readings:
1. PSA 500, Audit Evidence
2. PSA 450, Evaluation of Misstatements Identified during the Audit
3. PSA 220, Quality Control for an Audit of Financial Statements
4. PSA 260, Communication with Those Charged with Governance
5. PSA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
6. PSA 700, Forming an Opinion and Reporting on the Financial Statements
7. PSA 701, Communicating Key Audit Matters in the Independent Auditor’s Report
8. PSA 705, Modifications to the Opinion in the Independent Auditor’s Report
9. PSA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
10. PSA 710, Comparative Information—Corresponding Figures and Comparative Financial Statements
11. PSA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial
Statements
12. Chapter 17, Auditing: A Risk-Based Approach, Part 1-Theory 2019 Issue—1st Edition by Cabarles/Ocampo/Valdez

DISCUSSION QUESTIONS
Forming Opinion and Report—An Overview 4. Management estimates the company's allowance for
1. Forming the auditor’s opinion and report includes doubtful accounts as P200,000, and the auditors
a. b. c. d. develop an estimate that suggests that the amount
Determining the sufficiency and should be between P230,000 and P250,000. The
appropriateness of audit factual (known) misstatement in this situation is:
evidence obtained. Yes Yes Yes Yes a. P0 c. P40,000
Evaluating the materiality of b. P30,000 d. P50,000
misstatements identified. Yes Yes Yes No
Performing necessary quality 5. Which of the following statements is correct regarding
control review. Yes Yes No Yes the auditor's accumulation of identified misstatements?
Communicating audit results a. The auditor must accumulate all misstatements
with management and those identified during the audit.
charged with governance. Yes No No Yes b. The auditor must only accumulate individually
material misstatements identified during the audit.
Determining SAAE c. The auditor must accumulate misstatements
2. After the auditor has completed all audit procedures, it identified during the audit, other than those that
is necessary to combine the information obtained to are clearly trivial.
reach an overall conclusion as to whether the financial d. None of the above.
statements are fairly presented. This is a highly
subjective process that relies heavily on: 6. At the end of the audit the auditor is supposed to
a. generally accepted auditing standards. accumulate and evaluate the need for adjustment of
b. the Code of Professional Ethics. a. known uncorrected errors.
c. generally accepted accounting principles. b. unknown projected errors.
d. the auditor’s professional judgment. c. carryover of prior year errors.
d. all of the above.
Evaluating Materiality of Misstatements
3. Projected misstatements refer to 7. What is the likely aggregate misstatement (LAM) when
a. Misstatements about which there is no doubt the audit results are as follows?
b. Differences arising from management’s judgments • Likely misstatement = P1,000
concerning accounting estimates that the auditor • Identified misstatement found in non-
considers unreasonable, or the selection or representative samples = P850
application of accounting policies that the auditor • Misstatements found in prior year’s financial
considers inappropriate statements = P2,500 (of which P1,900 was
c. The auditor’s best estimate of misstatements in corrected in the prior year)
populations, involving the projection of a. P1,850 c. P2,900
misstatements identified in audit samples to the b. P2,450 d. P3,500
entire populations from which the samples were
drawn 8. When expressing an unqualified opinion, the auditor
d. Misstatements that the auditor has accumulated who evaluates the audit findings should be satisfied
during the audit and that management has not that the
corrected a. Amount of known misstatement is documented in
the management representation letter.
b. Estimate of the total likely misstatement is less
than a material amount.

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c. Amount of known misstatement is acknowledged
and recorded by the client.
d. Estimate of the total likely misstatement includes
the adjusting entries already recorded by the
client.
Performing Engagement Quality Control Review
(EQCR)
9. Which of the following is likely to be carried out as part
of an engagement quality control review for a listed
entity?
(1) Review of audit working paper files to ensure that
the audit has been performed in accordance with
professional standards and regulatory and legal
requirements
(2) Review of selected audit documentation relating to
significant audit judgements
(3) Review of the engagement team's evaluation of
the firm's independence towards the audit
(4) Consideration of whether appropriate consultations
have taken place on differences of
opinion/contentious matters
a. (1) and (3)
b. (2) and (4)
c. (1), (2) and (4)
d. (2), (3) and (4)
Communicating with TCWG, MGT, and Other Parties
10. All of the following matters need to be communicated
with those charged with governance in an audit of
financial statements irrespective of an entity’s
governance structure or size. In accordance with PSA
260, Communication with Those Charged with
Governance, which of the following shall be
communicated in writing in case of listed entities?
a. The auditor’s responsibilities in relation to the
financial statement audit.
b. Planned scope and timing of the audit.
c. Significant findings from the audit.
d. Auditor independence.
11. Which of the following statements is correct concerning
an auditor’s required communication with those
charged with governance of an audit client?
a. This communication is required to occur before the
auditor’s report on the financial statements is
issued.
b. This communication should include discussion of
any significant disagreements with management
concerning the financial statements.
c. Any significant matter communicated to the audit
committee should be communicated to
management.
d. Significant audit adjustments proposed by the
auditor and recorded by management need not be
communicated with those charged with
governance.
The Auditor's Opinions
12. A client decides not to make an auditor’s proposed
adjustments that collectively are not material and
wants the auditor to issue the report based on the
unadjusted numbers. Which of the following
statements is correct regarding the financial statement
presentation?
a. The financial statements are free from material
misstatement, and no disclosure is required in the
notes to the financial statements.
b. The financial statements do not conform with
GAAP.
c. The financial statements contain unadjusted
misstatements that should result in a qualified
opinion.
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d. The financial statements are free from material
misstatement, but disclosure of the proposed
adjustments is required in the notes to the
financial statements.
13. In a qualified, adverse, or disclaimer report, the
auditor
a. has not performed a satisfactory audit.
b. is not satisfied that the financial statements are
presented fairly
c. either of the two responses
d. none of the two responses.
14. This term is used to describe the effects or possible
effects on the financial statements of a matter that, in
the auditor’s judgment, are not confined to specific
elements, accounts or items of the financial
statements, or, if confined, represent or could
represent a substantial proportion of the financial
statements, or, in relation to disclosures, are
fundamental to users’ understanding of the financial
statements
a. Persuasive c. Pervasive
b. Reasonable d. Effective
15. What audit opinions would be possible when the
audited company refuses to record adequate
amortization for fixed assets? Assume the amount in
question exceeds materiality.
a. Only unqualified or adverse opinions are possible.
b. Only qualified or adverse opinions are possible.
c. Only adverse or denial opinions are possible.
d. Only qualified or unqualified opinions are possible.
16. If the financial statements, including accompanying
notes, fail to disclose information that is required by
PFRSs, the auditor should express either a(an)
a. “Except for qualified opinion or adverse opinion.
b. Adverse opinion or a “subject to” qualified opinion.
c. “Subject to” qualified opinion or unqualified opinion
with a separate explanatory paragraph.
d. Unqualified opinion with a separate explanatory
paragraph or an “except for” qualified opinion.
17. A departure from PFRS is disclosed in a note to the
financial statements. The auditor should:
a. Issue an unqualified opinion, with no explanatory
paragraph, since the departure from PFRSs is
disclosed
b. Issue an unqualified opinion, but emphasize the
matter in an explanatory paragraph
c. Issue a qualified opinion
d. Disclaim an opinion
18. 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
a. Unqualified but not mention the departure in the
auditor’s report.
b. Unqualified and describe the departure in a
separate paragraph.
c. Qualified and describe the departure in a separate
paragraph.
d. Qualified or adverse, depending on materiality, and
describe the departure in a separate paragraph.
19. Of the two major categories of scope restrictions, (1)
those caused by client and (2) those caused by
conditions beyond the control of either client or
auditor, the effect on the auditor’s judgment is
a. the same for either.
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b. More serious for 1 than for 2.
c. More serious for 2 than for 1.
d. Negligible.
20. 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)
a. “Except for” qualified opinion.
b. Disclaimer of opinion.
c. Unqualified opinion with a separate explanatory
paragraph.
d. Unqualified opinion with an explanation in the
auditor’s responsibility paragraph.
21. 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)
a. Qualified opinion.
b. Disclaimer of opinion.
c. Unqualified opinion without mentioning the
alternative procedures.
d. Unqualified opinion with an explanatory paragraph.
The Auditor's Reports
22. The independent auditor’s report may be classified as
a. Unmodified.
b. Modified due to modified opinions.
c. Modified due to Emphasis of Matter and Other
Matter paragraphs without necessarily modifying
the opinion.
d. All of the above.
Unmodified Auditor’s Report
23. PSA 700 Forming an opinion and reporting on financial
statements sets out the basic elements of an auditor's
report. Which of the following is not included in an
unmodified auditor's report?
a. Management's responsibility for the financial
statements
b. Auditors' responsibilities
c. Audit opinion
d. Deficiencies of internal controls
24. Under PSA 700, the following are mandatory to be
included in the auditor’s report for audits of financial
statements of listed entities but only voluntary for
entities other than listed entities, except
a. A section to communicate key audit matters.
b. Disclosure of the name of the engagement partner,
with a “harm’s way” exemption.
c. Material uncertainty related to going concern.
d. All of the above.
Title and Addressee
25. To distinguish it from reports that might be issued by
others, such as by officers of the entity, the board of
directors, or from the reports of other auditors who
may not have to abide by the same ethical
requirements as the independent auditor, the auditor’s
report should have an appropriate
a. Addressee c. Signature
b. Title d. Opinion
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26. The audit report is normally addressed to the
Board of Shareholders President of the
Directors entity
a. Yes Yes Yes
b. No Yes Yes
c. Yes Yes No
d. Yes No No
Opinion
27. The opinion section of the auditor’s report includes the
following, except:
a. Identification of the entity whose financial
statements (FSs) have been audited.
b. Statement that the FSs have been audited.
c. Title of each of the FSs that comprise the complete
set of FSs.
d. Reference to "basic financial statements" without
indicating the title of each of the FSs.
28. The opinion section of the auditor’s report includes the
following, except:
a. Reference to the summary of significant accounting
policies and other explanatory notes
b. Specific date and period covered by the FSs.
c. Reference to Philippine Standards on Auditing.
d. Identifies the applicable financial reporting
framework on which the FSs are based.
29. The auditor's standard report states that the financial
statements are presented fairly
a. with reasonable assurance.
b. in all material respects.
c. without significant errors.
d. on a consistent basis.
Basis for Opinion
30. The basis for opinion section of the auditor’s report
includes the following, except:
a. That the audit was conducted based on PSAs.
b. A reference to the section of the auditor’s report
that describes the auditor’s responsibilities under
the PFRSs.
c. A statement that the auditor is independent of the
entity in accordance with the relevant ethical
requirements relating to the audit, and has fulfilled
the auditor’s other ethical responsibilities in
accordance with these requirements; and
d. A conclusion that whether the auditor believes that
the audit evidence the auditor has obtained is
sufficient and appropriate to provide a basis for the
auditor’s opinion.
Material Uncertainty Related to Going Concern
31. Which of the following is not a condition to include a
separate going concern section with a heading
“Material Uncertainty Related to Going Concern” in the
auditor’s report?
a. The use of the GC basis of accounting is
appropriate.
b. A modified opinion is appropriate in respect of the
matter.
c. Reference to the note in the financial statements
that describes the material uncertainty.
d. A statement that these events or conditions
indicate that a material uncertainty exists that may
cast significant doubt on the entity’s ability to
continue as a going concern.
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32. C Co has a substantial bank loan which is due to
mature in 20X8, and the company plans to negotiate
for a new loan in March 20X8. The auditors concluded
that the company’s use of the going concern
assumption in the financial statements for the year
ended 31 December 20X7 is appropriate. However,
they believe there is a material uncertainty related to
going concern, which has been appropriately disclosed
in the financial statements. What action should the
auditor take with regards to going concern in the
auditor’s report?
a. Express an unmodified opinion and describe the
material uncertainty in the other matter paragraph
b. Express an unmodified opinion and describe the
material uncertainty in the material uncertainty
related to going concern paragraph
c. Express a modified opinion and describe the
material uncertainty in the emphasis of matter
paragraph
d. Express a qualified opinion and describe the
material uncertainty in the basis for qualified
opinion paragraph
Key Audit Matter
33. In which of the following situations the auditor may
communicate KAM in the auditor’s report?
a. When a law or regulation precludes disclosure.
b. When adverse consequences of communicating the
KAM would reasonably be expected to outweigh
the public interest benefits of such communication.
c. When a disclaimer of opinion is expressed.
d. When a qualified or adverse opinion is expressed.
34. Under PSA 701, which of the following refers to the
term “Key Audit Matters (KAM)”?
a. Matters that were communicated with those
charged with governance.
b. Matters that required significant auditor attention.
c. Matters that, in the auditor’s professional
judgment, were of most significance in the audit of
the financial statements of the current period.
d. It exists when the magnitude of its potential
impact is such that, in the auditor’s judgment,
clear disclosure of the nature and implications of
the uncertainty is necessary for the presentation of
the financial statements not to be misleading.
35. PSA 701 sets out a decision framework for auditors
using the communications with those charged with
governance as a starting point. From the matters
communicated with those charged with governance,
the auditor determines those matters that required
significant auditor attention. In fulfilling this
requirement, the auditor is NOT always required to
explicitly consider
a. Areas of higher assessed risks of material
misstatement, or significant risks identified.
b. Areas of lower assessed risks of material
misstatement, or no significant risks identified.
c. Significant auditor judgments relating to areas in
the financial statements that involved significant
management judgment, including accounting
estimates that have been identified as having high
estimation uncertainty.
d. The effect on the audit of significant events or
transactions that occurred during the year.
36. Which of the following is not included in the description
of a KAM in the auditor’s report?
a. Why the matter was considered to be a KAM
b. How the matter was addressed in the audit
c. Reference to the any related disclosure(s)
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d. Standardized, highly technical language and not
entity-specific to promote comparability of reports
Other Information
37. Which of the following best describes the auditor's
responsibility for "other information" included in the
annual report to stockholders, which contains financial
statements and the auditor's report?
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."
38. It exists when other information contradicts
information contained in the audited financial
statements.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
39. 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:
a. Qualified or adverse opinion
b. Unqualified opinion with explanatory paragraph
c. Qualified or disclaimer of opinion
d. Unqualified opinion.
Responsibilities of MGT and TCWG for the F/S
40. An entity’s management is responsible for the
preparation and fair presentation of the financial
statements. Its responsibility includes the following,
except
a. Designing, implementing, and maintaining internal
control relevant to the preparation and
presentation of financial statements.
b. Making accounting estimates that are reasonable
in the circumstances and selecting and applying
appropriate accounting policies.
c. The assessment of the entity’s ability to continue
as a going concern and the appropriateness of the
going concern.
d. Assessing the risks of material misstatement of the
financial statements.
Auditor’s Responsibilities for the Audit of the F/S
41. The auditor’s responsibility section of the auditor’s
report includes the following, except:
a. The auditor’s objectives to obtain limited
assurance.
b. An explanation that misstatements can arise from
fraud or error.
c. A description of the meaning of materiality.
d. An explain that the auditor exercises professional
judgement and maintains professional skepticism
throughout the audit.
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Other Reporting Responsibilities 46. If management chooses to place supplementary

42. Statement 1: The auditor’s report shall name the information that is not considered integral part of the
location in the country or jurisdiction where the auditor financial statements in footnotes to the financial
practices. statements, this information should be clearly marked
as
Statement 2: When the auditor addresses other
a. Unaudited.
reporting responsibilities in the auditor’s report on the
b. Supplementary information required by the SEC.
financial statements that are in addition to the
c. Disclosures required by the SEC.
auditor’s responsibility under PSAs, these other
d. Audited financial data required by GAAP.
reporting responsibilities shall be addressed in a
separate section in the auditor’s report. This separate
47. If management declines to present supplementary
section shall be sub-titled “Report on Other Legal and
information that is not considered integral part of the
Regulatory Requirements”, unless these other
financial statements required by the Securities and
reporting responsibilities address the same topics as
Exchange Commission (SEC), the auditor should issue
those presented under the reporting responsibilities
a(n)
required by the PSAs in which case the other reporting
a. Adverse opinion.
responsibilities may be presented in the same section
b. Qualified opinion with an other-matter paragraph.
as the related report elements required by the PSAs as
c. Unmodified opinion.
long as the wording of the auditor’s report clearly
d. Unmodified opinion with an additional other-matter
differentiates the other reporting responsibilities from
paragraph.
those under the PSAs.
a. True, True
Name of Partner, Signature, Address and Date
b. False, True
48. When financial statements are audited by an
c. False, False
accounting firm, the partner-in-charge of engagement
d. True, False
ordinarily signs in the name of the firm because:
a. The partner-in-charge of engagement should be
43. When is the case that supplementary information is
relieved of any responsibility regarding the opinion
covered by the auditor’s opinion?
issued.
a. The supplementary information is integral part of
b. It is required by reporting standards.
the financial statements and is presented as a
c. The firm assumes responsibility for the audit.
supplementary schedule.
d. The opinion becomes more credible if signed in
b. The supplementary information is integral part of
name of the firm.
the financial statements and is presented as an
additional note disclosure.
49. The following statements relate to the date of the
c. The supplementary information is not integral part
auditor’s report. Which is false?
of the financial statements but is presented as an
a. The auditor should date the report as of the
additional note disclosure.
completion date of the audit
d. Both (a) and (b).
b. The date of the auditor’s report should not be
earlier than the date on which the financial
44. Which of the following is the least likely way to report
statements are signed or approved by
on supplementary information that is considered
management
integral part of financial statements?
c. The date of the auditor’s report should not be later
a. In the auditor’s report as part of “Report on the
than the date on which the financial statements
Audit of Financial Statements”.
are signed or approved by management.
b. In the auditor’s report as part of “Report on the
d. The date of the auditor’s report should always be
Audit of Financial Statements” if addressing the
later than the date of the financial statements (i.e.,
same topics as those presented under the
the balance sheet date).
reporting responsibilities required by PSAs and the
wording of the auditor’s report clearly
50. The audit report date is important to users because it
differentiates the other reporting responsibilities
indicates the
from those under the PSAs.
a. Last day of the fiscal period.
c. In the auditor’s report as part of “Report on Other
b. Last day of the auditor’s responsibility for the
Legal and Regulatory Requirements”.
review of significant events that occurred after the
d. As a separate independent auditor’s report on
date of the financial statements.
supplementary information.
c. Date on which the financial statements were filed
with the SEC.
45. Which statement is correct concerning required
d. Last day on which users may institute a lawsuit
supplementary information not considered integral part
either client or auditor.
of the financial statements?
a. The auditor has no responsibility for required
Modified Auditor’s Report—Modified Opinion
supplementary information as long as it is outside
Modified Auditor’s Report—Modified Opinion
the basic financial statements.
51. In cases where the auditor expressed a modified
b. The auditor's only responsibility for required
opinion, which section of the auditor’s report is not
supplementary information is to determine that
modified?
such information has not been omitted.
a. Auditor’s opinion
c. The auditor should apply certain limited procedures
b. Basis for opinion
to the required supplementary information, and
c. Description of auditor’s responsibilities
report deficiencies in, or omissions of, such
d. Responsibilities for the financial statements
information.
d. The auditor should apply tests of details of
transactions and balances to the required
supplementary information, and report any
material misstatements in such information.

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EXCEL PROFESSIONAL SERVICES, INC.
52. When the auditor modifies the opinion on the financial
statements, the auditor shall, in addition to the specific
elements required by PSA 700, do the following in the
Basis for Opinion section
a. b. c.
Amend the heading “Basis for
Opinion”. Yes Yes Yes Yes
Describe the matter giving rise
to the modification. Yes Yes Yes No
Quantify the financial effects of
the material misstatement,
unless impracticable. Yes Yes No Yes
State if it is not practicable to
quantify the financial effects. Yes No No Yes
Explain how disclosures are
misstated. Yes No No Yes
Disclose reasons for inability to
obtain sufficient appropriate
audit evidence. Yes Yes No Yes
Amend the phrase to provide a
basis for the auditor’s opinion
to include the word
“qualified” or “adverse”. Yes Yes No Yes
When the auditor disclaims an
opinion, the auditor’s report
shall not include the elements
required by paragraphs 28(b)
and 28(d) of PSA 700. Yes Yes No Yes
53. When an auditor expresses an adverse opinion he/she
should disclose the substantive reasons for such an
opinion in an explanatory paragraph.
a. Within the notes to the financial statements
b. Preceding the opinion paragraph
c. Following the opinion paragraph
d. Preceding the introductory paragraph
54. If the auditor expresses disclaimer of opinion in the
auditor’s report, which section should be omitted?
a. KAM
b. Auditor’s responsibilities
c. Management’s responsibilities
d. Other reporting responsibility
Modified Auditor’s Report—Emphasis of Matter
(EOM) and Other Matter (OM) paragraphs
55. Statement 1: The inclusion of an Emphasis of Matter
paragraph in the auditor's report does not affect the
auditor's opinion on the financial statements in respect
of the matter emphasized.
Statement 2: An Emphasis of Matter paragraph is not
used when the issue has been covered as a key audit
matter.
a. True, true c. False, true
b. True, false d. False, false
56. An additional paragraph reads as follows:
On October 15, 2018, the Company emerged from
bankruptcy. As discussed in the Note 25 to 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. Our opinion is not modified in respect of
this matter.
The paragraph likely is intended to:
a. Qualify an opinion
b. Emphasize a matter
c. Report an inconsistency
d. Indicate a departure from PFRS
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57. Which of the following statements is correct relating to
Other Matter paragraph in the financial statements?
a. A paragraph that refers to a matter other in the
financial statements that is relevant to
d. understanding of the audit, the auditor’s
responsibilities or the auditor’s report.
b. The auditor shall include this paragraph
immediately after the Opinion paragraph.
c. The auditor shall include this paragraph
immediately after any Emphasis of Matter
paragraph
d. The auditor shall provide a modified opinion as a
result of adding Other Matter paragraph.
58. Which of the following is not one of the requirements
in including an Other Matter paragraph?
a. The inclusion is not prohibited by law or regulation.
b. The matter has not been determined to be a key
audit matter to be communicated in the auditor’s
report.
c. The auditor would not be required to modify the
opinion result of the matter.
d. All of the above.
59. Which of the following circumstances will the auditor
least likely add an Other Matter paragraph?
a. The auditor is unable to resign from an
engagement even though the possible effect of an
inability to obtain sufficient appropriate audit
evidence due to a limitation on the scope of the
audit imposed by management is pervasive.
b. Restriction on distribution of the auditor’s report.
c. Reporting on comparative information, and such
information had not been audited or was audited
by a different auditor.
d. Report on the pervasiveness of related party
transactions that have been disclosed in the
financial statements.
60. Maffle Corporation presents comparative financial
statements ended December 31, 2019 and 2018. ABC
and Co., CPAs is the newly appointed auditor for the
year 2019. The prior year financial statements were
audited by another auditor who expressed an
unmodified opinion. After the audit ended on March 31,
2020, the auditor’s findings include:
• The Accounts Receivable as of December 31, 2019,
though not pervasive, is materially misstated.
• The client’s production facilities were razed by fire
on February 10, 2020. This event has been
adequately disclosed in the notes to financial
statements.
In the auditor’s report, the auditor most likely should
include a(an)
a. Unmodified opinion and an emphasis of matter
paragraph.
b. Qualified opinion and an emphasis of matter
paragraph.
c. Unmodified opinion, an emphasis of matter
paragraph, and an other matter paragraph.
d. Qualified opinion, an emphasis of matter
paragraph, and an other matter paragraph.
Auditor’s Report—Comparative Information
61. In accordance with PSA 710, comparative information
may be
a. Corresponding figures
b. Comparative financial statements
c. Either a or b
d. Neither a nor b
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Corresponding Figures b. Continue to express a qualified opinion on the prior

62. They are not presented as complete financial year's financial statements.
statements capable of standing alone, but are an c. Make no reference to the type of opinion expressed
integral part of the current period. on the prior year's financial statements.
a. Corresponding figures d. Express an unqualified opinion on the restated
b. Comparative financial statements financial statements of the prior year.
c. Supplementary report
d. Notes of financial statements 66. When reporting on prior period financial statements in
connection with the current period’s audit, if the
63. When corresponding figures are presented, the auditor’s opinion on such prior period financial
auditor’s opinion shall not refer to the corresponding statements differs from the opinion the auditor
figures except previously expressed, the auditor shall disclose the
a. If the auditor’s report on the prior period included substantive reasons for the different opinion in
a modified opinion and the matter which gave rise a. The Key Audit Matter section
to the modification is unresolved. b. An Emphasis of Matter paragraph
b. If a material misstatement exists in the prior year c. An Other Matter paragraph
financial statements on which an unmodified d. Any of the above
opinion has been previously issued.
c. In the case of initial audit such as when the prior 67. Jewel, CPA, audited Infinite Co.'s prior year financial
year financial statements were unaudited or statements. These statements are presented with
audited by a predecessor auditor. those of the current year for comparative purposes
d. All of the above. without Jewel's auditor's report, which expressed a
qualified opinion. In drafting the current year's
Comparative Financial Statements auditor's report, Crain, CPA, the successor auditor,
64. A client is presenting comparative (two-year) financial should do the following in an Other Matter paragraph
statements. Which of the following is correct I. Not name Jewel as the predecessor auditor.
concerning reporting responsibilities of a continuing II. Indicate the type of report issued by Jewel.
auditor? III. Indicate the substantive reasons for Jewel's
a. The auditor should issue one audit report that is on qualification.
both presented years. IV. The date of the predecessor auditor’s report
b. The auditor should issue two audit reports, one on a. I and II only.
each year. b. II and III only.
c. The auditor should issue one audit report, but only c. I and III only
on the most recent year. d. I, II, III, and IV.
d. The auditor may issue either one audit report on
both presented years, or two audit reports, one on 68. When unaudited financial statements are presented in
each year. comparative form with audited financial statements in
a document filed with the Securities and Exchange
65. An auditor expressed a qualified opinion on the prior Commission, such statements should be
year's financial statements because of a lack of
Marked as State as “unaudited” in an
adequate disclosure. These financial statements are
"unaudited" Other Matter paragraph
properly restated in the current year and presented in
a. Yes No
comparative form with the current year's financial
b. Yes Yes
statements. The auditor's updated report on the prior
year's financial statements should c. No Yes
a. Be accompanied by the auditor's original report on d. No No
the prior year's financial statements.
- now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

1. What audit opinion would be appropriate when the but that cannot be calculated exactly because it
auditor has formed an opinion that the financial involves an estimate.
statements are not fairly presented in all material c. The auditor concludes that there is a going-
respects due to a departure from GAAP? concern issue for the auditee company.
a. Unqualified c. Adverse d. The auditor was not appointed as the auditor until
b. Qualified d. Denial after year end, after the inventory count, and was
unable to satisfy herself concerning inventory
2. If the scope of the examination has been satisfactory values by other means.
for all items except for one of material amount, the
auditor should issue a (an) 4. In which of the following situation would a decision of
a. Unqualified opinion. c. Disclaimer of opinion. selecting between a qualified or adverse opinion be
b. Qualified opinion. d. Adverse opinion. inappropriate?
a. A limitation in the scope of the audit.
3. Which of the following would require a denial b. The financial statements are significantly
(disclaimer) of the audit opinion? misleading.
a. There is a material misstatement that in the c. A disagreement between the auditor and the client
auditor’s opinion will overstate the value of an arose because of capitalization of research and
investment by P1,000,000. development costs.
b. There is a misstatement that is in the range of d. A required disclosure that is significant is omitted
P200,000 to P300,000 (materiality is P100,000), from the financial statements.

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EXCEL PROFESSIONAL SERVICES, INC.
5. Misstatements detected during the audit that were
initially deemed to be immaterial (unless clearly trivial)
must be summarized to determine their:
a. control.
b. quantitative effect.
c. aggregate effects.
d. nature of misstatement.
6. What happens to the sufficiency of audit evidence
collected if in the final review new information causes
the engagement partner to decide that a lower
materiality threshold is required and as a result the
partner reduces planning materiality for the audit?
a. more evidence may be required.
b. less evidence may be required.
c. the client may be asked to make correcting
entries.
d. Both A and C.
7. Which of the following is not a required communication
with the audit committee?
a. accounting policies.
b. accounting estimates.
c. economic trends.
d. difficulties encountered.
8. Which of the following shall be included in the written
communication of significant deficiencies in internal
control?
a. A description of the deficiencies and an explanation
of their potential effects.
b. The purpose of the audit was for the auditor to
express an opinion on the financial statements.
c. The audit included consideration of internal control
relevant to the preparation of the financial
statements in order to design audit procedures
that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the
effectiveness of internal control.
d. All of the above.
9. 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 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.
10. In addition to the company’s financial statements,
which of the following would be covered by the
auditor’s standard report?
a. The notes to the financial statements
b. Comparative figures in the financial statements
c. The company’s tax return for the year being
audited
d. The company’s budget for net income for the year
being audited
11. Which of the following changes to PSAs and the
auditor's report have been caused by enhanced auditor
reporting on going concern (GC)?
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a. Explicit description of the respective responsibilities
of management and the auditor in all auditor’s
reports
b. Separate GC section required when material
uncertainty exists, with a heading “Material
Uncertainty Related to Going Concern”
c. Requirement to challenge adequacy of disclosures
for GC “close calls”
d. All of the above
12. The audit report issued by Lozano and Co., CPAs,
included the following paragraph that followed the
opinion paragraph:
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:
a. an inappropriate reporting practice
b. an additional information to be a part of the notes
to financial statements.
c. an emphasis of matter regarding uncertainty which
is considered an acceptable reporting practice
d. inappropriate because it contradicted the
unqualified opinion issued by the auditor
13. 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 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
another auditor
d. the audit work has been materially limited by
management.
14. The auditor's inquiries of management regarding
supplementary information on the effects of price level
changes should be directed to the judgments made
concerning
a. Relevance and validity.
b. Measurement and presentation.
c. Accuracy and objectivity.
d. Rights and obligations.
15. 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.
a. I only.
b. II only.
c. Both I and II.
d. Either I or II.
16. 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
a. Reference to the report of the successor auditor
only in the scope paragraph.
AT.2817
EXCEL PROFESSIONAL SERVICES, INC.
b. Reference to the work of the successor auditor in
the scope and opinion paragraphs.
c. Reference to both the work and the report of the
successor auditor only in the opinion paragraph.
d. No reference to the report or the work of the
successor auditor.
17. When single-year financial statements are presented,
an auditor ordinarily would express an unqualified
opinion in an unmodified report if the
a. Auditor is unable to obtain audited financial
statements supporting the entity's investment in a
foreign affiliate.
b. Entity declines to present a statement of cash
flows with its balance sheet and related statements
of income and retained earnings.
c. Auditor wishes to emphasize an accounting matter
affecting the comparability of the financial
statements with those of the prior year.
d. Prior year's financial statements were audited by
another CPA whose report, which expressed an
unqualified opinion, is not presented.
18. 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
Former client's Successor
management auditor
a. Yes Yes
b. Yes No
c. No Yes
d. No No
19. In May 20X9, an auditor reissues the auditor’s report
on the 20X7 financial statements at a continuing
client’s request. The 20X7 financial statements are not
restated and the auditor does not revise the wording of
the report. The auditor should
a. Dual date the reissued report.
b. Use the release date of the reissued report.
c. Use the original report date on the reissued report.
d. Use the current period auditor’s report date on the
reissued report.
20. When 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.
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d. Read the other information to determine that it is
consistent with the audited financial statements.
21. 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
a. Revise the auditor's report to include a separate
explanatory paragraph describing the material
inconsistency.
b. Issue an "except for" qualified opinion after
discussing the matter with the client's board of
directors.
c. Consider the matter closed since the other
information is not in the audited financial
statements.
d. Disclaim an opinion on the financial statements
after explaining the material inconsistency in a
separate explanatory paragraph.
22. It exists when other information, not related to
matters appearing in the audited financial statements,
is incorrectly stated or presented.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
23. With regard to how KAM was addressed in the audit,
the description may include the following, except
a. Aspects of the auditor’s response or approach and
brief overview of procedures performed
b. Indication of the outcome of the auditor’s
procedures
c. Key observations with respect to the matter
d. None of the above
24. When comparative financial statements are presented,
which refers to financial statements "taken as a
whole," should be considered to apply to the financial
statement 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.
25. An auditor's report on comparative financial
statements should be dated as of the date the
a. Report is issued.
b. Auditor's fieldwork is completed.
c. Fiscal year ends.
d. Last subsequent event occurred.
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AT.2817