I contr . Obtain an understanding of internal and in order to design au cedures that are eperopritein the circumstances, but 1 opinion on the effectivene: Evaluate the appropriateness of accounting policies useq a the reasonableness of accounting estimates and rela disclosures made by management. jateness of management's use of the is of accounting and, based or © Conclude on ‘We communicate wit matters, the planni findings, including any leiicant deficiencies in internal cont Signature ‘Auditor’s Address Date Multiple Choice Questions The Unmodified Repots 1 A major purpose of the auditor’ report on financial statements is to a. Assure investors of the complete accuracy of the financial statements b, Enhance the degree of confidence of intended users in the financial statements ¢. Detercreditors from extending loans in high-risk situations 4, Describe the specific auditing procedures undertaken to gather evidence of the opinion Which of the following parties is responsible for the fairness of the representations made in financial statements? a.” Client’s management b. Independent auditor ¢. Audit committee d. PICPA Pa 700 provides guidance on the: Audit report that includes a modified opinion. b Audi report that inchides an unmodified opinion. ©. Audit report that includes an unmodified opinion, though the auditor's report is modified due to an emphasis of Matter. d. Audit report, irrespective of the type of opinion issued by the auditor. The auditing profession recognizes the need for uniformity in reporting as a means of z a. defending against-capricious lawsuits >. - standardizing the policies of various CPA firms ©. upgrading the communications skills of auditors 4. avoiding confusion5. Which of the following elements of the auditor’s report affirms . The auditor's judgment as to whether the financial statements benefit of having uniformity in What is the overriding POF niformity promotes credibility in the global markerplage by making mote realy identifiable those aucits that hag been conducted in accordance with globally , standards. ae b. Uniformity in the form promotes the expression unmodified opinion. c. Uniformity lessens the auditor's legal and civil li The audit report eliminates some disclosures requis the financial statements i the auditor's independence? a. Introductory paragraph b. Auditor's Responsibility c. Title 4. Signature : 3 are presented fairly, in all material respects, is made in the context of 2. Philippine Standards on Auditing b. Applicable financial reporting framework. ¢. The professional ethical requirements. 4. Generally accepted auditing standards Auditing standards require that the audit repost must be ded This is done in order to a. indicate that the auditor is a CPA b. distinguish the independent auditor's report from reports that might be issued by others. : identify the financial statements audited. "emphasize management's responsibility for the Presentation of the financial statements. ‘The auditor does not normally address the report to * 4, Those for whom the report is prepared b. The president of client company c. ‘Those charged with governance of client company d. The stockholders of client company : statement audited is the a. title b. opinion section ¢. _ basis for opinion section d. auditor's responsibility section . The auditor’s opinion covers the complete set of financial statements. A complete set of financial statements does not include a. Statement of Comprehensive Income b. Statement of Changes in Financial Position ¢. Statement of Cash Flows : d. Summary of significant accounting policies and other explanatory information Which of the following shall be included in the opinion section of the auditor's report? Locwhom the report is statement —_financial statements prepared a YES YES YES b YES NO YES & NO YES YES a YES YES NO ~ PSA 700 requires the audit report to be signed. The auditor's signature should be 2. Tn the name of the audit firm >. In the personal name of the auditor © Either a orb . - 4. Neither a norb15. “The appropriate date for the audit report is the one on whi the a. dlient’s fiscal year ended : b. auditor has concluded procedures in the field c. auditor and client entered into a contract d. auditor types and delivers the report to client The date of the audit report is important because a. The date of the auditors report informs the user of the auditor's report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date. b. The auditor bills time to the client up to and including report date, and the statement to the client flect this date 2 bbe pexformed on a timely basis th the date of the financial ’s report ce the financial statements are issued seme as the Snancial statement date. than the date on which the auditor has cient appropriate audit evidence on which to base his opinion 4. Should not be earlier than the date of the approval of financial statements An audit report should be dated as of the 2. date the report is delivered to the entity audited. b. date the financial statements were approved by the clest management. ¢: Balance sheet date of the latest period reported 00: a. date a letter of audit inquiry is received from the enti - attorney. Ss me a. Auditor's address b. Date of the Auditor’ report c, Emphasis of a matter d. Auditor’s signature The auditor’s address is indicated in the auditor's report by: a. Naming the location in the country where the auditor practices his profession. b. Including the complete mailing address af the audito: ¢. Identifying the country where the auditor had secured his professional license. ; d. Addressing the report to the stakeholders or the audit client. . ). How are management's responsibility and the auditor’s Responsibility Responsibility a. Explicitly Explicitly b Implicitly Implicit «. Implicitly Explicidly q Explicitly Implicitly + The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all22. 23. 24. 25. 26. ‘The description of the auditor’s responsibilities for the aug of the financial statements shall be included 1 Within the body of the auditor's report Tl Within an appendix to the auditor’s report IML. By a specific reference within the auditor’s report tp the location of such a description on an website of an appropriate authority. a. Tonly ; © b. only a Either I or I 1,11, or IIL ‘The most common type of audit report contains (a) a. adverse opinion b. , qualified opinion c. disclaimer of opinion d. unmodified opinion “These refer to financial statements prepared in accordance with a general purpose framework. a. General-purpose financial statements b. Annual report ¢. Common-size financial statements d. Fair presentation framework Financial statements prepared in accordance with a financal reporting framework designed to meet the financial information needs of specific users are referred to 28 a. Special purpose financial statements b. Special purpose framework ¢. General purpose financial statements d. Specific purpose financial statements Fair presentation framework is a financial reporting feamewod that requires compliance with the requirements ©! framework and: L Acknowledges explicitly orimpliily that, t0 c= | ied | be necessary for management to provide disclose fair presentation of the financial statements, beyond those specifically required by the fhe 27. 28. a 30, ‘a. State that the financial stateme IL Acknowledges explicit for manne TPlciy that it may be necessary depart from a requirement of the framework to achieve fai ; Bena wOtK to achicre fic presentation of the a. Lonly © Both Iand II b. Monly 4. Neither I nor It Which of the following sections in the auditor's report shall be placed immediately after the opinion section? : a. Management’s Responsibilities for the Financial Statements b. Auditor’s Responsibilities for the Audit of the Financial Statements c. Basis for Opinion d. Other Reporting Responsibilities “To emphasize the fact that the auditor is independent, it would be desirable to address the report to a. The company’s management b. The stockholders of the client company c. The board of directors of the client company d. The Securities & Exchange Commission “The first section of the auditor's report shall have the heading a. “Responsibilities for the Financial Statements b.. Opinion we ; c. Atditor’s Responsibilities forthe Audit of the financial statements d. ” Basis for Opinion is for Opinion section of the auditors report shal The Basis for 3 section of the anor pen St Ke objecti \ditor is to issue an b. State that the objective of the audi 0 i sdinco’ cepodt that cinder oe ale PETS c. Describe managements responsibility for prepa ie financial statements in accordance with the applical financi ing framework. a a coeur te xoiit ‘was conducted in secordance with Philippine Standards on ‘Auditing (PSA). —31. Which of the following management's responsibilities shay be described in the auditor's report? a 32. The following zeport. Which a b. Responsibility for preparing the financial statements in accordance with the applicable financial reporting framework Responsibility for obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement Responsibility to exercise professional judgment and maintain professional skepticism throughout the audit Responsibility to identify and assess the risks of material misstatement of the financial statements ents relate to the date of the auditor's se? The audit date of the audit ‘The date of the auditor's report should not be earlier than the date on which the financial statements are signed ot approved by management ‘The date of the auditor's report should not be later than the date on which the-financial statements are signed or approved by management ‘The date of the auditor's report should always be later than the statement of financial position date. 33. Whenever an auditor issues an unmodified opinion, the implication is that the auditor Does not know if the statements are presenited faidly it” accordance with PERS. Does not believe the statements are presented faitly i0 cordance with PFRS. satisfied that the statements are presented faisly it accordance with PFRS except fora specific aspect f em. accordance with PFRS, p s uuld date the report as of the completion ° Modification to the Opinion Me 35. 36. 37, The three main types of audit reports other than the unmodified report are the a, adverse opinion, disclaimer of opinion, and qualified opinion b. adverse opinion, reports on unaudited financial statements, and disclaimer of opinion c: disclaimer of opinion, the qualified opinion, and reports on unaudited financial statements. d. Special audit reports, reports on unaudited financial statements, and adverse opinions. The adverse opinion report will be issued by the independent auditor when he/she a. Suspects that client has not followed the identified financial reporting framework.. b. Suspects that client's financial statements are not in conformity with PSAs. ¢. Has knowledge that the financial statements ate not in conformity with the applicable financial reporting framework d. Has knowledge that PSAs were not followed. PERS is the : 2 a. Qualified opinion b. Disclaimer of opinion © Adverse opinion ; 4. Report on unaudited financial statements A disclaimer is issued whenever the auditor 3. Has been unable to satisfy Bier ee the overall i resent Ih resented fairly. X a = Believes that ‘some soy ae of the financial t : 2 SEDER ate encauepeed fairly.38. 40. ~ 39. a aoe Which of the following circumstances would most likely cauye the auditor to modify his opinion? Material Misstatements Scope Limitation a. ‘Yes No b Yes, Yes c. No No d. No Yes Under which of the following circumstances is a disclaimer of opinion inappropriate? a. Both disclaimers and adverse opinions are used When the condition is material and pervasive Irregardless of the auditor's independence Whether the condition is material or not. Inregardles of clients choice of unacceptable accountng method. 1 The auditor is engaged after‘fiscal year end and is unable to observe physical inventories or apply alternative procedures to verify their balances b. - Theauditoris unable to determine the amounts associated with fraud committed by the client's management ©. The financial statements fail to contain adequate disclosure concerning related party transactions 4. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry In which of the following situations would an auditor ordinaaly choose between expressing qualified opinion or adversé opinion? : a. The auditor did not observe the entity’s physical inventor and is unable to become satisfied as to its balance bY other auditing procedures. b. The financial statements fail to disclose information tht is required by PFRS, ance © The auditor is asked to report only on the entity's bala? heet and not on the other basic financial statement nts disclosed in the financial statements cause auditor to have substantial doubt about the entity’s #7 to continue as a going concern, 42. 43. When the client's financial statements are misstated by a material and pervasive amount, the auditor should issue 2 seport that contains a. An adverse opinion b. A disclaimer of opinion c. Either a qualified opinion or an adverse.opinion, depending on which conditions exist. d, Either a qualified opinion ot an unmodified opinion with modified wording, depending on which conditions exist. Whenever there is a scope limitation, the appropriate response js to issue 44, a. A disclaimer of opinion b. An adverse opinion c. A qualified opinion d. An unmodified report, 2 qualification of scope and opinion, or a disclaimer, depending on materiality and pervasiveness of effect Conditions requiring departure from an unmodified audit report include all, but which of the following? a. Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed. b. Management has determined that inventories should be tepotted in the statement of financial position at their fair values rather than lower of costs or net realizable value. c. The audit partner's dependent child received a gift of 10 shares of a client’s stock for her birthday from a \dparent. a Macsesaent has decided to not allow the auditor to confirm significant accounts receivable, but the auditor examined subsequent cash receipts related to the accounts in question.45, An aoditor’s report includes the following statement: “The 49. ‘An auditor is confronted with an exception sufficiently material a . a a warrant a modification Seance! statements do not present faidy the financial position, trises toa depernms Bees eso ee cult of operations, or cash flows in conformity with PFR§™ | roi ag a(e) PERS, the auditor must decide This auditor’ report was most likely issued in connection wich ' [ opens ee financial statements that are b. Adverse opinion and a qualified opinion. Taconsisteat ‘Adverse opinion and a dislimer of b. Based on prospective financial information GC peer opinion. c. Misleading / : : : a d. Affected by a material uncertainty 50. In which of the following situations would a decision of : selecting between qualified or adverse opinions be 46. An auditor may express 2 qualified opinion when inappropriate? Scope of axdit bas been a, A limitation on the scope of the audit Disclosures were omitted restricted b. The financial statements ate materially misstated. 2 No Y. A disagreement between the auditor and the client arose b No Ne because of the capitaliz: f h and «. Yes Ne development costs. 4 Yes ¥ 4. A required disclosure that is significant is omitted from 47. The auditor would most likely express a modified opinion when : : Tie auditor wants The financial ‘Th auditor it unabk | 51. The auditor should consider the nature of the item and the mw - the auditor shall express a qualified statements. Accordingly, the a —— tna Por opinion when the potential effect of an item under YES YES YES _ Sepa : ‘Material but wot Pervasie — Material and Pervasive b YES NO YES =f < c NO YES YES b a Yes a YES YES NO No No a Yes 48, If the auditor’s believes that a required material disclosure is se : omitted from the financial statements, the auditor should 52. When financial statements contain material misstatements, the decided between issuing a(n) auditor's report may-contain Qualified opi \dverse opinion "Qualjed Opinion Adverse Opision Disclaimer of Opinion b. Dischimer 2 quilified opinion a Yes No e © Adverse opinion or a disclaimer opinion : b Yes Yes No - 4.” Unmodified opinion of a qualified opinion “a No No ta ‘ ! es ‘ a ‘Yes ye53. st When the auditor is unable to obtain sufficient appropriate audit evidence, the auditor's report may contain Qualified Opinion “Adverse Opinion Disclaimer of Opinion No : eo Yes b Yes Yes No «. No No Yes a Yes Yes Yes “The quilifed opinion report will be issued by the independent ~ guditor when, in the auditor's judgment, the effects ot possible 55. 56. effects of the item under consideration are a. Material and pervasive b. Material but not pervasive c. Pervasive but not material d. Not material and not pervasive Ina qualified, adverse, or disclaimer report, the auditor a. Has not performed a satisfactory audit b. Isnt satisfied that the financial statements are presented fairly c. Either A or B 4. None of these As a result of management's refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with PFRS. The auditor must depatt from the unmodified audit report because 2 a. The financial statements have not been prepared ia accordance with PERS. b. The scope of the audit has been restricted bY circumstances beyond either the client’s control The auditor’s independence was impaired ‘The scope of the audit has been restricted. © a. . The qualified opinion, adverse opinion, and disclaimer of opinion are known as: a. Modified opinions © Unqualified explanati b. Standardized statements d. Unmedifed opinions . An adverse opinion is issued when the auditor believes a. Some parts of the financial statements are materially misstated or misleading. b. The financial statements will be found to be misleading or misstated, if an adequate investigation is performed. c. The overall financial statements are so materially misstated or misleading as a whole that they do not present fairly the financial position or tesults of operations and cash flows in conformity with PERS. d. The audit firm is not independent ). An auditor was unable to obtain audited financial statements or other evidence supporting an entity’ investment in a large subsidiary. Between which of the following opinions should the entity’s auditor choose? a. Adverse and unmodified opinion b. Disclaimer and unmodified opinion with emphasis of matter paragraph : ©. Qualified and adverse opinion 4.” Qualified and disclaimer of opinion |. In extreme cases, such as situations involving multiple uncertainties that are significant to the financial statements, the auditor may consider it appropriate to express a(0) 4. Qualified opinion Report with Emphasis of a Matter paragraph © Disclaimer of opinion 4. Adverse opinion. The expression of a qualified opinion means that the firicial Statements, taken as whole are 2. Affected by uncertainties b. Materially misleading © Presented fairly 4. Not presented faitly63. a Material misstatements in the financial statements may arigg from all of the following conditions, except a. The appropriateness of the sclected accounting police, b. The application of the selected accounting policies c. The appropriateness or adequacy of disclosures in the financial statements : d. The sufficiency and appropriateness of audit evidence ‘When management does not amend the financial statements ~ in circumstances where the auditor believes they need to be g s amended and the auditor's report has not been released to the entity, the auditor should express a. Either qualified or adverse opinion b. Either qualified or disclaimer of opinion 3 c. Anunmodified opinion with emphasis of matter paragraph d. An unmodified report. . The auditor’s inability to obtain sufficient appropriate audit evidence may arise from all of the following conditions, except a. Restrictions imposed my management on the scope of the audit b. Limitations beyond the control of the entity ¢. Limitations relating to the nature or timing of the auditors work d. Restrictions on the disclosures in the financial statemeats Circumstance imposed scope limitations include those that Related to the nature Related to cheats Beyond the control or timing of the request to omtl of the entity auditor's work certain procedurtl a Yes No ‘Yes b. Yes Yes No ce . No No Yes. d. Yes Yes Yes 66, Which of the following is the correct order of steps that the 68, + withdraw from engagement due to a client-imposed scope auditor should follow if, after accept gagemett, auditor becomes aware that manapeoen be Ipod S limitation on the scope of the audit that likely to result in a modification 7 opinion on the financial statements? 1. The auditor shall request the management to remove the limitation res IL The auditor shall communicate the matter to those charged with governance IT. The auditor shall determine whether itis possible to perform altemative procedures i . If the auditor is unable to obtain sufficient appropriate evidence because of a limitation imposed by management, the auditor may Qualify the opinion Withdraw from engagement a Yes No b Yes Yes c. No No a No Yes In making a decision of whether to disclaim an opinion or limitation, the auditor should consider 4. The matetiality of the item under consideration b. The pervasiveness of effect on financial statements © Both the materiality and pervasiveness should be considered 4. The stage of completion of the engagement at the time the management imposed the limitation69. 70. 7 72. When an auditor modifies his opinion on the finan statements because of matetial misstatements, the basis fog modification paragraph shall include "A deseiption of material A quantification of eects of misstatement misstatement, if practicable ai Yes No i i Yes Yes % c. No No a No Yes When an auditor modifies his opinion on the financial statements because of inability to obtain sufficient appropriate evidence, the basis for modification paragraph shall include 14, ‘A description of A quantification of effects of seope lation misstatement, if practicable” 2 Yes No b Yes Yes ©. No No a. No Yes Inadequacy of disclosures in the notes to financial statements normally requires the auditor to express a qualified opinion om client's fi ements, When this occurs, the auditor 1¢ substantive reasons for expressing 15, b. Key audit matter section section the substantive reasons f0 ion in a separate paragraph snent’s responsibilty for the fas a Preceding the manage TB. An auditor who qualifies an opinion because of inability to obtain sufficient appropriate evidence should describe the matter giving tise to the qualification in the report. The auditor should also modify the ‘Management Responsibility for the Auditor's. . Auditor's Financial Statements Responsibility Opinion . Yes No Yes b No Yes No e Yes Yes Yes é No Yes “Yes ‘An auditor who disclaims an opinion because of inability to obtain sufficient appropriate evidence should describe the matter a separate paragraph. ‘The auditor should also modify the Opinion Responsibility Besponsibilisy Opinion a. NO NO YES YES b YES YES YES NO c YES NO YES YES d. NO NO YES YES Enphasis of Matter and Other Matter Paragraphs Which of the following statements is correct about “emphasis of matter paragraph”? 4. ‘The addition of such paragraph is not to be construed as a modification of the auditor's report. b. The addition of such paragraph does not affect the auditors opinion. ©. ‘The paragraph would preferably be presented before the basis for opinion - 4. The paragraph is normally used by the auditor to explain the basis for expressing 2 modified opinion.76. Which of the following circumstances will least likely cause the auditor to modify his opinion? ; a limitation on the scope of the auditor's work impored by the client b. a limitation on the scope of the auditor’s work imposed by the circumstances. f accounting policies. there is a disclosure in the notes regarding significant uncertainty affecting the financial statements. 71. “Which of the following is not to be construed as a modification of opinion? a. Qualified opinion b. Adverse opinion ¢. Disclaimer of opinion d. Audit report with emphasis of matter parageaph 79. ‘The “Other Matter” paragraph is used by the auditor 3. Todraw the readers’ attention to a matter that is presented: in the financial statements b. Todraw the readers’ attention to a matter thats disclosed | in the notes to the financial statements €. To diaw the readers’ attention to a matter that is.00% | Presented or disclosed in the financial statement + a the auditor to modify his opinion. disagreement with management regarding ° | ‘To draw the readers’ attention to a matter that camel 40. Which of the following is comect about “Emphasis of a Matter” paragraph : 4. In very rare circumstances, the “Emphasis of Matter” paragraph may be used as a substitute for a qualification of an opinion. : b, An “Emphasis of Matter” paragraph may be used to give emphasis to a specific item that has not been appropriately disclosed in the notes to the financial statements. c. An “Emphasis of Matter” paragraph may be used to restrict the distribution of the auditor's report. d. An “Emphasis of a Matter” paragraph may be used t0 alert the readers that the financial statements are presented in accordance with a special purpose framework. 81. Which of the following statements is correct about “emphasis of matter paragraph”? a. The addition of such paragraph is not to be construed as a modification of the auditor’ feport. b. The addition of such paragraph docs not affect the auditor's opinion. ¢. The paragraph would preferably be presented before the opinion paragraph. : ; a The pomeaol is normally used by the auditor to explain the basis for expressing 2 modified opinion. " ®2 “Addition of an “emphasis ofmattes” pagapbioss otherwise a A te ea eerifeanteffecon the ents ob cae a between other information oe a ee Pea following 2 Leon discovery of fact affecting the financial statements83. 84. 85. b. Financial stat c. The financial Which of the following will not normally require emp] matter paragraph in the auditor's report? «Financial statements are prepared using cash accounting. s contain material misstatemeny, ments include disclosures abou, tory. ements are affected by a signi What is the purpose of the following paragraph in an andt report on financial statements: “WF draw attention to note 15 to the financial statements 2. To emphasize a matter. b. Tohave a basis for expressing a qualified opinion. c. To promote readers’ understanding of the a responsibility and auditor's report. 4. To have a basis for disclaiming an opinion. An auditor includes 2 separate paragraph in an otherwit unmodified report in order to emphasize an item Properly disclosed in the notes to the financial statements inclusion of this paragraph: 2. Is appropriate and would nof negate the unm' b ic d. 1s considered a qualification of the report. ® violation of standards of reporting. lecessitates a revision of the opinion paragraph t the phrase “except for”. 86. 87. 88. 89. ‘Management believes and the auditoris satisfied, that a material Joss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should express a(an) a. Qualified opinion due to a scope limitation b. Qualified opinion due to a material misstatement c. Unmodified opinion with emphasis of matter paragraph d. Unmodified report ‘An auditor who concludes, that an uncertainty is aot adequately disclosed in. the financial statements should issue a(an): . a. Disclaimer of opinion. b. Unmodified opinion with emphasis of matter paragraph. c. Special report. : d. Qualified opinion. The auditor should consider adding an emphasis of matter paragraph when eee ete auditor is prevented from completing 2 procedusé required by PSA. : b. The financial statements fail to disclose information required by PFRS. c. The financial statements are not free from material misstatements. : 4. The Company adopted a new accounting standard eater than its mandatory effective date. ‘Addition of an “emphasis of matter” paragraph to what remain, an unmodified opinion is least likely for which of the following situations? a. A major catastrophe B.A material misstatement c. A significant subsequent event. d. An uncertainty.90, The “Other Matter” paragraph would be appropriate when, “The muditor wants fo restrict the distribution of the wy report. ty The auditor wants to emphasize a matter thats presente, or in the financial statements, ; ¢. The auditor wants to emphasize a matter that is not prope ed or disclosed in the financial statemeng a. The auditor wants to deaw the readers’ attention to 4g “important matter that caused the auditor to modify bis "opinion. 91. How would the “Emphasis of Matter” and “Other Matter" paragraphs normally be presented in the auditor's report? a. Emphasis of matter paragraph is presented before the basis for opinion section and the other matter paragraph b. Other matter paragraph is presented after the emphasis of 2 matter paragraph but before the basis for opiaion section c. Emphasis of a matter paragraph is presented after the basis for opinion but before the other matter paragraph d. Other matter paragraph is presented before the emphasis. ‘of a matter paragraph 92. An auditor may wish to emphasize a matter included in the financial statements by adding a separate paragraph to the audit report. In this case the following sections of the audit report — should be modified: 2. Management's responsibility for the financial statements | b. Auditor's responsibility € Opinion 4. None 93. 94. ‘The auditor would most likely to consider adding an emphasis of matter paragraph when . a, ‘The auditor was not able to obtain sufficient appropriate evidence to conclude that the financial statements are faicly presented. incertainty arises about the future outcome litigation ventories are presented in the financial 4. The client requested the auditor not o confirm significant receivables and no alternative procedures were performed. ‘The report that contains “unmodified opinion with emphasis of matter paragraph” a. Arises as a result of an incomplete audit b. Arises when the financial statements are not quite “presented faisly” c. Meets the criteria of a complete audit with satisfactory results : 4. Meets the criteria of a complete audit but with unsatisfactory results. Going concern 95. When the auditor concludes that the use of the going concern assumption is appropriate in the circumstances but material uncertainty exists, the auditor shall a. issue either qualified or adverse opinion b. consider the adequacy of disclosure in the notes to financial statements : ©. report to the audit committee the need to adjust it estimates ae a SS a apn tic of a matter paragraph .96. 97. 98. 99. ‘The independent auditor has concluded that substantial dog remains about a client’ ability to continue in existence, by the client’s financial statements have properly disclosed al, its solvency problems. The auditor would probably isgue a : © amodied opinion with a separate going concer section b. Qualified opinion. ¢. Unmodified opinion. d. Adverse opinion. When the auditor concludes that there is substantial doubt about the entity’ ability to continue as a going concern, and this fact is adequately disclosed in the notes to financial statements; the appropriate audit report could be: L. An unmodified opinion with emphasis of matter paragraph TL. A qualifed opinion. 7 E a. Tonly b. Tonly c. lorll 4. Neither [nor It Which of the following circumstances will least likely affect the auditor’ opinion? a.“ A dlient imposed scope limitation b, A circumstance imposed scope limitation c. Inadequacy of disclosure in the notes to financial statements 4. Uncertainty arises about entity's continued existence ‘An auditor concludes that there is an uncertainty about #2 entity's ability to continue as a going concern for a reasonable Petiod of time. If the entity’ disclosures concerning this matt are adequate, the audit report may include a(a): Adverse Opinion Qualified. + Unmodified Opini inion a ‘YesNo : Ve oe bd NoNo No © »Yes¥es Yes a NoNo Yes 560 100. When management preparés financial statements on the basis of a going concern but the auditor. believes the use of the going concem assumption is not appropriate, the auditor would most likely issue an auditor’s report that contains a. A qualified opinion, b. An unmodified opinion with respect to the income statement and an adverse opinion with respect to the statement of financial position. c. A disclaimer of opinion. d. An adverse opinion. 101. The independent auditor has concluded that the use of going concern assumption is appropriate and that no going concern uncertainties exist. In this case, the auditor would probably issue a report that contains a. Unmodified opinion with a separate going concer b. Qualified opinion : c. Disclaimer of opinion d. - Unmodified report 102. When the auditor concludes that there is substantial doubt about the entity’ ability to continue as a going concern, which was not adequately disclosed in the notes to financial statements, the appropiate audit report would include a. An qualified opinion or adverse opinion b. A unmodified opinion with emphasis of matter paragraph c.. A qualified or disclaimer of opinion ; d. An unmodified opinion with going concem section Other information Tif, 103. 1f an amendment to othet information in a document containing audited financial statements is necessary and the entity refuses to make the amendment, the auditor would consider issuing: 2 2. Qualified or adverse opinion b. Qualified or disclaimer of opinion = ©. Unmodified opinion with other information section d. Unmodified opinion. 561104. The “other information” in a published report Containing audited financial statements may be relevant to an independ, suditor’s examination. With respect to “other information” z.- The auditor's responsibility does not extend beyond the financial information identified in the report b. The auditor is document c. ‘The auditor need not be concerned with the “other information” d. The auditor must include the “other information” in the report 105. An auditor concludes that there is a material inconsistency in the other information in an annual report to sharcholders 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. Issue an “except for” qualified opinion after discussing the matter with the client’s board of directors b. Consider the matter closed since the other information is in the audited financial statements c. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph 3 4. Revise the auditor’s report to include other information section describing the material inconsistency ' 106. The auditor will most likely read the other information 4. Primarily to identify material misstatement of fact. b. Primarily. to identify material inconsistency. © To determine the type of opinion to express on the financial statements. i 4. To enable him-to express an opinion on the othef information. y ed to perform auditing procedures * to corroborate “other information” contained in, 107: Before the date of the auditor's feport, the auditor found a material inconsistency between the other information and the information presented in the financial statements. If revision of the financial statements is necessary and management refuses to make the revision, the auditor shall a. Modify the opinion on the financial statements b. Include Other Matter paragraph in the unmodified report to describe the material inconsistency ¢. Disclaim an opinion on the financial statements d. , Disclaim ain opinion on the other information 108. This exists, when other information, not related to matters appearing in the financial statements, is incorrectly stated or presented. a. Material inconsistency b. Material misstatement c. Material misstatement of fact 4. material error affecting the other information 109. If an amendments necessary in the other information and the entity refuses to make an amendment, the auditor, depending on particular circumstance, may do any of the following, except a. Describe the material inconsistency in other matter Paragraph. b. Not issue an audit report. <. ° Withdraw from the engagement. 4. Express either qualified or adverse opinion. 110.Which of the following best describes the auditor’s responsibility for “other information” included in the annual report to the stockholders that contains financial statements and the auditor’s report? 4, The auditor has 20 obligation to read the other. information. b. The auditor has no obligation to corroborate the other information but should read it to determine whether it is ‘materially inconsistent with the financial statements and the auditor's knowledge of the entity.stheuaditor shold extend the exemization he extent | aqecessurt 20 very the ocher information ; The saudi: mast mah the eoditoes PORT TO stare hag was performed, Bay Sot cos bh Communicating key sudit matters provides additonal < : 7 aq information to intended usess of the Seancial sutemest tt. Those meters that in the audinor’s professional judgment, wens | of most sigeificance in the audit of financial statements of the cureat pesiod are called: a. Key audit matters b. Reperable conditions cc. Matters of continuing significance Most relevant matters 112. Communication of key audit matters in the auditor's report is | required whenever the auditor 2 b. Expresses 2 modified report c. Audits financial statements of publicly accountable _ catities section is d. Audits financial statements of listed entities required 3 b. not required 113. In determining key audit matters, the auditor shall take into = eee a fers that are ] 4. discouraged ars description of individual key audit matters in the auditor’ teport shall refer to relevant notes and should address Wy the mater as vansiered How the matter wat KAM sddrsed current period only ‘0 current and prior periods if comparative financial statements are presented. d. Relevant to current period only unless the auditor § continuing auditor. . se Yes b No a Yes Ne 4a No lo117. Communicating key audit matters in the auditor’ report ig, a b < QD A substitute for disclosures in the financial statements Yes Yes No No A substitute for the auditor's expression of a modified opinion Yes No No No ‘A substitute for reporting in accordance with PSA 570 No Yes Yes No ‘A separate opinion on individual matters Yes Yes Yes No 118. PSA 701. prohibits the auditor from communicatin i matters when the auditor expresses a/an sa a. Unmodifi jon c.. Adverse Opini . pinion b. Qualified opinion d. Disclaimer of opinion Comparatives 119. Which of the ‘opinion on the financial statements refers to the current period only \t period. Current period figures b comers c : parative financi: i comes Tancl statements 121, When the audited financial statements of the prior year ate presented together with those of the current year, the contiauing auditor's report should cover a. Both years b. Only the current year : c, Only the current year, but the prior year’s report should be presented 4. Only the current year, but the prior year’s report should be referred to 122. An auditor expressed a qualified opinion on the prior year’s financial statements because of a lack of adequate disclosure. “These financial statements até properly restated in the current year and presented in comparative form with the current year’s financial statements, The auditor's updated report on the prior year’s financial statements should 2. Be accompanied by the auditor's original report on the * prior year’s financial statements : b. Continue to express a qualified opinion expressed on prior year’s financial statements ¢. Make no reference to the type of opinion expressed on the prior year’s financial statements d. Disclose the substantive reasons for the different opinion. 123. When reporting on comparative financial statements where the financial statements ofthe prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor ‘s report should indicate : a. The reasons why the predecessor auditor’ report is not resented. b The identity of the predecessor auditor whé examined the financial statements of the prior year. ©. Whether the predecessor auditor's review of the current year’s financial statements revealed any matters that might ave a material effect on the successor auditor’ opinion. a. ‘The ypeof opinion expressed by the predecessor auditor, 567124. Comparative financial statements inclade the finaneiy statements of the prior year that were audited by a p juditor whose report is not presented. If the p Seetig opinion was modified, the successor should ie a. Indicate the substantive reasons for the modification B. Request the client to reissue the predecessor's report oq the prior year’s statements c. Issue an updated comparative audit report 4. Express an opinion only on the current year’s staten and make no reference to the prior year’s statements 125. When reporting on comparative financial statements where the financial statements of the priot year have been examined by the predecessor auditor whose, report is nat presented, the successor auditor should make : a. Noreference to the predecessor auditor b. Reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion c. Reference to the predecessor auditor only if the predecesso: itor expressed an unmodified opinion, d. Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor 126. Jewel, CPA, audited Infinite Co’s prior year financial statements ‘These statements are presented with those of the current yo for comparative purposes without Jewel’s auditor's rep0" vwihich expressed a qualified opinion, In drafting the cus year’s auditor's report, Grain, CPA, the successor auditor should : 1 Not name Jewel as the predecessor auditor IL. Indicate the type of opinion issued by Jewel, MI Indicate the substantive reasons for Jew? qualifica-tion, a. Tony. b: MWandiMonly. . sc. Land I only, qd. LM, and HL 127. When a predecessor auditor is to reissue his report on financial statements and he has not examined the financial statements for the most recent audited period, he a, Should take steps to determine if the opinion is-still appropriate b. Should obtain a letter of representation from the client ¢. Has no responsibility to become assured about events subsequent to the termination of the engagement d. Need obtain only verbal assurance from the successor 128."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 auditors repott should make a. Reference to the report of the successor auditor only in the scope paragraph 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 dr the work of the successor auditor Group Financial Statements 129, Matk is auditing the consolidated financial statements of Rex, Ine., a publidly held corporation. Shek is the auditor who has audited and reported on the financial statements of a wholly ‘owned subsidiary of Rex, Inc. Mark's first concern with respect to the Rex financial statements is to decide whether he a, May seeve asthe group auditor and report as such on the consolidated financial statements of Rex, Inc. b.' May fefer to the work of Shek in his report on the Jonsolidated financial statements ; c. Should review the working papers of Shek with respect to the audit of the subsidiary’s Ginancial statements, a Should resign from the engagement because an unmodified opinion cannot be expres sed on the consolidated financial statements t 569130. Which of the following will not result in a modification of the’ auditor's report? : ‘a, Restrictions imposed by the client = b. Inability to obtain sufficient appropriate evidence c._ Reliance placed on the teport of component auditor +d. Inadequacy in the accounting records 131. If the group auditor decides to refer in the report to the audit, made by component auditor a. The group audito on the other audit b. The component his report but not c. The group auditor has violated the professional standards d. The component auditor is relieved of responsibility for his work but not his report 132. Belle, CPA decides to serve as group auditor in the audit of the financial statements of Maya Consolidated, Inc. Rain, CPA subsidiaries. In which situation(¢) should responsibility for Rain’s work IL Belle is unable to review Rain’s working papers however, Belle’s inquiries indicate that Rain has an excellent reputation for professional competence and integrity 4 a. Tonly b. Both I and II c Wonly d. Neither I nor Il 133. An auditor may issue an unmodified report when the a. An auditor refers to the findings of an expert. ». Financial statements are derived and condensed from complete audited financial statements that are filed with a regulatory agency. i c. Financial statements are prepared on the cash receip® a. ii disbursements basis of accounting, Group auditor assumes responsibility for die work of component auditor, 570 jews Rain's working papers and assumes 134:In the auditor's report, the gro ip auditor deci reference to another CPA who audited ae sche The group atiditor could justify this decision if among othe requirements, the group auditor 3 a, _ Issues an unmodified opinion on the consolidated financial statements. b. Learns that the component auditor issued an unmodified opinion on the subsidiary’s financial statements. : c. _ Isunable to review the audit programs and working papers of the component auditor. d. Is satisfied as to the independence and professional reputation of the component auditor. Special Purpose Audis Engagements 135. Financial statements prepared in accordance with a special purpose framework are referred to in PSA 800 as a. Special Reports b. Special Purpose Financial Statements c. Special Considerations d. Specific Financial Statements 136. PSA 800 “Audit of financial statements prepared in accordance with special frameworks” does ndt apply to . a. Audit of financial statements prepared in accordance with PERS . : : b. Audit of financial statements prepared in accordance with the cash receipts and cash disbursement basis of accounting. : i c. Audit of financial statements prepared using modified cash basi ee 4d. Audit “oF financial presentation that complies with contractual agreement ; 137. Which of the following is not considered 4 special purpose ee is of accounting 2 pce hf is of cu ‘Financial presentation to comply with regalatory yuirements 4. ‘Accrual bass of accounting 51130, Which of the following will nf result in a modification of yy! auditor's report? a peu imposed by the client b. Inability to obtain sufficient appropriate evidence c. Reliance placed on the report of component auditor +d. Inadequacy in the accounting records 131. If the group auditor decides to refer in the report tb the audit auditor assumes responsibility for the report on the other auditor b. The component auditor is relieved of responsibility for his report but not his work c. The group auditor has violated the professional standards 4. The component auditor is relieved of responsibility for his work but not his report 132. Belle, CPA decides to serve as group auditor in the audit of the financial statements of Maya Consolidated, Inc. Rain, CPA audits one of Maya's subsidiaries. In which situation(s) should Belle refer to Rain’s audit? L Belle reviews Rain’s working papers and assumes responsibility for Rain’s work IL Belle is unable to review’ Rain's working papers; however, Belle’ inquiries indicate that Rain has af excellent reputation for professional competence and integrity 2. Tonly b. Both TandII c. Tonly d. Neither nor II 133. An auditor may issue an unmodified report when the a. & An auditor zefets to the findings of an expert. complete audited financial statements that are filed ith a regulatory agency. : Financial statements are prepared on the cash a disborements basis of accounting, ofthe up auditor assume bili i Be eerie) responsibility for the work ee Financial statements are derived and condensed from 134: In the auditor's report, the group auditor decides not to make reference to another CPA who audited a client's subsidiary. The group atiditor could justify this decision if, among other requirements, the group auditor . a. Issues an unmodified opinion on the consolidated financial statements. b. Learns that the component auditor issued an unmodified opinion on the subsidiary’s financial statements. : c. _Isunable to review the audit programs and working papers of the component auditor. d. Is satisfied as to the independence and professional reputation of the component auditor Special Purpose Audit Engagements 135. Financial statements prepared in accordance with a special purpose framework are referred to in PSA 800 as a. Special Reports b. Special Purpose Financial Statements c. Special Considerations d. Specific Financial Statements 136. PSA 800 “Audit of financial statements ptepated in accordance with special frameworks” does nét apply to : a. Audit of financial statements prepared in accordance with PERS . : , b. Audit of financial statements prepared in accordance with the cash receipts and cash disbursement basis of accounting. 7 c. Audit of financial statements prepared using modified cash basis. . sc d. Audit of financial presentation that complies with contractual agreement. : 137, Which of the following is not considered a special purpose B. Cash receipts and disbursements basis of accounting ©. Financial presentation to comply with regulatoryy issuc a Speca! PULPOrn ne MOF the a een except an audit of Bnancial presentations te "That are prepared on a basis of accounting thatthe enty uses to fike its tax return : b. Using modified cash basis of accounting ¢. Of an organization that has limited the scope of the audit 4. To comply with contractual agreements 139. ABC Company prepared its financial statements on an accounting basis prescribed by a gove filing with that agency. The CP statements are not presented fairly in conformity with the prescribed basis. The CPA's report must contain a, Anunmodified report b. A disclaimer of opinion c. A negative assurance 4. An adverse opinion 140. The CPA is asked to audit financial statements prepared on modified cash basis. This is acceptable provided the CPA a. Converts the financial statement to accrual basis before rendering an audit report. b. Qualifies the audit opinion because of a departure from PFRS. ¢. Issues an disclaimer of opinion. d. States clearly in the audit report that fairness wat evaluated within the framework of the modified cash basis rather than PFRS. 141, Which of the following is an example of special purpos financial statements? 4. Financial statements prepared in accordance with # financial reporting framework established by *H 1, Goepetative Development Authority. :0 Pro-forma financial presentations designed “ lemonsuate the effect of hypothetical transaction yypothetical messi S Feasibility studies presented to illustrate an entity of operations. 872 . Which statement is correct i Mo. Wr guaccal sxtemeang) ee Eee on «companies a. This type of engagement may be undertaken asa sepanate ‘engagement ot in conjunction with an audit of the entity financial statements. b. In determining the scope of the engagement, the auditor need not consider those financial statement items that are intertelated and which could materially affect the information on which the audit opinion isto be expressed, ¢. . The auditor's examination will ordinarily be less extensive than if the same component were to be audited in connection with a report on the entire financial statements d. When an advérse opinion or disclaimer of opinion on the entire financial statements has been issued, 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. 143. Which of the following statements is correct with respect to an auditor's report expressing an opinion on a specific element of a financial statement? : a. Materiality must be related to the specific item and not to the financial statements as a whole b. Such a report can be issued only if the auditor is also engaged to audit the entire set of financial statements c. The attention devoted to the specified item is usually less than it would be if the financial statements as a whole -were being audited. d. The auditor who has expressed an adverse opinion on the financial statements as a whole cannot express an opinion on a specific element of a financial statement. 144. An auditor may accept an engagement to report on the sammy financial statements provided a 2. The auditor has expressed an unmodified opinion on the basic financial statements from which the summary financial statements were derived. ; b. The auditor has audited the basic financial statements from which the summary financial statements were derived. : 573c. The client takes full responsibility for the adequacy 3 the procedures to be performed: . The auditor takes full responsibility for the fair _ presentation of the summary financial statements ements. ements are presented in ¢. Summarized financial statements need to be appropriately titled to identify the audited financial statements from | which they have been derived. d. Summarized financial statements contain all th information required by the financial reposting framework | used for the annual audited financial statements. 146. The auditor’s report on summary financial statements ¢ whether the summary financial statements esented in accordance with PFRS re whether the summary financial statements are consistent with the financial statements from which | they were derived. ¢. Should be in the form of negative assurance. d, Should contain the same type of opinion as the opinion expressed on the basic financial statements from which the summary financial statements were derived. 147. An auditor who expressed an adverse opinion on the financil statements cannot express an unmodified opinion on th specific element of a financial statement, unless a. The report on specific element will not be published together with the report on the financial statements b. The specific element is not a major component of financial statements. : € Eithera orb 4 Both aandb n annual audited financial — Chapter 12 ASSURANCE ENGAGEMENTS and RELATED SERVICES When a professional accountant is associated with the financial __ statements, some procedures must be perf those statements. The type of procedures amount of evidence needed will depend , services rendered and the level of assura_ accountant provides. ‘There are four types of services that are normally performed in connection with the entity’s financial statements. These are «Audit + Review © Compilation . * Agreed-upon Procedures () © - Audit of Financial Statements BRE iG : “Neve a Mere ance (reasonable assurance) that the financial statements are free from material misstatements. ; i erformed shall be ific audit procedures to be Pt The anciic sult ose aude poetics sould Cnable the auditor: to gather sufficient appropriate a0) it, cridesice to be able to express an opinion (positive assurance) bout the fair presemfution of the financial statements, 515