Chapter13 BW
Chapter13 BW
Chapter13 BW
5. The description of an audit in the scope paragraph of the standard audit report
includes all of the following except:
a. Evaluating the overall financial statement presentation.
b. Assessing control risk.
c. Examining, on a test basis, evidence supporting the amount and disclosures in
the financial statements.
d. Assessing the accounting principles used and significant estimates made by
management.
6. The audit report is normally addressed to the:
Board of directors Stockholders Chair of the Audit Committee
a. No Yes No
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes
7. If comparative financial statements are presented and the present auditor has
audited both years, the auditor should:
a. Reissue the report c. Redate the report
b. Dual date the report d. Update the report
8. In which of the following situations would the auditor appropriately issue a standard
unqualified report with no explanatory paragraph concerning consistency?
a. A change in the method of accounting for specific subsidiaries that comprise the
group of companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that
is generally accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a generally accepted accounting
principle
These sentences
a. disclaim an opinion c. divide responsibility
b. qualify the opinion d. should not be part of the audit report
10. The management of a client company believes that the statement of cash flow is not
a useful document and refuses to include one in the annual report to stockholders.
As a result, the auditor’s opinion should be
a. qualified due to inadequate disclosure c. adverse
b. qualified due to a scope limitation d. unqualified
11. An auditor’s opinion reads as follows: “In our opinion, except for the above-
mentioned limitation on the scope of our audit…” This is an example of a(n)
a. review opinion c. qualified opinion
b. emphasis on a matter d. unacceptable reporting practice
12. Eagle Company’s financial statements contain a departure from generally accepted
accounting principles because, due to unusual circumstances, the
statements would otherwise be misleading. The auditor should express an
opinion that is
a. Qualified and describe the departure in a separate paragraph.
b. Unqualified but not mention the departure in the auditor’s report.
c. Qualified or adverse, depending on materiality, and describe the departure in a
separate paragraph.
d. Unqualified and describe the departure in a separate paragraph.
13. An auditor is unable to determine the amounts associated with illegal acts
committed by a client. The auditor would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion.
15. If management fails to provide adequate justification for a change from one generally
accepted accounting principle to another, the auditor should
a. Add an explanatory paragraph and express a qualified or an adverse opinion
for lack of conformity with generally accepted accounting principles.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate explanatory paragraph(s) but not modify the
opinion paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are
generally accepted.
19. When management prepares financial statements on the basis of a going concern
and the auditor believes the company may not continue as a going concern, the
auditor should issue a(n)
a. qualified opinion
b. unqualified opinion with an explanatory paragraph
c. disclaimer of opinion
d. adverse opinion
20. A dual dated report contains the dates of a subsequent event and the date the:
a. Auditor completed work in the client’s office
b. Financial statements were prepared
c. Subsequent event was resolved
d. Audit report was delivered
21. If the principal auditor decides to take responsibility for the work of other auditors, the
principal auditor should:
a. Modify the opening paragraph c. Modify all three paragraphs
b. Modify the opening and opinion paragraphs d. Issue a standard report
1. Which of the following parties is responsible for the fairness of the representation
made in financial statements?
a. Client’s Management
b. Independent Auditor
c. Audit Committee
d. PICPA
2. Which of the following statement is not correct about the unmodified audit report on
the financial statement?
a. The auditor’s report shall include a section with a heading “Management ‘s
responsibility for the financial statements”
b. The auditor’s report shall include a section with a heading “Auditor’s
Responsibility”
c. The auditor’s report shall include a section with a heading “Basis for Opinion”
d. The auditor’s report shall include a section with a heading “Opinion”
3. The auditor’s judgment as to whether the financial statements are presented fairly,
in all material respects, is made in the context of
a. Philippine Standards on Auditing
b. Applicable financial reporting framework.
c. The professional ethical requirements.
d. Generally accepted auditing standards
4. The element of the auditor’s report that identifies the financial statement audited is
the
a. Title
b. Introductory paragraph
c. Management’s responsibility
d. Opinion paragraph
5. 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
7. Which of the following is not one of the elements of the auditor’s report?
a. Auditor’s address
b. Date of the Auditor’s report
c. Emphasis of matter
d. Auditor’s signature
9. The adverse opinion report will be issued by the independent auditor when he/she
a. Suspects the client has not followed the identified financial reporting framework
b. Suspects 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 PSAs were not followed
10. If the auditor’s believes that a required material disclosure is omitted from the
financial statements, the auditor should decide between issuing, a (an)
a. Qualified opinion or an adverse opinion
b. Disclaimer of opinion or a qualified opinion
c. Adverse opinion or disclaimer opinion
d. Unmodified opinion or a qualified opinion
11. In which of the following situation would a decision of selecting between qualified or
adverse opinions be inappropriate?
a. A limitation in 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 research and development costs.
d. A required disclosure that is significant is omitted from the financial statements.
12. The qualified opinion report will be issued by the independent auditor when, in the
auditor’s judgment, the effect 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
13. 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(an)
a. Qualified opinion
b. Report with Emphasis of a Matter Paragraph
c. Disclaimer of opinion
d. Adverse opinion
14. 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
RESA
1. The phrase “the financial statements do not present fairly in all material respects the
financial position, results of operation, and cash flows in conformity with GAAP”
indicates:
a. An unqualified opinion c. An adverse opinion
b. A qualified opinion d. A disclaimer of opinion
2. The phrase “Except for the possible effects of the matters…the financial statements
present fairly in all material respects the financial position, result of operations, and
cash flows in conformity with GAAP” indicates:
a. An unqualified opinion c. An adverse opinion
b. A qualified opinion d. A disclaimer of opinion
4. Pervasive effects on the financial statements are those that, in the auditor’s
judgment:
a. Are not confined to specific elements, accounts or items of the financial
statements
b. If so confined, represent or could present a substantial proportion of the financial
statements
c. In relation to disclosures, are fundamental to users, understanding of the financial
statements
d. All of the choices
5. An auditor is unable to determine the amounts associated with illegal acts committed
by a client. The auditor would most likely issue:
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion
6. Chris, CPA, was engaged to audit the financial statements of Ube Company after its
fiscal year had ended. The timing of Chris’ appointment as auditor and the start of
field work made confirmation of accounts receivable by direct communication with the
debtors ineffective. However, Chris applied other audit procedures and was satisfied
as to the reasonableness of the account balances. Chris’ auditor’s report most likely
contained a(n):
a. Unqualified opinion
b. Unqualified opinion with an emphasis of a matter paragraph.
c. Qualified opinion because of inability to obtain sufficient appropriate audit
evidence.
d. Qualified opinion because of a departure from PSAs.
7. Suppose that in number 6, Chris was unable to obtain sufficient appropriate audit
evidence, since he is unable to perform alternative procedures. Accordingly (select
the correct statement):
a. If Chris concludes that the possible effects on the financial statement of
undetected misstatements, if any, could be material but not pervasive, Chris shall
disclaim an opinion.
b. If Chris concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive so that a
qualifiacation of the opinion would be inadequate to communicate the gravity of
the situation, Chris shall give an adverse opinion.
c. If Chris concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive so that a
qualification of the opinion would be inadequate to communicate the gravity of the
situation, Chris shall resign from the audit, where practicable and prohibited by
law or regulation.
d. If Chris concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material but not pervasive, Chris
shall give an adverse opinion.
9. An auditor who concludes that a material (but not pervasive) uncertainty is not
adequately disclosed in the financial statements should issue a(n):
a. An unqualified opinion c. An adverse opinion
b. A qualified opinion d. A disclaimer of opinion
10. An auditor has concluded that fraud or error has a material effect on the financial
statements. The fraud/ error has not been corrected and reflected in the financial
statements. In this case, the pervasiveness of the effect of fraud and error will
determine the opinion. Accordingly, the auditor should issue a(n):
a. Unqualified opinion with emphasis of matter.
b. Adverse or disclaimer of opinion.
c. Qualified or disclaimer of opinion
d. Qualified or adverse opinion
11. In which of the following situations would the auditor appropriately issue a standard
unqualified report with no emphasis of matter paragraph concerning consistency?
a. A change in the method of accounting for specific subsidiaries that comprise the
group of companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that
is generally accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a generally accepted accounting
principle.
12. If management fails to provide adequate justification for a change from one generally
accepted accounting principle to another, the auditor should:
a. Add a basis for modification paragraph and express a qualified or adverse
opinion for lack of conformity with the applicable financial reporting framework.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate emphasis of matter paragraph(s) but not modify
the opinion paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are
generally accepted.
13. An entity or business activity for which group or component management prepares
financial information that should be included in the group financial statements.
a. Component c. Responsibility center
b. Division d. Activity group
14. An auditor who, at the request of the group engagement team, performs work on
financial information related to a component for the group audit.
a. Successor auditor c. Specialist or expert
b. Component auditor d. Auxiliary auditor
15. The partner or other person in the firm who is responsible for the group audit
engagement and its performance, and for the auditor’s report on the group financial
statement that is issued on behalf of the firm.
a. Lead partner c. Group engagement partner
b. Managing partner d. Joint engagement partner
16. When other information contradicts information contained in the audited financial
statement, it is known as a(n):
a. Misstatement c. Uncertainty
b. Inconsistency d. Departure from PFRS
PRTC
1. What audit opinion would be appropriate when the auditor has formed an opinion that
the financial statements are not fairly presented in all material respects due to a
departure from GAAP?
a. Unqualified
b. Qualified
c. Adverse
d. Denial
2. If the scope of the examination has been satisfactory for all items except for one of
material amount, the auditor should issue a (an)
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
3. Which of the following would require a denial (disclaimer) of the audit opinion?
a. There is a material misstatement that in the auditor’s opinion will overstate the
value of an investment by P1,000,000.
b. There is a misstatement that id in the range of P200,000 to P300,000 (materiality
is P100,000), but that cannot be calculated exactly because it involves an
estimate.
c. The auditor concludes that there is a going concern issue for the audited
company.
d. The auditor was not appointed as the auditor until after year end, after the
inventory count, and was unable to satisfy herself concerning inventory values by
other means.
6. What happens to the sufficiency of audit evidence collected if in the final review new
information causes the engagement partner to decide that a lower materiality
threshold is required and as a result the partner reduces planning materiality for the
audit?
a. More evidence may be required
b. Less evidence may be required
c. The client may be asked to make correcting entries
d. Both A and C
7. Which of the following is not a required communication with the audit committee?
a. Accounting polices
b. Accounting estimates
c. Economic trends
d. Difficulties encountered
8. How is the auditor’s report on the financial statements that require final approval by
stockholders before such financial statements are issued to the public dated?
a. The auditor’s report should be dated coinciding the date of approval of the
financial statements by the stockholders.
b. The auditor’s report should be dated after the approval of the financial statements
by the stockholders.
c. The date of the auditor’s report coincides the date of approval of the financial
statements by the board of directors.
d. The audit report should be dual dated, the first date coinciding the approval by
the board of directors and the second date to coincide with the approval by the
stockholders.
10. The audit report issued by Lozano and Co., CPAs, included the following paragraph
that followed the opinion paragraph:
Without qualifying our opinion we draw attention to Note 11 to the financial
statements. The Company is the defendant in a lawsuit alleging infringement of
certain patent rights. . .
The paragraph is considered
a. An inappropriate reporting practice
b. An additional information to be a part of the notes to financial statements
c. An emphasis of matter regarding uncertainty which is considered an acceptable
reporting practice
d. Inappropriate because it contradicts the unqualified opinion issued by the auditor
11. An explanatory paragraph may be added to the audit report while at the same time
issuing an unqualified opinion in all cases except:
a. The client changed an accounting principle with the agreement of the auditor
b. There is an immaterial departure from PFRS to ensure fair presentation with the
agreement of the auditor
c. The audit opinion is partly based on the work of another auditor
d. The audit work has been materially limited by the management
13. Unaudited financial statements for the prior year presented in comparative form with
audited financial statements for the current year should be clearly marked to indicate
their status and
I. The report on the prior period should be reissued to accompany the current
period report
II. The report on the current period should include as a separate paragraph a
description of the responsibility assumed for the prior period’s financial
statements
a. I only
b. II only
c. Both I and II
d. Either I or II
14. 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
15. When single-year financial statements are presented, an auditor ordinarily would
express an unqualified opinion in an unmodified report if the
a. Auditor is unable to obtain audited financial statements supporting the entity’s
investment in a foreign affiliate
b. Entity declines to present a statement of cash flows with its balance sheet and
related statements of income and retained earnings
c. Auditor wishes to emphasize an accounting matter affecting the comparability of
the financial statements with those of the prior year
d. Prior year’s financial statements were audited by another CPA whose report
expressed an unqualified opinion, is not presented
16. Before reissuing the prior year’s auditor’s report on the financial statements of a
former client, the predecessor auditor should obtain a letter of representation from
Former client’s management Successor auditor
a. Yes Yes
b. Yes No
c. No Yes
d. No No
17. In May 20X9, an auditor reissues the auditor’s report on the 20X7 financial
statements at a continuing client’s request. The 20X7 financial statements are not
restated and the auditor does not revise the wording of the report. The auditor should
a. Dual date the reissued report
b. Use the release date of the reissued report
c. Use the original report date on the reissued report
d. Use the current period auditor’s report date on the reissued report
18. When the audited financial statements are presented in a client’s document
containing other information, the auditor should
a. Perform inquiry and analytical procedures to ascertain whether the other
information is reasonable
b. Add an explanatory paragraph to the auditor’s report without changing the
opinion on the financial statements
c. Perform the appropriate substantive auditing procedures to corroborate the other
information
d. Read the other information to determine that it is consistent with the audited
financial statements
19. 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. Revise the auditor’s report to include a separate explanatory paragraph
describing the material inconsistency
b. Issue an “except for” qualified opinion after discussion the matter with the client’s
board of directors
c. Consider the matter closed since the other information is not in the audited
financial statements
d. Disclaim an opinion on the financial statements after explaining the material
inconsistency in a separate explanatory paragraph
20. With regards to how KAM was addressed in the audit, the description may include
the following, except:
a. Aspects of the auditor’s response or approach and brief overview of procedures
performed
b. Indication of the outcome of the auditor’s procedures
c. Key observations with respect to the matter
d. None of the above