AT-7611: Forming an Opinion and Reporting on Financial Statements

Question 1

To distinguish it from reports that might be issued by others, such as by officers of the entity, the BoD, or from reports of other auditors who may not have to abide by the same ethical requirements as the independent auditor, the auditor’s report should have an appropriate

A. Addressee
B. Title
C. Signature
D. Opinion

Answer 1

B. Title

Question 2

The auditor’s report should be addressed
A. Only to the shareholders of the entity whose F/S are being audited
B. Only to the BoD of the entity whose F/S are being audited
C. Only to the president of the entity whose financial statements are being audited
D. Either to the shareholders, or the BoD, or both, of the entity whose F/S are being audited

Answer 2

D. Either to the shareholders, or the BoD, or both, of the entity whose F/S are being audited

Question 3

Which of the following is included in the introductory or opening paragraph of the auditor’s report?
A. Identification of the F/S audited, including the date of and period covered by the F/S
B. A statement that the F/S are responsibility of the entity’s 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 F/S based on the audit

Answer 3

A.

Question 4

The opinion paragraph of the auditor’s report
I. Identifies the applicable financial reporting framework on which the F/S are based

II. Expresses an opinion on the F/S

A. I only
B. II only
C. Both I and II
D. Neither I nor II

Answer 4

C. Both I and II

Question 5

The following statements relate to the date of the auditor’s report. Which is false?

A. The auditor should date the report as of the completion date of the audit

B. The date of the auditor’s report should not be earlier than the date on which the F/S are signed or approved by management.

C. The date of the auditor’s report should not be later than the date on which the F/S are signed or approved by management.

D. The date of the auditor’s report should always be later than the date of the F/S (i.e. B/S date)

Answer 5

C. The date of the auditor’s report should not be later than the date on which the F/S are signed or approved by management.

Question 6

In which of the following circumstances would an auditor most likely add an emphasis of matter paragraph to the auditor’s report while expressing an unqualified opinion?

A. Substantial doubt about the entity’s ability to continue as a going concern
B. Management’s estimates of the effects of future events are unreasonable
C. No depreciation has been provided in the F/S
D. Certain transactions cannot be tested because of management’s records retention policy

Answer 6

A. Substantial doubt about the entity’s ability to continue as a going concern

Question 7

An auditor’s responsibility to express an opinion on the F/S is
A. Implicitly represented in the auditor’s report
B. Explicitly represented in the “Auditor’s Responsibility” paragraph of the auditor’s report
C. Explicitly represented in the “Management’s Responsibility” paragraph of the auditor’s report
D. Explicitly represented in the opinion paragraph of the auditor’s report

Answer 7

B. Explicitly represented in the “Auditor’s Responsibility” paragraph of the auditor’s report

Question 8

Which paragraphs of an auditor’s report on F/S should refer to PFRS?
A. Introductory and Opinion
B. Auditor’s Responsibility and Management’s Responsibility
C. Introductory and Auditor’s Responsibility
D. Management’s Responsibility and Opinion

Answer 8

D. Management’s Responsibility and Opinion

Question 9

An independent auditor discovers that a payroll supervisor of the company being audited has misappropriated P50,000. The company’s total assets and income before tax are P70M and P15M, respectively. Assuming no other issues affect the report, the auditor’s report will most likely contain a/an

A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Scope qualification

Answer 9

A. Unmodified opinion

Question 10

A note to the F/S of the Prudent Bank indicates that all of the records relating to the bank’s business operations are stored on magnetic disks, and that no emergency backup 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 auditor’s report should express

A. A qualified opinion
B. An unmodified opinion
C. An adverse opinion
D. A “subject to” opinion

Answer 10

B. An unmodified opinion

Question 11

An auditor who uses the work of an expert may refer to the expert in the auditor’s report if the

A. Expert is employed by the entity
B. Expert’s work provides the auditor greater assurance of reliability
C. Auditor expresses a qualified opinion or adverse opinion related to the work of the expert
D. Auditor indicates a division of responsibility related to the work of the expert

Answer 11

C. Auditor expresses a qualified opinion or adverse opinion related to the work of the expert

Question 12

When would the auditor refer to the work of an appraiser in the auditor’s report?

A. An adverse opinion is expressed based on a difference of opinion between the client and the outside appraiser as to the value of certain assets.

B. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by the appraiser

C. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser

D. An unqualified opinion is expressed and an EoM paragraph is added to disclose the use of the appraiser’s work.

Answer 12

A. An adverse opinion is expressed based on a difference of opinion between the client and the outside appraiser as to the value of certain assets.

Question 13

A modified opinion on the F/S is necessary when

I. The auditor concludes, based on the audit evidence obtained, that the F/S as a whole are not free from material misstatement.

II. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the F/S as a whole are free from material misstatement.

A. I only
B. II only
C. Either I or II
D. Neither I nor II

Answer 13

C. Either I or II

Question 14

Which of the ff. terms used in the standard to describe the effects on the F/S of misstatements or the possible effects on the F/S, if any, that are undetected, due to an inability to obtain sufficient appropriate audit evidence?

A. Persuasive
B. Pervasive
C. Material
D. Extensive

Answer 14

B. Pervasive

Question 15

A limitation on the scope of the audit may arise from
I. Circumstances beyond the control of the entity
II. Circumstances relating to the nature and timing of the auditor’s work
III. Limitations imposed by management

A. I and II
B. II and III
C. I and III
D. I, II, and III

Answer 15

D. I, II, and III

Question 16

When audited F/S are presented in a document (e.g. annual report) containing other information, the auditor

A. Should read the other information to consider whether it is inconsistent with the audited F/S
B. Has no responsibility for the other information because it is not part of the basic F/S
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.

Answer 16

A. Should read the other information to consider whether it is inconsistent with the audited F/S

Question 17

An auditor concludes that there is material inconsistency in the other information in an annual report to shareholders containing audited F/S. If the auditor concludes that the F/S do not require revision, but the client refuses to revise/eliminate the material inconsistency, the auditor may

A. Disclaim an opinion on the F/S after explaining the material inconsistency in an EoM paragraph

B. Revise the auditor’s report to include an other matter paragraph describing the material inconsistency

C. Express a qualified opinion after discussing the matter with the client’s directors

D. Consider the matter closed because the other information is not in the audited F/S

Answer 17

B. Revise the auditor’s report to include an other matter paragraph describing the material inconsistency

Question 18

If, on reading the other information, the auditor identifies a material inconsistency, the auditor shall determine whether the audited F/S 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 F/S?

A. Disclaimer of opinion
B. Qualified opinion or disclaimer of opinion
C. Unmodified opinion with an emphasis of matter paragraph describing the material inconsistency
D. Qualified or adverse opinion

Answer 18

D. Qualified or adverse opinion

Question 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 F/S fails to disclose information that is required by PFRS.

C. Events disclosed in the F/S cause the auditor to have substantial doubt about the entity’s ability to continue as a going concern.

D. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to its balance by other auditing procedures.

Answer 19

B. The F/S fails to disclose information that is required by PFRS.

Question 20

Which of the following phrases would an auditor most likely include in the auditor’s report when expressing a qualified opinion because of inadequate disclosure?

A. Do not present fairly in all material respects
B. Expect for the omission of information included in the Basis for Qualified Opinion paragraph.
C. With the foregoing explanation of these omitted procedures
D. Subject to the departure from generally accepted accounting principles, as described above.

Answer 20

B. Expect for the omission of information included in the Basis for Qualified Opinion paragraph.

Question 21

An auditor’s report includes the following statement: “In our opinion, because of the effects of the matters discussed in the Basis for Adverse Opinion paragraph, the F/S do not present fairly, in all material respects, the financial position of ABC Co. as of December 31, 20X1, and of its financial performance and its cash flows for the year then ended in accordance with PFRS.” This auditor’s report contains a/an

A. Qualified opinion
B. Unmodified opinion
C. Disclaimer of opinion
D. Adverse opinion

Answer 21

D. Adverse opinion

Question 22

An auditor should disclose the substantive reasons for expressing an adverse opinion in the Basis for Adverse opinion paragraph
A. Following the opinion paragraph
B. Preceding the opinion paragraph
C. Following the introductory paragraph
D. Within the notes to the F/S

Answer 22

B. Preceding the opinion paragraph

Question 23

There are two broad FRF for comparatives: corresponding figures and comparative F/S. Which of the ff is correct concerning these reporting frameworks?

A. Corresponding figures: The corresponding figures for the prior period(s) are an integral part of the current period F/S

B. Corresponding figures: The corresponding figures for the prior period(s) are considered separate F/S

C. Comparative F/S: The comparative F/S for the prior period(s) are intended to be read in conjunction with the amounts and other disclosures relating to the current period.

D. Under the comparative F/S, the amounts and other disclosures for the other prior period/s form part of the current period F/S

Answer 23

A. Corresponding figures: The corresponding figures for the prior period(s) are an integral part of the current period F/S

Question 24

The ff. statements relate to the auditor’s reporting responsibilities regarding comparatives. Which is incorrect?

I. For corresponding figures, the auditor’s report only refers to the F/S of the current period

II. For comparative F/S, the auditor’s report refers to each period that F/S are presented.

A. I only
B. II only
C. both I and II
D. neither I nor II

Answer 24

D. neither I nor II

Question 25

PSA 710 states that the extent of audit procedures performed on the corresponding figures is significantly less than for the audit of the current period figures. The auditor’s procedures are ordinarily limited to ensuring that the corresponding figures have been reported and are appropriately classified. The auditor should assess whether

I. Accounting policies used for the corresponding figures are consistent with those of the current period or whether appropriate adjustments and/or disclosures have been made

II. Corresponding figures agree with the amounts and other disclosures presented in the prior period or whether appropriate adjustments and/or disclosures have been made.

A. I only
B. II only
C. Both
D. Neither

Answer 25

C. Both

Question 26

According to PSA 710, the incoming auditor may refer to the predecessor auditor’s report on the corresponding figures in the incoming auditor’s report for the current period. The incoming auditor’s report should indicate

I. That the F/S of the prior period were audited by another auditor
II. The type of report issued by the predecessor auditor
III. The date of the predecessor auditor’s report

A. I and II
B. II and III
C. I and III
D. I, II, III

Answer 26

D. I, II, III

Question 27

J, CPA audited JST Company’s prior year F/S. These statements are presented with those of the current year for comparative purposes without J’s auditor’s report, which express a qualified opinion. In drafting the current year’s auditor’s report, S, CPA, the incoming auditor, should

I. Not name J as the predecessor auditor
II. Indicate the type of report issued by J
III. Indicate the substantive reasons for J’s qualification
IV. Indicate the date of J’s auditor’s report

Answer 27

All of the above.