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PSAs 700, 701, 705, 706, 710, & 720 1.

To distinguish it from reports that might be issued by others, such as by officers of the entity, the BOD, or from the reports of other auditors who may not gave to abide by the same ethical requirements as the independent auditor, the auditors report should have an appropriate a. Addressee. b. Title. c. Signature. d. Opinion. 2. The auditors report should be addressed a. Only to the shareholders of the entity whose financial statements are being audited. b. Only to the BOD of the entity whose financial statements are being audited. c. Either to the shareholders or the BOD of the entity whose financial statements are being audited. d. Either to the shareholders or the BOD or both of the entity whose financial statements are being audited. 3. Which of the following is included in the introductory or opening paragraph of the auditors report? a. Identification of the financial statements audited, including the date of and period covered by the financial statements. b. A statement that the financial statements are the responsibility of the entitys management. c. A statement that the audit was conducted in accordance with PSA. d. A statement that the responsibility of the auditor is to express an opinion on the financial statements based on the audit. 4. An entitys management is responsible for the preparation and fair presentation of the financial statements. Its responsibility includes the following, except: a. Designing, implementing and maintaining internal control relevant to the preparation and presentation of financial statements. b. Making accounting estimates that are reasonable in the circumstances. c. Selecting and applying appropriate accounting policies. d. Assessing the risks of material misstatement of the financial statements. 5. The opinion paragraph of the auditors report I. Identifies the applicable financial reporting framework on which the financial statements are based. II. Expresses an opinion on the financial statements. b. I only. c. II only. d. Both I and II. e. Neither I nor II. 6. The following statements relate to the date of the auditors report. Which is false? a. The auditor should date the report as of the completion date of the audit. b. The date of the auditors report should not be earlier than the date on which the financial statements are signed or approved by management. c. The date of the auditors report should not be later than the date on which the financial statements are signed or approved by management. d. The date of the auditors report should always be later than the date of the financial statements (i.e. the balance sheet date). 7. Which of the following statements best expresses the objective of the traditional audit of financial statements? a. To express an opinion on the fairness with which the statements present financial position, financial performance and cash flows in accordance with PFRS.

b. To express an opinion on the accuracy with which the statements present financial position, financial performance and cash flows in accordance with PFRS. c. To make suggestions as to the form or content of the financial statements or to draft them in whole or in part. d. To assure adoption of sound accounting policies and the establishment and maintenance of internal control. 8. How are managements responsibility and the auditors responsibility represented in the auditors report? Managements Responsibility Auditors Responsibility a. Implicitly Implicitly b. Implicitly Explicitly c. Explicitly Implicitly d. Explicitly Explicitly 9. In which of the following circumstances would an auditor most likely add an emphasis of matter paragraph to the auditors report while expressing an unqualified opinion? a. There is substantial doubt about the entitys ability to continue as a going concern. b. Managements estimates of the effects of future events are unreasonable. c. No depreciation has been provided in the financial statements. d. Certain transactions cannot be tested because of managements records retention policy. 10. Which of the following statements is a basic element of the auditors report? a. The auditor is responsible for the preparation and fair presentation of the financial statements. b. The financial statements are consistent with those of the prior period. c. An audit involves performing procedures to obtain audit evidence about the evidence about the amounts and disclosures in the financial statements. d. The disclosures provide reasonable assurance that the financial statements are free of material misstatement. 11. An independent auditor discovers that a payroll supervisor of the company being audited has misappropriated P50,000. The companys total assets and income before tax are P70 million and P15 million, respectively. Assuming no other issues affect the report, the auditors report will most likely contain a(n) a. Unqualified opinion. b. Qualified opinion. c. Adverse opinion. d. Scope qualification. 12. A note to the financial statements of the Prudent Bank indicates that all of the records relating to the banks business operations are stored on magnetic disks, and that no emergency back-up systems or duplicate disks are stored because the bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, the auditors report should express: a. A qualified opinion. b. An unqualified opinion. c. An adverse opinion. d. A subject to opinion. 13. An auditors report contains the following: We did not audit the financial statements of LMN Company, a wholly owned subsidiary, which statements reflect total assets and revenues constituting 17% and 19%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LMN Company, is based solely on the report of the other auditors. These sentences: a. Disclaim an opinion. b. Divide responsibility. c. Are an improper form of reporting.

d. Qualify the opinion. 14. When audited financial statements are presented in a document (e.g. annual report) containing other information, the auditor a. Should read the other information to consider if it is inconsistent with the audited financial statements. b. Has no responsibility for the other information because it is not part of the basic financial statements. c. Has an obligation to perform auditing procedures to corroborate the other information. d. Is required to express a qualified opinion if the other information has a material misstatement of fact. 15. An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may a. Disclaim an opinion on the financial statements after explaining the material inconsistency in an emphasis of matter paragraph. b. Revise the auditors report to include an emphasis of matter paragraph describing the material inconsistency. c. Express a qualified opinion after discussing the matter with the clients directors. d. Consider the matter closed because the other information is not in the audited statements. 16. PSA 720 states, If, on reading the other information, the auditor identifies a material inconsistency, the auditor should determine whether the audited financial statements or the other information needs to be amended. What type of opinion should be expressed if the client refuses to make the necessary amendment in the financial statements? a. Disclaim an opinion. b. Qualified opinion or disclaimer of opinion. c. Unqualified opinion with an emphasis of matter paragraph describing the material inconsistency. d. Qualified or adverse opinion. 17. In which of the following circumstances would an auditor usually choose between expressing a qualified opinion or a disclaiming an opinion? a. Departure from GAAP. b. Unreasonable justification for a change in accounting principle. c. Inability to obtain sufficient appropriate audit evidence. d. Inadequate disclosure of accounting principles. 18. Sam, CPA, was engaged to audit the financial statements of Martha Corp. after its fiscal year had ended. The timing of Sams appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtor ineffective. However, Sam applied other procedures and was satisfied as to the reasonableness of the account balances. Sams auditors report most likely contained a(n) a. Qualified opinion because of the scope limitation. b. Qualified opinion because of the departure from GAAS. c. Unqualified opinion. d. Unqualified opinion with an emphasis of matter paragraph. 19. In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? a. The auditor wishes to emphasize an unusually important subsequent event. b. The financial statements fail to disclose information that is required by PFRS. c. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entitys ability to continue as going concern. d. The auditor did not observe the entitys physical inventory and is unable to become satisfied as to its balance by other auditing procedures.

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

a. The financial statements fail to contain adequate disclosure concerning related party transactions. b. The auditor is engaged after fiscal year-end and is unable to observe the physical inventory or apply alternative procedures to verify their balances. c. The auditor is unable to determine the amounts associated with fraud committed by the clients management. d. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry. 21. 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 express a(n) a. Disclaimer of opinion because of the significant scope limitation. b. Adverse opinion because of a significant uncertainty. c. Unqualified opinion with an emphasis of matter paragraph emphasizing the matter. d. Qualified opinion because of inadequate disclosure. 22. The following explanatory paragraph was included in an auditors report to indicate a lack of consistency: As discussed in Note 5 to the financial statements, the company changed its method of computing depreciation in 20X4. How should the auditor report on this matter if the auditor concurred with the change? Type of Opinion Location of the Explanatory Paragraph a. Unqualified Before opinion paragraph b. Unqualified After opinion paragraph c. Qualified Before opinion paragraph d. Qualified After opinion paragraph 23. An auditor was unable to obtain sufficient competent evidential matter concerning certain transactions due to an inadequacy in the entitys accounting records. The auditor would choose between issuing a(n): a. Qualified opinion and an unqualified opinion with an explanatory paragraph. b. Unqualified opinion with an explanatory paragraph and an adverse opinion. c. Adverse opinion and a disclaimer of opinion. d. Disclaimer of opinion and a qualified opinion. 24. In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity? a. The other auditor was retained by the principal as auditor and the work was performed under the principal auditors guidance and control. b. The principal auditor finds it impracticable to review the other auditors work or otherwise be satisfied as to the other auditors work. c. The financial statements audited by the other auditor were material to the consolidated financial statements covered by the principal auditors opinion. d. The principal auditor is unable to be satisfied as to the independence and professional reputation of the other auditor. 25. 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 auditors report. The auditors 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 auditors report. b. Extended to include all events occurring since the completion of field work. c. Limited to the specific event referenced. d. Limited to include only events occurring up to the date of the last subsequent events reference. 26. When an auditor expresses an adverse opinion, the opinion paragraph should include a. The principal effects of the departure from GAAP. b. A direct reference to a separate paragraph disclosing the basis for the opinion. c. The substantive reasons for the financial statement being misleading. d. A description of the uncertainty or scope limitation that prevents an unqualified opinion.

27. Chall, CPA, concludes that there is substantial doubt about Jane Companys ability to continue as a going
concern. If Janes financial statements adequately disclose its financial difficulties, Chall auditors report should Include an Explanatory Specifically use the words Specifically use the words Paragraph following the opinion Going-Concern Substantial Doubt paragraph a. Yes Yes Yes b. Yes Yes No c. Yes No Yes d. No Yes Yes 28. Joy, CPA, believes there is a substantial doubt about the ability of RIZZA Co. to continue as a going concern for a reasonable period of time. In evaluating RIZZAs plans for dealing with the adverse effects of future conditions and events, Joy most likely would consider, as a mitigating factor, RIZZAs plan to a. Accelerate research and development projects related to future products. b. Accumulate treasury stock at prices favorable to RIZZAs historic price range. c. Purchase equipment and production facilities currently being leased. d. Negotiate reductions in required dividends being paid on preferred stock. 29. 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 GAAS. The auditor should also omit Scope Paragraph Opinion Paragraph a. No Yes b. Yes Yes c. No No d. Yes No 30. The auditors report should be dated as of the date 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 completed. 31. In the report of the principal auditor, reference to the fact that a portion of the audit was made by another is a. Not to be construed as a qualification, but rather as a division of responsibility between two CPA firms. b. Not in accordance with GAAS. c. A qualification that lessens the collective responsibility of both CPA firms. d. An example of a dual opinion requiring the signatures of both auditors. 32. The auditor who wishes to indicate that the entity has significant transactions with related parties should disclose this fact in a. An explanatory paragraph to the auditors report. b. An explanatory note to the financial statements. c. The body of the financial statements. d. The summary of significant accounting policies section of the financial statements. 33. A CPA found that the client has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the CPAs reporting options are a. Unqualified opinion or disclaimer of opinion. b. Unqualified opinion or qualified opinion. c. Emphasis paragraph with unqualified opinion or adverse opinion. d. Qualified opinion or adverse opinion.

34. An auditor has found that the client is suffering financial difficulty and the going-concern status is seriously in doubt. Even though the client has placed good disclosures in the financial statements, the CPA must choose between the following audit report alternatives: a. Unqualified report with a going-concern explanatory paragraph or disclaimer of opinion. b. Standard unqualified report or a disclaimer of opinion. c. Qualified opinion or adverse opinion. d. Standard unqualified report or adverse opinion.

35. Marichu became the new auditor for Royal Commission succeeding Susa, who audited the financial statements
last year. Marichu needs to report on Royal Commissions comparative financial statements and should write in her report an explanation about another auditor having audited the prior year. a. Only if Susas opinion last year was qualified. b. Describing the prior audit and the opinion but not naming Susa as the predecessor auditor. c. Describing the audit but not revealing the type of opinion Susa gave. d. Describing the audit and the opinion and naming Susa as the predecessor auditor. 36. An entity changed from the straight line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current years financial statements but is reasonably certain to have substantial effect in later years. If the change is disclose in the notes to the financial statements, the auditor should issue a report with a(n) a. Except for unqualified opinion. b. Explanatory paragraph. c. Unqualified opinion. d. Consistency modification. 37. Carmen Companys financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is a. Unqualified but not mention the departure in the auditors report. b. Unqualified and describe the departure in a separate paragraph. c. Qualified and describe the departure inn a separate paragraph. d. Qualified or adverse, depending on materiality, and describe the departure in a separate paragraph. 38. 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 entitys had significant related party transactions. b. The auditor decides to refer to the report of another auditor as a basis, in part, for the auditors opinion. c. The entity issues financial statements that present financial position and results of operations but omits the statement of cash flows. d. The auditor has substantial doubt about the entitys ability to continue as going concern, but the circumstances are fully disclosed in the financial statements. 39. Comparative financial statements include the prior years financial statements that were audited by a predecessor auditor whose report is not presented. If the predecessors report was unqualified, the successor should a. Express an opinion on the current years statements alone and make no reference to the prior years statements. b. Indicate in the auditors report that the predecessor auditor expressed an unqualified opinion. c. Obtain a letter of representations from the predecessor auditor expressed an unqualified opinion. d. Request the predecessor auditor to reissue the prior years report. 40. For the report containing a disclaimer for lack of independence, the disclaimer is in the a. Third or opinion paragraph. b. Second or scope paragraph. c. First and only paragraph.

d. Fourth or explanatory paragraph. 41. An auditor has previously expressed a qualified opinion on the financial statements of a prior period because of a departure from GAAP. The prior-period financial statements are restated in the current period to conform to accounting principles generally accepted in the Philippines. The auditors updated report on the prior-period financial statements should a. Express an unqualified opinion concerning thee restated financial statements. b. Be accompanies by the original auditors report on the prior period. c. Bear the same date as the original auditors report on the prior period. d. Qualify the opinion concerning the restated financial statements because of a change in accounting principle. 42. When there is a significant change in accounting principle, an auditors report should refer to the lack of consistency in a. The scope paragraph. b. An explanatory paragraph between the scope paragraph and the opinion paragraph. c. An explanatory paragraph following the opinion paragraph. d. The opinion paragraph. 43. Which of the following is appropriate when material inconsistency exists in the other information and the entity refuses to make amendments? a. Issue a qualification opinion due to inconsistent data. b. Issue a qualified opinion because material inconsistency may raise doubt about the audit conclusion drawn from audit evidence. c. Include an emphasis of matter paragraph describing the material inconsistency. d. Attach a separate statement that reconciles the inconsistency. 44. When after the financial statements have been issued, the auditor becomes aware of a fact that existed at the date of the auditors report, the auditor should do the following except: a. Consider whether the financial statements need revisions. b. Discuss the matter with management. c. Take the action appropriately in the circumstance. d. Inform those users who are currently relying on the financial statements. 45. When a fact is discovered after the date of the report but before the financial statements are issued and the client amends the financial statements, would the following procedures or actions be necessary? A B C D I. Procedures to obtain evidence with respect to subsequent Yes Yes No No events are extended. II. An emphasis of a matter paragraph is required Yes No No Yes 46. When the auditors report on the prior period, as previously issued, included a modified opinion and the matter which gave rise to the modification is unresolved, and results in a modification of the auditors report regarding the current period figures: a. The auditors report should be unmodified regarding the corresponding figures. b. The auditors report should also be modified regarding the corresponding figures. c. The auditors report should not refer to the previous modification. d. The auditor should omit the comparatives as corresponding figures. 47. Which is known as the third statement in accounting reports? a. The balance sheet. b. The income statement. c. The statement of retained earnings. d. The statement of cash flows.

48. Which of the following must accompany unaudited financial statements which are prepared by a CPA? a. Qualified opinion. b. Adverse opinion. c. Piecemeal opinion. d. Disclaimer opinion. 49. Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they are issued? a. Sale of shares of capital stock. b. Loss of a building due to a fire. c. Settlement of litigation in excess of recorded liability. d. Major purchase of business which is expected to double sales volume.

50. On September 22, 20X3, the auditor completed the required field work on a clients financial statements for
the fiscal year ended June 30, 20X3, the date when the audit report was finally drafted, the auditor learned form one of the officials that one of their factories including a stock of finished goods was destroyed by fire. This loss was soon after confirmed in a written report dated October 30, 20X3. What date should the audit report bear? a. September 22, 20x3. b. October 23, 20X3. c. October 30, 20X3. d. June 30, 20X3. 51. An unqualified opinion may be submitted only: a. If an audit has been conducted in accordance with GAAS. b. If it has been possible to apply all procedures necessary in the circumstance. c. If the auditor has no reservations concerning the fairness of the financial statements. d. All of the above. 52. When the auditor believes that the financial statements are misleading or do not reflect the proper application of GAAP, the report will contain: a. Disclaimer of opinion. b. Qualified opinion. c. Unqualified opinion. d. Adverse opinion. 53. Material weaknesses in internal controls prevent the auditors collection of sufficient, competent evidential matter and will justify the issuance of: a. Disclaimer of opinion. b. Qualified opinion. c. Unqualified opinion. d. Adverse opinion. 54. When a CPA who is deemed not independent is associated with financial statements, this suggests a(n): a. Unqualified opinion. b. Qualified opinion. c. Adverse opinion. d. Disclaimer. 55. What opinion is issued when it is not possible in a first audit to validate the year-opening balance of an account? a. Unqualified opinion. b. Qualified opinion.

c. Adverse opinion. d. Disclaimer.

56. The opinion paragraph of an audit report expressing an adverse opinion should include a direct reference to:
a. b. c. d. A footnote to the financial statements which discusses the basis for the opinion. The scope paragraph which discusses the basis for the opinion rendered. A separate paragraph which discusses the basis for the opinion rendered. The consistency or lack of consistency in the application of GAAP.

57. When an auditee refuses to make essential disclosures in the financial statements or in the footnotes, the independent auditor should a. Provide the necessary disclosures in the auditors report and appropriately modify the opinion. b. Explain to the client that an adverse opinion must be issued. c. Issue an unqualified report and inform the stockholders of the improper disclosure in an unaudited footnote. d. Issue an opinion subject to the clients lack of disclosure of supplementary information as explained in a middle paragraph of the report. 58. In a case where the auditor cannot determine the amounts associated with certain illegal acts committed by the auditee, he would most likely: a. Issue either a qualified opinion or a disclaimer of opinion. b. Issue only an adverse opinion. c. Issue either a qualified opinion or an adverse opinion. d. Issue only a disclaimer of opinion. 59. When an auditor expresses an opinion on financial statements, his responsibilities extend to: a. The underlying wisdom of his clients management decisions. b. Whether the results of his clients operating decisions are fairly presented in the financial statements. c. Active participation in the implementation of the advice given to his client. d. An ongoing responsibility for his clients solvency. 60. Alyasah, CPA, accepted the audit engagement of MIGZ Corp. During the audit, Alyasah became aware of the fact that he did not have the competence required for the engagement. What should Alyasah do? a. Disclaim an opinion. b. Issue subject to opinion. c. Suggest that MIGZ Corp. engage another CPA to perform the audit. d. Rely on the competence of client personnel. ***The End*** 61. PSA 800 (The Auditors Report on Special Purpose Audit Engagements) applies to a. Review engagements. b. Agreed-upon procedures engagements. c. Compilation engagements. d. Engagements to report on specified account, elements of accounts or items in a financial statement. 62. In planning a special purpose audit engagement, the auditor should obtain a clear understanding of I. The purpose for which the information being reported on is to be used. II. Who is likely to use the information b. I only. c. II only. d. Both I and II. e. Neither I nor II.

63. When an auditor reports on financial statements prepared on an entitys income tax basis, the auditors report
should a. State the basis of presentation of the financial statements. b. Disclaim an opinion on whether the statements were examined in accordance with GAAS in the Philippines. c. Not express an opinion on whether the statements are presented in conformity with the other comprehensive basis of accounting used. d. Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting. 64. A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entitys Schedule of Accounts Receivable Schedule of Profit Participation a. Yes No b. No Yes c. Yes Yes d. No No

65. Which of the following statements is correct with respect to an auditors report expressing an opinion on a
specific item on the financial statement? a. The auditor who has expressed an adverse opinion on the financial statements as a whole can never express an opinion on a specified item in these financial statements. b. Materiality must be related to the specified item rather than to the financial statements taken as a whole. c. Such a report can only be issued if the auditor is also engaged to audit the entire set of financial statements. d. The attention devoted to the specified item is usually less than it would be if the financial statements as a whole were audited. 66. An auditor may express an opinion on an entitys accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole, provided the a. Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements. b. Auditor also reports on the current asset portion of the entitys balance sheet. c. Use of the report on the accounts receivable is restricted. d. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the financial statements. 67. An auditors report issued in connection with which of the following is generally not considered to be a special purpose engagement report? a. Compliance with aspects of contractual agreements unrelated to audited financial statements. b. Financial information presented in a prescribed schedule that requires a prescribed form of auditors report. c. Financial statements prepared in accordance with an entitys income tax basis. d. Specified elements, accounts or items of a financial statement presented in a document. 68. An auditor may report on summarized financial statements that are derived from complete audited financial statements if the a. Auditor indicates whether the information in the summarized financial statements is consistent with the audited financial statements from which it is derived. b. Summarized financial statements are distributed only to management and the BOD. c. Auditor describes the additional review procedures performed on the summarized financial statements. d. Summarized financial statements are presented in comparative form with the prior years summarized financial statements.

69. In the auditors report on summarized financial statements that are derived from an entitys audited financial statements, a CPA should indicate that the a. CPA has audited and expressed an opinion on the complete financial statements. b. CPA expresses limited assurance that the financial statements conform with GAAP in the Philippines. c. Summarized financial statements are not fairly presented in all material respects. d. Summarized financial statements are prepared in conformity with another comprehensive basis of accounting. 70. An auditors report on financial statements prepared in accordance with another comprehensive basis of accounting should include all of the following except: a. An opinion as to whether the basis of accounting used is appropriate under the circumstances. b. An opinion as to whether the financial statements are presented fairly in conformity with th other comprehensive basis of accounting. c. Reference to the note to financial statements that describe the basis of presentation. d. A statement that the basis of presentation is a comprehensive basis of accounting other than GAAP. 71. DIDI Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of the governments insurance commission. If Ninfa, CPA, DIDIs auditor, discovers that the statements are not suitably titled, Ninfa should a. Disclose any reservations in an explanatory paragraph and qualify the opinion. b. Apply to the Insurance Commissioner for an advisory opinion. c. Issue a special statutory basis report that clearly disclaims any opinion. d. Explain in the notes to the financial statements the terminology used. 72. A government agency requires an external auditor to include accounting and financial data pertaining to his client in prescribed forms which the auditor believes does not conform to accepted auditing practice. The auditor should: a. Withdraw from the engagement. b. Reword the forms and attach a separate report. c. Submit a short-form report with comments. d. Submit the forms with no date on questioned items. ***The End***