DE LA SALLE UNIVERSITY MANILA

RVR COB DEPARTMENT OF ACCOUNTANCY

REVDEVT 1st Term AY 14-15

Auditing Theory
Prof. Francis H. Villamin
AT Quizzer 14
==============================================================================

FORMING AN OPINION AND REPORTING ON F/S

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

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 2

7. Which of the following statements best expresses the objective of the traditional audit of financial
statements?
a. To express an opinion on the fairness with which the statements present financial position,
financial performance and cash flows in accordance with Philippine Financial Reporting
Standards.
b. To express an opinion on the accuracy with which the statements present financial position,
financial performance, and cash flows in accordance with Philippine Financial Reporting
Standards.
c. To make suggestions as to the form or content of the financial statements or to draft them in
whole or in part.
d. To assure adoption of sound accounting policies and the establishment and maintenance of
internal control.
8. Which of the following best describes why an independent auditor is asked to express an opinion
on the fair presentation of financial statements?
a. It is a customary courtesy that all shareholders receive an independent report on
managements stewardship in managing the affairs of the business.
b. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements.
c. It is difficult to prepare financial statements that fairly present a companys financial position,
financial performance, and cash flows without the expertise of an independent auditor.
d. It is managements responsibility to seek available independent aid in the appraisal of the
financial information shown in its financial statements.
9. How are managements responsibility and the auditors responsibility represented in the auditors
report?
Managements
Auditors
Responsibility
Responsibility
a.
Implicitly
Implicitly
b.
Implicitly
Explicitly
c.
Explicitly
Implicitly
d.
Explicitly
Explicitly
10. In which of the following circumstances would an auditor most likely add an emphasis of matter
paragraph to the auditors report while expressing an unqualified opinion?
a. There is a substantial doubt about the entitys ability to continue as a going concern.
b. Managements estimates of the effects of future events are unreasonable.
c. No depreciation has been provided in the financial statements.
d. Certain transactions cannot be tested because of managements records retention policy.
11. An emphasis of matter paragraph of an auditors report describes an uncertainty as follows:
Without qualifying our opinion, we draw attention to Note X to the financial statements.
The Company is the defendant in a lawsuit alleging infringement of certain patent rights
and claiming royalties and punitive damages. The Company has filed a counter action
and preliminary hearings and discovery proceedings on both actions are in progress. The
ultimate outcome of the matter cannot presently be determined, and no provision for any
liability that may result has been made in the financial statements.
What type of opinion should the auditor express under these circumstances?
a. Unqualified
b. Except for qualified
c. Subject to qualified
d. Disclaimer
12. An auditors responsibility to express an opinion on the financial statements is
a. Implicitly represented in the auditors report.
b. Explicitly represented in the Auditors Responsibility paragraph of the auditors report.
c. Explicitly represented in the Managements Responsibility paragraph of the auditors report.
d. Explicitly represented in the opinion paragraph of the auditors report.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 3

13. The existence of audit risk is recognized by the statement in the auditors report that the auditor
a. Is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.
b. Realizes some matters, either individually or in the aggregate, are important while other
matters are not important.
c. Obtains reasonable assurance about whether the financial statements are free of material
misstatement.
d. Assesses the accounting principles used and also evaluates the overall financial statements
presentation.
14. Which of the following statements is a basic element of the auditors report?
a. The auditor is responsible for the preparation and fair presentation of the financial statements.
b. The financial statements are consistent with those of the prior period.
c. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements.
d. The disclosures provide reasonable assurance that the financial statements are free of
material misstatement.
15. Which paragraphs of an auditors report on financial statements should refer to Philippine
Financial Reporting Standards?
a. Introductory and Opinion
b. Auditors Responsibility and Managements Responsibility
c. Introductory and Auditors Responsibility
d. Managements Responsibility and Opinion
16. An independent auditor discovers that a payroll supervisor of the company being audited has
misappropriated P50,000. The companys total assets and income before tax are P70 million and
P15 million, respectively. Assuming no other issues affect the report, the auditors report will most
likely contain a/an
a. Unqualified opinion
b. Disclaimer of opinion
c. Adverse opinion
d. Scope qualification
17. A client makes test counts on the basis of a statistical plan. The auditor observes such counts as
are deemed necessary and is able to become satisfied as to the reliability of the clients
procedures. In reporting on the results of the audit, the auditor
a. Must qualify the opinion if the inventories were material.
b. Can express an unqualified opinion.
c. Must comment in an emphasis of matter paragraph as to the inability to observe year-end
inventories.
d. Is required to disclaim an opinion if the inventories were material.
18. A note to the financial statements of the Prudent Bank indicates that all of the records relating to
the banks business operations are stored on magnetic disks, and that no emergency backup
systems or duplicate disks are stored because the bank and its auditors consider the occurrence
of a catastrophe to be remote. Based upon this note, the auditors report should express
a. A qualified opinion
b. An unqualified opinion
c. An adverse opinion
d. A subject to opinion
19. An auditor who uses the work of an expert may refer to and identify the expert in the auditors
report if the
a. Expert is employed by the entity.
b. Experts work provides the auditor greater assurance of reliability.
c. Auditor expresses a qualified opinion or an adverse opinion related to the work of the expert.
d. Auditor indicates a division of responsibility related to the work of the expert.
20. When would the auditor refer to the work of an appraiser in the auditors report?
a. An adverse opinion is expressed based on a difference of opinion between the client and the
outside appraiser as to the value of certain assets.
b. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by
the appraiser.
c. A qualified opinion is expressed because of a matter unrelated to the work of an appraiser.
d. An unqualified opinion is expressed and an emphasis of matter paragraph is added to disclose
the use of the appraisers work.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 4

21. When two or more auditing firms participate in an audit, one firm should be the principal auditor. If
the principal auditor makes reference to another auditor in an audit that would otherwise result in
an unqualified opinion, the type of audit report issued should be
a. A disclaimer of opinion
b. A qualified opinion
c. An unqualified opinion
d. An adverse opinion
22. Mr. X is auditing the consolidated financial statements of ABC Corp., a publicly held corporation.
Mr. Z is the auditor who has audited and reported on the financial statements of a wholly owned
subsidiary of ABC Corp. Mr. Xs first concern with respect to the ABCs financial statements is to
decide whether he
a. May serve as the principal auditor and report as such on the consolidated financial statements
of ABC Corp.
b. Should resign from the engagement because an unqualified opinion cannot be expressed on
the consolidated financial statements.
c. May refer to the work of Mr. Z in her report on the consolidated financial statements.
d. Should review the working papers of Mr. Z with respect to the audit of the subsidiarys financial
statements.
23. An auditors report contains the following: We did not audit the financial statements of LMN
Company, a wholly owned subsidiary, which statements reflect total assets and revenues
constituting 17% and 19%, respectively, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for LMN Company, is based solely on the report of the other
auditors. These sentences
a. Disclaim an opinion
b. Divide responsibility
c. Are an improper form of reporting
d. Qualify the opinion
24. When audited financial statements are presented in a document (e.g. annual report) containing
other information, the auditor
a. Should read the other information to consider it is inconsistent with the audited financial
statements.
b. Has no responsibility for the other information because it is not part of the basic financial
statements.
c. Has an obligation to perform auditing procedures to corroborate the other information.
d. Is required to express a qualified opinion if the other information has a material misstatement
of fact.
25. An auditor concludes that there is a material inconsistency in the other information in an annual
report to shareholders containing audited financial statements. If the auditor concludes that the
financial statements do not require revision, but the client refuses to revise or eliminate the
material inconsistency, the auditor may
a. Disclaim an opinion on the financial statements after explaining the material inconsistency in
an emphasis of matter paragraph.
b. Revise the auditors report to include an emphasis of matter paragraph describing the material
inconsistency.
c. Express a qualified opinion after discussing the matter with the clients directors.
d. Consider the matter closed because the other information is not in the audited statements.
26. PSA 720 states, If, on reading the other information, the auditor identifies a material
inconsistency, the auditor should determine whether the audited financial statements or the other
information needs to be amended. What type of opinion should be expressed if the client refuses
to make the necessary amendment in the financial statements?
a. Disclaimer of opinion
b. Qualified opinion or disclaimer of opinion
c. Unqualified opinion with an emphasis of matter paragraph describing the material
inconsistency.
d. Qualified or adverse opinion.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 5

27. An auditor may express a qualified opinion under which of the following circumstances?
Lack of Sufficient
Restriction on the
Appropriate Evidence
Scope of the Audit
a.
No
No
b.
No
Yes
c.
Yes
No
d.
Yes
Yes

28. Which of the following should be included in the opinion paragraph when an auditor expresses a
qualified opinion?
When Read In
With the Foregoing
Conjunction with Note X
Explanation
a.
Yes
No
b.
No
Yes
c.
No
No
d.
Yes
Yes
29. In which of the following circumstances would an auditor usually choose between expressing a
qualified opinion or disclaiming an opinion?
a. Departure from generally accepted accounting principles.
b. Unreasonable justification for a change in accounting principle.
c. Inability to obtain sufficient appropriate audit evidence.
d. Inadequate disclosure of accounting policies.
30. An auditor decides to express a qualified opinion on an entitys financial statements because a
major inadequacy in its computerized accounting records prevents the auditor from applying
necessary procedures. The opinion paragraph of the auditors report should state that the
qualification pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. Inadequate disclosure of necessary information.
d. The possible effects on the financial statements.
31. Mark, CPA, was engaged to audit the financial statements of Apollo Corp. after its fiscal year had
ended. The timing of Marks appointment as auditor and the start of field work made confirmation
of accounts receivable by direct communication with the debtors ineffective. However, Mark
applied other procedures and was satisfied as to the reasonableness of the account balances.
Marks auditors report most likely contained a/an
a. Qualified opinion because of a scope limitation.
b. Qualified opinion because of a departure from GAAS.
c. Unqualified opinion.
d. Unqualified opinion with an emphasis of matter paragraph.
32. In which of the following situations would an auditor ordinarily choose between expressing a
qualified opinion or an adverse opinion?
a. The auditor wishes to emphasize an unusually important subsequent event.
b. The financial statements fail to disclose information that is required by Philippine Financial
Reporting Standards.
c. Events disclosed in the financial statements cause the auditor to have substantial doubt about
the entitys ability to continue as a going concern.
d. The auditor did not observe the entitys physical inventory and is unable to become satisfied
as to its balance by other auditing procedures.
33. Under which of the following circumstances would a disclaimer of opinion not be appropriate?
a. The financial statements fail to contain adequate disclosure concerning related party
transactions.
b. The auditor is engaged after fiscal year-end and is unable to observe the physical inventories
or apply alternative procedures to verify their balances.
c. The auditor is unable to determine the amounts associated with fraud committed by the clients
management.
d. The client refuses to permit its attorney to furnish information requested in a letter of audit
inquiry.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 6

34. When a publicly held company refuses to include in its audited financial statements any of the
segment information that the auditor believes is required, the auditor should express a/an
a. Disclaimer of opinion because of the significant scope limitation.
b. Adverse opinion because of a significant uncertainty.
c. Unqualified opinion with an emphasis of matter paragraph emphasizing the matter.
d. Qualified opinion because of inadequate disclosure.
RPCA Examination
1. An auditors report on financial statements prepared in accordance with another comprehensive
basis of accounting should include all of the following except
a. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
b. An opinion as to whether the financial statements are presented fairly in conformity with the
other comprehensive basis of accounting.
c. Reference to the note to financial statements that describe the basis of presentation.
d. A statement that the basis of presentation is a comprehensive basis of accounting other than
generally accepted accounting principles.
2. When reporting on financial statements prepared on the same basis of accounting used for in
come tax purposes, the auditor should include in the report a paragraph that
a.
Emphasizes that the financial statements are not intended to have been examined in
accordance with generally accepted auditing standards.
b. Refers to the authoritative pronouncements that explain the income tax basis of accounting
being used.
c. States that the income tax basis of accounting is a comprehensive basis of accounting being
used.
d. Justifies the use of the income tax basis of accounting.
3. The existence of audit risk is recognized by the statement in the auditors standard report that the
auditor
a. Obtains reasonable assurance about whether the financial statements are free of material
misstatement.
b. Assesses the accounting principles used and also evaluates the overall financial statement
presentation.
c. Realizes some matters, either individually or in the aggregate, are important while other
matters are not important.
d. Is responsible for expressing an opinion on the financial statements that are the responsibility
of management.
4. An auditor may reasonably issue a qualified opinion for
Scope
Unjustified
Limitation
accounting change
a.
Yes
No
b.
No
Yes
c.
Yes
Yes
d.
No
No
5. Soyuz Co., a nonprofit entity prepared its financial statements on an accounting basis prescribed
by a regulatory agency solely for filing with that agency. Ronald audited the financial statements
in accordance with generally accepted auditing standards and concluded that the financial
statements were fairly presented on the prescribed basis. Ronald should issue a
a. Qualified opinion
b. Standard three paragraph report with reference to footnote disclosure.
c. Disclaimer of opinion.
d. Special report.
6. The following explanatory paragraph was included in an auditors report to indicate a lack of
consistency.
As discussed in Note 5 to the financial statements, the company changed its method of computing
depreciation in 20x4.
How should the auditor report on this matter if the auditor concurred with the change.
Type of
Location of
Opinion
Opinion
a.
b.

Unqualified
Unqualified

Before opinion paragraph

After opinion paragraph

 Reports on Audited FS & Special Reporting Issues

AT Quizzer 14

c.
d.

Qualified
Qualified

Page 7

Before opinion paragraph

After opinion paragraph

7. After issuing a report, an auditor has no obligation to make continuing inquiries or perform other
procedures concerning the auditors financial statements unless
a. Information, which existed at the report date and may affect the report, comes to the auditors
attention.
b. Management of the entity requests the auditor to reissue the auditors report.
c. Information about an event that occurred after the end of fieldwork comes to the auditors
attention.
d. Final determinations or resolutions are made of contingencies that had been disclosed to the
financial statements.
8. An auditor was unable to obtain sufficient competent evidential matter concerning certain
transactions due to an inadequacy in the entitys accounting records. The auditor would choose
between issuing a(n)
a. Qualified opinion and an unqualified opinion with an explanatory paragraph.
b. Unqualified opinion with an explanatory paragraph and an adverse opinion.
c. Adverse opinion and a disclaimer of opinion.
d. Disclaimer of opinion and a qualified opinion.
9. For an entitys financial statements to be presented fairly in conformity with generally accepted
accounting principles, the principles selected should
a. Be applied on a basis consistent with those followed in the prior year.
b. Be approved by the Auditing and Assurance Standards Council or the appropriate industry
subcommittee.
c. Reflect transactions in a manner that presents the financial statements within a range of
acceptable limits.
d. Match the principles used by most other entities within the entitys particular industry.
10. In which of the following situations would a principal auditor least likely make reference to another
auditor who audited a subsidiary of the entity?
a. The other auditor was retained by the principal as auditor and the work was performed under
the principal auditors guidance and control.
b. The principal auditor finds it impracticable to review the other auditors work or otherwise be
satisfied as to the other auditors work.
c. The financial statements audited by the other auditor were material to the consolidated
financial statements covered by the principal auditors opinion.
d. The principal auditor is unable to be satisfied as to the independence and professional
reputation of the other auditor.
11. An auditor issued an audit report that was dual-dated for a subsequent event occurring after the
completion of field work but before issuance of the auditors report. The auditors responsibility for
events occurring subsequent to the completion of field work was
a. Extended to subsequent events occurring through the date of issuance of the auditors report.
b. Extended to include all events occurring since the completion of field work.
c. Limited to the specific event referenced.
d. Limited to include only events occurring up to the date of the last subsequent events
reference.
12. Which of the following phrases should be included in the opinion paragraph when an auditor
expresses a qualified opinion?
When read in
With the
Conjunction with
foregoing
Note X
explanation
a.
b.
c.
d.

Yes
No
Yes
No

No
Yes
Yes
No

13. When an auditor expresses an adverse opinion, the opinion paragraph should include
a. The principal effects of the departure from generally accepted accounting principles.
b. A direct reference to a separate paragraph disclosing the basis for the opinion.
c. The substantive reasons for the financial statements being misleading.
d. A description of the uncertainty or scope limitation that prevents an unqualified opinion.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 8

14. Richard, CPA, concludes that there is substantial doubt about Titan Companys ability to continue
as a going concern. If Janes financial statements adequately disclose its financial difficulties,
Richards auditors report should
Include an explanatory
Specifically use
Specifically use
Paragraph following
the words
the words
The opinion paragraph
going concern
substantial doubt
a.
Yes
Yes
Yes
b.
Yes
Yes
No
c.
Yes
No
Yes
d.
No
Yes
Yes
15. An auditor concludes that there is a substantial doubt about an entitys ability to continue as going
concern for a reasonable period of time. If the entitys disclosures concerning that matter are
adequate, the audit report may include a(n)
Disclaimer
Qualified
of opinion
opinion
a.
Yes
Yes
b.
No
No
c.
No
Yes
d.
Yes
No
16. In which of the following circumstances would an auditor most likely add an explanatory paragraph
to the standard report while not affecting the auditors unqualified opinion?
a. The auditor is asked to report on the balance sheet date, but not on the other basic financial
statements.
b. There is substantial doubt about the entitys ability to continue as a going concern.
c. Managements estimates of the effects of future events are unreasonable.
d. Certain transactions cannot be tested because of managements records retention policy.
17. Henry, CPA, was engaged to audit the financial statements of Rechelen Co. after its fiscal year
had ended. The timing of Henrys appointment as auditor and the start of field work made
confirmation of accounts receivable by direct communication with the debtors ineffective. However,
Henry applied other procedures and was satisfied as to the reasonableness of the account
balances. Henrys auditors report most likely contained a(n)
a. Unqualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Qualified opinion due to scope limitation.
d. Qualified opinion due to a departure from generally accepted accounting principles.
18. Joy, CPA, believes there is a substantial doubt about the ability of Luna Co. to continue as a going
concern for a reasonable period of time. In evaluating Lunas plans for dealing with the adverse
effects of future conditions and events, Joy most likely would consider, as a mitigating factor,
Lunas plans to
a. Accelerate research and development projects related to future products.
b. Accumulate treasury stock at prices favorable to Lunas historic price range.
c. Purchase equipment and production facilities currently being leased.
d. Negotiate reductions in required dividends being paid on preference shares..
19. A limitation on the scope of an audit sufficient to preclude an unqualified opinion will usually result
when management
a. Is unable to obtain audited financial statements supporting the entitys investment in a foreign
subsidiary.
b. Refuses to disclose in the notes to the financial statements related-party transactions
authorized by the board of directors.
c. Does not sign an engagement letter specifying the responsibilities of both the entity and the
auditor.
d. Fails to correct a reportable condition communicated to the audit committee after the prior
years audit.
20. XYZ Life Insurance Co. prepares its financial statements on an accounting basis insurance
companies use pursuant to the rules of the governments insurance commission. If Myrna, CPA,
XYZs auditor, discovers that the statements are not suitably titled, Myrna should
a. Disclose any reservations in an explanatory paragraph and qualify the opinion.
b. Apply to the Insurance Commissioner for an advisory opinion.
c. Issue a special statutory basis report that clearly disclaims any opinion.
d. Explain in the notes to the financial statements the terminology used.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 9

21. When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate
in a separate paragraph why the audit did not comply with generally accepted auditing standards.
The auditor should also omit
Scope
Opinion
Paragraph
Paragraph
a.
No
Yes
b.
Yes
Yes
c.
No
No
d.
Yes
No
22. An auditor decides to issue a qualified opinion on an entitys financial statements because a major
inadequacy in its computerized accounting record prevents the auditor from applying necessary
procedures. The opinion paragraph of the auditors report should state that the qualification
pertains to
a. Client-imposed scope limitation
b. A departure from generally accepted auditing standards
c. The possible effects on the financial statements
d. Inadequate disclosure of the necessary information
23. Which of the following events occurring after the issuance of an auditors report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. A technological development that could affect the entitys future ability to continue as a going
concern.
b. The discovery of information regarding a contingency that existed before the financial
statements were issued.
c. The entitys sale of a subsidiary that accounts for 30% of the entitys consolidated sales.
d. The final resolution of a lawsuit explained in a separate paragraph of the auditors report.
24. A material departure from GAAP will result in auditor consideration of
a. Whether to issue an adverse opinion rather than a disclaimer of opinion.
b. Whether to issue a disclaimer of opinion rather than an except for opinion.
c. Whether to issue an adverse opinion rather than an except for opinion.
d. Nothing, because none of these opinions is applicable to this type of exception.
25. The auditors report should be dated as of the date the
a. Report is delivered to the client.
b. Field work is completed.
c. Fiscal period under audit ends.
d. Review of the working papers is completed.
26. In the report of the principal auditor, reference to the fact that a portion of the audit was made by
another is
a. Not to be construed as a qualification, but rather as a division of responsibility between two
CPA firms.
b. Not in accordance with GAAS.
c. A qualification that lessens the collective responsibility of both CPA firms.
d. An example of a dual opinion requiring the signatures of both auditors.
27. Assume that the opinion paragraph of an auditors report begin as follows: With the explanation
given in Note 6, the financial statements referred to above present fairly. This is:
a. An unqualified opinion.
b. A disclaimer of opinion.
c. An except for opinion.
d. An improper type of reporting.
28. The auditor who wishes to indicate that the entity has significant transactions with related parties
should disclose this fact in
a. An explanatory paragraph to the auditors report.
b. An explanatory note to the financial statements.
c. The body of the financial statements.
d. The summary of significant accounting policies section of the financial statements.
29. When restrictions that significantly limit the scope of the audit are imposed by the client, the
auditor should generally issue which of the following opinions
a. Qualified
b. Disclaimer
c. Adverse
d. Unqualified

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 10

30. A CPA found that the client has not capitalized a material amount of leases in the financial
statements. When considering the materiality of this departure from GAAP, the CPAs reporting
options are
a. Unqualified opinion or disclaimer of opinion
b. Unqualified opinion or qualified opinion
c. Emphasis paragraph with unqualified opinion or an adverse opinion
d. Qualified opinion or adverse opinion
31. An auditor has found that the client is suffering financial difficulty and the going-concern status is
seriously in doubt. Even though the client has placed good disclosures in the financial statements,
the CPA must choose between the following audit report alternatives:
a. Unqualified report with a going-concern explanatory paragraph or disclaimer of opinion.
b. Standard unqualified report or a disclaimer of opinion.
c. Qualified opinion or adverse opinion
d. Standard unqualified report or adverse opinion
32. Frank became the new auditor for Twin Commission succeeding Ronnie, who audited the financial
statements last year. Frank needs to report on Twins comparative financial statements and
should write in his report an explanation about another auditor having audited the prior year.
a. Only if Ronnies opinion last year was qualified.
b. Describing the prior audit and the opinion but not naming Ronnie as the predecessor auditor.
c. Describing the audit but not revealing the type of opinion Ronnie gave.
d. Describing the audit and the opinion and naming Ronnie as the predecessor auditor.
33. When other independent auditors are involved in the current audit of parts of the clients business,
the principal auditor can write an audit report that (two answers)
a. Mentions the other auditor, describes the extent of the other auditors work, and gives an
unqualified opinion.
b. Does not mention the other auditor and gives an unqualified opinion in a standard unqualified
report.
c. Places primary responsibility for the audit report on the other auditors.
d. Names the other auditors, describes their work, and presents only the principal auditors
report.
34. An emphasis of a matter paragraph inserted in a standard audit report causes the report to be
characterized as
a. Unqualified opinion report.
b. Divided responsibility.
c. Adverse opinion report.
d. Disclaimer of opinion.
35. Under which of the following conditions can a disclaimer of opinion never be given?
a. Going-concern problems are overwhelming the company.
b. The client does not let the auditor have access to evidence about important accounts.
c. The auditor owns stock in the client corporation.
d. The auditor has found that the client used the NIFO (next-in, first-out ) inventory costing
method.
36. An entity changed from the straight-line method to the declining balance method of depreciation
for all newly acquired assets. This change has no material effect on the current years financial
statements but is reasonably certain to have a substantial effect in later years. If the change is
disclosed in the notes to the financial statements, the auditor should issue a report with a(n)
a. Except for unqualified opinion
b. Explanatory paragraph
c. Unqualified opinion
d. Consistency modification
37. In which of the following situations would an auditor ordinarily choose between expressing an
except for qualified opinion and expressing an adverse opinion?
a. The auditor did not observe the entitys 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 generally accepted
accounting principles.
c. The auditor is asked to report only on the entitys balance sheet and not on the other basic
financial statements.
d. Events disclosed in the financial statements caused the auditor to have substantial doubt
about the entitys ability to continue as a going concern.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 11

38. Queen Companys 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. Unqualified but not mention the departure in the auditors report.
b. Unqualified and describe the departure in a separate paragraph,
c. Qualified and describe the departure in a separate paragraph.
d. Qualified or adverse, depending on materiality, and describe the departure in a separate
paragraph.
39. An auditor would issue an adverse opinion if
a. The audit was begun by other independent auditors who withdrew from the engagement.
b. A qualified opinion cannot be given because the auditor lacks independence.
c. The restriction on the scope of the audit was significant.
d. The statements taken as a whole do not fairly present the financial condition and results of
operations of the company.
40. In which of the following circumstances would an auditor usually choose between issuing a
qualified opinion and issuing a disclaimer of opinion?
a. Departure from generally accepted accounting principles.
b. Inadequate disclosure of accounting policies.
c. Inability to obtain sufficient competent evidential matter.
d. Unreasonable justification for a change in accounting principle.
41. Valerie, CPA, was engaged to audit the financial statements of GALE Company after its fiscal year
had ended. Valerie neither observed the inventory count nor confirmed the receivables by direct
communications with debtors but was satisfied concerning both after applying alternative
procedures. Valeries auditors report most likely contained a(n)
a. Qualified opinion
b. Disclaimer of opinion.
c. Unqualified opinion.
d. Unqualified opinion with an explanatory paragraph.
42. In which of the following situations would an auditor ordinarily issue an unqualified audit opinion
without an explanatory paragraph?
a. The auditor wishes to emphasize that the entitys had significant related-party transactions.
b. The auditor decides to refer to the report of another auditor as a basis, in part, for the auditors
opinion.
c. The entity issues financial statements that present financial position and results of operations
but omits the statement of cash flows.
d. The auditor has substantial doubt about the entitys ability to continue as a going concern, but
the circumstances are fully disclosed in the financial statements.
43. Which of the following best describes the auditors responsibility for other information included in
the annual report to stockholders that contain financial statements and the auditors 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 the other
information to determine whether it is materially inconsistent with the financial statements.
c. The auditor should extend the examination to the extent necessary to verify the other
information.
d. The auditor must modify the auditors report to state that the other information is audited or
is not covered by the auditors report.
44. Comparative financial statements include the prior years financial statements that were audited by
a predecessor auditor whose report is not presented. If the predecessors report was unqualified,
the successor should
a. Express an opinion on the current years statements alone and make no reference to the prior
years statements.
b. Indicate in the auditors report that the predecessor auditor expressed an unqualified opinion.
c. Obtain a letter of representations from the predecessor concerning any matters that might
affect the successors opinion.
d. Request the predecessor auditor to reissue the prior years report.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 12

45. An auditor decides to issue a qualified opinion on an entitys financial statements because a major
inadequacy in the entitys computerized accounting records prevents the auditor from applying
necessary procedures. The opinion paragraph of the auditors report should state that the
qualification pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. The possible effects on the financial statements.
d. Inadequate disclosure of necessary information.
46. For the report containing a disclaimer for lack of independence, the disclaimer is in the
a. third or opinion paragraph
b. second or scope paragraph
c. first and only paragraph
d. fourth or explanatory paragraph
47. When reporting on comparative financial statements, which of the following circumstances should
ordinarily cause the auditor to change the previously issued opinion on the prior years financial
statements?
a. The prior years financial statements are restated following a pooling of interest in the current
year.
b. A departure from generally accepted accounting principles caused an adverse opinion on the
prior years financial statements, and those statements have been properly restated.
c. A change in accounting principle causes the auditor to make a consistency modification in the
current years audit report.
d. A scope limitation caused a qualified opinion on the prior years financial statements, but the
current years opinion is properly unqualified.
48. An auditor has previously expressed a qualified opinion on the financial statements of a prior
period because of a departure from generally accepted accounting principles. The prior-period
financial statements are restated in the current period to conform to accounting principles
generally accepted in the Philippines. The auditors updated report on the prior-period financial
statements should
a. Express an unqualified opinion concerning the restated financial statements.
b. Be accompanied by the original auditors report on the prior period.
c. Bear the same date as the original auditors report on the prior period.
d. Qualify the opinion concerning the restated financial statements because of a change in
accounting principle.
49. When there is a significant change in accounting principle, an auditors report should refer to the
lack of consistency in
a. The scope paragraph.
b. An explanatory paragraph between the scope paragraph and the opinion paragraph.
c. An explanatory paragraph following the opinion paragraph.
d. The opinion paragraph.
50. Which of the following audit procedures is most likely to assist an auditor in identifying conditions
and events that may indicate a substantial doubt an entitys ability to continue as a going concern?
a. Review compliance with the terms of debt agreements.
b. Confirm accounts receivable from principal customers.
c. Reconcile interest expense with outstanding debt.
d. Confirm bank balances.
51. Which of the following is appropriate when material inconsistency exists in the other information
and the entity refuses to make amendment?
a. Issue a qualification opinion due to inconsistent data.
b. Issue a qualified opinion because material inconsistency may raise doubt about the audit
conclusion drawn from audit evidence.
c. Include an emphasis of matter paragraph describing the material inconsistency.
d. Attach a separate statement that reconciles the inconsistency.
52. When, after the financial statements have been issued, the auditor becomes aware of a fact that
existed at the date of the auditors report, the auditor should do the following, except:
a. Consider whether the financial statements need revisions.
b. Discuss the matter with management.
c. Take the action appropriately in the circumstance.
d. Inform those users who are currently relying on the financial statements.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 13

53. When a fact, that existed before the date of the report is discovered and the management revises
previously issued audited financial statements, the following are appropriate except:
a. A new auditors report should include an emphasis of a matter paragraph that refers to a note
to the financial statements that discusses the reason for the revision of the financial
statements and to the earlier report issued by the auditor.
b. The new auditors report should contain the original date.
c. The performance of the procedures that are designed to obtain sufficient evidence as to
subsequent events would ordinarily be extended to the date the revised financial statements
are approved by the entitys management.
d. The auditor is permitted to restrict the audit procedures regarding the financial statements to
the effects of the subsequent event that necessitated the revision.
54. When a fact is discovered after the date of the report but before the financial statements are
issued and the client amends the financial statements, would the following procedures or actions
be necessary?
A.
B.
C.
D.
I. Procedures to obtain evidence with
Yes
Yes
No
No
respect to subsequent events are extended.
II. An emphasis of a matter paragraph is required.
Yes
No
No
Yes

55. When the comparatives in which the prior audit report is unmodified, the auditor should use an
audit report in which:
a. The comparatives are specifically identified in the opening paragraph but not referred to in the
opinion paragraph of the auditors report.
b. The comparatives are specifically identified in the opening paragraph and are referred to in the
opinion paragraph.
c. The comparatives are not specifically identified in the audit report.
d. The comparatives are described in the emphasis-of-matter paragraph of the auditors report.
56. When the auditors report on the prior period, as previously issued, included a modified opinion
and the matter which gave rise to the modification is unresolved, and results in a modification of
the auditors report regarding the current period figures:
a. The auditors report should be unmodified regarding the corresponding figures.
b. The auditors report should also be modified regarding the corresponding figures.
c. The auditors report should not refer to the previous modification.
d. The auditor should omit the comparatives as corresponding figures.
57. In relation to comparatives as corresponding figures, which of the following is incorrect?
a. When the prior period financial statements are not audited, the incoming auditor should state
in the auditors report that the corresponding figures are unaudited.
b. The incoming auditor must refer to the predecessor auditors report on the corresponding
figures in the incoming auditors report for the current period.
c. When the financial statements of the prior period where audited by another auditor, the
incoming auditors report should state that the prior period was audited by another auditor.
d. In situations were the incoming auditor identified that the corresponding figures are materially
misstated, the auditor should request management refuses to do so, appropriately modify the
report.
RPCPA BOARD EXAMINATIONS
MULTIPLE CHOICE QUESTIONS
1. An auditors report may be addressed to the company whose financial statements have been
examined or to that companys:
a. President
b. Board of Directors
c. Controller
d. Chief Accountant
2. Which is known as the third statement in accounting reports?
a. The balance sheet
b. The income statement
c. The statement of retained earnings
d. The cash flows statement

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 14

3. A government agency requires an external auditor to include accounting and financial data
pertaining to his client in prescribed forms which the auditor believes does not conform to
accepted auditing practice. The auditor should:
a. Withdraw from the engagement
b. Reword the forms and attach a separate report
c. Submit a short-form report with comments
d. Submit the forms with no date on questioned items
4. The adequacy of disclosures in the financial statements and footnotes is the primary responsibility
of the:
a. Client
b. Auditor in charge of field work
c. Partner assigned to engagement
d. Staff member who drafted the statements
5. Which of the following must accompany unaudited financial statements which are prepared by a
CPA?
a. Qualified opinion
b. Adverse opinion
c. Piecemeal opinion
d. Disclaimer opinion
6. Which of the following material events occurring subsequent to the balance sheet date would
require an adjustment to the financial statements before they are issued?
a. Sale of shares of capital stock
b. Loss of a building due to a fire
c. Settlement of litigation in excess of recorded liability
d. Major purchase of business which is expected to double sales volume
7. Which of the following changes would not affect the consistency standard/principle?
a. Change from cash to accrual basis of accounting
b. Change in principal officers of the company
c. Change in method of computing depreciation
d. Change in basis of pricing inventories
8. Mr. X has been retained as auditor of Vanguard Company. The function of his opinion on financial
statements of Vanguard Company is to:
a. Improve financial decisions of company management.
b. Lend credibility to a managements representations.
c. Detect fraud and abuse in management operations.
d. Serve requirements of BIR, SEC, or Bangko Sentral nags Pilipinas.
9. On September 22, 2012, the auditor completed the required field work on a clients financial
statements for the fiscal year ended June 30, 2012, the date when the audit report was finally
drafted, the auditor learned from one of the officials that one of their factories including a stock of
finished goods was destroyed by fire. This loss was soon after confirmed in a written report dated
October 30, 2012. What date should the audit report bear?
a. September 22, 2012.
b. October 23, 2012.
c. October 30, 2012..
d. June 30, 2012.
10. An unqualified opinion may be submitted only:
a. If an audit has been conducted in accordance with generally accepted auditing standards.
b. If it has been possible to apply all procedures necessary in the circumstances.
c. If the auditor has no reservations concerning the fairness of the financial statements.
d. All of the above.
11. When the auditor believes that the financial statements are misleading or do not reflect the proper
application of generally accepted accounting principles, the report will contain:
a. Disclaimer of opinion
b. Qualified opinion
c. Unqualified opinion
d. Adverse opinion

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 15

12. Material weaknesses in internal controls prevent the auditors collection of sufficient, competent
evidential matter and will justify the issuance of:
a. Disclaimer of opinion
b. Qualified opinion
c. Unqualified opinion
d. Adverse opinion
13. LMN Company prepared an annual report with comparative financial statements of the prior year
which was unaudited. The company retained a CPA to provide recommendations regarding the
accounting methods and financial affairs in general of the company and to prepare income tax
returns based on records made available to him. The CPA was requested to submit an audit
report.
a. The auditor need not report to the company.
b. He must qualify an opinion to the effect that comparison with the prior year figures may not be
valid because they are unaudited.
c. The auditor should inform that if the company wants to include his report of this years financial
statements in the annual report, the company cannot include the comparative financial
statements because he has not audited them.
d. The auditor must add a disclaimer of opinion of the prior years financial statements to the
report.
14. The auditor, may, if inappropriate, express an opinion on specific items in the financial statement
with which he is satisfied referred to as:
a. Qualified opinion
b. Disclaimer opinion
c. Unqualified opinion
d. None of the above
15. The principal auditor may decide to make reference to the examination of the other auditor when
he expresses an opinion on the financial statements based on this suggestion:
a. The report need not disclose the magnitude of the portion of the financial statement examined
by the auditor inasmuch as the total assets, total revenues, and other appropriate criteria
included in the report reveals clearly the portion done by the auditor.
b. It is enough that the report discloses the peso amounts of the total assets or percentage of
total revenues to indicate portion of the financial statements examined by the other auditor.
c. The other auditor may be named but only after obtaining his permission in writing in which
case where is no need for the principal auditor to present the other report together with his.
d. Opinion based in part on the report of the other auditor may be presented as a qualification of
the principal auditors opinion.
16. An auditor, depending upon a given situation, may express an unqualified opinion, a qualified
opinion, an adverse opinion or a disclaimer. Accordingly, what is the most suitable opinion if a
CPA has made an examination in accordance with generally accepted auditing standards, and
financial statement presentation conforms with generally accepted accounting principles applied
on a consistent basis and includes all informative disclosures necessary to make the statements
not misleading?
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
17. When a CPA who is deemed not independent is associated with financial statements, this
suggests a(n):
a. Unqualified opinion
b. Qualified opinion
c. Adverse opinion
d. Disclaimer
18. There is material exception as to the fairness of presentation in accordance with generally
accepted accounting principles, as to their consistent application, thus suggesting:
a. Unqualified opinion
b. Qualified opinion
c. Adverse opinion
d. Disclaimer

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 16

19. If a CPA has not obtained sufficient competent evidential matter to form an opinion on the fairness
of the presentation of the financial statement as a whole:
a. Unqualified opinion
b. Qualified opinion
c. Adverse opinion
d. Disclaimer
20. When the financial statements do not fairly present the financial position in conformity with
generally accepted accounting principles?
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
21. When is it not possible in a first audit to validate the year-opening balance of an account?
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
22. If the auditor has no reservations concerning the fairness of the financial statements he makes a
(n)
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
23. When does the auditor associated with the financial statements consider himself or herself not to
be independent with respect to the auditee or its agents and affiliates he makes a(n)
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
24. When material weaknesses in internal controls prevent the auditors accumulation of sufficient,
competent evidential matter, this is a(n)
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
25. When the auditors exceptions are of such significant materiality that the financial statements,
taken as a whole, would be misleading to the users, we have a(n)
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
26. When the company failed to apportion cost of factory overhead incurred to each of the
manufactured products, this is
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
27. If the auditor disapproves of a clients change in the application of an accounting principle, this is
a. Unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion
28. When the financial position or operating results of the client cast doubt on the feasibility of
continuing operations in the future, this suggests
a. Modified unqualified opinion
b. Qualified opinion
c. Disclaimer of opinion
d. Adverse opinion

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 17

29. An auditors formal review of subsequent events normally should be extended through the date of
the:
a. Audit report.
b. Next formal interim financial statements.
c. Delivery of the audit report to the client.
d. Mailing of the financial statements to the stockholders.
30. After performing all necessary procedures a predecessor auditor reissues a prior-period report on
financial statements at the request of the client without revising the original wording. The
predecessor auditor should
a. Dual-date the report.
b. Use the reissue date.
c. Use the date of the previous report.
d. Delete the date of the report.
31. In his report, the auditor need not mention consistency if:
a. The client has acquired another company through a pooling of interest.
b. An adverse opinion is issued.
c. This is the first year the client has had an audit.
d. Comparative financial statements are issued.
32. An independent auditor, who has examined a companys financial statements for the preceding
year but is doing so in the current year, should, with respect to consistency:
a. Report on the financial statements of the current year without referring to consistency.
b. Consider the consistent application of principles within the year under examination but not
between the current and preceding year.
c. Adopt procedures that are practicable and reasonable in the circumstances to obtain
assurance that the principles employed are consistent between the current and preceding
year.
d. Rely on the report of the prior years auditors if such a report does not take exception as to
consistency.
33. The auditor, if he believes that required disclosures of a significant nature are omitted from the
financial statements under examination, should decide between issuing:
a. A qualified opinion or an adverse opinion.
b. A disclaimer of opinion or a qualified opinion.
c. An adverse opinion or a qualified opinion.
d. An unqualified opinion or a qualified opinion.
34. The objectivity of the fourth reporting standard of auditing which requires that the auditors report
should contain an expression of opinion regarding the financial statements, taken as a whole or an
assertion to the effect that an opinion cannot be expressed is to prevent
a. The CPA from reporting on one basic financial statement and not to the others.
b. The CPA from expressing different opinions on each of the basic financial statements.
c. Misinterpretation regarding the degree of responsibility the auditor is assuming.
d. Management from reducing its final responsibility for the basic financial statements.
35. The opinion paragraph of an audit report expressing an adverse opinion should include a direct
reference to:
a. A footnote to the financial statements which discusses the basis for the opinion.
b. The scope paragraph which discusses the basis for the opinion rendered.
c. A separate paragraph which discusses the basis for the opinion rendered.
d. The consistency or lack of consistency in the application of generally accepted accounting
principles.
36. When an auditee refuses to make essential disclosures in the financial statements or in the
footnotes, the independent auditor should
a. Provide the necessary disclosures in the auditors report and appropriately modify the opinion
b. Explain to the client that an adverse opinion must be issued.
c. Issue an unqualified report and inform the stockholders of the improper disclosure in an
unaudited footnote.
d. Issue an opinion subject to the clients lack of disclosure of supplementary information as
explained in a middle paragraph of the report.

AT Quizzer 14

Reports on Audited FS & Special Reporting Issues

Page 18

37. The expression taken as a whole referred to in the fourth generally auditing standard of reporting
is best described by which of the following?
a. It applies equally to a competent set of financial statements and to each individual financial
statements.
b. It applies only to a complete set of financial statements.
c. It applies equally to each item in each financial statement.
d. It applies equally to each material item in each financial statement.
38. In a case where the auditor cannot determine the amounts associated with certain illegal acts
committed by the auditee, he would most likely:
a. Issue either a qualified opinion or a disclaimer of opinion.
b. Issue only an adverse opinion.
c. Issue either a qualified opinion or an adverse opinion.
d. Issue only a disclaimer of opinion.
39. The adequacy of disclosure in the financial statements and footnotes is the primary responsibility
of:
a. Partner assigned to the engagement.
b. Auditor in charge of field work.
c. Staff man who drafts the statement and footnotes.
d. Client.
40. When an auditor expresses an opinion on financial statements, his responsibilities extend to:
a. The underlying wisdom of his clients management decisions.
b. Whether the results of his clients operating decisions are fairly presented in the financial
statements.
c. Active participation in the implementation of the advice given to his client.
d. An ongoing responsibility for his clients solvency.
41. Chen, CPA, accepted the audit engagement of Renz Corporation. During the audit, Chen became
aware of the fact that he did not have the competence required for the engagement. What should
Chen do?
a. Disclaim an opinion.
b. Issue a subject to opinion.
c. Suggest that Renz Corp. engage another CPA to perform the audit.
d. Rely on the competence of client personnel.

*******************************************