SFloorCMFFIBuilding (i) ReSA bis. Pape ses Loe Se ‘Sampaloe, Mania WO The ReviewSchool of Accountancy 9735-9807 734-3989 ! (0910) 439-1320 4 resareview@)otmail.com AUDITING THEORY. IMI + FDY > MBN + FCT. AT-17: MODIFICATIONS TO THE AUDITOR’S REPORT AND REPORTS ON COMPARATIVES REQUIRED READINGS: + Chapter 13, Auditing and Assurance Principles, 2017 Eektion PSA S60: Subsequent Events * PSA570: Going Concer ‘= PSA G00: Special Considerations-Audits of Group Financial Statements = PSA 700 (Revised): The Independent Auditor’s Report on a Complete Set of General Purpose FS ‘= PSA 705: Modification to the Opinion in the Independent Auditor's Report PSA 706: Emphasis of Matter Paregraphs and Other Matter Faragraphs in the Independent Auditor's Report PSA 710: Comparatives PSA 720: Other Information in Documents Containing Audited Financial Statements, 11, The phrase “The financial statements do not present fairly in all material respects the financial position, results of operations, and cash fiows in conformity with GAAP" indicates: ‘A. An unqualified opinion C. An adverse opinion B.-A qualified opinion D. A disclaimer of opinion 2. The phrase “Except for the possible effects of the matters..the financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity GAAP" indicates: ‘A. An unqualified opinion ©. An adverse opinion B. A qualified opinion D. A disclaimer of opinion 3. The phrase “Accordingly, we not express an opinion on the financial statements...” indicates: ‘A. An unqualified opinion c. An adverse opinion B.A qualified opinion D. A disclaimer of opinion 4. Pervasive effects on the financial statements are those that, in the auditor's judgment: A. Are not confined to specific elements, accounts or items of the financial statements B. If so confined, represent or could represent a substantial proportion of the financial statements €. In relation to disclosures, are fundamental to users’ understanding of the financial statements D. Alo the choices. 5. An auditor is unable to determine the amounts associated with illegal acts committed by a client. ‘The auditor would most likely issu A. Either a qualified opinion or a disclaimer of opinion B. An adverse opinion. C._ Either a qualified opinion or an adverse opinion. D. A disclaimer of opinion. 6. Cole, CPA, was engaged to audit the financial statements of Nat Company after its fiscal year had ‘ended, The timing of Cole’ appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the, debtors ineffective. However, Cole applied other audit procedures end was satisfied as te ‘the reasonableness of the account balances. Cole’ auditor's report most likelycontained a(n): ‘A. Unqualified opinion. B. Unqualified opinion with an emphasis of a matter paragraph C. Qualified opinion because of inability to obtain sufficient appropriate audit evidence. D. Qualified opinion because of a departure from PSAS.. 7. Suppose that in number 6, Cole was unable to obtain sufficient appropriate audit evidence, since he is unable to perform alternative procedures. Accordingly (select the correct statement): ‘A. If Cole concludes thet the possible effects cn the financial statements of undetected misstatements, if any, could be material but not pervasive, Cole shall disclaim an opinion, B. If Cole concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both materiai and pervasive so that a qualification of the opinion would be inadequate to communicate the aravity of the situation, Cole shall give an adverse opinion. C. If Cole concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate the gravity of the situation, Cole shall resign from the audit, where practicable and not prohibited by law or regulation. D. If Cole concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive, Cole shall give an adverse opinion. ReSA ~ The ReviewSchool of Accountancy Page 1 of 3ReSA: The ReviewSchool of Accountancy AT-17 «Auditing Theory: Modifications to Audit Report and Comparatives 8. 10. da 12. 13, 14, 15, 16. 17. 18. An auditor may not express a qualified opinion when ‘A. Circumstances prevent the auditor from completing an important audit procedure. B. The auditor’s report refers to the wrk of a speciztist. C. An accounting principles at variance with generatiy accepted accounting principles is used. D. The auditor lacks independence with respect to the audited entity. ‘An auditor who concludes that .a material (but not pervasive) uncertainty is not adequately disclosed in the financial statements should issue a(n); A. An unqualified opinion C. An adverse opinion B. A qualified opinion D. A disclaimer of opinion ‘An auditor has concluded that fraud or error has a material effect on the financial statements. ‘The fraud/ error has not been corrected and reflected in the financial statements. In this case, the pervasiveness of the effect of fraud and errcr wil! determine the opinion. Accordingly, the auditor should issue a(n): ‘A. Unqualified opinion with emphasis of matter. 8. Adverse or disclaimer of opinion. C. Qualified or disclaimer of opinion. D. Qualified or adverse opinion. “ In which of the following situations would the auditor appropriately issue a standard unqualified report with no emphasis of a matter paragraph concerning consistency? ‘A.A change in the method of accounting for specific subsidiaries that comprise the group of companies for which consolidated statements are presented. B. A change from an’accounting principle that is not generally accepted to one that is generally accepted. C.Acchange in the percentage used to calculate the provision for warranty expense. ©. Correction of a mistake in the application of a generally accepted accounting principle. If management fails to provide adequate justification for a change from one generally accepted ‘accounting principle to another, the auditor sh A. Add a basis for modification paragraph and express a qualified or an adverse opinion for lack of conformity with the applicable financial reporting framework. B. Disciaim an opinion because of uncertainty. C. Disclose the matter in a separate emphasis of a matter paragraph(s) but not modify the opinion paragraph. D. Neither modify the opinion nor disclose the matter because both principles are generally accepted. : ‘An entity or business activity for which group or component management prepares financial information that should be included in the grou tinancial statements. ‘A. Component C. Responsibility Center B. Division © Activky group ‘An auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit. ‘A, Successor auditor C. Specialist or expert 8. Component auditor D. Auxiliary auditor . The partner or other person in the firm vho is responsibie far the group audit engagement and its performance, and for the auditor's report on the grcup financial statements that is issued on behalf of the firm. A. Lead partner ©. Group engagement partner B. Managing partner D. Joint engagement partner ‘An auditor used the services of an expert during the audit of a client's financial statements. When issuing an unmodified auditor's report, the auditor should ‘A. Mention the expert and justify the use of the expert's services. B. Not mention the expert in the opinion and instead disclose the expert in the notes. .. C._ Not mention the expert as this might mistead financial statement users. D. Mention the expert in both the auditor's report and tire notes to the financial statements. ‘Aljon, CPA, has audited Bona Semiconductors, Inc. During the course of the audit, Aljon enlisted the services of Shirley, an expert on electronics, As 3 result of Shirley's services, Aljon issued a modified report. While drafting the basis for modification paragraph, Aljon decided that reference to the expert is required. In these circumstances, ‘A. Aljon should obtain the permission of Shirley betore making such a reference. B. Aljon may refer to the Shirley without permission, but Shirley's identity must be concealed. C. Aljon should seek legal advice on whether to reference to the Shirley. D. Aljon cannot refer to Shirley under any circumstance. A section included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users’ understanding of the finaiicial statements. ReSAR735-9807 / 734-3989 / (0910) 439-1320 © Page 2 of 3ReS\: The ReviewSchool of Accountancy Acting Thaory: Modifications to Ault Report and Co AT-17 A. Explanation disclosure C. Other matter paragraph 8, Emphasis of matter paragraph D. Supplemental reporting responsibilities. 19.A section included in the auditor's report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor's responsibilities or the auditor’s report. ‘A. Explanation disclosure C. Other matter paragraph B. Emphasis of matter paragraph 1D. Supplemental reporting responsibilities. 20. If adequate disclosure is not made by the entity regarding substantial doubt about its ability to continve as a going concern the auditor shovid inciude in his report specific reference to the substantial doubt as to ability of the company to contin:te as a going concern and should express: ‘A. Unqualified opinion with emphasis of a matter paragraph. B. A subject to qualified opinion or adverse opinion. €. Either an “except for” qualified opinion or an adverse opinion, D. A disclaimer of opinion, 21. When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n): ‘A. Qualified opinion. 8. Unqualified opinion with explanatory paragraph. C. Adverse opinion. D. Disclaimer of opinion, 22. Financial and non-financial information (other than the financial statements and the auditor's report thereon) which is included, either by law, regulation or custom, in a document containing audited financial statements and the auditor's report thereon, ‘A. Supplementals C. Other information 8. Other matter paragraph ©. Auxiliary disclosures 23. When other information contradicts information contained in the audited financial statements, It Is known as a(n): A. Misstatement © uncertainty 8. Inconsistency D. Departure from PFRS 24, When other information that is unrelated to matters appearing in the audited financial statements is incorrectly stated or presented, it is known as 2: ‘A, Misstatement of the financial statements C._Misstetement of appearance B. Misstatement of fact D. Misstatement of other information 25. If an amendment to other information in a docurnent containing audited financial statements is necessary and the entity refuses to make the amendment, the auditor would consider issuing: ‘A. Unqualified opinion with emphasis of a matter paragraph B. Adverse or disclaimer of opinton. C. Qualified or disclaimer of opinion. D. Qualified or adverse opinion. 26. Which statement is incorrect regarding PSA 710, Comparatives? ‘A. The auditor is required to determine whether the comparatives comply in all material respects with GAAP relevant to the financial statements boing audited. B. There are two broad financial reporting franteworks for comparatives: the corresponding figures and the comparative financial statenients. ©. Under the comparative financial statements framework, the comparative financial statements for the prior period(s) are considered seperate financial statements. D. Under the corresponding figures framework, the corresponding figures for the prior period(s) are not an integral part of the current period financial statements and may be read without reference to amounts and other disclosures relating to the current period. 27. Which statement is incorrect regarding corresponding figures? ‘A. The corresponding figures are not presented as complete financial statements capable of standing alone. B. The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the current period figures. C. The auditor's report refers only to the financial statements of the current period. D. The auditor's report refers to each period that financial statements are presented. Page 3 of 3 ReSA%735-9807 / 734-3989 / (0910) 439-1320