Completing the Audit Reports

UNIT XII
COMPLETING THE AUDIT;

AUDIT REPORTS; OTHER SERVICES
1. PSA 700 (Revised), The Independent Auditor’s Report on a Complete Set of General
Purpose Financial Statements, provides the following elements of the auditor’s report
except
a. Introductory paragraph.
b. Management’s responsibility for the financial statements.
c. Auditor’s opinion paragraph.
d. Starting and completion dates of the audit.
2. The opening or introductory paragraph in the auditor’s report would normally include
the following except
a. Identification of the financial statements audited.
b. Should refer to the summary of significant policies and other explanatory notes.
c. Date and period covered by the financial statements.
d. A description of the work to be performed by the auditor.
3. The auditor’s responsibility in the auditor’s report would normally include following,
except
a. Statement that the audit was conducted in accordance with PSAs.
b. Statement that the audit was planned and performed to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.
c. Statement by the auditor that the audit provides a basis for the opinion.
d. Statement that the audit includes examining on adetailed basis evidence
supporting the amounts and disclosures in the financial statements.
4. Which of the following should not be the basis of dating the audit report?
a. When the audit fee is collected.
b. As of any the completion date of the audit.
c. As of any date earlier than the date on which the financial statements are signed
or approved by management.
d. Upon completion of the field work.
5. A CPA firm is “associated with the financial statements” of its client

a. Only when it does a financial audit.
b. Only when it does assurance services, such as a review or an audit.
c. Even if a CPA firm only assists a client in preparing financial statements but does
not do an audit.
d. If it performs any services at all for the client.
6. The auditing profession recognizes the need for uniformity in reporting as a means of
a. Defending against capricious lawsuits.
b. Upgrading the communications skills of auditors.
c. Standardizing the policies of various CPA firms.
d. Avoiding confusion.
7. The most common type of audit report contains

a. The adverse opinion.
b. The disclaimer of opinion.
c. The qualified opinion.
d. The unqualified opinion.
8. When the auditor knows that the financial statements may be misleading because they
were not prepared in conformity with generally accepted accounting principles, he or
she must issue
a. A qualified opinion.
b. An adverse opinion.
c. A disclaimer of opinion.
d. A qualified or an adverse opinion, depending on the materiality of the item in
question.
9. Three of the following conditions must be presented if the auditor is to issue the
standard unqualified audit report. Which one of the following conditions need not be
presented to issue such a report?
a. All statements -- balance sheet, income statement, statement of retained earnings,
and statement of cash flows – are included in the financial statements.
b. The PASs have been followed in all respects on the engagement.
c. The financial statements are presented in accordance with generally accepted
auditing standards.
d. Sufficient evidence has been accumulated and the auditor has conducted the
engagement in a manner that enables him/her to conclude that the PSAs have
been followed.
10. When the client prepares comparative financial statements showing data for years
ending December 31, 2004 and 2005, the auditor’s standard unqualified report
a. Must express an opinion on both 2004 and 2005.
b. May express an opinion on either 2004 or 2005, depending on which year’s data
and records were audited.
c. Must express an opinion on 2005 only, since that is the latest and most relevant
information for investors.
d. May express an opinion on the balance sheet for 2004 and on the income
statement and other statements for 2005, if that is the desire of the client.
11. As a further attempt to indicate that the auditor is independent, the addressee of the
audit report is usually
a. The client company.
b. The board of directors of client company.
c. The President and/ or CEO of client company.
d. The stockholders of client company.
12. The purpose of the introductory paragraph in the standards unqualified report is to
a. Distinguish the audit report from a compilation or review report.
b. Identify the financial statements which were audited, and the dates and time
periods covered by the report.
c. Communicate the responsibilities of management in preparing the financial
statements, and to clarify the respective roles of management and the auditor.
d. All of the above.
13. The auditor’s responsibility paragraph of the standard unqualified au states that the
audit is designed to
a. Discover all errors and/or irregularities.
b. Discover material errors and/or irregularities.
c. Obtain reasonable assurance whether the statements are free of material
misstatement.
d. Conform to generally accepted accounting principles.
14. Which of the following is not a true statement? “In the opinion paragraph of the
standard unqualified report, the auditor is required to express.
a. An unqualified opinion about the financial statements.”
b. A conclusion whether the company followed Philippines Financial Reporting
Standards.”
c. Auditor has obtained sufficient appropriate audit evidence to support his opinion.”
d. That the financial statements are presented fairly in all material respects.”
15. The appropriate date for the audit report in no earlier than the date
a. Of the client’s fiscal year ended.
b. Auditor and client entered into a contract.
c. Auditor has concluded procedures in the field.
d. Auditor types and delivers the report to client.
16. The audit report date is important to users because it indicates

a. The last day of the fiscal period.
b. The date on which the financial statements were field with the Securities and
Exchange Commission.
c. The last date on which users may institute a lawsuit against either client or
auditor.
d. The last day that the auditor obtained sufficient appropriate e audit evidence to
support his opinion on the financial statement.
17. Three of the following conditions would, y itself, require the auditor to issue a report
other than the Unqualified Report. Which one would not require such a departure?
a. Client company’s financial statements show a significant net loss for each o the
last three years, including the current fiscal period.
b. The financial statements have not been prepared in accordance with the applicable
financial reporting framework.
c. The auditor is not independent during the fiscal period under audit.
d. The scope of the audit’s examination has been restricted, although the cause of the
restriction was not the client’s fault.
18. The auditor could still issue the Unqualified Report, even though the client
a. Valued ending inventory by using the replacement cost method of inventory
valuation.
b. Value ending inventory by using the Next-In-First-Out (NIFO) method of
inventory valuation.
c. Valued ending inventory by using valuation, but also showed the replacement cost
of inventory in the Notes to the financial statements.
d. Valued ending inventory by using the last-in, first-out (LIFO) method of inventory
valuation.
19. The three main types of audit opinion other than the Unqualified Opinion 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.
20. Several types of “special audit reposts” are issued by CPAs. Which one of the
following circumstances would not require the issuance of such a special report?
a. Client’s financial statements are prepared using the cash basis.
b. Client’s financial statements are prepared using the accrual basis.
c. The CPA has been retained to audit only the current assets.
d. The CPA has been retained to review the internal control system, not the financial
statements.
21. An adverse opinion is issued when the auditor believes that

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 results of operations
and cash flows in conformity with PFRS.
d. The audit firm is not independent.
22. The adverse opinion report will be issued by the independent auditor when he/she
a. Suspects that client has not followed Philippine Financial Reporting Standards
(PFRS).
b. Suspects that client’s financial statements are not it conformity with generally
accepted auditing standards.
c. Has knowledge that the financial statements are not in conformity with Philippine
Financial statements are not in conformity with Philippine Financial Reporting
Standard (PFRS).
d. Has knowledge that PSAs were not followed.
23. A disclaimer is issued whenever the auditor

a. Has been unable to satisfy him/herself that the overall financial statements are
presented fairly.
b. Believes that the overall financial statements are not presented fairly.
c. Believes that some material part(s) of the financial statements are not presented
fairly.
d. Has determined that the financial statements are presented fairly.
24. The necessity to issue a disclaimer of opinion may arise because of a

a. Severe limitation on the scope of the audit examination.
b. Non-independent relationship between auditor and client.
c. Either a or b above.
d. None of the above.
25. The distinction between an adverse opinion and a disclaimer is

a. Lack of PFRS versus lack of GAAS.
b. Knowledge versus lack of knowledge.
c. The CPA’S report versus the CIA’S report.
d. FRSC Statements versus the PICPA standards.
26. Both disclaimers and adverse opinions are used

a. Only when the condition is highly material.
b. Whether the condition is material or not.
c. Irregardless of the auditor’s independence.
d. Irregardless of client’s choice of a non-PFRS accounting method.
27. A qualified opinion report can be used only when the auditor believes that the
financial statements in all material respects are
a. Fairly stated.
b. Not fairly stated.
c. Materially misstated.
d. Materially misleading
28. The least severe type of report for disclosing departures from an unqualified report is
the
a. Adverse opinion.
b. Disclaimer of opinion.
c. Qualified opinion.
d. Report on unaudited financial statements.
29. A qualified report can not take the form of a qualification of
a. The opinion alone.
b. The scope alone.
c. Both scope and opinion.
30. A scope and qualification can be issued only when the auditor
a. Is not independent.
b. Has not been able to accumulate all the evidence required by generally accepted
auditing standards.
c. Has accumulated all the evidence required by generally accepted auditing
standards.
d. Has been restricted by client from gathering the needed information to form an
opinion.
31. The use of a qualification of the opinion alone restricted to those situations in which
the
a. Scope of the auditor’s examination has been restricted.
b. Financial statements have not been prepared in accordance with Philippine
Financial Reporting Standards (PFRS).
c. Auditor is not independent.
d. Auditor was hired to do a “Review” or “Compilation”.
32. Whenever an auditor issue a qualified report, he or she

a. Must use the term “subject to” in the opinion paragraph.
b. May use either the terms “subject to “or expect for” in the opinion paragraph,
depending on the nature of the qualification.
c. Must use the term “expect for” in the opinion paragraph.
d. Must not use the terms “subject to” or “except for” in the opinion paragraph.
33. A qualification is appropriate when the auditor is satisfied that the overall financial
statements are
a. Fairly stated.
b. Materially misstated.
c. Fairly stated, but these is a material exception.
d. Fairly stated, even though there is an immaterial exception.
34. If a misstatement is immaterial relative to the financial statements of the entity for the
current period and is not expected to have a material effect in future periods, it is
appropriate to issue
a. An unqualified opinion.
b. A qualified opinion.
c. An adverse opinion.
d. A disclaimer of opinion.
35. A misstatement in the financial statements can be considered material if
a. It overshadows the financial statements as a whole.
b. Knowledge of the misstatement would affect a decision of a reasonable user of the
statements.
c. It affects more than one account on the statements.
d. If affects only one account on the statements.
36. When a misstatement in the financial statements exists but is unlikely to affect the
decisions of a reasonable user, it would be appropriate to issue
d. An adverse opinion.
37. When a misstatement in the financial statements would affect a user’s decision but
the overall statements are still fairly stated, it would be appropriate to issue
c. An adverse opinion.
d. A disclaimer of opinion.
38. In order to make materiality decisions when a condition requiring a departure from an
unqualified report exists, the auditor must evaluate
a. The magnitude of the error on the account involved.
b. The effect on the financial statement which contains the erroneous account.
c. The effects of the error on both the income statement and the balance sheet.
d. All effects on the financial statements.
39. When a misstatement with the highest level of materiality exists on the financial
statements, the auditor must issue
a. An adverse opinion.
b. A disclaimer of opinion.
c. Either a qualified opinion or an adverse opinion, depending on which conditions
exist.
d. Either an adverse opinion or a disclaimer or opinion, depending on which
conditions exist.
40. When determining whether an exception is highly material, the extent to which the
exception affects different parts of the financial statements must be considered. This
is referred to as
a. Materiality.
b. Pervasiveness.
c. Financial analysis.
d. Ratio analysis.
41. If the auditor is determined to lack independence, a disclaimer of opinion must be
issued
a. In all cases.
b. Only if it is highly material.
c. Only if it is material.
d. If the client requests it.
42. The primary concern in measuring materiality when a client has failed to follow
PFRS in usually
a. The total peso error in the accounts involved, compared with some base.
b. Measurability of the peso error.
c. The nature of the item in error.
d. Whether it can materially affect some future period.
43. Whenever there is a scope restriction, the appropriate response is to issue

a. A disclaimer of opinion.
c. A qualified opinion.
d. An unqualified report, a qualification of scope and opinion, or a disclaimer of
opinion, depending on materiality.
44. When client is not follow PFRS, and the auditor decides that adherence to PFRS
would result in misleading statements, the opinion paragraph of the audit report
a. Must express an adverse opinion.
b. Must express a qualified opinion.
c. Should be unqualified except for a reference to the required explanatory
paragraph.
d. Should be the standard unqualified opinion.
45. Whenever the client imposes restrictions on the scope of the audit should be
concerned about the possibility that management is trying to prevent discovery of
misstated information. In such cases to prevent discovery of misstated information. In
such cases, the PSAs has encouraged.
a. A disclaimer of opinion, in all cases.
b. A qualification of both scope and opinion, in all cases.
c. A disclaimer of opinion, whenever materiality is in question.
d. A qualification of both scope and opinion, whenever materiality is in question.
46. The most common case in which conditions beyond the client’s and auditor’s control
cause a scope restriction is an engagement
a. Agreed upon after the client’s balance sheet date.
b. Where client won’t allow auditor to confirm receivables for fear of offending his
customers.
c. Where auditor doesn’t have enough staff to audit all of client’s foreign
subsidiaries satisfactorily.
d. Where client is going through bankruptcy.
47. When the client fails to make adequate disclosure in the body of the statements or in
the related footnotes, it is the responsibility of the auditor to
a. Inform the reader that disclosure is not adequate, and to issue a qualified or an
adverse opinion.
b. Inform the reader that disclosure is not adequate, and to issue an unqualified or
qualified opinion.
c. Present the information in the audit report and to issue a qualified or an adverse
opinion.
d. Present the information in the audit report and issue an unqualified or qualified
opinion.
48. Should a situation arise where all audit procedures considered necessary in the
circumstances were performed and the auditor would otherwise issue an unqualified
report, and the it was discovered that the auditor has not fulfilled the independence
requirements specified by the Code of Ethics, the audit report issued
a. May still be the unqualified opinion.
b. Must be a declaimer of opinion.
c. May be either an unqualified or disclaimer of opinion
d. Must be an adverse opinion.
Distinguished from the
49. The unqualified report with explanatory paragraph or modified wording cannot b
distinguished from the
a. Qualified report.
b. Adverse report.
c. Disclaimer report.
d. None of the above.
50. When a material uncertainty exists, even if footnote disclosure by client is adequate,
the auditor is required to add an explanatory paragraph to the audit report under the
following condition(s)
a. The uncertainty is probable and it is material.
b. The uncertainty is reasonable possible and it is material, even though its
likelihood is remote.
c. The uncertainty is reasonably possible and it is material.
51. The report modified for uncertainties are the same as the standard unqualified report.
The explanatory paragraph which describes the uncertainty is added
a. Third paragraph.
b. Sixth and last paragraph.
c. Fifth paragraph with the opinion paragraph still last.
d. Fourth paragraph with the opinion paragraph still last.
52. When a qualified or adverse opinion is issued, a separate paragraph describing all the
substantive reasons is inserted
a. Between the introductory and auditor’s responsibility.
b. Between the auditor’s responsibility and opinion paragraphs.
c. After the opinion paragraph, as a sixth paragraph.
d. Immediately after the address, as the first paragraph.
53. When the auditor concludes that there is substantial doubt about the entity’s ability to
continue as a going concern, he/she should issue
a. An unqualified opinion with an explanatory paragraph, provided that client has
made adequate disclosures in the statements.
b. A qualified opinion with an explanatory paragraph, regardless of the adequacy of
disclosures in the financial statements.
c. An adverse opinion, regardless of the adequacy of disclosures in the financial
statements.
d. The standard unqualified report, provided that client has made adequate
disclosures in the statements.
54. Under certain circumstances, the CPA may wish to emphasize specific matters
regarding the financial statements even though he or she intends to express an
unqualified opinion. Normally, such explanatory information should be
a. Included in the scope paragraph.
b. Included in a separate paragraph in the report.
c. Included in the opinion paragraph.
d. Included in the introductory paragraph.
55. Which of the following is not one of the principal CPA firm’s alternatives when
issuing a report where a different CPA firm performed part of the audit?
a. Make no reference to the other CPA firm in the audit report, and issue the
standard unqualified opinion.
b. Issue a joint report signed by both CPA firms.
c. A help in clarifying the degree of responsibility being assumed by the auditor.
d. Properly located in the opinion paragraph of the unqualified report.
56. For the report containing a disclaimer for lack of independence, the disclaimer is in
the
a. Fifth or opinion paragraph.
b. Third or auditor’s responsibility paragraph.
c. First and only paragraph.
d. Sixth or explanatory paragraph.
57. The use of negative assurances in audit reports of historical financial statements is
a. A violation of the standards of reporting.
b. Encouraged by the Philippine Institute of CPAs.
c. A help in classifying the degree of responsibility being assumed by the auditor.
d. Properly located in the opinion paragraph of the unqualified report.
58. An auditor who qualifies an opinion because of an insufficiency of evidential matter
should describe the limitations in an explanatory paragraph. The auditor should also
refer to the limitation in the
Auditor's Opinion Notes to the

responsibility paragraph financial statements
a. Yes No Yes
b. No Yes No
c. Yes Yes No
d. Yes Yes Yes
59. An auditor may not issue a qualified opinion when

a. A scope limitation prevents the auditor from completing an important audit
procedure.
b. The auditor’s report refers to the work of a specialist.
c. An accounting principle at variance with generally accepted accounting principles
is used.
d. The auditor lacks independence with respect to the audited entity.
60. Unaudited financial statements for the prior year presented in comparative form with
audited financial statements for the current year should be clearly market 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.
61. When a publicly-held company refuses to include in its audited financial statements
any of the segment information that the auditor believes is required, the auditor
should issue a(an)
a. Unqualified opinion with a separate explanatory paragraph emphasizing the
matter.
b. “except for” qualified opinion because of inadequate disclosure.
c. Adverse opinion because of the lack of conformity with generally accepted
accounting principles.
d. Disclaimer of opinion because of the significant scope limitation.
62. An auditor may issue the standard audit report when the
a. Auditor refers to the findings of a specialist.
b. Financial statements are derived and condensed from complete audited financial
statements that are filed with a regulatory agency.
c. Financial statements are prepared on the cash receipts and disbursements basis of
accounting.
d. Principal auditor assumes responsibility for the work of another auditor.
63. When a principal auditor decides to make reference to another auditor’s examination,
the principal auditor’s report should always indicate clearly, in the introductory,
auditor’s responsibility, and opinion paragraphs, the
a. Magnitude of the portion of the financial statement examined by the oher auditor.
b. Disclaimer of responsibility concerning the portion of the financial statements
examined by the other auditor.
c. Name of the other auditor.
d. Division of responsibility.
64. How are management’s responsibility and the auditor’s responsibility represented in
the standard auditor’s responsibility represented in the standard auditor’s report?
Management's Auditor's
responsibility responsibility
a. Explicitly Explicitly
b. Implicitly Implicitly
c. Implicitly Explicitly
65. d. Explicitly Implicitly A limitation on the
scope of an auditor’s examination sufficient to preclude an unqualified opinion will
usually result when management
a. Presents financial statements that are prepared in accordance with the cash
receipts and disbursements basis of accounting.
b. States that the financial statements are not intended to be presented in conformity
with generally accepted accounting principles.
c. Does not make the minutes of the Board of Director’s meetings available to the
auditor.
d. Asks the auditor to report on the balance sheet and not on the other basic financial
statements.
66. Grant Company’s financial statements adequately disclose uncertainties that concern
future events, the outcome of which are not susceptible of reasonable estimation. The
auditor’s report should include a(an)
a. Unqualified opinion.
b. “subject to” qualified opinion.
c. “except for” qualified opinion.
d. Adverse opinion.
67. Sue, an independent auditor was engaged to perform an examination of the financial
statements of Barn Incorporated one month after its fiscal year has ended. Although
the inventory count was not observed by Sue, and accounts receivable were able to
gain satisfaction by applying alternative auditing procedures. Sue’s auditor’s report
will probably contain
a. A standard unqualified opinion.
b. An unqualified opinion and an explanatory paragraph.
c. Either a qualified opinion or a disclaimer of opinion.
d. An “except for” qualification.
68. The auditor’s report should be dated as of the dated as of the date o which the
a. Report is delivered to the client.
b. Field work is completed.
c. Fiscal period under audit ends.
d. Review of the working papers is complete.
69. The principal auditor is satisfied with the independence and professional reputation of
the other auditor who has audited the financial statements of a subsidiary. To indicate
the division of responsibility, the principal auditor should modify
a. Only the opinion paragraph of the report.
b. Only the opinion paragraph of the report and include an explanatory middle
paragraph.
c. Only the auditor’s responsibility paragraph of the report.
d. Both the auditor’s responsibility and opinion paragraphs of the report.
70. Senen, CPA, is the principal auditor for a multi-national corporation. Another CPA
has examined and reported on the financial statements of a significant subsidiary of
the corporation. Senen is satisfied with the independence and professional reputation
of the other auditor, as well as the quality of the other auditor’s examination. With
respect to Senen’s report on the consolidated financial statements, taken as a whole,
Senen
a. Must not refer to the examination of the other auditor.
b. Must refer to the examination of the other auditor.
c. Must refer to the examination of the other auditor.
d. May refer to the examination of the other auditor, in which case Senen must
include in the auditor’s report on the consolidated financial statements a qualified
opinion with respect to the examination of the other auditor.
71. A note to the financial statements of the First National Bank indicates that all of the
records relating to the bank’s business operation are stored on magnetic disks, and
that there are no emergency back-up systems or duplicate disks stored since the First
National Bank and their auditors considerer the occurrence of a catastrophe to be
remote. Based upon this, one would expect the auditor’s report to express
a. An adverse opinion.
b. An “except for opinion.
c. ---
d. ---
72. Bradley Corp. uses the weighted-average method of costing for half of its inventory
and the first-in, first-out method of costing for the haft of its inventory. Because of
these recording and reporting methods, the auditor should issue a(an)
a. Standard unqualified report.
c. “except for” qualified opinion.
d. Unqualified report with an explanatory paragraph with respect to consistency.
73. Which of the following requires recognition in the auditor’s opinion as to

consistency?
a. The correction of an error in the prior year’s financial statements resulting from a
mathematical mistake in capitalizing interest.
b. The change from the cost method to the equity method of accounting for
investments in common stock.
c. A charge in the estimate of provisions for warranty costs.
d. A changed in depreciation method which has no effect on current year’s financial
statements but is certain to affect future years.
74. A company has changed its method of inventory valuation from an unacceptable one
to one n conformity with generally accepted accounting principles. The auditor’s
report on the financial statements of the year of the change should include
a. No reference to consistency.
b. A reference to a prior period adjustment in the opinion paragraph.
c. An explanatory paragraph explaining the change.
d. A justification for making the change and the impact of the change on reported net
income.
75. When the audited financial statements of the prior year are presented together with
those of the current year, the continuing auditor’s report should cover
a. Both years.
b. Only the current year
c. Only the current year, but the prior year’s report should be presented.
d. Updating the report on the previous financial statements regardless of the opinion
previously issued.
76. When financial statements of a prior period are presented on a comparative basis with
the financial statements of the current period, the continuing auditor is responsible for
a. Expressing dual dated opinions.
b. Updating the report on the previous financial statements only if there has not been
a change in the opinion.
c. Updating the report on the previous financial statements only if there has not been
a change in the opinion.
d. Updating the report on the previous financial statements regardless of the opinion
previously issued.
77. A limitation on the scope of an auditor’s examination sufficient to preclude an

unqualified opinion will always result when management
a. Engages the auditor after the year-end physical inventory count is completed.
b. Ails to correct a material internal control weakness that had been identified during
the prior year’s audit.
c. Refuses to furnish a management representation letter to the auditor.
d. Prevents the auditor from reviewing the working papers of the predecessor
auditor.
78. The degree of certainty the practitioner has attained and wishes to convey is
a. An assertion.
b. Assurance.
c. A conveyance.
d. A declaration.
79. The reports issued at the conclusion of an engagement may or may not be intended
for general distribution,Which of the following types of engagements would result in
a report that is intended for only limited distribution?
a. The audit report.
b. The review report.
c. The report issued when the item is presented on a basis not in conformity with
PFRS.
d. The report issued after the examination of prospective financial statements.
80. Audit frequently audit statements which were prepared on a comprehensive basis of
accounting other than PFRS. When this occurs,
a. Generally accepted auditing standards do not apply to these examinations, and the
reporting requirements differ also.
b. Generally accepted auditing standards do not apply to this engagement, but the
reporting requirements remain the same for the CPA.
c. Generally accepted auditing standards do apply to these engagements, but the
reporting requirement remain the same for the CPA.
d. Generally accepted auditing standards do apply to these engagements, and the
reporting requirements are the same also.
81. Reports on debt compliance and similar engagements may be issued as a separate
report or as part of a report that expresses the auditor’s opinion on the financial
statements. When they are issued as a part of the auditor’s report on the financial
statements, it is done by
a. Adding a middle paragraph before the opinion paragraph.
b. Adding a paragraph after the opinion paragraph.
c. Adding an additional phrase of sentence within the opinion paragraph.
d. Adding a paragraph between the introductory and scope paragraphs.
82. The engagement and report on debt compliance letters should be limited to
compliance letters that the auditor is qualified to evaluate. Which of the following
engagements would be inappropriate for the CPA to attempt to evaluate?
a. Determining whether the client has properly restricted its business activities to the
requirements of an agreement.
b. Determining whether principal and interest payments were made when due.
c. Determining whether the proper limitations were maintained on dividends,
working capital, and debt ratios.
d. Determining whether the accounting records were adequate for conducting an
ordinary audit.
83. When the auditor is engaged to report on the internal control structure,
a. All areas of the structure will be included unless specifically excluded by
agreement.
b. The time period coincide with the fiscal period of the annual audit.
c. Certain areas are not examined if reduced control risk in those areas is not
planned.
d. All three of the above.
84. When reporting on information accompanying basic financial statements, the

profession’s reporting standards require the auditor to make a clear statement about
the degree of responsibility he or she is taking for the additional information. At the
present time, which of the following types of opinions are allowed?
a. A positive opinion, a reasonable level of assurance
b. Negative opinion, indicating a medium level of assurance.
c. A negative, indicating a low level of assurance.
d. All three of the above.
85. For public companies, unaudited financial statements with which the CPA is
associated are labeled as unaudited and require
a. A qualified opinion.
b. An adverse of opinion.
d. No opinion.
86. Compilation services are intended to enable a CPA firm to complete with
a. Management advisory service firms.
b. Tax preparation businesses.
c. Computer service businesses.
d. Bookkeeping firms.
87. The level of assurance that is provided by the CPA on a compilation report is
a. None.
b. Low.
c. Medium.
d. High.
88. Which of the following is the format of compilation that would not be acceptable?
a. A compilation with full disclosures in accordance with generally accepted
b. A compilation that omits substantially all disclosures, the report indicates that
they are missing, and their absence is not an intent to mislead the users.
c. A compilation with a separate paragraph warning readers that the CPA is not
responsible for exercising due care when performing this type of engagement.
d. A compilation with a separate paragraph that admits that the CPA is not
independent with respect to this client.
89. Performing inquiry and analytical procedures that provide the accounting with a
reasonable basis for expressing limited assurance that there are no material
modifications that should be made to the statements in order for them to be in
conformity with another comprehensive basis of accounting principles or if
applicable, with another comprehensive basis of accounting, is the definition of a(an)
a. Compilation.
b. Review
c. Audit.
d. Examination.
90. The only time that material department for failure to follow generally accepted
accounting principles is acceptable is for a
a. Review without complete disclosure.
b. Review with complete disclosure.
c. Compilation without complete disclosure.
d. Compilation with complete disclosure.
91. In a review service where client has failed to follow GAAP,

a. The accountant is not required to determine the effect of a departure if
management has not done so, but that fact must be disclosed in an report.
b. The accountant is required to determine the effect of a departure if management
has not done so, and that fact must be disclosed in the report.
c. The accountant is not required to determine the effect of a departure if
management has not done so, and that fact need not be disclosed in the report.
d. The accountant is required to determine the effect of a departure if management
has not done so, and that fact need not be disclosed in the report.
92. The fact that client has a material departure for failure to follow GAAP would require
the accountant to disclose that fact in a separate paragraph rather than in the regular
material when the accountant is performing
a. A compilation.
b. A review.
c. Either a compilation or a review.
d. Neither a compilation nor a review, only an audit.
93. Prospective financial statements are for a general use or for limited use. General use
refers to use by any third party whereas limited use refers to use by any third party
whereas limited use refers to use by third party whereas limited use refers to use bu
third parties with whom the responsible party is negotiating directly. Which of the
following statements is not correct?
a. Forecasts can be provided for general use.
b. Forecasts can be provided for limited use.
c. Projections can be provided for genera use.
d. Projections can be provided for limited use.
94. The standards prohibit one of the following types of engagements for prospective
financial statements from being undertaken.
a. A completion.
b. A review
c. An examination.
d. An agreed-upon procedures engagement.
95. The accountant’s report on an examination of prospective financial statements should

not include
a. A caveat that the prospective results may not be achieved.
b. A statement that the accountant assumes no responsibility to update the report for
events and circumstances occurring after the date of the report.
c. The accountant’s opinion that the prospective financial statements are presented in
conformity with PICPA presentations guidelines and that the underlying
assumptions provide a reasonable basis for the forecast, or a reasonable basis for
the forecast, or a reasonable basis for the projection given the hypothetical
assumptions.
d. A statement that the examination was made in accordance with generally accepted
auditing standards, and a brief description on the nature of such examination.
96. An independent accountant, without auditing an entity’s financial statements, may
accept an engagement to express an opinion on the entity’s internal controls in effect
As of a During a specified
specified date period of time
a. Yes Yes
b. Yes No
c. No Yes
d. No No
97. An accountant’s report expressing an opinion on an entity’s internal controls should

a. Brief explain the board objectives and inherent limitations of internal control.
b. State that the study and evaluation of the internal controls was conducted in
accordance with generally accepted auditing standards.
c. Clearly disclaim responsibility for the establishment and maintenance of the
internal controls.
d. Include an opinion concerning management’s assertions about whether the cost of
correcting any material weakness would exceed the benefits of reducing the risk
of errors and irregularities.
98. An accountant has been engaged to report on an entity’s internal records without
performing an audit of the financial statements. What restrictions, if any should the
accountant place on the use of this report?
a. This report should be restricted for use by management.
b. This report should be restricted for use by the audit committee.
c. This report should be restricted for use by a specified regulatory agency.
d. The accountant does not need to place any restrictions on the use of this report.
99. Before performing a review of a nonpublic entity’s financial statements, an

accountant should
a. Complete a series of inquiries concerning the entity’s procedures for recording,
classifying, and summarizing transaction.
b. Apply analytical procedures to provide limited assurance that no material
modifications should be made to the financial statements.
c. Obtain a sufficient level of knowledge of the accounting principles and practices
of the industry in which the entity operates.
d. Inquire whether management has omitted substantially all of the disclosures
required by generally accepted accounting principles.
100. An auditor who conducts an examination in accordance with generally accepted

auditing standards and concludes that the financial statements are fairly presented in
accordance with a comprehensive basis of accounting other than generally accepted
accounting principles, such as the cash basis of accounting , should issue a
a. Special report.
c. Review report.
d. Qualified opinion.
101. An accountant has been asked to compile the financial statements of a nonpublic
company on a prescribed from that omits substantially all the disclosures required by
generally accepted accounting principles. If the prescribed form is a standard
preprinted form adopted by the company’s industry’s trade association, and is to be
transmitted only to such association, the accountant
a. Need not advise the industry trade association of the omission of all disclosures.
b. Should disclose the details of the omissions in separate paragraphs of the
compilation report.
c. Is precluded from issuing a completion report when all disclosures are free of
material misstatements.
d. Should express limited assurance that the financial statements are free of material
misstatements.
102. 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. 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 not in the audited
financial statements.
c. Disclaim an opinion on the financial statements after explaining the material
inconsistency in a separate explanatory paragraph.
d. Revise the auditor’s report to include a separate explanatory paragraph describing
the material inconsistency.
103. An accountant may accept an engagement to apply agreed upon procedures to

prospective financial statements provided that
a. Distribution of t in to be restricted to the report specified users involved.
b. The prospective financial statements are also examined.
c. Responsibility for the adequacy of the procedures performed is taken by the
accountant.
d. Negative assurance is expressed on the prospective financial statements taken as a
whole.
104. When an accountant performs more than one level of service (for example, a
compilation and a review, or a compilation and an audit) concerning the financial
statements of a nonpublic entity, the accountant generally should issue the report that
is appropriate for
a. The lowest level of service rendered.
b. The highest level of service rendered.
c. A compilation engagement.
d. A review engagement.
105. An accountant who reviews the financial statements of a nonpublic entity should
issue a report stating that a review
a. Is substantially less in scope that an audit.
b. Provides negative assurance that the internal control structure is functioning as
designed.
c. Provides only limited assurance that the financial statements are fairly presented.
d. Is substantially more in scope than a compilation.
106. An auditor has been asked to report on the balance sheet of Kane Company but
not on the basic financial statements. The auditor will have access to all information
underlying the basic financial statements. Under these circumstances, the auditor
a. May accept the engagement because such engagements merely involve limited
reporting objectives.
b. May accept the engagement but should claim an opinion because of an inability to
apply the procedures considered necessary.
c. Should refuse the engagement because there is a client-imposed scope limitation.
d. Should refuse the engagement because of a departure from generally accepted
auditing standards.
107. The statement that “nothing came to our attention which would indicate that these
statements are not fairly presented” expresses which of the following?
a. Disclaimer of an opinion.
b. Negative assurance.
c. Negative confirmation.
d. Piecemeal opinion.
108. Which of the following would not be included in a CPA’s report based upon a
review of the financial statements of a nonpublic entity?
a. A statement that the review was in accordance with generally accepted auditing
standards.
b. Statement that all information included in the financial statements is the
representation of management.
c. A statement describing the principal procedures performed.
d. A statement describing the auditor’s conclusions based upon the result of the
review.
109. A report based on a limited review of interim financial statements would include
all of the following elements except
a. Statement that an examination was performed in accordance with generally
accepted auditing standards.
b. A description of the procedures performed or a reference to the procedures
described in an engagement letter.
c. A statement that a limited review would not necessarily disclose all matters of
significance.
d. An identification of the interim financial information reviewed.
110. If as a result of a limited review of interim financial information, a CPA concludes

that such information does not conform with generally accepted accounting
principles, the CPA should
a. Insist that management have the information, a CPA concludes that such
information does not confirm with generally accepted accounting principles and,
if this is not done, resign from the engagement.
b. Adjust the financial information so that it conforms with generally accounting
principles.
c. Prepare a qualified report that makes reference to said information.
d. Advise the board of directors of the respects in which the information does not
conform with generally accepted accounting principles.
111. Negative assurance is not permissible in

a. Letters requested by security underwriters for data pertinent to SEC registration
statements.
b. Reports relating to the results of agreed upon procedures to one or more specified
elements, accounts, or items of financial statements.
c. Reports based upon a review engagement.
d. Reports based upon an audit of the interim financial statements of a closely held
business entity.
112. A CPA who is independent may issue a

a. Compilation report.
b. Review report.
c. Comfort letter.
113. The auditor’s best course of action with respect to “other financial information”
included in an annual report containing the auditor’s report is to
a. Indicate in the auditor, that the “other financial information “is unaudited.
b. Consider whether the “other financial information” is accurate by performing a
limited review.
c. Obtain written representations from management as to the materiality accuracy of
the “other financial information”.
d. Read and consider the manner of presentation of the “other financial information:.
114. Non-accounting data included in a long-form report have been subjected to

auditing procedures. The auditor’s report should state this fact and should explain that
the non-accounting date are presented for analysis purposes. In additional, the
auditor’s report should state whether the non accounting data are
a. Beyond the scope of the normal engagement and therefore, not converted by the
opinion on the financial statements.
b. Within the framework of generally accepted auditing standards, which apply to
the financial statements taken as a whole.
c. Audited, unaudited, or reviewed on a limited basis.
d. Fairly stated in all material respects in relation to the basic financial statements,
taken as a whole.
115. One example of a “special report” as defined by Philippines Standards on

Auditing, is a report issued in connection with
a. A feasibility study.
b. A limited review of interim financial information.
c. Price-level basis financial statements.
d. Compliance with a contractual agreement not related to the financial statements.
116. A CPA has been engaged to audit financial statements that were prepared on a
cash basis. The CPA
a. Must ascertain that there is proper disclosure of the fact that the cash basis has
been used, the general nature of material items omitted, and the net effect of such
omissions.
b. May not be associated with such statements which are not in accordance with
generally accepted accounting principles.
c. Must render a qualified report explaining the departure from generally accepted
accounting principles in the opinion paragraph.
d. Must restate the financial statements on an accrual and then render the standard
(short-form) report.
117. In the course of an engagement to prepare unaudited financial statements, the

client requests that the CPA perform normal accounts receivable audit confirmation
procedures. The CPA agrees and performs such procedures. The confirmation
procedures
a. Are part of an auditing service that change the scope of the engagement to that of
an audit in accordance with generally accepted auditing standards.
b. Are part of an accounting service and are not performed for the purpose of
conducting an audit in accordance with generally accepted auditing standards.
c. Are not permitted when the purpose of conducting an audit in accordance with
generally accepted auditing standards.
d. Would require the CPA to render a report that indicates that the examination was
conducted in accordance with generally accepted auditing standards but was limit
in scope.
118. When making a review of interim financial information the auditor’s work
consists primarily of
a. Studying and evaluating limited amounts of documentation supporting the interim
financial information.
b. Scanning and reviewing client-prepared, internal financial statements.
c. Making inquiries and performing analytical procedures concerning significant
accounting maters.
d. Confirming and verifying significant account balances at the interim date.
119. You are a CPA retained by the manager of a cooperative retirement village to do
“write-up work”. You are expected to prepare unaudited financial statements with
each page marked “unaudited” and accompanied by a disclaimer of opinion starting
no audit was made. In performing The work you discover that there are invoices to
support P25,000 of the manager’s claimed disbursements. The manager informs you
that all the disbursements are proper. What should you do?
a. Submit the expected statements but omit P25,000 of unsupported disbursements.
b. Include the unsupported disbursements in the statements since you are not
expected to make an audit.
c. Obtain, from the manger, a written statement that you informed him of the
missing invoices and include his assurance that the disbursements are proper.
d. Notify the owners that some of the claimed disbursements are unsupported and
withdraw if the situation is not satisfactorily resolved.
120. Which of the following procedures is not included in a review engagement of a

nonpublic entity?
a. Inquiries of management.
b. Inquiries regarding events subsequent to the balance sheet date.
c. Any procedures designed to identify relationships among data that appear to be
unusual.
d. A study and evaluation of internal control.
121. Hickory Company, whose financial statements are unaudited, has engaged a CPA
to make a special review and report on Hickory’s internal accounting control. In
general, to which of the following will this report be least useful?
a. Hickory’s management.
b. Present and prospective customers.
c. A regulatory agency having jurisdiction over Hickory.
d. The independent auditor of Hickory’s parent company.
122. A CPA who is not independent and is associated with financial statements. The
disclaimer should
a. Clearly state the specific reasons for lack of independence.
b. Not mention any reason for the disclaimer other than that the CPA was unable to
conduct the examination in accordance with generally accepted auditing
standards.
c. Not describe the reason for lack of independence but should state specifically that
the CPA is not independent.
d. Include a middle paragraph clearly describing the CPA’s association with the
client and explaining why the CPA was unable to gather sufficient competent
evidential matter to warrant the expression of an opinion.
123. A CPA who is associated with financial statements of a public entity, but has not
audited or reviewed such statements, should
a. Insist that they be audited or reviewed before publication.
b. Read then to determine whether there are obvious material errors
c. State these facts in the accompanying notes to the financial statements.
d. Issue a compilation report.
124. A CPA should not normally refer to which one of the following subjects in a
“comfort letter” to underwriters?
a. The independence of the CPA.
b. Changes in financial statement items during a period subsequent to the date and
period of the latest financial statements in the registration statement.
c. Unaudited financial statements and schedules in the registration statement.
d. Management’s determination of line of business classifications.
125. An auditor who was engaged to perform an examination of the financial

statements of a nonpublic entity has been asked by the client to refrain from
performing various audit procedures and change the nature of the engagement to a
established by the PICPA. The client’s request was made because the cost to complete
the examination was significant. Under the circumstances the auditor would most
likely
a. Qualify the auditor’s report and refer to the scope limitation.
b. View the request as an indication of an possible irregularity.
c. Complete the examination which was progress
d. Honor the client’s request.
126. With respect to issuance of an audit report which is dual-dated for a subsequent
event occurring after the completion of field work but before issuance of the auditor’s
report, the auditor’s responsibility for events occurring subsequent to the completion
of field work is
a. Extended to include all events occurring until the date of the subsequent event
referred to.
b. Limited to the specific event referred to
c. Limited to all events occurring through the date of issuance of the report.
d. Extended to include all events occurring through the date of submission of the
report to the client.
127. An auditor decision concerning whether or not to “dual date” the audit report is
based upon the auditor’s willingness to
a. Extend auditing procedures.
b. Accept responsibility for subsequent events.
c. Permit inclusion of a note captioned event (unaudited) subsequent to the date of
the auditor’s report
d. Assume responsibility for events subsequent to the issuance of the auditor’s
report.
128. An auditor issued an audit report that was dual dated for a subsequent event
occurring after the completion of field work but before issuance of the auditor’s
report. The auditor’s responsibility for events occurring subsequent to the completion
of field work was
a. Limited to the specific event referenced.
b. Limited to include only events occurring before the date of the last subsequent
event referenced.
c. Extended to subsequent events occurring through the date of issuance of the
report.
d. Extended to include all events occurring since the completion of field work.
129. When a CPA does not confirm material accounts receivable, but is satisfied by the
application of alternative auditing procedures, she normally should
a. Issue an unqualified opinion, but disclose elsewhere in the report this department
from a customary procedure.
b. Issue an unqualified opinion with no reference to this omission but be prepared to
defend the action.
c. Issue a qualified opinion or a disclaimer, depending on the materiality of the
receivables.
d. Issue an adverse opinion.
130. When a client defines to disclose essential information in the financial statements
or notes, the CPA should
a. Provide the information in the audit report, if practicable, and qualify the opinion
because of a limitation on the scope of the audit.
b. Provide the information in the audit report, if practicable, and qualify the opinion
because of a departure from GAAP.
c. Issue a disclaimer of opinion because the client has interfered with the auditor’s
function of assessing the adequacy of disclosure.
d. Issue an unqualified opinion, but inform the reader by including the omitted
information in the audit report.
131. CPA Firm A has performed most of the audit of Consolidated Company’s
financial statements and qualifies as the principal auditor. CPA Firm B did the
remainder of the work. Firm A wishes to assume full responsibility for Firm B’s work.
Which of the following statements is correct?
a. Such assumption of responsibility violates the profession’s standards.
b. In such circumstances, when appropriate requirements have been met, Firm A
should issue a standard unqualified opinion on the financial statements.
c. In such circumstances, when appropriate requirements have been met, Firm A
should issue an unqualified opinion on the financial statements but should make
appropriate reference to the Firm B in the audit report.
d. CPA Firm A should normally qualify its audit report on the basis of the scope
limitation involved when another CPA firm is involved when another CPA firm is
involved.
132. Which of the following is most accurate with respect to a CPA’s responsibility in
considering a going concern question on audits?
a. Perform analytical procedures aimed particularly at assessing whether bankruptcy
is probable.
b. Issue a report with a “going concern” modification when failure is at least
reasonably probable.
c. Based on audit procedures performed, assess whether there is substantial doubt
about the entity’s ability to continue as a going concern.
d. Determine that relate uncertainties are properly disclosed and make no mention in
the audit report.
133. The Rotter Company changed accounting principles in 2004 from those followed
in 2003. The auditor believes that the new principles are not in conformity with
GAAP, and therefore that the 2004 financial statements are misleading. The change
(including its peso effect) has been described in the notes to the 2004 statements,
which are being presented by themselves. Under these circumstances in reporting on
the 2004 financial statements, the auditor should
a. Express an adverse opinion with an explanatory paragraph disclosing the reason
(the accounting change) for the opinion.
b. Express an unqualified opinion with an explanatory paragraph, and disclose the
accounting change from 2003 and its effect on the financial statements.
c. Disclaim an opinion and explain all of the reasons therefore.
d. Express an adverse opinion regarding the 2004 financial statements, but do not
include an explanatory paragraph disclosing the reason therefore since it will be
included in the notes to the statements.
134. When financial statements are effected by a material departure from generally
accepted accounting principles, the auditor should
a. Issue an unqualified report with an explanatory paragraph.
b. Withdraw from the engagement.
c. Issue an “except for” qualified or adverse opinion.
d. Issue an “except for” qualification or disclaimer of opinion.
135. Which of the following accounting changes requires explanatory language

regarding consistency in the auditors’ report?
a. A change in the estimated useful lives of a class of fixed assets.
b. A write-off of a patent, because future benefits do not appear to exist.
c. A change from the straight-line method of depreciation to an accelerated method
for a class of fixed assets.
d. A change in calculating bad debt expense from 1 percent to 2 percent of credit
sales.
136. The first paragraph of a standard unqualified audit report is referred to as the
a. Introductory paragraph.
b. Scope paragraph.
c. Opinion paragraph.
d. Explanatory paragraph.
137. A client is presenting comparative (two year) financial statements. You have
audited both years. Which of the following is correct?
a. You should issue one audit report which covers both presented years.
b. You should issue two audit report, one on each year.
c. You should issue one audit report, but only on the most current year.
d. You may issue either one audit report on both presented years, or a report on the
most current year.
138. A scope restriction is least likely to result in a(an)

a. Qualified opinion.
c. Adverse opinion.
d. Standard unqualified opinion.
139. Which of the following is least likely to result in explanatory language being
added to an unqualified auditor’s report on a client that sells jewelry through a retail
store?
a. A decision by the auditor to emphasize that the client is a part of a larger
organization
b. Reliance placed upon a specialist to evaluate the diamonds.
c. A change from FIFO to specific identification accounting for inventory.
d. A question as to whether the client will be able to remain a going concern.
140. Which of the following statements is correct with respect to explanatory
paragraphs?
a. They always precede the opinion paragraph.
b. They always follow the opinion paragraph.
c. Sometimes they precede and sometimes they follow the opinion paragraph.
d. They always precede the scope paragraph.
141. A client has changed the salvage values of a number of its fixed assets. The
auditors-believe that the salvage values are realistic. The appropriate report is
a. Standards unqualified.
b. Unqualified with explanatory language as to consistency.
c. Qualified for consistency.
d. Disclaimer.
142. Which of the following would be most likely to be an appropriate addressee for an
audit report?
a. The shareholders of the corporation whose financial statements were examined.
b. A third party who requested that a copy of the audit report be sent to her.
c. The president of the corporation whose financial statements were examined.
d. The chief financial officer.
143. The term “subject to” in an audit report is

a. Used in an adverse opinion.
b. Used in a disclaimer of opinion.
c. No longer considered appropriate.
d. Used for uncertainties.
144. The unqualified standard audit by a CPA normally does not explicitly state that
a. the financial statements are the responsibility of the Company’s management.
b. The audit was conducted in accordance with generally accepted accounting
principles.
c. The auditors believe that the audit provides a reasonable basis for their opinion.
d. An audit includes assessing the accounting principles used.
145. If audited financial statements include a balance sheet and an income statements,
but do not include a statements of cash flows
a. The auditors may still issue an unqualified opinion.
b. The auditors should issue an “except for” qualification for the departure from
c. The auditors should issue an opinion “subject to” the information that would have
been contained in the statements of cash flows.
d. The auditors should refuse to issue an opinion on only the two financial
statements.
146. Which of the following circumstances generally results in the issuance of a report
that is other than unqualified?
a. Circumstances have significantly limited the scope of the auditor’s procedures.
b. The principal auditors for the engagement are relying on the work of other
auditors.
c. The financial statements depart from a standard established by the PFRSC,
because the auditors have concluded that application of the standard would result
in materially misleading financial statements.
d. The auditors have decided to emphasize the fact that the company has engaged in
material amounts of related party transactions.
147. Which of the following modifications of the auditors’ report does not include an
additional paragraph?
a. The report is qualified because the financial statements contain a material
departure from generally accepted accounting principles.
b. The report is includes an emphasis of a matter.
c. The audit report indicates a division of responsibility between two CPA firms.
d. The report is qualified because the scope of the auditors’ work was restricted.
148. If the predecessor auditors fail to reissue their audit report on comparative
financial statements the successor auditors should
a. Express a qualified opinion on the comparative financial statements audited by
the predecessor auditors.
b. Reproduce the predecessor auditors’ report and include it with the new set of
c. Have the client omit the comparative financial statements.
d. Refer to the report of the predecessor auditors.
149. An audit client has refused to allow the auditors to perform a generally accepted
auditing procedure. The circumstance would normally result in the issuance of
a. A disclaimer of opinion or an “except for” qualification of the report.
c. An “except for” qualification of the report.
d. An unqualified report with explanatory language.
150. If principal auditors make no reference to other auditors whose work they have
relied on as a part of the basis for their report, the principal auditors
a. Are not required to investigate the professional reputation of the other auditors.
b. Are issuing an inappropriate report.
c. Are taking full responsibility for the work of the other auditors.
d. Are issuing a qualified opinion.
151. After performing all necessary procedures the predecessor auditors reissue a
prior-period report on financial statements at the request of the client without revising
the original wording. The predecessor auditors should
a. Delete the date of the report.
b. Dual0date the report.
c. Use the reissue date.
d. Use the date of the previous report.
152. When an adverse opinion is expressed, the opinion paragraph should include a
direct reference to
a. A note to the financial statements which discusses the basis for the basis for the
opinion.
b. The auditor’s responsibility paragraph which discusses the basis for the opinion
rendered.
c. A separate paragraph which discusses the basis for the opinion rendered.
d. The consistency in the application of generally accepted accounting principles.
153. Under which of the following set of circumstances might the auditors disclaim an
opinion?
a. The financial statements contain an departure from generally accepted accounting
principles, the effect of which is material.
b. The principal auditors decide to make reference to the report of another auditor
who audited a subsidiary.
c. There has been a material change between periods in the method of the
application of accounting principles.
d. There are significant scope limitations on the audit.
154. The management of Stanley Corporation has decided not to account for a material
transaction in accordance with the provisions of a recent statement of the PFRSC.
They have set forth their reasons in note “B” to the financial statements which clearly
demonstrates that due unusual circumstances the financial statements would
otherwise have been misleading. The auditors’ report will probably contain a(an)
a. Qualified opinion and an explanatory paragraph with a reference to note “B”.
b. Unqualified opinion and an explanatory paragraph.
c. Adverse opinion and an explanatory paragraph.
d. “except for” opinion and an explanatory paragraph.
155. The auditors include explanatory language in an otherwise unqualified report in

order to emphasize that the entity being reported in order to emphasize that the entity
being reported upon is a subsidiary of another business enterprise. The inclusion of
this explanatory language
a. Is appropriate and would not negate the unqualified opinion.
b. Is considered a qualification of the report.
c. Is a violation of generally accepted reporting standards if this information is
disclosed in notes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase “with the
foregoing explanation.”
156. It is appropriate for the auditors’ report to refer a render to a financial statement
note for details regarding a(an)
a. Change in accounting principle.
b. Limitation in the scope of the audit.
c. Uncertainty.
d. Related party transaction.
157. Assurance service performed for decision makers may address the
Quality of information Context of information

a. Yes Yes
b. Yes No
c. No Yes
d. No No
158. When compared to the consideration of internal control for purposes of an audit,
an examination of management’s assertion about the effectiveness of an entity’s
internal control may be expected to require a(n):
a. Increased scope of tests of balances.
b. Increased scope of tests of controls.
c. Greater reliance upon analytical procedures.
d. Increased emphasis on fairness of future presentation.
159. Which of the following is least likely to result in modification of an opinion on

management’s assertion about the effectiveness of an entity’s internal control?
a. Significant circumstance imposed scope limitation.
b. Significant management imposed scope limitation.
c. Reportable conditions that are not also material weaknesses in internal control.
d. Material weaknesses in internal control.
160. A practitioner’s unqualified opinion based upon an examination may ordinarily be

on:
Subject matter Assertion

a. Yes Yes
b. Yes No
c. No Yes
d. No No
161. When a practitioner examines projected financial statements, the practitioner’s
report should include a separate paragraph that
a. Describes the limitations on the usefulness of the presentation.
b. Provides an explanation of the differences between an examination and a review.
c. States that the accountant is responsible for events and circumstances for a period
not exceeding one year after the report’s date.
d. Disclaims an opinion on whether the assumptions provide a reasonable basis for
the projection.
162. Which of the following will not result in qualification of the auditors’ report due
to a scope limitation?
a. Restrictions imposed by the client.
b. Reliance placed on the report of other auditors.
c. Inability to obtain sufficient competent evidential matter.
d. Inadequacy in the accounting records.
163. For a continuing audit client, when a complete set of financial statements is
presented on a comparative basis for two years, the auditors’ opinion would refer to
a. Only the current year under audit.
b. Either one or both years at the option of the auditors.
c. Each of the two years plus the preceding year.
d. Each of the years in the two periods.
164. Which of the following representations does an auditor make explicitly and which
implicitly when issuing an unqualified opinion?
Conformity with GAAP Adequacy of disclosure

d. Explicitly Implicitly
165. For a particular entity’s financial statements to be presented fairly in conformity
with generally accepted accounting principles, it is not required that the principles
selected
a. Be appropriate in the circumstances for the particular entity.
b. Reflect transactions in a manner that presents the financial statements within a
range of acceptable limits.
c. Present information in the financial statements that is classified and summarized
in a reasonable manner.
d. Be applied on a basis consistent with those followed in the prior year.
166. In which of the circumstances would an adverse opinion be appropriate?

a. The auditor is not independent with respect to the enterprise being audited.
b. An uncertainty prevents the issuance of a standard unqualified opinion.
c. The statements are not in conformity with generally accepted accounting
principles regarding pension plans.
d. A client-imposed scope limitation prevents the auditor from complying with
generally accepted audit standards.
167. The independent auditor has concluded that a substantial doubt remains about a
client’s ability to continue in existence, but the client’s financial statements have
properly disclosed all of its solvency problems. The auditor would probably issue
a(an)
a. Unqualified opinion with an appropriate explanatory paragraph
b. “except for” qualified opinion.
c. Standard unqualified opinion.
d. Adverse opinion.
168. A limitation on the scope of the audit sufficient to preclude an unqualified opinion
will always result when management
a. Asks the auditor to report on the balance sheet and not on the other basic financial
statements.
b. Refuses to permit its lawyer to respond to the letter of audit inquiry.
c. Discloses material related party transactions in the notes to the financial
statements.
d. Knows that confirmation of accounts receivable is not feasible.
169. Doe, an independent auditor, was engaged to perform an audit of the financial
statements of Ally Incorporated one month after its fiscal year has ended. Although
the inventory count was not observed by Doe, and accounts receivable were not
confirmed by direct communication with debtors, Doe was able to gain satisfaction
by applying alternative auditing procedures. Doe’s audit report will probably contain
a. A standard unqualified opinion.
b. An unqualified opinion and an explanatory paragraph.
c. Either a qualified opinion or a disclaimer of opinion.
d. An “except for” qualification.
170. When a CPA does not confirm material accounts receivable but is satisfied by the
application of alternative auditing procedures, she normally should.
a. Issue an unqualified opinion, but disclose elsewhere in the report this departure
from a customary procedure.
b. Issue an unqualified opinion with no reference to this omission but be prepared to
defend the action.
c. Issue a qualified opinion or a disclaimer, depending on the materiality of the
receivables.
d. Issue an adverse opinion.
171. The principal auditor is satisfied with the independence and professional reputation
of the other auditor who has audited a subsidiary. To indicate the division of
responsibility, the principal auditor should modify
a. The introductory, auditor’s responsibility, and opinion paragraphs of the report.
b. Only the auditor’s responsibility paragraph of the report.
c. Only the opinion paragraph of the report.
d. Only the opinion paragraph of the report and include an explanatory paragraph.
172. When reporting on comparative financial statements where the financial statements
of the period have been examined by a predecessor auditor whose report is not
presented, the successor auditor should indicate in the report
a. The reasons why the predecessor auditor’s report is not presented.
b. The identity of the predecessor auditor who examined the financial statements of
the prior year.
c. Whether the predecessor auditor’s review of the matter that might have a material
effect on the successor auditor’s opinion.
d. The type of opinion expressed by the predecessor auditor.
173. If an accounting change has no material effect on the financial statements in the
current year, but the change is reasonably certain to have a material effect in later
years, the change should be
a. Referred to in the auditor’s report for the current year
b. Disclosed in the notes to the financial statements of the current year
c. Disclosed in the notes to the financial statements and referred to in the auditor’s
report for the current year.
d. Treated as a subsequent event.
174. When financial statements of a prior period are presented on a comparative basis
with financial statements of the current period, the continuing auditor is responsible
for
a. Expressing dual dated opinions.
b. Updating the report on the previous financial statements only if there has been a
change in the opinion.
c. Updating the report on the previous financial statements only if the previous
report was qualified and the reasons for the qualification no longer exist.
d. On the previous financial statements regardless of the opinion previously issued.
175. When the auditor is unable to determine the mounts associated with the illegal acts
of client personnel because of an inability to obtain adequate evidence, the auditor
should issue a(an)
a. “subject to” qualified opinion.
c. Adverse opinion.
d. Unqualified opinion with a separate explanatory paragraph.
176. If the principal auditor decides to make reference t the other auditor’s audit, the
introductory paragraph must specifically indicate the
a. Magnitude of the portion of the financial statements examined by the other
auditor.
b. Name of the other auditor.
c. Name of the consolidated subsidiary examined by the other auditor.
d. Type of opinion express by the other auditor.
177. Which of the following will result in explanatory language as to consistency in the
auditor’s report, regardless of whether the item is fully disclosed in the financial
statements?
a. A change in accounting estimate
b. A change from an unacceptable accounting principle to a generally accepted one.
c. Correction of an error not involving a change in accounting principle.
d. A change on classification.
178. An auditor’s report on comparative financial statements should be dated as of the

date of the
a. Issuance of the report
b. Completion of the auditor’s most recent field work.
c. Latest financial statements being reported on.
d. Last related party transaction disclosed in the statements.
179. In which of the following circumstances would an auditor be most likely to express
an adverse opinion?
a. The statements are not in conformity with the ASC statements regarding the
capitalization of leases.
b. Information comes to the auditor’s attention that raises substantial doubt about the
entity’s ability’s to continue in existence.
c. The chief execute officer refuses the auditor access to minutes of board of
directors’ meetings.
d. Test of controls show that the entity’s internal control structure is so poor that it
can not be relied upon.
180. When an auditor qualifies an opinion because of a scope limitation, which

paragraph(s) of the auditor’s report should indicate that the qualification pertains to
the possible effects on the financial statements and not to the scope limitation itself?
a. The auditor’s responsibility paragraph and the separate explanatory paragraph.
b. The separate explanatory paragraph and the opinion paragraph.
c. The auditor’s responsibility paragraph only.
d. The opinion paragraph only.
181. All of the following are considered special reports , except

a. An opinion on financial statements presented on the tax basis.
b. A review report on interim financial statements presented on the tax basis.
c. An opinion on net sales.
d. A report on compliance with loan covenants.
182. In which of the following types of reports do the auditors express negative
assurance?
a. Reports on compliance with contractual agreements.
b. Reports on audits of financial statements on a comprehensive basis other than
c. Reports on audits of specified accounts.
d. Report on forecast examinations.
183. An assertion that is particularly difficult to audit with respect to personal financial
statements is
a. Existence.
b. Rights.
c. Completeness.
d. Presentation and disclosure.
184. In which of the following types of reports do accountants provide no explicit

assurance?
a. Compilations.
b. Reviews.
c. Agreed-upon procedures.
d. Examinations.
185. Which of the following types of services is likely to result in limited distribution
reports?
a. Compilations.
b. Reviews.
d. Examinations.
186. Which of the following is not a currently acceptable form of association with
prospective financial statements?
a. Compilation.
b. Review
d. Examination.
187. A “comfort letter” to an investment banking firm will normally not:

a. Express negative assurance.
b. Be included with the registration statement for the securities.
c. Include in the CPA’s opinion as to whether the audited securities acts.
d. Include a statement as to the auditor’s independence.
188. When the auditors are associated with the financial statements of a public company,
but have not audited the financial statements, they should:
a. Issue a compilation report.
b. Issue a disclaimer of opinion.
c. Issue a qualified report.
d. Not issue any report.
189. Which of the following is an appropriate form of report for auditors who have
audited the financial statements of a company when they are not independent?
a. a simple disclaimer of opinion
b. a disclaimer of opinion, with an indication of the lack of independence.
c. An audited opinion.
d. A qualified audit opinion.
190. Which of the following does not result in an modification of a compilation report?
a. Lack of independence on the part of the auditors.
b. A departure from generally accepted accounting principles.
c. A lack of adequate disclosure in the financial statements.
d. A lack of consisted application of generally accepted accounting principles.
191. Which of the following results in modification of a review report?

a. A change in accounting principles.
b. A significant uncertainty.
c. A departure from generally accepted accounting principles.
d. A change in an accounting estimate.
192. The term “special reports” may include all of the following except rip which reports
on financial statements:
a. Of partnership which follows accounting practices used to file its tax return.
b. Prepared for limited purposes such as a report that relates to certain aspects of
c. Of an organization that has limited the scope of the author’s examination.
d. Of an organization which maintains its accounts and prepared its statements on a
cash or other comprehensive basis of accounting which is materially at variance
with accounting practices customarily followed in preparing accrual-basis
statements.
193. Whenever special reports, filed on a printed form designed by authorities, call upon
the independent auditors to make an assertion that the auditors believe is not justified,
the auditors should:
a. Submit a short-form report with explanations.
b. Reword the form or attach a separate report.
c. Submit the form with questionable items clearly omitted.
d. Withdraw from the engagement.
194. During a review of the financial statements of nonpublic entity, the CPA finds that
the financial statements contain a material departure from generally accepted
accounting principles. If management refuse to correct the financial statements
representations, the CPA should:
a. Disclose the departure in a separate paragraph of the report.
b. Issue an adverse opinion.
c. Attach a note explaining the effects of the departure.
195. The accountant’s compilation report should be dated as of the date of:
a. Completion of fieldwork.
b. Completion of the compilation.
c. Transmittal of the compilation report.
d. The latest subsequent event referred to in the notes to the financial statements.
196. When a CPA is associated with a forecast, all of the following should be disclosed
except the:
a. Sources of information.
b. Character of the work performed by the CPA.
c. Major assumptions in the preparation of the forecast.
d. Probability of achieving estimates.
197. A modification of the CPA’s report on a review of the interim financial statements of
a publicly-held company would be necessitated by which of the following?
a. An uncertainty.
b. Lack of inconsistency.
c. Reference to another accountant.
d. Inadequate disclosure.
198. A CPA should not normally refer to which one of the following subjects in a
“comfort letter” to underwriters?
a. The independence of the CPA.
b. Changes in financial-statement items during a period subsequent to the date and
period of the latest financial statement in the registration statements.
c. Unaudited financial statements and schedule in the registration statement.
d. Management’s determination of line of business classifications.
199. Inquiry and analytical procedures ordinarily performed during a review of a

nonpublic entity’s financial statements include:
a. Analytical procedures designed to identify reportable conditions related to
internal control.
b. Inquiries concerning actions taken at meeting of the stockholders and the board of
directors.
c. Analytical procedures designed to test the accounting records by obtaining
corroborating evidential matter.
d. Inquiries of knowledgeable outside parties such as the client’s attorneys and
bankers.
200. Which of the following would not be included in a CPA’s report based upon a
review of the financial statements of a nonpublic entity?
a. a statement that the review was in accordance with generally accepted accounting
principles.
b. A statement that all information included in the financial statements are the
representations of management.
c. A statement describing the nature of the procedures performed.
d. A statement describing the auditor’s conclusions based upon the results of the
review.
201. The objective of a review of interim financial information is provide the accountant
with a basis for reporting whether
a. A reasonable basis exists for expressing an update opinion regarding the financial
statements that were previously audited.
b. Material modifications should be made to conform with generally accepted
c. The financial statements are presented fairly in accordance with standards of
interim reporting.
d. The financial statements are presented fairly in accordance with generally
accepted accounting principles.
202. If the auditor believes that financial statements prepared on the entity’s income tax
basis are not suitably titled, the auditor should:
a. Issue a disclaimer of opinion.
b. Explain in the notes of the financial statements the terminology used.
c. Issue a compilation report.
d. Modify the auditor’s report to disclose any reservations.
203. An auditor’s report on financial statements prepared in accordance with a

comprehensive basis of accounting other than generally accepted accounting
principles should include all of the following except:
a. Reference to the note to the financial statements that describes the basis of
preparation of the financial statements.
b. Disclosure that audit was performed in accordance with generally accepted
auditing standards.
c. An opinion as to whether the basis of accounting used is appropriate under the
circumstances.
d. An opinion as to whether the financial statements are presented fairly in
conformity with the basis of accounting described.
204. When an auditor reports on financial statements prepared on an entity’s income tax
basis, the auditor’s report should.
a. Disclose that the income tax basis is a comprehensive basis of accounting other
than the generally accepted accounting principles.
b. Disclaim an opinion on whether the statements were examined in accordance with
generally accepted auditing standards.
c. Not express an opinion on whether the statements are presented in conformity
with the comprehensive basis of accounting used.
d. Include an explanation on how the results of operations differ from the cash
receipts and disbursements basis of accounting.
205. An auditor’s report would be designated as special report when it is issued in

connection with financial statements that are
a. For an interim period and are subjected to a review.
b. Unaudited and are prepared from a client’s accounting records.
c. Prepared in accordance with a comprehensive basis of accounting other than
d. Purposed to be in accordance with generally accepted accounting principles but
do not include a presentation of the statement of cash flows.
206. The underwriter of a securities offering may request that an auditor perform
specified procedures and supply certain assurances concerning unaudited information
contained in a registration statement. The auditor’s response to such a request is
commonly called a
a. Report under security statutes.
b. Comfort letter.
c. Review of interim financial information.
d. Compilation report for underwriters.
207. Comfort letters are ordinarily signed by the

a. Client
b. Client’s lawyer
c. Independent auditor
d. Internal auditor
208. Which of the following is a prospective financial statement for general uses upon
which an accountant may appropriately report?
a. Financial projection.
b. Partial presentation.
c. Pro forma financial statement.
d. Financial forecast.
209. The party responsible for assumptions identified in the preparation of prospective
financial statements is usually
a. A third-party lending institution.
b. The client’s management.
c. The reporting accountant.
d. The client’s independent auditor.
210. Given one or more hypothetical assumptions, a responsible party may prepare, to
the best of its knowledge and belief, an entity’s expected financial position. Such
prospective financial statements are known as
a. Pro forma financial statements.
b. Financial projections.
c. Partial presentations.
d. Financial forecasts.
211. Which of the following circumstances requires modification of the accountant’s

report on a review of interim financial information of publicly held entity?
An Uncertainty Inadequate Disclosure

a. Yes Yes
b. Yes No
c. No No
d. No Yes
212. If compiled financial statements presented in conformity with the cash receipts and
disbursements basis of accounting do not disclose the basis of accounting used, the
accountant should
a. Disclose the basis in the notes to the financial statements.
b. Clearly label each page “Unaudited”
c. Disclose the basis of accounting in the accountant’s report.
d. Recompile the financial statements using generally accepted accounting
principles.
213. An auditor is reporting on cash basis financial statements. These statements are best
referred to in his opinion by which of the following descriptions?
a. Financial position and results of operation arising from cash transactions.
b. Assets and liabilities arising from cash transactions, and revenue collected and
expenses paid.
c. Balance sheet and income statement resulting from cash transactions.
d. Cash balance sheet and the source and application of funds.
214. Which of the following should not be included in an accountant’s standard report
based upon the compilation of an entity’s financial statements?
a. A statement that a compilation is limited to presenting in the form of financial
statements information that is the representation of management.
b. A statement that the compilation was performed in accordance with standards
established by PICPA.
c. A statement that the accountant has not audited or reviewed the financial
statements.
d. A statement that the accountant does not express an opinion but expresses only
limited assurance on the financial
215. Each page of the financial statements compiled y an accountant should include a
reference such as
a. See accompanying account’s notes.
b. Unaudited, see account’s disclaimer.
c. See account’s compilation report.
d. Subject to compilation restrictions.
216. During a review of the financial statements of a nonpublic entity, the CPA finds that
the financial statements contain a material departure from generally accepted
accounting principles. If management refuses to correct the financial statement
presentation, the CPA should
a. Disclose the departure in an separate paragraph of the report.
b. Issue an adverse opinion.
c. Attach a note explaining the effects of the department.
217. An auditor’s responsibility to express an opinion on the financial statements is

a. Implicitly represented in the auditor’s standard report.
b. Explicitly represented in the opening paragraph of the auditor’s standard report.
c. Explicitly represented in the scope paragraph of the auditor standard report.
d. Explicitly represented in the opinion paragraph of the auditor’s standard report.
218. The existence of audit risk is recognized by the statement in the auditor’s standard
report that the auditor
a. Obtains reasonable assurance about whether the financial statements are free of
material misstatement.
b. Assesses the accounting principles used and also evaluates the overall financial
statement presentation.
c. Realizes some matters, either individually or in the aggregate, are important while
other matters are not important.
d. Is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.
219. It is not appropriate to refer a reader of a auditor’s report to a financial statement

footnote for details concerning
a. Subsequent events.
b. The pro forma effects of a business combination.
c. Sale of a discontinued operation.
d. The results of confirmation of receivables.
220. When an accountant performs more than one level of service (for example, a
compilation and a review, or a compilation and an audit) concerning the financial
statements of a nonpublic entity the accountant generally should issue the report that
is appropriate for
a. The lowest level of service rendered.
b. The highest level of service rendered.
c. A compilation engagement.
d. A review engagement.
221. Which of the following phases should be included in the opinion paragraph when an
auditor expresses a qualified opinion?
When read in With the foregoing

conjunction with Note X explanation
a. Yes No
b. No Yes
c. Yes Yes
d. No No
222. When an auditor expresses an adverse opinion, the opinion paragraph should
include
a.The principal effects of the departure from generally accepted accounting
principles.
b. A direct reference to a separate paragraph disclosing the basis for the opinion.
c.The substantive reasons for the financial statements being misleading.
d. A description of the uncertainty or scope limitation that prevents an unqualified
opinion.
223. How does an auditor make the following representations when issuing the standard
auditor’s report on comparative financial statements?
Examination of Consistent application of

evidence on a test basis accounting principles
d. Explicitly Implicitly
224. An auditor should disclose the substantive reasons for expressing and adverse
opinion in an explanatory paragraph.
a. Preceding the auditor’s responsibility paragraph.
b. Preceding the opinion paragraph.
c. Following the opinion paragraph.
d. Within the notes of financial statements.
225. Wilson, CPA, completed the field work of the auditing of Abco’s December 31,
2006, financial statements on March 6, 2007. A subsequent event requiring
adjustment to the 2006 financial statements occurred on April 10, 2007, and came to
Wilson’s attention on April 24, 2007. If the adjustment is made without disclosure of
the event, Wilson’s report ordinarily should be dated
a. March 6, 2007.
b. April 10, 2007.
c. April 24, 2007.
d. Using dual dating.
226. An auditor issued an audit report that was dual dated for a subsequent event
occurring after the completion of field work but before the auditor’s report. The
auditor’s responsibility for events occurring subsequent to the completion of field
work was
a. Extended to subsequent events occurring through the date of issuance of the
report.
b. Extended to include all events occurring since the completion of the field work.
c. Limited to the specific event referenced.
d. Limited to the included only events occurring up to the date of the last subsequent
event referenced.
227. On September 30, 2006, Miller was asked to reissue an auditor’s report, dated
March 31, 2006, on a client’s financial statements for the year ended March 31, 2006,
on a client’s financial statements for the year ended December 31, 2005. Miller will
submit the reissued report to the client in document that explains information in
additional to the client’s basic financial statements. However, Miller discovered that
the client suffered substantial losses on receivables resulting from conditions that
occurred since March 31, 2006. Miller should
a. Request the client to disclose the event in a separate, appropriately labeled note to
the financial statements and reissue the original reports with its original date.
b. Request the client to restate the financial statement and reissue the original report
with a dual date.
c. Reissue the original report with its original date within regard whether the event is
disclosed in a separate note to the financial statements.
228. An auditor contains the following sentences:
We did not audit the financial statements of JK Co., a wholly-owned subsidiary,

which statements reflect total assets and revenues constituting 17 percent and 19
percent, respectively, of the related consolidated totals, those statements were audited
by other auditors whose report has been furnished to us, and our opinion, in so far as
it relates to the amounts included for JK Co., is based solely on the report of the other
auditors.
These sentences:
a. Are an improper form of reporting.
b. Divide responsibility.
c. Disclaim an opinion.
d. Qualify the opinion.
229. In which of the following situations would an auditor ordinarily issue an

unqualified audit opinion without an explanatory paragraph?
a. The auditor wishes to emphasize that the entity has significant related party
transactions.
b. The auditor decides to make reference to the report of another auditor as a basis,
in part, for the auditor’s opinion.
c. The entity issue financial statements that present financial position and results of
operations, but omits the statements of cash flows.
d. The auditor has substantial doubt about the entity’s ability to continue as a going
concern, but the circumstances are fully disclosed in the financial statements.
230. An auditor may issue the standard audit report when the
a. Auditor refers to the findings of a specialist.
b. Financial statements are derived and condensed from complete audited from
financial statements that are filed with a regulatory agency.
c. Financial statements are prepared on the cash receipts and disbursements basis of
accounting.
d. Principal auditor assumes responsibility for the work of another auditor.
231. Management of Hill Company has decided not to account for a material
transaction in accordance with the provisions of a Philippine Financial Reporting
Standard. In setting forth its reason in a note to the financial statements, managements
has clearly demonstrated that due to unusual circumstances the financial statements
presented in according with the Philippines Financial Reporting Standard would be
misleading. The auditor’s report should include a separate explanatory paragraph and
contain a (an)
a. “excepts for” qualified opinion.
c. Adverse opinion.
d. Unqualified opinion.
232. If an auditors satisfied that there is only a remote likelihood of a loss resulting
from the resolution of a matter involving an uncertainty, the auditor should express
a(an)
b. Unqualified opinion with a separate explanatory paragraph.
c. Qualified opinion or disclaimer of opinion, depending upon the materiality of the
loss.
d. Qualified opinion or disclaimer of opinion, depending on whether the uncertainty
is adequately disclosed.
233. Tech Company has disclosed an uncertainty due to pending litigation. The
auditor’s decision to issue a qualified opinion rather an unqualified opinion with an
explanatory paragraph most likely would be determined by the
a. Lack of sufficient evidence
b. Inability to estimate the amount of loss.
c. Entity’s lack of experience with such litigation.
d. Lack of insurance coverage for possible losses from such litigation.
234. An explanatory paragraph following the opinion paragraph of an auditor’s report

describes an uncertainty as follows:
As discussed in Note X to the financial statements, the Company is a defendant in a

lawsuit alleging infringement of certain patent rights and claiming damages.
Discovery proceedings are in progress. The ultimate outcome of the litigation cannot
presently be determined. Accordingly, no provision for any liability that may result
upon adjudication has been made in the accompanying financial statements.
What types of opinion should the auditor express under these circumstances?
a. Unqualified.
b. “Subject to” qualified.
c. “Except for” qualified.
d. Disclaimer.
235. When an auditor concludes there is substantial doubt about an entity’s ability to
continue as a going concern for a reasonable period of time, the auditor’s
responsibility is to
a. Prepare prospective financial information to verify whether management’s plans
can be effectively implemented.
b. Project future conditions and events for a period of time not to exceed one year
following the date of the financial statements.
c. Issue a qualified or adverse opinion, depending upon materiality, due to the
possible effects on the financial statements.
d. Consider the adequacy of disclosure about the entity’s possible inability to
continue as a going concern.
236. The adverse effects of the events causing an auditor to believe there is substantial
doubt about an entity’s ability to continue as a going concern would most likely be
mitigated by evidence rating to the
a. Ability to expand operations into new product lines in the future.
b. Feasibility of plans to purchase leased equipment at less than market value.
c. Marketability of assets that management plans to sell.
d. Committed arrangements to convert preferred stock to long-term debt.
237. Green, CPA concludes that there is substantial doubt about JKL Co.’s ability to
continue as a going concern. If JKL’s financial statements adequately disclose its
financial difficulties, Green’s auditor’s report should
Include an
explanatory Specifically use
paragraph Specifically use the words
following the the words "substantial
opinion paragraph "going concern" doubt"
a. Yes Yes Yes
b. Yes Yes No
238. c. Yes No Yes
d. No Yes Yes
Miller Co. uses the first-in, first-out method of costing for its international subsidiary’s
inventory and the last-in, first-out method of costing for its domestic inventory. Under
these circumstances, Miller should issue an auditor’s report with an
a. “except for” qualified opinion.
b. Unqualified opinion.
c. Explanatory paragraph as to consistency.
d. Opinion modified as to consistency.
239. When there has been a change in accounting principle that materially effects
the comparability of the comparative financial statements presented and the auditor
concurs with the change, the auditor should
Refer to the
Concur Issue an change in an
explicitly with "except for" explanatory
the change qualified opinion paragraph
a. No No Yes
b. Yes No Yes
c. Yes Yes No
d. No Yes No
240. Which of the following requires recognition in the auditor’s opinion as to
consistency?
a. The correction of an error in the prior year’s financial statements resulting from a
mathematical mistake in capitalizing interest.
b. The change from the cost method to the equity method of accounting for
investments in common stock.
c. A change in the estimate of provisions for warranty costs.
d. A change in depreciation method which has no effect on current year’s financial
statement but in certain to affect future years.
241. If an accounting has no material effect on the financial statements in the current
year, but the change is reasonably certain to have a material effect in later years, the
change should be
a. Referred to in the auditor’s report for the current year.
b. Disclosed in the notes to the financial statements of the current year.
c. Disclosed in the notes to the financial statements and referred to in the auditor’s
report for the current year.
d. Treated as a subsequent event.
242. When management does not provide reasonable justification that a change in
accounting principle is preferable and it presents comparative financial statements,
the auditor should express a qualified opinion
a. Only in the year of the accounting principle change.
b. Each year that the financial statements initially reflecting the change are
presented.
c. Each year until management changes back to the accounting principle formerly
used.
d. Only if the change is to an accounting principle that is not generally accepted.
243. Comparative financial statements include the prior year’s statements that were
audited by a predecessor auditor whose report is not presented. If the predecessor
auditor who report is not presented. If the predecessor auditor whose report is not
presented. If the predecessor’s report was unqualified, the successor should
a. Express an opinion on the current year’s statements alone and make no reference
to prior year’s statements.
b. Indicate in the auditor’s report that the predecessor auditor expressed an
unqualified opinion.
c. Obtain a letter of representations from the predecessor concerning any matters
that might affect the successor’s opinion.
d. Request the predecessor auditor to reissue the prior year’s report.
244. The predecessor auditor, who is satisfied after property 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.
b. Reference to work of the successor auditor in the scope and opinion paragraph.
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.
245. 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.
246. What is an auditor’s responsibility for supplementary information required by the

COA that is placed outside the basic financial statements?
a. Label the information as unaudited and expand the auditor’s report to include a
disclaimer on the information.
b. Add an explanatory paragraph to the auditor’s report and refer to the information
as “required supplementary information.”
c. Apply limited procedures to the information and report deficiencies in, or the
omission of, the information.
d. Audit the required supplementary information in accordance with generally
accepted governmental auditing standards.
247. If management declines to present supplementary information required by the

COA, the auditor should issue a(an)
a. Adverse opinion.
b. Qualified opinion with an explanatory paragraph.
c. Unqualified opinion.
d. Unqualified opinion with an additional explanatory paragraph.
248. 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.
d. Read the other information to determine that it is consistent with the audited
249. An auditor concludes that there is a material inconsistency in the other

information in an annual report to shareholders containing audited financial
statements. I the auditor concludes that the financial statements do not required
revision, but the client refuses to revise or eliminate the material inconsistency, the
auditor may
a. Issue an “expect for” qualified opinion after discussing the matter with the client’s
board of directors.
b. Consider the matter closed since the other information is not in the audited
c. Disclaim an opinion on the financial statements after explaining the material
inconsistency in a separate explanatory paragraph.
d. Revise the auditor’s report to include a separate explanatory paragraph describing
the material inconsistency.
250. If information accompanying the basis financial statements in an auditor-

submitted document has been subjected to auditing procedures, the auditor may
include in the auditor’s report on the financial statements an opinion hat he
accompanying information is fairly stated in
a. Conformity with standards established by the PICPA.
b. Accordance with generally accepted auditing standards.
c. Conformity with generally accepted accounting principles.
d. All material respects in relation to the basis financial statements taken as a whole.
251. Which of the following best describes the auditor’s report responsibility
concerning information accompanying the basic financial statements in an auditor-
submitted document?
a. The auditor should report on all information included in the document.
b. The auditor should report on the basic financial statements but may not issue a
report covering the accompanying information.
c. The auditor report on the information accompanying the basic financial
statements only if the auditor participated in the preparation of the accompanying
information.
d. The auditor should report on the information accompanying the basic financial
statements only if the document is being distributed to public shareholders.
252. An auditor includes a separate paragraph in an otherwise unmodified report to
emphasize that the entity being reported upon had significant transactions with related
parties. The inclusion of this separate paragraph
a. Is appropriate and would not negate the unqualified opinion.
b. Is considered an “except for” qualification of the opinion.
c. Violates generally accepted auditing standards if this information is already
disclosed in footnotes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase “with the
foregoing explanation.”
253. When an auditor qualifies an opinion because of inadequate disclosure, the

auditor should describe the nature of the omission in a separate explanatory paragraph
and modify the
Introductory Scope Opinion

paragraph paragraph paragraph
a. Yes No No
b. Yes Yes No
c. No Yes Yes
d. No No Yes
254. Tread Corp. accounts for the effect of a material accounting change prospectively
when the inclusion of the cumulative effect of the change is required in the current
year. The auditor would choose between expressing a(an)
a. Qualified opinion or a disclaimer of opinion.
b. Disclaimer of opinion or an unqualified opinion with an explanatory paragraph.
c. Unqualified opinion with an explanatory paragraph and an adverse opinion.
d. Adverse opinion and a qualified opinion.
255. If an publicity held company issue financial statements that purport to present its
financial position and results of operations but omits the statements of cash flows the
auditor ordinarily will express a(an)
a. Unqualified opinion with a separate explanatory paragraph.
c. Adverse opinion.
256. An auditor may reasonably issue an “except for” qualified opinion for a(an)
Scope Unjustified
limitation accounting change
a. Yes No
b. No Yes
c. Yes Yes
d. No No
257. When an auditor qualifies an opinion because of the inability to confirm accounts
receivable by direct communication with debtors, the wording of the opinion
paragraph of the auditor’s report should indicate that the qualification pertains to the
a. Limitation on the auditor’s scope.
b. Possible effects on the financial statements.
c. Lack of sufficient competent evidential matter.
d. Departure from generally accepted auditing standards.
258. An auditor most likely would issue a disclaimer of opinion because of

a. Inadequate disclosure of material information.
b. The omission of the statement of cash flows.
c. A material departure from generally accepted accounting principles.
d. Management’s refusal to furnish written representations.
259. An auditor who qualifies an opinion because of an insufficiency of evidential

matter should describe the limitation in an explanatory paragraph. The auditor should
also refer to the limitation in the
Notes to the
Scope Opinion financial
paragraph paragraph statements
a. Yes No Yes
b. No Yes No
c. Yes Yes No
d. Yes Yes Yes
260. An auditor did not observe a client’s taking of beginning physical inventory and
was unable to become satisfied about the inventory by means of other auditing
procedures. Assuming no other scope limitations or reporting problems, the auditor
could issue an unqualified opinion on the current year’s financial statements for
a. The balance sheet only.
b. The income statement only.
c. The income and retained earnings statements only.
d. All of the financial statements.
261. An auditor may not issue a qualified opinion when

a. A scope limitation prevents the auditor from completing an important audit
procedure.
b. The auditor’s report refers to the work of a specialist.
c. An accountant principle of variance with generally accepted accounting principles
is used.
d. The auditor lacks independence with respect to the audited entity.
262. When an independent CPA assists in preparing the financial statements of a

publicly held entity, but has not audited or reviewed them, the CPA should issue a
disclaimer of opinion. In such situations, the CPA has no responsibility to apply any
procedures beyond
a. Ascertaining whether the financial statements are in conformity with generally
b. Determining whether management has elected to omit substantially all required
disclosures.
c. Documenting that the internal control structure is not being relied on
d. Reading the financial statements for obvious material inisstatements.
263. Green, CPA is aware that Green’s name is to included in the interim report of
National Company, a publicly-held entity. National’s quarterly financial statemens are
contained in the interim report Green has not audited or reviewed these interim
financial statements. Green should request that
I. Green’s name not be included in the communication.
II. The financial statements be marked as unaudited with a notation that no
opinion is expressed on them
a. I only.
b. II only.
c. Both I and II.
d. Either I or II.
264. Jones Retailing, a nonpublic entity, has asked Winters, CPA, To compile financial
statements that omit substantially all disclosure required by generally accepted
accounting principles. Winters may compile such financial statements provided the
a. Reason for omitting the disclosures in explained in the engagement letter and
acknowledged in the management representation letter.
b. Financial statements are prepared on a comprehensive basis of accounting other
than generally accepted accounting principles.
c. Distribution of the financial statements is restricted to internal use only.
d. Omission is not undertaken t mislead the users of the financial statements and is
properly disclosed in the account’s report.
265. Clark, CPA, compiled and properly reported on the financial statements of Green
Co., a nonpublic entity, for the year ended March 31, 2004. These financial
statements omitted substantially all disclosures required by generally accepted
accounting principles (GAAP). Green asked Clark to compile the statements for the
year ended March 31, 2005 and to include all GAAP disclosures for 2005 statements
only, but otherwise present both year’s financial statements in comparative form.
What is Clark’s responsibility concerning the proposed engagement?
a. Clark may report on the comparative financial statements because the 2004
statements are not comparable t the 2005 statements that include the GAAP
disclosures.
b. Clark may report on the comparative financial statements provided the 2004
statements do not contains any obvious material misstatements.
c. Clark’s report on the comparative financial statements provided Clark updates the
report on the 2004 statements.
d. Clark may report on the comparative financial statements provided Clark updates
the report on the 2004 statements that do not include the GAAP disclosures.
266. Which of the following statements should not be included in an accountant’s

standard report based on the compilation of an entity’s financial statements?
a. A statement that the compilation was performed in accordance with standards
established by the Philippine Institute of CPAs
b. A statement that the accountant has not audited or reviewed the financial
statements.
c. A statement that the accountant does not express an opinion but expresses only
limited assurance on the financial statements.
d. A statement that a compilation is limited to presenting in the form of financial
statements, information that is the representation of management.
267. How does an accountant make the following representations when issuing the
standard report for the compilation of a nonpublic entity’s financial statements?
The financial The accountant has

statements have not compiled the financial
been audited statements
268. a. Implicitly Implicitly If compile
b. Explicitly Explicitly financial
c. Implicitly Explicitly statements
d. Explicitly Implicitly presented in
conformity with the cash receipts and disbursements basis of accounting do not
disclose the basis of accounting used, the accountant should
a. Recompile the financial statements using generally accepted accounting
principles.
b. Disclose the basis in the notes to the financial statements.
c. Clearly label each page “unaudited.”
d. Disclose the basis of accounting in the accountant’s report.
269. During a compilation of a nonpublic entity’s financial statements, an
accountant would be least likely to
a. Omit substantially all of the disclosures required by generally accepted
b. Issue a compilation report on one or more but not all of the basic financial
statements.
c. Perform analytical procedures designed to identify relationships hat appear to be
unusual.
d. Read the compiled financial statements and consider whether they appear to
include adequate disclosure.
270. Compile financial statements should be accompanied by a report stating that

a. A compilation is limited to presenting in the form of financial statements
information that is the representation of management.
b. The accountant has compiled the financial statements in accordance with
standards established by the Auditing Standards Council.
c. A compilation is substantially less in scope than a review or an audit in
d. The accountant does not express an opinion but express only limited assurance on
the compiled financial statements.
271. An accountant’s compilation should be dated as of the date of

a. Completion of field work.
b. Completion of the compilation.
c. Transmittal of the compilation report.
d. The latest subsequent event referred to in the notes to the financial statements.
272. An accountant has been asked to compile the financial statements of a

nonpublic company on a prescribed form that omit substantially all the disclosures
required by generally accepted accounting principles. If the prescribed form is a
standard preprinted form adopted by the company’s industry trade association, and s
to be transmitted only to such association, the accountant
a. Need not advise the industry trade association of the omission of all disclosures.
b. Should disclose the details of the omission in separate paragraphs of the
compilation report.
c. Is precluded from issuing a compilation report when all disclosures are omitted.
d. Should express limited assurance that the financial statements are free of material
misstatements.
273. The standards report issued by an accountant after reviewing the financial
statements of a nonpublic entity states that
a. A review includes assessing the accounting principles used and significant
estimates made by management.
b. A review includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements.
c. The accountant is not aware of any material modifications that should be made to
the financial statements.
d. The accountant does not express an opinion or any other form of assurance on the
274. An accountant who had begun an audit of the financial statements of a

nonpublic entity was asked to change the engagement to a review because of a
restriction on the scope of the audit. If there is reasonable justification for the change,
the accountant’s review report should include reference to the
Original Scope imitation that

engagement caused the changed
that was agreed to engagement
a. Yes Yes
b. Yes No
c. No Yes
d. No No
275. Financial statements of a nonpublic entity that have been reviewed by an account
should be accompanied by a report stating that
a. The scope of the inquiry and analytical procedures performed by the accountant
has been restricted.
b. All information included in the financial statements is the representation of the
management of the entity.
c. A review includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements.
d. A review is greater in scope than a compilation, the objective of which is to
present financial statements that are free of material misstatements.
276. The objective of a review of interim financial information of a public entity is to

provide the accountant with a basis for
a. Determining whether the prospective financial information is based on reasonable
assumptions.
b. Expressing a limited opinion that the financial information is presented in
conformity with generally accepted accounting principles.
c. Deciding whether to perform substantive audit procedures prior to the balance
sheet date.
d. Reporting whether material modifications should be made for such information to
conform with generally accepted accounting principles.
277. During a review of the financial statements of a nonpublic entity, an accountant
becomes aware of a lack of adequate disclosure that is material to the financial
statement presentations, the accountant should
a. Issue an adverse opinion.
b. Issue an “except for” qualified opinion.
c. Disclose this departure from generally accepted accounting principles in a
separate paragraph of the report.
d. Express only limited assurance on the financial statement presentations.
278. An accountant who reviews the financial statements of a nonpublic entity should
issue a report starting that a review
a. Is substantially less in scope than an audit.
b. Provides negative assurance that the internal control structure is functioning as
designed.
c. Provides only limited assurance that the financial statements are fairly presented.
d. Is substantially more in scope that a compilation.
279. A modification of the CPA’s report on a review of the interim financial

statements of a publicly-held company would be necessitated by which of the
following?
a. An uncertainty.
b. Lack of consistency.
c. Reference to another account.
d. Inadequate disclosure.
280. When an independent accountant’s report based on a review of interim financial

information is presented in a registration statement, a prospectus should include a
statement about the accountant’s involvement. This statement should clarify that the
a. Accountant is not an “expert” within the meaning of the Securities Act.
b. Accountant’s review report is not a “part” of the registration statement within the
meaning of the Securities Act.
c. Accountant performed only limited auditing procedures on the interim financial
statements.
d. Accountant’s review was performed in accordance with standards established by
the Philippine Institute of CPAs.
281. The objective of a review of interim financial information is to provide the

accountant with a basis for reporting whether
a. A reasonable basis exists for expressing an updated opinion regarding the
financial statements that were previously audited.
interim reporting.
282. Which of the following procedures ordinarily should be applied when an

independent accountant conducts a review of interim financial information of a
publicity held entity?
a. Verify changes in key account balances.
b. Read the minutes of the board of directors’ meeting.
c. Inspect the open purchase order file.
d. Perform cut-off tests for cash receipts and disbursements.
283. An auditor may report on condensed financial statements that are derived from
complete audited financial statements if the
a. Auditor indicates whether the information in the condensed financial statements is
fairly stated in all material respects.
b. Condensed financial statements are presented in comparative form with the prior
year’s condensed financial statements.
c. Auditor describes the additional review procedures performed on the condensed
d. Condensed financial statements are distributed only to management and the board
of directors.
284. Helpful Co., a nonprofit entity, prepared its financial statements on an accounting
basis prescribed by a regulatory agency solely for filing with that agency. Green
audited the financial statements in accordance with generally accepted auditing
standards and concluded that the financial statements were fairly presented on the
prescribed basis. Green should issue a
a. Qualified opinion.
b. Standard three paragraph report with reference to footnote disclosure.
c. Disclaimer of opinion.
d. Special report.
285. An auditor’s special report on financial statements prepared in conformity with

the cash basis of accounting should include a separate explanatory paragraph before
the opinion paragraph that
a. Justifies the reasons for departing from generally accepted accounting principles.
b. States whether the financial statements are fairly presented in conformity with
another comprehensive basis of accounting.
c. Refers to the note to the financial statements that describes the basis of
accounting.
d. Explains how the results of operation differ from financial statements prepared in
conformity with generally accepted accounting principles.
286. When reporting on financial statements prepared on the same basis of accounting
used for income tax purposes, the auditor should include in the report a paragraph that
a. States that the income tax basis of accounting is a comprehensive basis of
accounting other than generally accepted accounting principles.
b. Justifies the use of the income tax basis of accounting.
c. Emphasized that the financial statements are not intended to have been audited in
d. Refers to the authoritative pronouncements that explain the income tax basis of
accounting being used.
287. An auditor’s report would be designated a special report when it is issued in

connection with
a. Interim financial information of a publicity held company that is subject to a
limited review.
b. Compliance with aspects of regulatory requirements related to audited financial
statements.
c. Application of accounting principles to specified transactions.
d. Limited use prospective financial statements such as a financial projection.
288. When an auditor is requested to express an opinion on the rental and royalty
income of an entity, the auditor may
a. Not accept the engagement because to do so would be tantamount to agreeing to
issue a piecemeal opinion.
b. Not accept the engagement unless also engaged to audit the full financial
statements of the entity.
c. Accept the engagement provided the auditor’s opinion is expressed in a special
report.
d. Accept the engagement provided distribution of the auditor’s report is limited to
the entity’s management.
289. Comfort letters ordinarily are signed by the client’s

a. Independent auditor.
b. Underwriter of securities.
c. Audit committee.
d. Senior management.
290. Comfort letters ordinarily are addressed to

a. Creditor financial institutions.
b. The client’s audit committee.
c. The Securities and Exchange Commission.
d. Underwriters of securities.
291. When an accountant issues to an underwriter a comfort letter containing

comments on data that have not been audited, the underwriter most likely will
receive.
a. Negative assurance on capsule information.
b. Positive assurance on supplementary disclosures.
c. A limited opinion no “pro forma” financial statements.
d. A disclaimer on prospective financial statements.
292. When an independent audit report is incorporated by reference in a SEC

registration statement, a prospectus that includes a statement about the independent
accountant’s involvement should refer to the independent accountant as
a. Auditor of the financial reports.
b. Management’s designate before the SEC.
c. Certified preparer of the report.
d. Expert in auditing and accounting.
293. An accountant’s compilation report on a financial forecast should include a

statement that the
a. Compilation does not include a evaluation of the support of the assumptions
underlying the forecast.
b. Hypothetical assumption used in the forecast are reasonable.
c. Range of assumptions selected is one in which one end of the range is likely to
occur than the other.
d. Prospective statements are limited to presenting, in the form of a forecast,
information that is the accountant’s representation.
294. Which of the following is a prospective financial statement for general use upon
which an accountant may appropriately report?
a. Financial projection.
b. Partial presentation.
c. Pro forms financial statement.
d. Financial forecast.
295. Given one or more hypothetical assumptions, a responsible party may prepare to
the best of its knowledge and belief, an entity’s expected financial position, results of
operations, and changes in financial position. Such prospective financial statement are
known as
a. Pro forms financial statements.
b. Financial projections.
c. Partial presentations.
d. Financial forecasts.
296. An accountant may accept an engagement to apply agreed-upon procedures to

prospective financial statements provided that
a. The prospective financial statements are also examined.
b. Responsibility for the adequacy of the procedures performed is taken by the
accountant.
c. Negative assurance is expressed on the prospective financial statements taken as a
whole.
d. Distribution of the report is restricted to the specified users.
297. When an accountant examines a financial forecast that fails to disclose several
significant assumptions used to prepare the forecast, the accountant should describe
the assumptions in the accountant’s report and issue a(an)
c. Unqualified opinion with a separate explanatory paragraph.
d. Adverse opinion.
298. Blue, CPA, has been asked to render an opinion on the application of accounting
principles to specific transaction by an entity that is audited by another CPA. Blue
may accept this engagement but should
a. Consult with the continuing CPA to obtain information relevant to the transaction.
b. Report the engagement’s findings to the entity’s audit committee, the continuing
CPA, and management.
c. Disclaim any opinion that the hypothetical application of accounting principles
conforms with generally accepted accounting principles.
d. Notify the entity that the report is for the restricted use of management and
outside parties who are aware of all relevant facts.
299. If a publicity-held company issued financial statements that purport to present its
financial position and results of operations but omits the statement of cash flows, the
auditor ordinarily will express a(an)
a. Disclaimer of opinion.
b. Qualified opinion.
c. Review report.
d. Unqualified opinion with a separate explanatory paragraph.
300. In which of the following circumstances would an auditor most likely add an
explanatory paragraph to the standard report while not affecting the auditor’s
unqualified opinion?
a. The auditor is asked to report on the balance sheet, but not on the other basic
b. There is substantial doubt about the entity’s ability to continue as a going concern.
c. Management’s estimates of the effects of future events are unreasonable.
d. Certain transactions cannot be tested because of management’s records retention
policy.
301. When an entity changes its method of accounting for income taxes, which has a
material effect on comparability, the auditor should refer to the change in an
explanatory paragraph added to the auditor’s report. This paragraph should identify
the nature of the change and
a. Explain why the change is justified under generally accepted accounting
principles.
b. Describe the cumulative effect of the change on the audited financial statements.
c. State the auditor’s explicit concurrence with or opposition to the change.
d. Refer to the financial statement note that discussed the change in detail.
302. Green, CPA, was engaged to audit the financial statements of Essex Co. after its
fiscal year had ended. The timing of Green’s appointment as auditor and the start of
field work made confirmation of accountants receivable by direct communication
with the debtors ineffective. However, Green applied other procedures and was
satisfied as to the reasonableness of the account balances. Green’s auditor’s report
most likely contained a(an)
b. Unqualified opinion with an explanatory paragraph.
c. Qualified opinion due to a scope limitation.
d. Qualified opinion due to a departure from generally accepted auditing standards.
303. Which of the following matters is covered in a typical comfort letter?

a. Negative assurance concerning whether the entity’s internal control procedures
operated as designed during the period being audited.
b. An opinion regarding whether the entity complied with government laws and
regulations.
c. Positive assurance concerning whether unaudited condensed financial information
complied with generally accepted accounting principles.
d. An opinion as to whether the audited financial statements comply in form with the
accounting requirements of the SEC.
304. The objective of a review of interim financial information of public entity is to

provide an accountant with a basis for reporting whether
a. A reasonable basis exists for expressing an updated opinion regarding the
financial statements that were previously audited.
interim reporting.
305. In the auditor’s report, the principal auditor decided not to make reference to
another CPA who audited a client’s subsidiary. The principal auditor could justify this
decision if, among other requirements, the principal auditor
a. Issues as unqualified opinion on the consolidated financial statements.
b. Learns that the other CPA issued an unqualified opinion, on the subsidiary’s
c. Is unable to review the audit programs and working papers of the other CPA.
d. Is satisfied as to the independence and professional reputation of the other CPA.
306. A limitation on the scope of an audit sufficient to preclude as unqualified opinion

will usually result when management
a. Is unable to obtain audited financial statements supporting the entity’s investment
in a foreign subsidiary.
b. Refuses to disclose in the notes to the financial statements related party
transactions authorized by the Board of Directors.
c. Does not sign an engagement letter specifying the responsibilities of both the
entity and the auditor.
d. Fails to correct a reportable condition communicated to the audit committee after
the prior year’s audit.
307. Delta Life Insurance Co. prepares its financial statements on an accounting basis
insurance companies use pursuant to the rules of a state insurance commission. If
Wall, CPA, Delta’s auditor, discovers that the statements are not suitability titled Wall
should
a. Disclose any reservations in an explanatory paragraph and qualify the opinion.
b. Apply to the state insurance commission for an advisory opinion.
c. Issues a special statutory basis report that clearly disclaims any opinion.
d. Explain in the notes to the financial statements the terminology used.
308. In which of the following situations would an auditor ordinarily choose between
expressing an “except for” qualified opinion or an adverse opinion?
a. The auditor did not observe the entity’s physical inventory and is unable to
become satisfied as to its balance by other auditing procedures.
b. The financial statements fail to disclose information that is required by generally
c. The auditor is asked to report only on the entity’s balance sheet and not on the
other basic financial statements.
d. Events disclosed in the financial statements cause the auditor to have substantial
doubt about the entity’s ability to continue as a going concern.
309. When disclaiming an opinion due to a client-imposed scope limitation, an auditor

should indicate in a separate paragraph why the audit did not comply with generally
accepted auditing standards. The auditor should also omit the
Scope paragraph Opinion paragraph

a. No Yes
b. Ye Yes
c. No No
d. Ye No
310. Management believes and the auditor is satisfied that the chance of a material loss
resulting from the resolution of a lawsuit is more than remote but less than probable.
Which of the following matters should the auditor consider in deciding whether to
add an explanatory paragraph?
Likelihood that loss is Magnitude by which the
closer to probable than exceed the auditor's
remote materiality
a. Yes Yes
b. Yes No
c. No Yes
d. No No
311. An auditor decides to issue a qualified opinion on an entity’s financial statements

because a major inadequacy in its computerized accounting records prevents the
auditor form applying necessary procedures. The opinion paragraph of the auditor’s
report should state that the qualification pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. The possible effects on the financial statements.
d. Inadequate disclosure of necessary information.
312. When unaudited financial statements are presented in comparative form with
audited financial statements in a document filed with the Securities and Exchange
Commission, such statements should be
Referred to in
Marked as Withheld unit the auditor's
"unaudited" audited report
a. Yes No No
b. Yes No Yes
c. No Yes Yes
d. No Yes no
313. Which of the following representations does an accountant make implicitly when
issuing the standard report for the compilation of a nonpublic entity’s financial
statements?
a. The accountant is independent with respect to the entity.
b. The financial statements have not been audited.
c. A compilation consists principally of inquiries and analytical procedures.
d. The accountant does not express any assurance on the financial statements.
314. An entity changed from the straight-line method to the declining balance of
depreciation for all newly acquired assets. This change has no material effect on the
current year’s financial statements, but has no material effect on the current year’s
financial statements, but is reasonably certain to have a substantial effect in later
years. If the change is disclosed in the notes to the financial statements, the auditor
should issue a report with a(an)
b. Explanatory paragraph.
c. Unqualified opinion.
d. Consistency modification.
315. A CPA is permitted to accept a separate engagements (not in conjunction with an

audit of financial statements) to audit an entity’s
Schedule of Schedule of
accounts receivable royalties
a. Yes Yes
b. Yes No
c. No Yes
d. No No
316. An accountant’s standard report on a compilation of a projection should not

include a
a. Statements that a compilation of projection is limited in scope.
b. Disclaimer of responsibility to update the report for events occurring after the
report’s date.
c. Statements that the accountant expresses only limited assurance that the results
may be achieved.
d. Separate paragraph that describes the limitations on the presentation’s usefulness.
317. Which of the following events occurring after the issuance of an auditor’s report
most likely would cause the auditor to make further inquiries about the previously
issued financial statements?
a. A technological development that could affect the entity’s future ability to
continue as a going concern.
b. The discovery of information regarding a contingency that existed before the
financial statements were issued.
c. The entity’s sale of a subsidiary that accounts for 30% of the entity’s consolidated
sales.
d. The final resolution of a lawsuit explained in a separate paragraph of the auditor’s
report.
END

Completing the Audit Reports

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Completing the Audit Reports

Uploaded by

Copyright:

Available Formats

UNIT XII

COMPLETING THE AUDIT;

5. A CPA firm is “associated with the financial statements” of its client

7. The most common type of audit report contains

16. The audit report date is important to users because it indicates

21. An adverse opinion is issued when the auditor believes that

23. A disclaimer is issued whenever the auditor

24. The necessity to issue a disclaimer of opinion may arise because of a

25. The distinction between an adverse opinion and a disclaimer is

26. Both disclaimers and adverse opinions are used

32. Whenever an auditor issue a qualified report, he or she

43. Whenever there is a scope restriction, the appropriate response is to issue

Auditor's Opinion Notes to the

59. An auditor may not issue a qualified opinion when

73. Which of the following requires recognition in the auditor’s opinion as to

77. A limitation on the scope of an auditor’s examination sufficient to preclude an

84. When reporting on information accompanying basic financial statements, the

91. In a review service where client has failed to follow GAAP,

95. The accountant’s report on an examination of prospective financial statements should

97. An accountant’s report expressing an opinion on an entity’s internal controls should

99. Before performing a review of a nonpublic entity’s financial statements, an

100. An auditor who conducts an examination in accordance with generally accepted

102. An auditor concludes that there is a material inconsistency in the other

103. An accountant may accept an engagement to apply agreed upon procedures to

110. If as a result of a limited review of interim financial information, a CPA concludes

111. Negative assurance is not permissible in

112. A CPA who is independent may issue a

114. Non-accounting data included in a long-form report have been subjected to

115. One example of a “special report” as defined by Philippines Standards on

117. In the course of an engagement to prepare unaudited financial statements, the

120. Which of the following procedures is not included in a review engagement of a

125. An auditor who was engaged to perform an examination of the financial

135. Which of the following accounting changes requires explanatory language

138. A scope restriction is least likely to result in a(an)

143. The term “subject to” in an audit report is

155. The auditors include explanatory language in an otherwise unqualified report in

Quality of information Context of information

159. Which of the following is least likely to result in modification of an opinion on

160. A practitioner’s unqualified opinion based upon an examination may ordinarily be

Subject matter Assertion

Conformity with GAAP Adequacy of disclosure

166. In which of the circumstances would an adverse opinion be appropriate?

178. An auditor’s report on comparative financial statements should be dated as of the

180. When an auditor qualifies an opinion because of a scope limitation, which

181. All of the following are considered special reports , except

184. In which of the following types of reports do accountants provide no explicit

187. A “comfort letter” to an investment banking firm will normally not:

191. Which of the following results in modification of a review report?

199. Inquiry and analytical procedures ordinarily performed during a review of a

203. An auditor’s report on financial statements prepared in accordance with a

205. An auditor’s report would be designated as special report when it is issued in

207. Comfort letters are ordinarily signed by the

211. Which of the following circumstances requires modification of the accountant’s

An Uncertainty Inadequate Disclosure

217. An auditor’s responsibility to express an opinion on the financial statements is

219. It is not appropriate to refer a reader of a auditor’s report to a financial statement

When read in With the foregoing

Examination of Consistent application of

228. An auditor contains the following sentences:

We did not audit the financial statements of JK Co., a wholly-owned subsidiary,

229. In which of the following situations would an auditor ordinarily issue an

234. An explanatory paragraph following the opinion paragraph of an auditor’s report