Chapter 11 [Salosagcol] Flashcards
1
Q
A major purpose of the auditor’s report on the financial statements is to
a. Assure investors of the complete accuracy of the financial statements
b. Enhance the degree of confidence of intended users in the financial statements
c. Deter creditors from extending loans in high-risk situations
d. Describe the specific auditing procedures undertaken to gather evidence of the opinion
A
b
2
Q
Which of the following parties is responsible for the fairness of the representations made in the financial statements?
a. Client’s management
b. Independent auditor
c. Audit committee
d. PICPA
A
a
3
Q
PSA 700 provides guidance on the
a. Auditor’s report that includes a modified opinion
b. Auditor’s report that includes an unmodified opinion
c. Auditor’s report that includes an unmodified opinion, though the auditor’s report is modified due to an emphasis of matter
d. Auditor’s report, irrespective of the type of opinion issued by the auditor
A
b
4
Q
The auditing profession recognizes the need for uniformity in reporting as a means of
a. Defending against capricious lawsuits
b. Standardizing the policies of various CPA firms
c. Upgrading the communication skills of auditors
d. Avoiding confusion
A
d
5
Q
What is the overriding benefit of having uniformity in the report?
a. Uniformity promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognized standards
b. Uniformity in form promotes the expression of unmodified opinion
c. Uniformity lessens the auditor’s legal and civil liabilities
d. The audit report eliminates some disclosures required in the financial statements
A
a
6
Q
Which of the following elements of the auditor’s report affirms the auditor’s independence?
a. Introductory paragraph
b. Auditor’s responsibility
c. Title
d. Signature
A
c
7
Q
The auditor’s judgment as to whether the financial statements are presented fairly, in all material respects, is made in the context of
a. The Philippine Standards on Auditing
b. The applicable financial reporting framework
c. The professional ethical requirements
d. The generally accepted auditing standards
A
b
8
Q
Auditing standards require that the audit report must be titled. This is done in order to
a. Indicate that the auditor is a CPA
b. Distinguish the independent auditor’s report from the reports that might be issued by others
c. Identify the financial statements audited
d. Emphasize management’s responsibility for the fair presentation of the financial statements
A
b
9
Q
The auditor does not normally address the report to
a. Those for whom the report is prepared
b. The president of the client company
c. Those charged with governance of client company
d. The stockholders of client company
A
b
10
Q
The element of the auditor’s report that identifies the financial statement audited is the
a. Title
b. “Opinion” section
c. “Basis for Opinion” section
d. Auditor’s responsibility sectionb
A
b
11
Q
The auditor’s opinion covers the complete set of financial statements. A complete set of financial statements does not include
a. Statement of Comprehensive Income
b. Statement of Changes in Financial Position
c. Statement of Cash Flows
d. Summary of significant accounting policies and other explanatory information
A
b
12
Q
Which of the following shall be included in the “Opinion” Section of the auditor’s report?
a. Name of the entity for whom the report is prepared; The title of each statement audited; Period covered by the financial statements
b. Name of the entity for whom the report is prepared; Period covered by the financial statements
c. The title of each statement audited; Period covered by the financial statements
d. Name of the entity for whom the report is prepared; The title of each statement audited
A
c
13
Q
PSA 700 requires the auditor’s report to be signed. The signature should be
a. In the name of the audit firm
b. In the personal name of the auditor
c. Either a or b
d. Neither a nor b
A
c
14
Q
The appropriate date for the auditor’s report is the one which the
a. Client’s fiscal year ended
b. Auditor has concluded procedures in the field
c. Auditor and client entered into a contract
d. Auditor types and delivers the report to the client
A
b
15
Q
The date of the auditor’s report is important because
a. The date of the auditor’s report informs the user of the audit report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date
b. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect that date
c. PSAs require all audits to be performed in a timely manner
d. This date coincides with the date of the financial statements
A
a
16
Q
The date of the auditor’s report
a. Coincides with the date the financial statements are issued
b. Should be the same as the financial statement date
c. Can be earlier than the date on which the auditor has obtained sufficient appropriate evidence on which to base his opinion
d. Should not be earlier than the date of the approval of the financial statements
A
d
17
Q
An auditor’s report should be dated as of the
a. Date the report is delivered to the entity audited
b. Date the financial statements were approved by the entity’s management
c. Financial statement date of the latest period reported on
d. Date a letter of audit inquiry is received from the entity’s attorney
A
b
18
Q
Which of the following is not one of the elements of the unmodified report?
a. Auditor’s address
b. Date of the auditor’s report
c. Emphasis of a matter
d. Auditor’s signature
A
c
19
Q
The auditor’s address is indicated in the auditor’s report by
a. Naming the location in the country where the auditor practices his profession
b. Including the complete mailing address of the auditor
c. Identifying the country where the auditor had secured his professional license
d. Addressing the report to the stakeholders or the audit client
A
a
20
Q
How are management’s responsibility and the auditor’s responsibility represented in the audit report?
a. Management’s responsibility: Explicitly; Auditor’s responsibility: Explicitly
b. Management’s responsibility: Implicitly; Auditor’s responsibility: Implicitly
c. Management’s responsibility: Implicitly; Auditor’s responsibility: Explicitly
d. Management’s responsibility: Explicitly; Auditor’s responsibility: Implicitly
A
a
21
Q
The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework is the
a. Qualified opinion
b. Unmodified opinion
c. Undeniable opinion
d. Denial of opinion
A
b
22
Q
The description of the auditor’s responsibilities for the audit of the financial statements shall be included
I. Within the body of the auditor’s report
II. Within an appendix to the auditor’s report
III. By a specific reference within the auditor’s report to the location of such a description on a website of an appropriate authority
a. I only
b. II only
c. Either I or II
d. I, II, or III
A
d
23
Q
The most common type of audit report contains a(n)
a. Adverse opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Unmodified opinion
A
d
24
Q
The financial statements prepared in accordance with a general purpose framework are referred to as
a. General purpose financial statements
b. Annual report
c. Common-size financial statements
d. Summarized financial statements
A
a
25
Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users are referred to as
a. Special purpose financial statements
b. Special purpose framework
c. General purpose financial statements
d. Specific purpose financial statements
a
26
Fair presentation framework is a financial reporting framework that requires compliance with the requirements of the framework and
I. Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework
II. Acknowledges explicitly that it may be necessary to depart from a requirement of the framework to achieve fair presentation of the financial statements
a. I only
b. II only
c. Both I and II
d. Neither I nor II
C
27
Which of the following sections in the auditor's report shall be placed immediately after the "Opinion" section?
a. Management's Responsibilities for the Financial Statements
b. Auditor's Responsibilities for the Audit of the Financial Statements
c. "Basis for Opinion"
d. Other Reporting Responsibilities
c
28
To emphasize the fact that the auditor is independent, it would be desirable to address the report to
a. The company's management
b. The stockholders of the client company
c. The board of directors of the client company
d. The SEC
b
29
The first section of the auditor's report shall have the heading
a. "Introduction"
b. "Opinion"
c. "Auditor's Responsibilities for the Audit of the financial statements"
d. "Basis for Opinion"
b
30
The "Basis for Opinion" section of the auditor's report shall
a. State that the financial statements have been audited
b. State that the objective of the auditor is to issue an auditor's report that includes the auditor's opinion
c. Describe management's responsibility for preparing the financial statements according with the applicable financial reporting framework
d. State that the audit was conducted in accordance with Philippine Standards on Auditing (PSAs)
d
31
Which of the following management's responsibilities should be described in the auditor's report?
a. Responsibility for preparing the financial statements in accordance with the applicable financial reporting framework
b. Responsibility for obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatements
c. Responsibility to exercise professional judgment and maintain professional skepticism throughout the audit
d. Responsibility to identify and assess the risks of material misstatement of the financial statements
a
32
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 of the audit
b. The date of the auditor's report should not be earlier than the date on which the financial statements are signed or approved by management
c. The date of the auditor's report should not be later than the date on which the financial statements are signed or approved by management
d. The date of the auditor's report should always be later than the statement of financial position date
c
33
Whenever an auditor issues an unmodified opinion, the implication is that the auditor
a. Does not know if the statements are presented according to PFRS
b. Does not believe the statements are presented fairly according to PFRS
c. Is satisfied that the statements are presented fairly in accordance with PFRS except for a specific aspect of them
d. Is satisfied that the statements are presented fairly in accordance with PFRS
d
34
The three main types of audit reports other than the unmodified report are the
a. adverse opinion, disclaimer of opinion, and qualified opinion
b. adverse opinion, reports on unaudited financial statements, and disclaimer of opinion
c. disclaimer of opinion, the qualified opinion, and reports on unaudited financial statements
d. special audit reports, reports on unaudited financial statements, and adverse opinion
a
35
The adverse opinion report will be issued by the independent auditor when he/she
a. Suspects that the client has not followed the identified financial reporting framework
b. Suspects that the client's financial statements are not in conformity with PSAs
c. Has knowledge that the financial statements are not in conformity with the applicable financial reporting framework
d. Has knowledge that the PSAs were not followed
c
36
The least severe type of report for disclosing departures from PFRS is
a. Qualified opinion
b. Disclaimer of opinion
c. Adverse opinion
d. Special report on the financial statements
a
37
A disclaimer is issued whenever the auditor
a. Has been unable to satisfy himself or 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
a
38
Both disclaimers and adverse opinions are used
a. When the condition is material and pervasive
b. Irregardless of the auditor's independence
c. Whether the choice is material or not
d. Irregardless of the client's choice of unacceptable accounting method
a
39
Which of the following circumstances would most likely cause the auditor to modify his opinion
a. Material Misstatements
b. Material Misstatements; Scope Limitation
c. None of the above
d. Scope Limitation
b
40
Under which of the following circumstances is a disclaimer of opinion inappropriate?
a. The auditor is engaged after fiscal year end and is unable to observe physical inventories or apply alternative procedures to verify their balances
b. The auditor is unable to determine the amounts associated with fraud committed by the client's management
c. The financial statements fail to contain adequate disclosures concerning related party transactions
d. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry
c
41
In which of the following situations would an auditor ordinarily choose between expressing qualified opinion or 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 PFRS
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 concernng entity
b
42
When the client's financial statements are misstated by a material and pervasive amount, the auditor should issue a report that contains
a. An adverse opinion
b. A disclaimer of opinion
c. Either a qualified opinion or an adverse opinion, depending on which conditions exist
d. Either a qualified opinion or an unmodified opinion with modified wording, depending on which conditions exist
a
43
Whenever there is a scope limitation, the appropriate response is to issue
a. A disclaimer of opinion
b. An adverse opinion
c. A qualified opinion
d. An unmodified report, a qualification of scope and opinion; or a disclaimer, depending on which conditions exist
a
44
Conditions requiring departure from an unmodified audit report include all, but which of the following
a. Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed
b. Management has determined that inventories should be reported in the statement of financial position at their fair values rather than the lower of cost or net realizable value
c. The audit partner's dependent child received a gift of 10 shares of client stock for her birthday from a grandparent
d. Management has decided to not allow the auditor to confirm significant accounts receivable, but the auditor examined subsequent cash receipts related to the accounts in question
d
45
An auditor's report includes the following statement: "The financial statements do not present fairly the financial position, result of operations, or cash flows in conformity with PFRS." This auditor's report was most likely issued in connection with financial statements that are
a. Inconsistent
b. Based on prospective financial information
c. Misleading
d. Affected by a material uncertainty
c
46
An auditor may express a qualified opinion when
a. Scope of audit has been restricted
b. None of the above
c. Disclosures were omitted
d. Disclosures were omitted; Scope of audit has been restricted
d
47
The auditor would most likely express a modified opinion when
a. The auditor wants to draw readers attention to an important matter; The financial statements are not free from material misstatements; The auditor is unable to obtain sufficient appropriate evidence
b. The auditor wants to draw readers attention to an important matter; The auditor is unable to obtain sufficient appropriate evidence
c. The financial statements are not free from material misstatements; The auditor is unable to obtain sufficient appropriate evidence
d. The auditor wants to draw readers attention to an important matter; The financial statements are not free from material misstatements
c
48
If the auditor believes that a required matter disclosure is omitted from the financial statements, the auditor should decide between issuing a
a. Qualified opinion and an adverse opinion
b. Disclaimer of opinion and a qualified opinion
c. Adverse opinion and a disclaimer of opinion
d. Unmodified opinion and a qualified opinion
a
49
An auditor is confronted with an exception sufficiently material to warrant a modification of the audit report. If the exception relates to a departure from the PFRS, the auditor must decide between expressing an
a. Adverse opinion and an unmodified opinion
b. Adverse opinion and a qualified opinion
c. Adverse opinion and a disclaimer of opinion
d. Disclaimer of opinion and a qualified opinion
b
50
In which of the following situations would a decision of selecting between qualified or adverse opinions be inappropriate?
a. A limitation on the scope of the audit
b. The financial statements are materially misstated
c. A disagreement between the auditor and the client arose because of the capitalization of the research and development costs
d. A required disclosure that is significant is omitted from the financial statements
a
51
The auditor should consider the nature of the item and the significance of effect, when formulating an opinion on financial statements. Accordingly, the auditor should express a qualified opinion when the potential effect of an item under consideration is
a. Material but not pervasive
b. Material but not pervasive; Material and pervasive
c. None of the above
d. Material and pervasive
a
52
When financial statements contain material misstatements, the auditor's report may contain
a. Qualified opinion; Disclaimer of opinion
b. Qualified opinion; Adverse opinion
c. Disclaimer of opinion
d. Qualified opinion; Adverse opinion; Disclaimer of opinion
b
53
When the auditor is unable to obtain sufficient appropriate audit evidence, the auditor's report may contain
a. Qualified opinion; Disclaimer of opinion
b. Qualified opinion; Adverse opinion
c. Disclaimer of opinion
d. Qualified opinion; Adverse opinion; Disclaimer of opinion
a
54
The qualified opinion report will be issued by the independent auditor when, in the auditor's judgment, the effects or possible effects of the item under consideration are
a. Material and pervasive
b. Material but not pervasive
c. Pervasive but not material
d. Not material and not pervasive
b
55
In a qualified, adverse, or disclaimer report, the auditor
a. Has not performed a satisfactory audit
b. Is not satisfied that the financial statements are presented fairly
c. Either A or B
d. None of these
c
56
As a result of management's refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with the PFRS. The auditor must depart from the unmodified audit report because
a. The financial statements have not been prepared in accordance with PFRS
b. The scope of the audit has been restricted by circumstances beyond either the client's control
c. The auditor's independence was impaired
d. The scope of the audit was restricted
d
57
The qualified opinion, adverse opinion, and disclaimer of opinion are known as
a. Modified opinion
b. Standardized statements
c. Unmodified explanation
d. Unmodified opinion
a
58
An adverse opinion is issued when the auditor believes
a. Some parts of the financial statements are materially misstated or misleading
b. The financial statements will be found to be misleading or misstated, if an adequate investigation is performed
c. The overall financial statements are so materially misstated or misleading as a whole that they do not present fairly the financial position or results of operations and cash flows in conformity with PFRS
d. The audit firm is not independent
c
59
An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large subsidiary. Between which of the following opinions should the entity's auditor choose?
a. Adverse and unmodified opinion
b. Disclaimer and unmodified opinion with emphasis of matter paragraph
c. Qualified and adverse opinion
d. Qualified and disclaimer of opinion
d
60
In extreme cases, such as situations involving multiple uncertainties that are significant to the financial statements, the auditor may consider it appropriate to express a(n)
a. Qualified opinion
b. Report with Emphasis of a Matter paragraph
c. Disclaimer of opinion
d. Adverse opinion
c
61
The expression of a qualified opinion means that the financial statements, taken as a whole are
a. Affected by uncertainty
b. Materially misleading
c. Presented fairly
d. Not presented fairly
d
62
Material misstatements in the financial statements may arise from the following conditions, except
a. The appropriateness of the selected accounting policies
b. The application of the selected accounting policies
c. The appropriateness or adequacy of the disclosures in the financial statements
d. The sufficiency and appropriateness of the audit evidence
d
63
When management does not amend the financial statements in circumstances where the auditor believes they need to be amended and the auditor's report has not been released to the entity, the auditor should express
a. Either qualified or adverse opinion
b. Either qualified or disclaimer of opinion
c. An unmodified opinion with emphasis of matter paragraph
d. An unmodified report
a
64
The auditor's inability to obtain sufficient appropriate evidence may arise from all of the following conditions, except
a. Restrictions imposed by management on the scope of the audit
b. Limitations beyond the control of the entity
c. Limitations relating to the nature or timing of the auditor's work
d. Restrictions on the disclosures in the financial statements
d
65
Circumstance imposed scope limitations include those that are:
a. Beyond the control of the entity; Related to client's request to omit certain procedures
b. Beyond the control of the entity; Related to the nature or timing of the auditor's work
c. Related to the client's request to omit certain procedures
d. Beyond the control of the entity; Related to the nature or timing of the auditor's work; Related to the client's request to omit certain procedures
b
66
Which of the following is the correct order of steps that the auditor should follow if, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the scope of the audit that likely to result in a modification of opinion on the financial statements
I. The auditor should request the management to remove the limitation
II. The auditor should communicate the matter to those charged with governance
III. The auditor should determine whether it is possible to perform alternative procedures
a. I, II, III
b. III, I, II
c. II, I, III
d. III, II, I
a
67
If the auditor is unable to obtain sufficient appropriate evidence because of a limitation imposed by the client, the auditor may
a. Disclaim an opinion
b. Disclaim an opinion; Withdraw from the engagement
c. None of the above
d. Withdraw from the engagement
b
68
In making a decision of whether to disclaim an opinion or withdraw from the engagement due to client-imposed scope limitation, the auditor should consider
a. The materiality of the item under consideration
b. The pervasiveness of the effect on financial statements
c. Both the materiality and pervasiveness should be considered
d. The stage of completion of the engagement at the time the management imposed the limitation
d
69
When an auditor modifies his opinion on the financial statements because of material misstatements, the basis for modification paragraph should include
a. A description of material misstatements
b. A description of material misstatements; A quantification of the effects of misstatement, if practicable
c. None of the above
d. A quantification of material misstatements, if practicable
b
70
When an auditor modifies his opinion on the financial statements because of inability to obtain sufficient appropriate evidence, the basis for modification paragraph shall include
a. A description of scope limitation
b. A description of scope limitation; A quantification of effects of misstatement, if practicable
c. None of the above
d. A quantification of effects of misstatement, if practicable
a
71
Inadequacy of disclosures in the notes to the financial statements normally requires the auditor to express a qualified opinion on the client's financial statements. When this occurs, the auditor should disclose the substantive reasons for expressing a qualified opinion in the
a. "Opinion" section
b. "Key audit matters" section
c. "Auditor's responsibility" section
d. "Basis for Opinion" section
d
72
An auditor should disclose the substantive reasons for expressing an adverse opinion in a separate section
a. Preceding the management's responsibility for the financial statements
b. Preceding the "Opinion" section
c. Following the "Opinion" section
d. Within the notes to the financial statements
c
73
An auditor who qualifies an opinion because of inability to obtain sufficient appropriate evidence should describe the matter giving rise to the qualification in the report. The auditor should also modify the
a. Management's Responsibility Section; Opinion Section
b. Management's Responsibility Section; Auditor's Responsibility Section
c. Auditor's Responsibility Section; Opinion Section
d. Management's Responsibility Section; Auditor's Responsibility Section; Opinion Section
c
74
An auditor who disclaims an opinion because of inability to obtain sufficient appropriate evidence should describe the matter in a separate paragraph. The auditor should also modify the
a. Auditor's Responsibility
b. Basis for Opinion; Management's Responsibility; Auditor's Responsibility
c. Basis for Opinion; Auditor's Responsibility
d. Auditor's Responsibility
c
75
Which of the following statements is correct about "emphasis of matter paragraph"?
a. The addition of such paragraph is not to be construed as a modification of the auditor's report
b. The addition of such paragraph does not affect the auditor's opinion
c. The paragraph should preferably be presented before the "Basis for Opinion"
d. The paragraph is normally used by the auditor to explain the basis for expressing a modified opinion
b
76
Which of the following circumstances will least likely cause the auditor to modify his opinion?
a. A limitation on the scope of the auditor's report imposed by the client
b. A limitation on the scope of the auditor's report imposed by the circumstances
c. A disagreement with management regarding application of accounting policies
d. A disclosure in the notes about significant uncertainty affecting the financial statements
d
77
Which of the following is not to be construed as a modification of opinion?
a. Qualified opinion
b. Adverse opinion
c. Disclaimer of opinion
d. Auditor's report with emphasis of matter paragraph
d
78
The use of an "Emphasis of Matter" paragraph shall be limited only to those matters
a. Disclosed in the financial statements
b. Affecting the auditor's opinion
c. Not presented in the financial statements
d. Involving an uncertainty
a
79
"The Other Matter" paragraph is used by the auditor
a. To draw readers' attention to a matter that is presented in the financial statements
b. To draw readers' attention to a matter that is disclosed in the notes to the financial statements
c. To draw readers' attention to a matter that is not presented nor disclosed in the financial statements
d. To draw readers' attention to a matter that caused the auditor to modify his opinion
c
80
Which of the following is correct about "Emphasis of a Matter" paragraph?
a. In very rate circumstances, the "Emphasis of a Matter" paragraph may be used as a substitute for a qualification of an opinion
b. An "Emphasis of a Matter" paragraph may be used to give emphasis to a specific item that has not been appropriately disclosed in the notes to the financial statements
c. An "Emphasis of a Matter" paragraph may be used to restrict the distribution of the auditor's report
d. An "Emphasis of a Matter" paragraph may be used to alert the readers that the financial statements are presented in accordance with a special purpose framework
d
81
Which of the following statements is correct about " emphasis of matter paragraph"?
a. The paragraph is intended to promote the readers' understanding of the auditor's responsibility
b. The addition of such paragraph is not to be construed as a modification of the auditor's opinion
c. The emphasis of matter paragraph would preferably be presented before the opinion paragraph
d. The addition of such paragraph does not affect the auditor's report
d
82
Addition of an "emphasis of matter" paragraph to an otherwise unmodified report would be inappropriate when
a. A major catastrophe with significant effect on the financial position occurred
b. Material inconsistency exists between other information and audited financial statements
c. Financial statements are reissued following a subsequent discovery of fact affecting the financial statements and the auditor's report
d. An uncertainty exists relating to the future outcome of exceptional litigation or regulatory action
b
83
Which of the following conditions will not normally require emphasis of matter paragraph in the auditor's report?
a. Financial statements are prepared using the cash basis of accounting
b. Financial statements do not contain adequate disclosures
c. The financial statements include disclosures about a recent typhoon that destroyed significant portion of the entity's inventory
d. Financial statements are affected by a significant uncertainty
b
84
What is the purpose of the following paragraph in an auditor's report "We draw attention to Note 15 in the financial statements..."?
a. To emphasize a matter
b. To have a basis for expressing a qualified opinion
c. To promote readers' understanding of the auditor's responsibility and the auditor's report
d. To have a basis for disclaiming an opinion
a
85
An auditor includes a separate paragraph in an otherwise unmodified report in order to emphasize an item that is properly disclosed in the notes to the financial statements. The inclusion of this paragraph
a. Is appropriate and would not negate the unmodified opinion
b. Is considered a qualification of the report
c. Is a violation of standards of reporting
d. Necessitates a revision of the opinion paragraph to include the phrase "except for"
a
86
Management believes and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolve. Management is unable to make a reasonable estimate of the amount or range of potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should express a(n)
a. Qualified opinion due to a scope limitation
b. Qualified opinion due to a material misstatement
c. Unmodified opinion with an emphasis of matter paragraph
d. Unmodified report
c
87
An auditor who concludes that an uncertainty is not adequately disclosed in the financial statements should issue an
a. Disclaimer of opinion
b. Unmodified opinion with emphasis of matter paragraph
c. Special report
d. Qualified opinion
d
88
The auditor should consider adding an "emphasis of matter" paragraph when
a. The auditor is prevented from completing a procedure required by PSA
b. The financial statements fail to disclose information required by PFRS
c. The financial statements are not free from material misstatements
d. The Company adopted a new accounting standard earlier than the mandatory effective date
d
89
Addition of an "emphasis of matter" paragraph to what remains an unmodified opinion is least likely for which of the following situations
a. A major catastrophe
b. A going concern uncertainty
c. A significant subsequent event
d. An uncertainty
b
90
The "Other Matter" paragraph would be appropriate when
a. The auditor wants to restrict the distribution or use of the auditor's report
b. The auditor wants to emphasize a matter that is presented or disclosed in the financial statements
c. The auditor wants to emphasize a matter that is not properly presented or disclosed in the financial statements
d. The auditor wants to draw the reader's attention to an important matter that caused the auditor to modify his opinion
a
91
How would the "Emphasis of Matter" and "Other Matters" be presented in the auditor's report?
a. "Emphasis of Matter" is presented before the "Basis for Opinion" section and the "Other Matters" section
b. "Other Matters" section is presented after the "Emphasis of Matter" section but before the "Basis for Opinion" section
c. "Emphasis of Matter" section is presented after the "Basis for Opinion" but before the "Other Matters" section
d. "Other Matters" section is presented before the "Emphasis of Matter" section
c
92
An auditor may wish to emphasize a matter included in the financial statements by adding a separate paragraph to the report. In this case, the following sections of the audit report should be modified
a. Basis for Opinion
b. Auditor's Responsibility
c. Opinion
d. None
d
93
The auditor would most likely consider adding an emphasis of matter paragraph when
a. The auditor was not able to obtain sufficient appropriate evidence to conclude that the financial statements are fairly presented
b. A significant uncertainty arises about the future outcome of exceptional litigation
c. The Company's inventories are presented in the financial statements at fair value
d. The client requested the auditor not to confirm significant receivables and no alternative procedures were performed
b
94
The report that contains "unmodified opinion with emphasis of matter paragraph"
a. Arises as a result of an incomplete audit
b. Arises when the financial statements are not quite "presented fairly"
c. Meets the criteria of a complete audit with satisfactory results
d. Meets the criteria of a complete audit but with unsatisfactory results
c
95
When the auditor concludes that the use of the going concern assumption is appropriate in the circumstances but material uncertainty exists, the auditor should
a. Issue either qualified or adverse opinion
b. Consider the adequacy of disclosure in the notes to financial statements
c. Report to the audit committee the need to adjust management estimates
d. Re-issue the prior year's audit report and add an emphasis of matter paragraph
b
96
The independent auditor has concluded that 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(n)
a. Unmodified opinion with a separate going concern section
b. Qualified opinion
c. Unmodified opinion
d. Adverse opinion
a
97
When the auditor has concluded that there is substantial doubt about the entity’s ability to continue as a going concern, and this fact is adequately disclosed in the notes to financial statements, the appropriate audit report would be
I. An unmodified opinion with emphasis of matter paragraph
II. A qualified opinion
a. I only
b. II only
c. I or II
d. Neither I nor II
d
## Footnote
Unmodified opinion with going concern paragraph
98
Which of the following circumstances will least likely affect the auditor's opinion?
a. A client imposed scope limitation
b. A circumstance imposed scope limitation
c. Inadequacy of disclosure in the notes to financial statements
d. Uncertainty arises about entity's continued existence
d
99
An auditor concludes that there is uncertainty about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's disclosures concerning this matter are adequate, the auditor's report may include a(n):
a. Qualified Opinion; Adverse Opinion
b. Unmodified Opinion
c. Qualified Opinion; Adverse Opinion
d. Unmodified Opinion; Qualified Opinion; Adverse Opinion;
b
100
When management prepares financial statements on the basis of a going concern but the auditor believes the use of the going concern assumption is not appropriate, the auditor would most likely issue an auditor's report that contains
a. A qualified opinion
b. An unmodified opinion with respect to the income statement and an adverse opinion with respect to the statement of financial position
c. A disclaimer of opinion
d. An adverse opinion
d
101
The independent auditor has concluded that the use of the going concern assumption is appropriate and that no going concern uncertainties exist. In this case, the auditor would probably issue a report that contains
a. An unmodified opinion
b. A qualified opinion
c. A disclaimer of opinion
d. An adverse opinion
a
102
When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, which was not adequately disclosed in the notes to financial statements, the auditor's report would include
a. A qualified opinion or adverse opinion
b. A unmodified opinion with emphasis of matter paragraph
c. A qualified or disclaimer of opinion
d. An unmodified opinion with going concern section
a
103
If an amendment to other information is a document containing audited financial statements is necessary and the entity refuses to make the amendment, the auditor would consider issuing
a. Qualified or adverse opinion
b. Qualified or disclaimer of opinion
c. Unmodified opinion with other information section
d. Unmodified opinion
c
104
The "other information" in a published report containing audited financial statements may be relevant to an independent auditor's examination. With respect to "other information"
a. The auditor's responsibility does not extend beyond the financial information identified in the report
b. The auditor is obligated to perform auditing procedures to corroborate "other information" contained in the document
c. The auditor need not be concerned with the "other information"
d. The auditor must include the "other information" in the report
a
105
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. Issue an "except for" qualified opinion after discussing the matter with the client's board of directors
b. Consider the matter closed since the other information is in the audited financial statements
c. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph
d. Revise the auditor's report to include other information section describing the material inconsistency
d
106
The auditor will most likely read the other information
a. Primarily to identify material misstatement of fact
b. Primarily to identify material inconsistency
c. To determine the type of opinion to express on the financial statements
d. To enable him to express an opinion on the other information
b
107
Before the date of the auditor's report, the auditor found a material inconsistency between the other information and the information presented in the financial statements. If revision of the financial statements is necessary and management refuses to make the revision, the auditor shall
a. Modify the opinion on the financial statements
b. Include Other Matter paragraph in the unmodified report to describe the material inconsistency
c. Disclaim an opinion on the financial statements
d. Disclaim an opinion on the other information
a
108
This exists, when other information, not related to matters appearing in the financial statements, is incorrectly stated or presented
a. Material inconsistency
b. Material misstatement
c. Material misstatement of fact
d. Material error affecting the other information
c
109
If an amendment is necessary in the other information and the entity refuses to make an amendment, the auditor, depending on particular circumstance, may do any of the following, except
a. Describe the material inconsistency in other matter paragraph
b. Not issue an audit report
c. Withdraw from the engagement
d. Express either qualified or adverse opinion
d
110
Which of the following best describes the auditor's responsibility for "other information" included in the annual report to the stockholders that contains financial statements and the auditor's report?
a. The auditor has no obligation to read the other information
b. The auditor has no obligation to corroborate the other information but should read it to determine whether it is materially inconsistent with the financial statements and the auditor's knowledge of the entity
c. The auditor should extend the examination to the extent necessary to verify the other information
d. The auditor must modify the auditor's report to state that the other information is unaudited or not covered by the auditor's report
b
111
Those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period are called
a. Key audit matters
b. Reportable conditions
c. Matters of continuing significance
d. Most relevant matters
a
112
Communication of key audit matters in the auditor's report is required whenever the auditor
a. Issues a disclaimer of opinion
b. Expresses a modified report
c. Audits financial statements of publicly accountable entities
d. Audits financial statements of listed entities
d
113
In determining key audit matters, the auditor shall take into account those matters that are
a. Relevant to current and prior periods
b. Relevant to the current period only
c. Relevant to the current and prior periods if the comparative financial statements are presented
d. Relevant to the current period only unless the auditor is a continuing audibtor
b
114
Which of the following statements concerning communication of key audit matters in the auditor's report is incorrect?
a. Communicating key audit matters in the auditor's report enhances the communicative value of the auditor's report by providing greater transparency about the audit that was performed
b. Communicating key audit matters provides additional information to intended users of the financial statements to assist them in understanding those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current and prior periods
c. Communicating key audit matters may assist intended users in understanding the entity and areas of significant management judgment in the audited financial statements
d. The auditor's determination of key audit matters is limited to those matters of most significance in of the audit of the financial statements of the current period, even when comparative financial statements are presented
b
115
For audits of non-listed entities, the use of key audit matter section is
a. Required
b. Not required
c. Not allowed
d. Discouraged
b
116
The description of individual key audit matters in the auditor's report shall refer to the relevant notes and should address
a. Why the matter was considered; How the matter was addressed
b. How the matter was addressed
c. Why the matter was considered
d. None of the above
a
117
Communicating key audit matters in the auditor's report is
a. A substitute for disclosures in the financial statements; A substitute for the auditor's expression of a modified opinion; A separate opinion on individual matters
b. A substitute for disclosures in the financial statements; A substitute for reporting in accordance with PSA 570
c. A substitute for reporting in accordance with PSA 570; A separate opinion on individual matters
d. None of the above
d
118
PSA 701 prohibits the auditor from communicating key audit matters when the auditor expresses a(n)
a. Unmodified opinion
b. Qualified opinion
c. Adverse opinion
d. Disclaimer of opinion
d
119
Which of the following best describes the auditor's responsibility when reporting on comparatives?
a. For corresponding figures, the auditor's opinion on the financial statements refers to the current period only
b. For all comparatives, the auditor's opinion refers to each period for which the financial statements are presented
c. For all comparatives, the auditor's opinion refers to the current period only
d. For comparative financial statements, the auditor's opinion on the financial statements refers to the current period only
a
120
A framework of presentation where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to amounts and other disclosures relating to the current period
a. Current period figures
b. Comparatives
c. Comparative financial statements
d. Corresponding figures
d
121
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. Only the current year, but the prior year's report should be referred to
a
122
An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should
a. Be accompanied by the auditor's original report on the prior year's financial statements
b. Continue to express a qualified opinion expressed on the prior year's financial statements
c. Make no reference to the type of opinion expressed on the prior year's financial statements
d. Disclose the substantive reasons for the different opinion
d
123
When reporting on comparative financial statements where financial statements of the prior period have been examined by the predecessor auditor whose report is not presented, the successor auditor's report should indicate
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 current year's financial statements revealed any matters that might have a material effect on the successor auditor's opinion
d. The type of opinion expressed by the predecessor auditor
d
124
Comparative financial statements include the financial statements of the prior year that were audited by a professional auditor whose report is not presented. If the predecessor's opinion was modified, the successor should
a. Indicate the substantive reasons for the modification
b. Request the client to reissue the predecessor's report on the prior year's statements
c. Issue an updated comparative audit report
d. Express an opinion only on the current year's statements and make no reference to the prior year's statements
a
125
When reporting on comparative financial statements where the financial statements of the prior year have been examined by the predecessor auditor whose report is not presented, the successor auditor should make
a. No reference to the predecessor auditor
b. Reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion
c. Reference to the predecessor auditor only if the predecessor auditor expressed an unmodified opinion
d. Reference to the predecessor auditor regarding of the type of opinion expressed by the predecessor auditor
d
126
Jewel, CPA, audited Infinite Co.'s prior year financial statements. These statements are presented with those of the current year for comparative purposes without Jewel's auditor's report, which expressed a qualified opinion. In drafting the current year's auditor's report, Grain, CPA, the successor auditor, should
I. Not name Jewel as the predecessor auditor
II. Indicate the type of opinion issued by Jewel
III. Indicate the substantive reasons for Jewel's qualifications
a. I only
b. II and III only
c. I and II only
d. I, II, and III
d
127
When a predecessor auditor is to reissue his report on financial statements and he has not examined the financial statements for the most recent audited period, he
a. Should take steps to determine if the opinion is still appropriate
b. Should obtain a letter of representation from the client
c. Has no responsibility to become assured about events subsequent to the termination of the engagement
d. Need obtain only verbal assurance from the successor
a
128
The predecessor auditor, who is satisfied after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make
a. Reference to the report of the successor auditor only in the scope paragraph
b. Reference to the work of the successor auditor in the scope and opinion paragraphs
c. Reference to both the work and the report of the successor auditor only in the opinion paragraph
d. No reference to the report or the work of the successor auditor
d
129
Mark is auditing the consolidated financial statements of Rex, Inc., a publicly held corporation. Shek is the auditor who has audited and reported on the financial statements of a wholly owned subsidiary of Rex, Inc. Mark's first concern with respect to the Rex financial statements is to decide whether he
a. May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.
b. May refer to the work of Shek in his report on the consolidated financial statements
c. Should review the working papers of Shek with respect to the audit of the subsidiary's financial statements
d. Should resign from the engagement because an unmodified opinion cannot be expressed on the consolidated financial statements
a
130
Which of the following will not result in a modification of the auditor's report?
a. Restrictions imposed by the client
b. Inability to obtain sufficient appropriate evidence
c. Reliance placed on the report of the component auditor
d. Inadequacy in the accounting records
c
131
If the group auditor decides to refer in the report to the audit made by the component auditor
a. The group auditor assumes responsibility for the report on the other auditor
b. The component auditor is relieved of the responsibility for his report but not his work
c. The group auditor has violated the professional standards
d. The component auditor is relieved of the responsibility for his work but not his report
c
132
Belle, CPA decides to serve as group auditor in the audit of the financial statements of Maya Consolidated, Inc. Rain, CPA audits one of Maya's subsidiaries. In which situation(s) should Belle refer to Rain's audit?
I. Belle reviews Rain's working papers and assumes responsibility for Rain's work
II. Belle is unable to review Ran's working papers; however, Belle's inquiries indicate that Rain has excellent reputation for professional competence and integrity
a. I only
b. Both I and II
c. II only
d. Neither I nor II
d
## Footnote
If Belle refers to Rain's audit, the group auditor will have violated the professional standards.
133
An auditor may issue an unmodified report when the
a. An auditor refers to the findings of an expert
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. Group auditor assumes responsibility for the work of the component auditor
d
134
In the auditor's report, the group auditor decides not to make reference to another CPA who audited a client's subsidiary. The group auditor could justify this decision if, among other requirements, the group auditor
a. Issues an unmodified opinion on the consolidated financial statements
b. Learns that the component auditor issued an unmodified opinion on the subsidiary's financial statements
c. Is unable to review the audit programs and working papers of the component auditor
d. Is satisfied as to the independence and professional reputation of the component auditor
d
135
Financial statements prepared in accordance with a special purpose framework are referred to in PSA 800 as
a. Special reports
b. Special Purpose Financial Statements
c. Special Considerations
d. Specific Financial Statements
b
136
PSA 800 "Audit of financial statements prepared in accordance with special frameworks" does not apply to
a. Audit of financial statements prepared in accordance with PFRS
b. Audit of financial statements prepared in accordance with cash receipts and cash disbursements basis of accounting
c. Audit of financial statements prepared using modified cash basis
d. Audit of financial presentation that complies with contractual agreement
a
137
Which of the following is not considered a special purpose framework?
a. Income tax basis of accounting
b. Cash receipts and disbursements basis of accounting
c. Financial presentation to comply with regulations requirements
d. Accrual basis of accounting
d
138
Auditors may issue a special purpose audit report for all of the following except an audit of financial statements
a. That are prepared on the basis of accounting that the entity uses to file its tax return
b. Using modified cash basis of accounting
c. Of an organization that has limited the scope of the audit
d. To comply with contractual agreements
c
139
ABC Company prepared its financial statements on an accounting basis prescribed by a government agency solely for filing with that agency. The CPA believes that the financial statements are not presented fairly in conformity with the prescribed basis. The CPA's report must contain
a. An unmodified opinion
b. A disclaimer of opinion
c. A negative assurance
d. An adverse opinion
d
140
The CPA is asked to audit financial statements prepared on a modified cash basis. This is acceptable provided that the CPA
a. Converts the financial statements to accrual basis before rendering an audit report
b. Qualifies the audit opinion because of the departure from PFRS
c. Issues a disclaimer of opinion
d. States clearly in the audit report that fairness was evaluated within the framework of the modified cash basis rather than the PFRS
d
141
Which of the following is an example of special purpose financial statements?
a. Financial statements prepared in accordance with a financial reporting framework established by the Cooperative Development Authority
b. Pro-forma financial statements designed to demonstrate the effect of hypothetical transactions
c. Feasibility studies presented to illustrate an entity's results of operations
d. Interim financial information reviewed to determine whether material modifications should be made to the financial statements to conform with PFRS
a
142
Which statement is correct regarding report on a component of financial statements?
a. This type of engagement may be undertaken as a separate engagement or in conjunction with an audit of the entity's financial statements
b. In determining the scope of the engagement, the auditor need not consider those financial statement items that are interrelated and which could materially affect the information on which the audit opinion is to be expressed
c. The auditor's examination will ordinarily be less extensive than if the same component were to be audited in connection with a report on the financial statements
d. When an adverse opinion or disclaimer of opinion on the entire financial statements has been issued, the auditor may report on components of the financial statements even if those components are so extensive as to constitute a major portion of the financial statements
a
143
Which of the following statements is correct with respect to an auditor's report expressing an opinion on a specific element of the financial statements?
a. Materiality must be related to the specific item and not to the financial statements as a whole
b. Such a report can only be issued only if the auditor is also engaged to audit the entire set of financial statements
c. The attention devoted to the specified item is usually less than it would be if the financial statements as a whole were being audited
d. The auditor who has expressed an adverse opinion on the financial statements as a whole cannot express an opinion on a specific element of the financial statement
a
144
An auditor may accept an engagement to report on the summary financial statements provided
a. The auditor has expressed an unmodified opinion on the basic financial statements from which the summary financial statements were derived
b. The auditor has audited the basic financial statements from which the summary financial statements were derived
c. The client takes full responsibility for the adequacy of the procedures to be performed
d. The auditor takes full responsibility for the fair presentation of the summary financial statements
b
145
Which statement is incorrect regarding report on summarized financial statements?
a. Unless the auditor has expressed an audit opinion on the financial statements from which the summarized financial statements were derived, the auditor should not report on summarized financial statements
b. Summarized financial statements are presented in considerably less detail than annual financial statements
c. Summarized financial statements need to be appropriately titled to identify the audited financial statements from which they have been derived
d. Summarized financial statements contain all the information required by the financial reporting framework used for the annual audited financial statements
d
146
The auditor's report on summary financial statements
a. Should state whether the summary financial statements are fairly presented in accordance with PFRS
b. Should state whether the summary financial statements are consistent with the financial statements from which they were derived
c. Should be in the form of a negative assurance
d. Should contain the same type of opinion as the opinion expressed on the basic financial statements from which the summary financial statements were derived
b
147
An auditor who expressed an adverse opinion on the financial statements cannot express an unmodified opinion on the specific element of a financial statement, unless
a. The report on specific element will not be published together with the report on the financial statements
b. The specific element is not a major component of the financial statements
c. Either a or b
d. Both a and b
d
