AUDIT REPORTS
1. An independent auditor expresses an unqualified opinion. Which of the following
statements is true in relation to the auditor’s opinion?
A. The audit was performed in accordance with the Philippine Standards on Auditing.
B. The financial statements of the client are accurate and free of errors.
C. The client entity was free of fraud and error.
D. The client is a profitable and viable entity.
2. If a company’s external auditor expresses an unqualified opinion as a result of the audit
of the company’s financial statements, readers of the audit report can assume that:
A. The external auditor found no fraud.
B. The company is financial sound and the financial statements are accurate.
C. Internal control is effective.
D. All material disagreements between the company and the external auditor about the
application of accounting principles were resolved in the satisfaction of the external
auditor.
3. The audit report is normally addressed to the:
A. Board of directors and shareholders.
B. Board of directors and the chair of the audit committee.
C. Board of directors, shareholders, and the chair of the audit committee.
D. Shareholders and the chair of the audit committee.
4. A statement that the auditor’s responsibility is to express an opinion on the financial
statements is contained in the:
A. Opening paragraph C. Management responsibility
paragraph
B. Auditor responsibility paragraph D. Opinion paragraph
5. The description of an audit in the auditor’s responsibility 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 independent auditor refers to both GAAP and GAAS when writing the standard audit
report. These terms are mentioned in which paragraph?
Auditor’s Management’s
Responsibility responsibility Opinion
A. GAAP GAAP GAAS
B. GAAS GAAS GAAP
C. GAAP GAAP GAAP
D. GAAS GAAP GAAP
7. The expression “financial statements, taken as a whole” applies:
A. Equally to a complete set of financial statements and to an individual financial
statement.
B. Only to a complete set of financial statements.
C. Equally to each item in each financial statement.
D. Equally to each material item in each financial statement.
8. An audit report should be dated no earlier than the date:
A. The report is delivered to the entity audited.
B. The auditor has obtained sufficient, appropriate audit evidence.
C. Of the balance sheet for the latest period reported on.
D. A letter of audit inquiry is received from the entity’s attorney of record.
9. Which of the following statements is correct with respect to the explanatory paragraph?
A. They always precede the opinion paragraph.
B. They always follow the opinion paragraph.
C. Sometimes they precede and sometimes they follow the opinion paragraph.
D. They always precede the scope paragraph.
10. An explanatory paragraph following an opinion paragraph describes an uncertainty as
follows:
As discussed in Note X to the financial statements, the company is a defendant in a
lawsuit alleging infringement of certain patent rights and claiming damages. Discovery
proceedings are in progress. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result upon adjudication
has been made in the accompanying financial statements.
What type of opinion should the auditor express in this circumstance?
A. Unqualified C. Disclaimer
B. Qualified D. Adverse
11. An auditor’s report includes a statement that “the financial statements do not present
fairly the financial position in accordance with the Philippine Financial Reporting
Standards.” This auditor’s report was probably issued in connection with financial
statements that were
A. Prepared on a comprehensive basis for accounting other than PFRS.
B. Restricted for use by management.
C. Misleading.
D. Condensed.
12. Which of the following statements indicates a qualified opinion?
A. The financial statements do not present fairly in all material respects the financial
position, results of operations, and cash flows in conformity with GAAP.
B. The auditor does not express an opinion on the financial statements.
C. The financial statements present fairly in all material respects the financial position,
results of operations, and cash flows in conformity with GAAP.
D. Except for the effects of a matter, the financial statements present fairly in all
material respects the financial position, results of operations, and cash flows in
conformity with GAAP.
13. An auditor’s report that refers to a departure from generally accepted accounting
principles includes the language, “In our opinion, with the foregoing explanation, the
financial statements referred to above present fairly…” This is a(n)
A. Adverse opinion
B. Qualified opinion
C. Unqualified opinion with emphasis of a matter paragraph.
D. Example of inappropriate reporting.
14. An auditor is confronted with an exception sufficiently material to warrant departing
from the standard wording of an unqualified report. If the exception relates to a
departure from the generally accepted accounting principles, the auditor must decide
between a(n):
A. Adverse opinion and an unqualified opinion.
B. Adverse opinion and a qualified opinion.
C. Adverse opinion and disclaimer of opinion.
D. Disclaimer of opinion and qualified opinion.
15. 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 auditor should issue a(n):
A. Unqualified opinion with explanatory paragraph
B. Adverse or disclaimer of opinion
C. Qualified or disclaimer of opinion
D. Qualified or adverse opinion
16. An auditor is unable to determine the amounts associated with illegal acts committed by
a client. The auditor would most likely issue a(n):
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
17. A limitation on the scope of an audit sufficient to preclude an unqualified opinion will
always result when management:
A. Engages the auditor after the year-end physical inventory count is completed.
B. Fails to correct a material internal control weakness that had been identified during
the prior year’s audit.
C. Refuses to furnish a management representation letter to the auditor.
D. Prevents the auditor from reviewing the working papers of the predecessor auditor.
18. 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. Unqualified opinion
B. Unqualified opinion with explanatory paragraph
C. Qualified or adverse opinion
D. Disclaimer of opinion
19. Under which of the following sets of circumstances might an auditor disclaim an
opinion?
A. The financial statements contain a departure from GAAP, the effect of which is
material.
B. The principal auditor decides to make reference to the report of another auditor
who audited a subsidiary.
C. There has been a material change between periods in the method of the application
of accounting principles.
D. There were significant limitations on the scope of the audit.
20. The following will usually result in a modified report but will not affect the auditor’s
opinion,
A. There is a disagreement with management regarding the acceptability of the
accounting policies selected.
B. There is a significant uncertainty (other than a going concern problem), the
resolution of which is dependent upon future events and which may affect the
financial statements.
C. Inclusion of an emphasis of a matter paragraph after the opinion paragraph.
D. Existence of a going concern problem.
21. When an auditor expresses an opinion other than unqualified opinion, a clear
description of all substantive reasons for the modification of the opinion should be
included in the report. This explanations should be presented:
A. As a separate paragraph that preceded the opinion paragraph of the audit report.
B. As a separate paragraph. Preferably after the opinion paragraph, of the audit report.
C. In the opinion paragraph.
D. As a separate paragraph in the notes to the financial statements.
22. Chris, CPA, was engaged to audit the financial statements of Ube Ice Cream Company
after its fiscal year has 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’ audit report most likely
contained a(n):
A. Unqualified opinion.
B. Unqualified opinion with an explanatory paragraph.
C. Qualified opinion because of a scope limitation.
D. Qualified opinion because of a departure from GAAS.
23. Both disclaimers and adverse opinions are used
A. Only when the condition is highly material.
B. Whether the condition is material or not.
C. Irregardless of the auditor’s independence.
D. Irregardless of client’s choice of a non-GAAP accounting method.
24. Which of the following modifications of the standard auditor’s report does not require
an explanatory paragraph?
A. Reference to other auditors. C. Scope limitation.
B. Inconsistency. D. Adverse opinion.
25. An auditor’s report contains the following sentences:
We did not audit the financial statements of B Company, a consolidated subsidiary,
whose statements reflect total assets and revenues constituting 20 % and 22 %
respectively of the related consolidated totals. These statements were audited by other
auditors, whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for B Company, is based solely upon the report of the auditors.
These sentences:
A. Disclaim an opinion C. Divide responsibility
B. Qualify the opinion D. Should not be part of the audit
report.
26. In the auditor’s report, the principal auditor decides not to make reference to another
CPA who audited a client’s subsidiary. The principal auditor could justify this decision if,
among other requirements, the principal auditor:
A. Expresses an unqualified opinion on the consolidated financial statements.
B. Learns that the other CPA expressed an unqualified opinion on the subsidiary’s
financial statements.
C. Is unable to review the audit programs and working papers of the other CPA.
D. Is satisfied as to the independence requirements and professional reputation of
other CPA.
27. Which of the following will not result in modifications of the auditor’s report?
A. Restrictions imposed by the client.
B. Reliance placed on the report of another auditor.
C. Inability to obtain sufficient competent evidential matter.
D. Inadequacy in the accounting records.
28. An auditor used the services of an expert during the audit of a client’s financial
statements. When issuing an unmodified auditor’s report, the auditor should:
A. Mention the expert and justify the use of the expert’s services.
B. Not mention the expert in the opinion and instead disclose the expert in the notes.
C. Not mention the expert as this might mislead financial statement users.
D. Mention the expert in both the audit report and the notes to the financial
statements.
29. Aljon, CPA, has audited Bona Semiconductors, Inc. During the course of the audit, Aljon
enlisted the services of Shirley, an expert on electronics. As a result of Shirley’s services,
Aljon issued a modified report. While drafting the explanation to the modification, Aljon
decided that reference to the expert is required. In these circumstances,
A. Aljon should obtain the permission of Shirley before making such a reference.
B. Aljon may refer to the Shirley without permission, but Shirley’s identity must be
concealed.
C. Aljon should seek legal advice on whether to reference to the Shirley.
D. Aljon cannot refer to Shirley under any circumstance.
30. Hill, CPA, has finished his audit procedures concerning the opening balances of Burr, an
initial audit client. Hill was unable to obtain sufficient appropriate audit evidence
concerning opening balances. Based solely on the above information, the audit report to
be issued most likely contained:
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.
31. During the 2006 audit of Shall Company, audit findings were summarized by Gates, CPA,
as follows:
The opening balances contain misstatements which materially affect the current period’s
financial statements. Management has not properly accounted for these misstatements,
nor are these misstatements adequately disclosed.
Based solely on the above information, the audit report to be issued most likely
contained:
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.
32. 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.
33. If an amendment to other information in a document containing audited financial
statements is necessary and the entity refuses to make the amendment, the auditor
would consider issuing:
A. Unqualified opinion with an explanatory paragraph.
B. Adverse or disclaimer of opinion.
C. Qualified or disclaimer of opinion.
D. Qualified or adverse opinion.
34. If an accounting change has no material effect on the financial statements in the current
year but the change is reasonably certain to have a material effect in later years, the
change should be
A. Treated as a consistency modification in the auditor’s report for the current year.
B. Disclosed in the notes to the financial statement of the current year.
C. Disclosed in the notes to financial statements and referred to in the audit report for
the current year.
D. Treated as a subsequent event.
35. Which of the following procedures should an auditor ordinarily perform regarding
subsequent events?
A. Compare the latest available interim financial statements with the financial
statements being audited.
B. Send second requests to the client’s customer who failed to respond to initial
accounts receivable confirmation requests.
C. Communicate material weaknesses in the internal control to the client’s audit
committee.
D. Review the cutoff bank statements for several months after the year-end.
36. An auditor is performing procedures for subsequent events and noted an item which
requires the amendment of the financial statements. The auditor’s report has not yet
been released to the entity. Management did not make the necessary amendments. In
this situation, the auditor should not release the original audit report and instead issue a
new report. This time, the auditor should express a(n):
A. Qualified or adverse opinion.
B. Qualified or disclaimer of opinion.
C. Unqualified opinion with explanatory paragraph
D. Unqualified opinion.
37. After issuing a report, an auditor has no obligation to make continuing inquiries or
perform other procedures concerning audited financial statements, unless:
A. The control environment changes after issuance of the report.
B. Information about an event that occurred after the end of field work comes to the
auditor’s attention.
C. Information, which existed at the report date and may affect the report, comes to
the auditor’s attention.
D. Final determinations or resolutions are made of contingencies that had been
disclosed in the financial statements.
38. Subsequent, to the issuance of audited financial statements, Blue, CPA, becomes aware
of material misstatements in the financial statements that exist prior to the date of his
audit report. In this case, Blue should:
A. Notify the parties who are currently relying on the financial statements.
B. Discuss the matter with management, and where necessary, recommend that the
financial statements be revised in light of the new information obtained.
C. Document such information in the audit plan for succeeding audit.
D. Submit revised copies of the financial statements and audit report to shareholders.
39. A dual-dated report contains the dates of a subsequent event and the date the:
A. Auditor completed work in the client’s office. C. Subsequent event was resolved.
B. Financial statements were prepared. D. Audit report was delivered.
40. Whiskey, CPA, dated her audit report (on a client’s 2006 financial statements) as of
February 10, 2007, except for Note J, as to which the date is March 3, 2007. In this case,
whiskey is taking responsibility for:
A. All subsequent events occurring through March 3, 2007.
B. All subsequent events occurring through February 10, 2007 only.
C. All subsequent events occurring through February 10, 2007, and the specific
subsequent event referred to in Note J through March 3, 2007.
D. Only the specific subsequent event referred to in Note J through March 3, 2007.
41. An auditor completed field work on February 10, 2006 for a December 31, 2005 year-
end client. A significant subsequent event occurred on February 22, 2006. In this case,
which of the following report dates would not be appropriate?
A. February 10, 2006
B. February 10, except Note 1, February 22, 2006.
C. February 22, 2006.
D. December 3, 2005
42. In which of the following circumstances would an auditor most likely add an explanatory
paragraph to the standard report while expressing an unqualified opinion?
A. The auditor is asked to report on the balance sheet, but not on the other basic
financial statements.
B. There is a substantial doubt about the entity’s ability to continue as a going concern.
C. Management’s estimates of the effects of future events are unreasonable.
D. Certain transactions cannot be tested because of management’s record retention
policy.
43. Harbor, CPA, concludes that there is substantial doubt about KITCHEN KING COMPANY’s
ability to continue a going concern. If Kitchen King’s financial statements adequately
disclose its financial condition, Harbor’s audit report should:
Include an emphasis of
A matter paragraph Specifically use the Specifically use the
Following the opinion words “going words “substantial
Paragraph concern” doubt”
A. YES YES YES
B. YES YES NO
C. YES NO YES
D. NO YES YES
44. If adequate disclosure is not made by the entity regarding substantial doubt about its
ability to continue as a going concern the auditor should include in his report specific
reference to the substantial doubt as to ability of the company to continue as a going
concern and should express:
A. Unqualified opinion with explanatory paragraph
B. A subject to qualified opinion or adverse opinion.
C. Either an “except for” qualified opinion or an adverse opinion.
D. A disclaimer of opinion.
45. If, in the auditor’s judgment, the entity will not be able to continue as a going concern,
and the financial statements have been prepared on a going concern basis, the auditor
should express:
A. A qualified or an adverse opinion C. An adverse opinion
B. A qualified or a disclaimer of opinion D. A disclaimer of opinion
46. 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 explanatory paragraph
C. Disclaimer of opinion
D. Adverse opinion
47. Which statement is incorrect regarding PSA 710, Comparatives?
A. The auditor is required to determine whether the comparatives comply in all
material respects with GAAP relevant to the financial statements being audited.
B. There are two broad financial reporting frameworks for comparatives: the
corresponding figures and the comparative financial statements.
C. Under the comparative financial statements framework, the comparative financial
statements for the prior period(s) are considered separate financial statements.
D. Under the corresponding figures framework, the corresponding figures for the prior
period(s) are not an integral part of the current period financial statements and may
be read without reference to amounts and other disclosures relating to the current
period.
48. Which statement is incorrect regarding corresponding figures?
A. The corresponding figures are not presented as complete financial statements
capable of standing alone.
B. The level of detail presented in the corresponding amounts and disclosures is
dictated primarily by its relevance to the current period figures.
C. The auditor’s report refers only to the financial statements of the current period.
D. The auditor’s report refers to each period that financial statements are presented.
49. If comparative financial statements are presented and the present auditor has audited
both years, the auditor should:
A. Reissue the report. C. Update the report.
B. Redate the report. D. Dual-date the report.
50. In case the prior period financial statements were audited by another auditor and the
incoming auditor decides to refer to another auditor, the incoming auditor’s report
should indicate:
A B C D
That the financial statements of the prior period were Yes Yes Yes Yes
Audited by another auditor.
The type of report issued by the predecessor auditor Yes No No Yes
And, if the report was modified, the reasons therefore.
The date of the report. Yes Yes No No
