CH11 AUDIT REPORTS ON FINANCIAL STATEMENTS

b. Enhance the degree of confidence of intended users in the financial statements

1. A major purpose of the auditor's report on financial statements is to

a. Assure investors of the complete accuracy of the financial statements

b. Enhance the degree of confidence of intended users in the financial statements

c. Deter creditors from extending loans in high-risk situations

d. Describe the specific auditing procedures undertaken to gather evidence of the opinion

a. Client's management

2. Which of the following parties is responsible for the fairness of the representations made in financial statements?

a. Client's management

b. Independent auditor

c. Audit committee

d. PICPA

b. Auditor's report that includes an unmodified opinion

3. PSA 700 provides guidance on the >

a. Auditor's report that includes a modified opinion.

b. Auditor's report that includes an unmodified opinion.

c. Auditor's report that includes an unmodified opinion, though the auditor's report is modified due to an emphasis of matter.

d. Auditor's report, irrespective of the type of opinion issued by the auditor.

d. Avoiding confusion

4. The auditing profession recognizes the need for uniformity in reporting as a means of

a. Defending against capricious lawsuits

b. Standardizing the policies of various CPA firms

c. Upgrading the communications skills of auditors

d. Avoiding confusion

a. Uniformity promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognized standards.

5. What is the overriding benefit of having uniformity in the report?

a. Uniformity promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognized standards.

b. Uniformity in the form promotes the expression of unmodified opinion.

c. Uniformity lessens the auditor's legal and civil liabilities.

d. The audit report eliminates some disclosures required in the financial statements.

c. Title

6. Which of the following elements of the auditor's report affirms the auditor's independence?

a. Introductory paragraph

b. Auditor's Responsibility

c. Title

d. Signature

b. The applicable financial reporting framework.

7. The auditor's judgment as to whether the financial statements are presented fairly, in all material respects, is made in the context of

a. The Philippine Standards on Auditing.

b. The applicable financial reporting framework.

c. The professional ethical requirements.

d. The generally accepted auditing standards

b. Distinguish the independent auditor's report from the reports that might be issued by others.

8. Auditing standards require that the audit report must be titled. This is done in order to

a. Indicate that the auditor is a CРА

b. Distinguish the independent auditor's report from the reports that might be issued by others.

c. Identify the financial statements audited

d. Emphasize management's responsibility for the fair presentation of the financial statements.

b. The president of the client company.

9. The auditor does not normally address the report to

a. Those for whom the report is prepared.

b. The president of the client company.

c. Those charged with governance of client company

d. The stockholders of client company

b. "Opinion" section

10. The element of the auditor's report that identifies the financial statement audited is the

a. Title

b. "Opinion" section

c. "Basis for Opinion" section

d. Auditor's responsibility section

b. Statement of Changes in Financial Position

11. 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

Name of the entity for whom the report is prepared: NO

The title of each statement audited: YES

Period covered by the financial statements: YES

12. Which of the following shall be included in the "Opinion" section of the auditor's report?

Name of the entity for whom the report is prepared:

The title of each statement audited:

Period covered by the financial statements:

c. Either a or b

13. PSA 700 requires the auditor's report to be signed. The signature should be

a. In the name of the audit firm

b. In the personal name of the auditor

c. Either a or b

d. Neither a nor b

b. Auditor has concluded procedures in the field

14. The appropriate date for the auditors report is the one on which the

a. Client's fiscal year ended

b. Auditor has concluded procedures in the field

c. Auditor and client entered into a contract

d. Auditor types and delivers the report to client

a. The date of the auditor's report informs the user of the auditor's report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date.

15. The date of the auditor's report is important because

a. The date of the auditor's report informs the user of the auditor's report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date.

b. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect this date

c. PSAs require all audits to be performed in a timely manner

d. This date coincides with the date of the financial statements

d. Should not be earlier than the date of the approval of financial statements

16. The date of the auditor's report

a. Coincides with the date the financial statements are issued

b. Should be the same as the financial statement date.

c. Can be earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base his opinion

d. Should not be earlier than the date of the approval of financial statements

b. Date the financial statements were approved by the client management.

17. An auditor's report should be dated as of the

a. Date the report is delivered to the entity audited.

b. Date the financial statements were approved by the client management.

c. Financial statement date of the latest period reported on.

d. Date a letter of audit inquiry is received from the entity's attorney.

c. Emphasis of a matter

18. Which of the following is not one of the elements of the unmodified

report?

a. Auditor's address

b. Date of the Auditor's report

c. Emphasis of a matter

d. Auditor's signature

a. Naming the location in the country where the auditor practices his profession.

19. The auditor's address is indicated in the auditor's report by

a. Naming the location in the country where the auditor practices his profession.

b. Including the complete mailing address of the auditor.

c. Identifying the country where the auditor had secured his professional license.

d. Addressing the report to the stakeholders or the audit client.

Management's Responsibility: EXPLICITLY

Auditor's Responsibility: EXPLICITLY

20. How are management's responsibility and the auditor's responsibility represented in the auditor's report?

(EXPLICITLY OR IMPLICITLY)

Management's Responsibility:

Auditor's Responsibility:

b. Unmodified opinion

21. The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework is the

a. Qualified opinion

b. Unmodified opinion

c. Undeniable opinion

d. Denial of opinion

d. I, II, or III

22. The description of the auditor's responsibilities for the audit of the financial statements shall be included

I. Within the body of the auditor's report

II. Within an appendix to the auditor's report

III. By a specific reference within the auditor's report to the location of such a description on a website of an appropriate authority.

a. I only.

b. II only

c. Either I or II

d. I, II, or III

d. Unmodified opinion

23. The most common type of auditor's report contains a(n)

a. Adverse opinion

b. Qualified opinion

c. Disclaimer of opinion

d. Unmodified opinion

a. General-purpose financial statements

24. The financial statements prepared in accordance with a general purpose framework are referred to as

a. General-purpose financial statements

b. Annual report

c. Common-size financial statements

d. Summarized financial statements

a. Special purpose financial statements

25. Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users are referred to as

a. Special purpose financial statements

b. Special purpose framework

c. General purpose financial statements

d. Specific purpose financial statements

c. Both I and II

26. Fair presentation framework is a financial reporting framework that requires compliance with the requirements of the framework and:

I. Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework.

II. Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements.

a. I only

b. II only

c. Both I and II

d. Neither I nor II

c. "Basis for Opinion"

27. Which of the following sections in the auditor's report shall be placed immediately after the "Opinion" section?

a. Management's Responsibilities for the Financial Statements

b. Auditor's Responsibilities for the Audit of the Financial Statementerm-26ts

c. "Basis for Opinion"

d. Other Reporting Responsibilities

b. The stockholders of the client company

28. To emphasize the fact that the auditor is independent, it would be desirable to address the report to

a. The company's management

b. The stockholders of the client company

c. The board of directors of the client company

d. The Securities & Exchange Commission

b. "Opinion"

29. The first section of the auditor's report shall have the heading

a. "Introduction"

b. "Opinion"

c. "Auditor's Responsibilities for the Audit of the financial statements"

d. "Basis for Opinion"

d. State that the audit was conducted in accordance with Philippine Standards on Auditing (PSA).

30. The "Basis for Opinion" section of the auditor's report shall

a. State that the financial statements have been audited

b. State that the objective of the auditor is to issue an auditor's report that includes the auditor's opinion

c. Describe management's responsibility for preparing the financial statements in accordance with the applicable financial reporting Framework.

d. State that the audit was conducted in accordance with Philippine Standards on Auditing (PSA).

a. Responsibility for preparing the financial statements in accordance with the applicable financial reporting framework.

31. Which of the following management's responsibilities should be described in the auditor's report?

a. Responsibility for preparing the financial statements in accordance with the applicable financial reporting framework.

b. Responsibility for obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement

c. Responsibility to exercise professional judgment and maintain professional skepticism throughout the audit

d. Responsibility to identify and assess the risks of material misstatement of the financial statements

c. The date of the auditor's report should not be later than the date on which the financial statements are signed or approved by management

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

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

b. The date of the auditor's report should not be earlier than the date on which the financial statements are signed or approved by management

c. The date of the auditor's report should not be later than the date on which the financial statements are signed or approved by management

d. The date of the auditor's report should always be later than the statement of financial position date.

d. Is satisfied that the statements are presented fairly in accordance with PFRS.

33. Whenever an auditor issues an unmodified opinion, the implication is that the auditor

a. Does not know if the statements are presented fairly in accordance with PFRS.

b. Does not believe the statements are presented fairly in accordance with PFRS.

c. Is satisfied that the statements are presented fairly in accordance with PFRS except for a specific aspect of them.

d. Is satisfied that the statements are presented fairly in accordance with PFRS.

a. adverse opinion, disclaimer of opinion, and qualified opinion

34. The three main types of audit reports other than the unmodified report are the

a. adverse opinion, disclaimer of opinion, and qualified opinion

b. adverse opinion, reports on unaudited financial statements, and disclaimer of opinion

c. disclaimer of opinion, the qualified opinion, and reports on unaudited financial statements.

d. Special audit reports, reports on unaudited financial statements, and adverse opinions.

c. Has knowledge that the financial statements are not in conformity with the applicable financial reporting framework

35. The adverse opinion report will be issued by the independent auditor when he/she

a. Suspects. that client has not followed the identified financial reporting framework..

b. Suspects that 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.

...

36. The least severe type of report for disclosing departures from PFRS is the

a. Qualified opinion

b. Disclaimer of opinion

c. Adverse opinion

d. Special report on the financial statements

a. Has been unable to satisfy himself/herself that the overall financial statements are presented fairly.

37. A disclaimer is issued whenever the auditor

a. Has been unable to satisfy himself/herself that the overall financial statements are presented fairly.

b. Believes that the overall financial statements are not presented fairly.

c. Believes that some material part(s) of the financial statements are not presented fairly.

d. Has determined that the financial statements are presented fairly.

a. When the condition is material and pervasive

38. Both disclaimers and adverse opinions are used

a. When the condition is material and pervasive

b. Irregardless of the auditor's independence.

c. Whether the condition is material pr not.

d. Irregardless of client's choice of unacceptable accounting method.

Material Misstatements: YES

Scope Limitation: YES

39. Which of the following circumstances would most likely cause the auditor to modify his opinion?

Material Misstatements:

Scope Limitation:

c. The financial statements fail to contain adequate disclosure concerning related party transactions

40. Under which of the following circumstances is a disclaimer of opinion inappropriate?

a. The auditor is engaged after fiscal year end and is unable to observe physical inventories or apply alternative procedures to verify their balances

b. The auditor is unable to determine the amounts associated with fraud committed by the client's management

c. The financial statements fail to contain adequate disclosure concerning related party transactions

d. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry

b. The financial statements fail to disclose information that is required by PFRS.

41. In which of the following situations would an auditor ordinarily choose between expressing qualified opinion or adverse opinion?

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

b. The financial statements fail to disclose information that is required by PFRS.

c. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.

d. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

a. An adverse opinion

42. When the client's financial statements are misstated by a material and pervasive amount, the auditor should issue a report that contains

a. An adverse opinion

b. A disclaimer of opinion

c. Either a qualified opinion or an adverse opinion, depending on which conditions exist.

d. Either a qualified opinion or an unmodified opinion with modified wording, depending on which conditions exist.

d. An unmodified report, a qualification of scope and opinion, or a disclaimer, depending on materiality and pervasiveness of effect

43. Whenever there is a scope limitation, the appropriate response is to issue

a. A disclaimer of opinion

b. An adverse opinion

c. A qualified opinion

d. An unmodified report, a qualification of scope and opinion, or a disclaimer, depending on materiality and pervasiveness of effect

d. Management has decided to not allow the auditor to confirm significant accounts receivable, but the auditor examined subsequent cash receipts related to the accounts in question.

44. Conditions requiring departure from an unmodified audit report include all, but which of the following?

a. Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed.

b. Management has determined that inventories should be reported in the statement of financial position at their fair values rather than lower of costs or net realizable value.

c. The audit partner's dependent child received a gift of 10 shares of a client's stock for her birthday from a grandparent.

d. Management has decided to not allow the auditor to confirm significant accounts receivable, but the auditor examined subsequent cash receipts related to the accounts in question.

c. Misleading

45. An auditor's report includes the following statement: "The financial statements do not present fairly the financial position, result of operations, or cash flows in conformity with PFRS." This auditor's report was most likely issued in connection with financial statements that are

a. Inconsistent

b. Based on prospective financial information

c. Misleading

d. Affected by a material uncertainty

Disclosures were omitted: YES

Scope of audit has been restricted: YES

46. An auditor may express a qualified opinion when

Disclosures were omitted:

Scope of audit has been restricted:

The auditor wants to draw readers attention to an important matter: NO

The financial statements are not free from material: YES

The auditor is unable to obtain sufficient appropriate evidence: YES

47. The auditor would most likely express a modified opinion when misstatement

The auditor wants to draw readers attention to an important matter:

The financial statements are not free from material:

The auditor is unable to obtain sufficient appropriate evidence:

a. Qualified opinion and an adverse opinion

48. If the auditor's believes that a required material disclosure is omitted from the financial statements, the auditor should decided between issuing a(n)

a. Qualified opinion and an adverse opinion

b. Disclaimer of opinion and a qualified opinion

c. Adverse opinion and a disclaimer of opinion

d. Unmodified opinion and a qualified opinion

b. Adverse opinion and a qualified opinion.

49. An auditor is confronted with an exception sufficiently material to warrant a modification of the audit report. If the exception relates to a departure from the PFRS, the auditor must decide between expressing

a(n)

a. Adverse opinion and an unmodified opinion.

b. Adverse opinion and a qualified opinion.

c. Adverse opinion and a disclaimer of opinion.

d. Disclaimer of opinion and a qualified opinion.

a. A limitation on the scope of the audit

50. In which of the following situations would a decision of selecting between qualified or adverse opinions be inappropriate?

a. A limitation on the scope of the audit

b. The financial statements are materially misstated.

c. A disagreement between the auditor and the client arose because of the capitalization of research and development costs.

d. A required disclosure that is significant is omitted from the financial statements.

Material but not Pervasive: YES

Material and Pervasive: NO

51. The auditor should consider the nature of the item and the significance of effect when formulating an opinion on financial statements. Accordingly, the auditor should express a qualified opinion when the potential effect of an item under consideration is

Material but not Pervasive:

Material and Pervasive:

Qualified Opinion: YES

Adverse Opinion: YES

Disclaimer of Opinion: NO

52. When financial statements contain material misstatements, the auditor's report may contain

Qualified Opinion:

Adverse Opinion:

Disclaimer of Opinion:

Qualified Opinion: YES

Adverse Opinion: NO

Disclaimer of Opinion: YES

53. When the auditor is unable to obtain sufficient appropriate audit evidence, the auditor's report may contain

Qualified Opinion:

Adverse Opinion:

Disclaimer of Opinion:

b. Material but not pervasive

54. The qualified opinion report will be issued by the independent auditor when, in the auditor's judgment, the effects or possible effects of the item under consideration are

a. Material and pervasive

b. Material but not pervasive

c. Pervasive but not material

d. Not material and not pervasive

c. Either A or B

55. In a qualified, adverse, or disclaimer report, the auditor

a. Has not performed a satisfactory audit

b. Is not satisfied that the financial statements are presented fairly

c. Either A or B

d. None of these

d. The scope of the audit has been restricted.

56. As a result of management's refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with PFRS. The auditor must depart from the unmodified audit report because

a. The financial statements have not been prepared in accordance with PFRS.

b. The scope of the audit has been restricted by circumstances beyond either the client's control

c. The auditor's independence was impaired

d. The scope of the audit has been restricted.

a. Modified opinions

57. The qualified opinion, adverse opinion, and disclaimer of opinion are known as

a. Modified opinions

b. Standardized statements

c. Unmodified explanation

d. Unmodified opinions

c. The overall financial statements are so materially misstated or misleading as a whole that they do not present fairly the financial position or results of operations and cash flows in conformity with PFRS.

58. An adverse opinion is issued when the auditor believes

a. Some parts of the financial statements are materially misstated or misleading.

b. The financial statements will be found to be misleading or misstated, if an adequate investigation is performed.

c. The overall financial statements are so materially misstated or misleading as a whole that they do not present fairly the financial position or results of operations and cash flows in conformity with PFRS.

d. The audit firm is not independent

d. Qualified and disclaimer of opinion

59. An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large subsidiary. Between which of the following opinions should the entity's auditor choose?

a. Adverse and unmodified opinion

b. Disclaimer and unmodified opinion with emphasis of matter paragraph

c. Qualified and adverse opinion

d. Qualified and disclaimer of opinion

c. Disclaimer of opinion

60. In extreme cases, such as situations involving multiple uncertainties that are significant to the financial statements, the auditor may consider it appropriate to express a(n)

a. Qualified opinion

b. Report with Emphasis of a Matter paragraph

c. Disclaimer of opinion

d. Adverse opinion.

c. Presented fairly

61. The expression of a qualified opinion means that the financial statements, taken as whole are

a. Affected by uncertainties

b. Materially misleading

c. Presented fairly

d. Not presented fairly

d. The sufficiency and appropriateness of audit evidence

62. Material misstatements in the financial statements may arise from all of the following conditions, except

a. The appropriateness of the selected accounting policies

b. The application of the selected accounting policies

c. The appropriateness or adequacy of disclosures in the financial statements

d. The sufficiency and appropriateness of audit evidence

a. Either qualified or adverse opinion

63. When management does not amend the financial statements in circumstances where the auditor believes they need to be amended and the auditor's report has not been released to the entity, the auditor should express

a. Either qualified or adverse opinion

b. Either qualified or disclaimer of opinion

c. An unmodified opinion with emphasis of matter paragraph

d. An unmodified report.

d. Restrictions on the disclosures in the financial statements

64. The auditor's inability to obtain sufficient appropriate audit evidence may arise from all of the following conditions, except

a. Restrictions imposed by management on the scope of the audit

b. Limitations beyond the control of the entity

c. Limitations relating to the nature or timing of the auditor's work

d. Restrictions on the disclosures in the financial statements

Beyond the control of the entity: YES

Related to the nature or timing of the auditor's work: YES

Related to client's request to omit certain procedures: YES

65. Circumstance imposed scope limitations include those that are:

Beyond the control of the entity:

Related to the nature or timing of the auditor's work:

Related to client's request to omit certain procedures:

a. I, II, III

66. Which of the following is the correct order of steps that the auditor should follow if, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the scope of the audit that likely to result in a modification of opinion on the financial statements?

I. The auditor should request the management to remove the limitation

II. The auditor should communicate the matter to those charged with governance

III. The auditor should determine whether it is possible to perform alternative procedures

a. I, II, III

b. III, I, II

c. II, I, III

d. III, II, I

Disclaim an opinion: YES

Withdraw from engagement: YES

67. If the auditor is unable to obtain sufficient appropriate evidence because of a limitation imposed by the client, the auditor may

Disclaim an opinion:

Withdraw from engagement:

d. The stage of completion of the engagement at the time the management imposed the limitation

68. In making a decision of whether to disclaim an opinion or withdraw from engagement due to a client-imposed scope limitation, the auditor should consider

a. The materiality of the item under consideration

b. The pervasiveness of effect on financial statements

c. Both the materiality and pervasiveness should be considered

d. The stage of completion of the engagement at the time the management imposed the limitation

A description of material misstatement: YES

A quantification of effects of misstatement, if practicable: YES

69. When an auditor modifies his opinion on the financial statements because of material misstatements, the basis for modification paragraph should include

A description of material misstatement:

A quantification of effects of misstatement, if practicable:

A description of scope limitation: YES

A quantification of effects of misstatement, if practicable: NO

70. When an auditor modifies his opinion on the financial statements because of inability to obtain sufficient appropriate evidence, the basis for modification paragraph shall include

A description of scope limitation:

A quantification of effects of misstatement, if practicable:

d. "Basis for Opinion" section

71. Inadequacy of disclosures in the notes to the financial statements normally requires the auditor to express a qualified opinion on the client's financial statements. When this occurs, the auditor should disclose the substantive reasons for expressing a qualified opinion in the

a. "Opinion" section

b. "Key audit matter" section

c. "Auditor's responsibility" section

d. "Basis for Opinion" section

c. Following the "Opinion" section

72. An auditor should disclose the substantive reasons for expressing an adverse opinion in a separate section

a. Preceding the management's responsibility for the financial statements

b. Preceding the "Opinion" section

c. Following the "Opinion" section

d. Within the notes to the financial statements

Management's Auditor's Responsibility: YES

Responsibility Section: YES

Opinion Section: YES

73. An auditor who qualifies an opinion because of inability to obtain sufficient appropriate evidence should describe the matter giving rise to the qualification in the report. The auditor should also modify the

Management's Auditor's Responsibility:

Responsibility Section:

Opinion Section:

Basis for Opinion: YES

Management's Responsibility: NO

Auditor's Responsibility: YES

Opinion: YES

74. An auditor who disclaims an opinion because of inability to obtain sufficient appropriate evidence should describe the matter in a separate paragraph. The auditor should also modify the

Basis for Opinion:

Management's Responsibility:

Auditor's Responsibility:

Opinion:

....

75. Which of the following statements is correct about "emphasis of matter paragraph"?

a. The addition of such paragraph is not to be construed as a modification of the auditor's report.

b. The addition of such paragraph does not affect the auditor's opinion.

c. The paragraph would preferably be presented before the "Basis for Opinion"

d. The paragraph is normally used by the auditor to explain the basis for expressing a modified opinion.

d. A disclosure in the notes about significant uncertainty affecting the financial statements.

76. Which of the following circumstances will least likely cause the auditor to modify his opinion?

a. A limitation on the scope of the auditor's work imposed by the client

b. A limitation on the scope of the auditor's work imposed by the circumstances.

c. A disagreement with management regarding application of accounting policies

d. A disclosure in the notes about significant uncertainty affecting the financial statements.

d. Auditor's report with emphasis of matter paragraph

77. Which of the following is not to be construed as a modification of opinion?

a. Qualified opinion

b. Adverse opinion

c. Disclaimer of opinion

d. Auditor's report with emphasis of matter paragraph

a. Disclosed in the financial statements

78. The use of an "Emphasis of Matter" paragraph shall be limited only to those matters

a. Disclosed in the financial statements

b. Affecting the auditor's opinion

c. Not presented in the financial statements

d. Involving an uncertainty

c. To draw the readers' attention to a matter that is not presented or disclosed in the financial statements.

79. The "Other Matter" paragraph is used by the auditor

a. To draw the readers' attention to a matter that is presented in the financial statements

b. To draw the readers' attention to a matter that is disclosed in the notes to the financial statements

c. To draw the readers' attention to a matter that is not presented or disclosed in the financial statements.

d. To draw the readers' attention to a matter that caused the auditor to modify his opinion.

d. An "Emphasis of a Matter" paragraph may be used to alert the readers that the financial statements are presented in accordance with a special purpose framework.

80. Which of the following is correct about "Emphasis of a Matter" paragraph

a. In very rare circumstances, the "Emphasis of Matter" paragraph may be used as a substitute for a qualification of an opinion.

b. An "Emphasis of Matter" paragraph may be used to give emphasis to a specific item that has not been appropriately disclosed in the notes to the financial statements.

c. An "Emphasis of Matter" paragraph may be used to restrict the distribution of the auditor's report.

d. An "Emphasis of a Matter" paragraph may be used to alert the readers that the financial statements are presented in accordance with a special purpose framework.

b. The addition of such paragraph is not to be construed as a modification of the auditor's opinion.

81. Which of the following statements is correct about "emphasis of matter paragraph"?

a. The paragraph is intended to promote the readers' understanding of the auditor's responsibility.

b. The addition of such paragraph is not to be construed as a modification of the auditor's opinion.

c. The emphasis of matter paragraph would preferably be presented before the opinion paragraph.

d. The addition of such paragraph does not affect the auditor's report.

b. Material inconsistency exists between other information and audited financial statements.

82. Addition of an "emphasis of matter" paragraph to an otherwise unmodified report would be inappropriate when

a. A major catastrophe with a significant effect on the entity's financial position occurred.

b. Material inconsistency exists between other information and audited financial statements.

c. Financial statements are reissued following a subsequent discovery of fact affecting the financial, statements and the auditor's report.

d. An uncertainty exists relating to the future outcome of exceptional litigation or regulatory action.

b. Financial statements do not contain adequate disclosure.

83. Which of the following conditions will not normally require emphasis of matter paragraph in the auditor's report?

a. Financial statements are prepared using the cash basis of accounting.

b. Financial statements do not contain adequate disclosure.

c. The financial statements include disclosures about a recent typhoon that destroyed significant portion of the entity's inventory.

d. Financial statements are affected by a significant uncertainty.

a. To emphasize a matter.

84. What is the purpose of the following paragraph in an auditor's report "We draw attention to note 15 to the financial statements

a. To emphasize a matter.

b. To have a basis for expressing a qualified opinion.

c. To promote readers' understanding of the auditor's responsibility and the auditor's report.

d. To have a basis for disclaiming an opinion.

a. Is appropriate and would not negate the unmodified opinion.

85. An auditor includes a separate paragraph in an otherwise unmodified report in order to emphasize an item that is properly disclosed in the notes to the financial statements. The inclusion of this paragraph

a. Is appropriate and would not negate the unmodified opinion.

b. Is considered a qualification of the report.

c. Is a violation of standards of reporting.

d. Necessitates a revision of the opinion paragraph to include the phrase "except for".

c. Unmodified opinion with emphasis of matter paragraph

86. Management believes and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should express a(an)

a. Qualified opinion due to a scope limitation

b. Qualified opinion due to a material misstatement

c. Unmodified opinion with emphasis of matter paragraph

d. Unmodified report

d. Qualified opinion

87. An auditor who concludes, that an uncertainty is not adequately disclosed in. the financial statements should issue a(an):

a. Disclaimer of opinion.

b. Unmodified opinion with emphasis of matter paragraph.

c. Special report.

d. Qualified opinion.

d. The Company adopted a new accounting standard earlier than its mandatory effective date.

88. The auditor should consider adding an emphasis of matter paragraph when

a. The auditor is prevented from completing a procedure required by PSA.

b. The financial statements fail to disclose information required by PFRS.

c. The financial statements are not free from material misstatements.

d. The Company adopted a new accounting standard earlier than its mandatory effective date.

b. A going concern uncertainty

89. Addition of an "emphasis of matter" paragraph to what remains an unmodified opinion is least likely for which of the following situations?

a. A major catastrophe

b. A going concern uncertainty

c. A significant subsequent event.

d. An uncertainty.

a. auditor's report.

90. The "Other Matter" paragraph would be appropriate when The auditor wants to restrict the distribution or use of the

a. auditor's report.

b. The auditor wants to emphasize a matter that is presented or disclosed in the financial statements.

c. The auditor wants to emphasize a matter that is not properly presented or disclosed in the financial statements

d. The auditor wants to draw the readers' attention to an important matter that caused the auditor to modify his opinion.

c. "Emphasis of matter" section is presented after the "Basis for Opinion" but before the "Other matters" section

91. How would the "Emphasis of Matter" and "Other Matters" be presented in the auditor's report?

a. "Emphasis of matter" is presented before the "Basis for

Opinion" section and the "Other matters" section

b. "Other matters" section is presented after the "Emphasis of matter" section but before the "Basis for Opinion" section

c. "Emphasis of matter" section is presented after the "Basis for Opinion" but before the "Other matters" section

d. "Other matters" section is presented before the "Emphasis of matter" section

d. None

92. An auditor may wish to emphasize a matter included in the financial statements by adding a separate paragraph to the report. In this case the following sections of the audit report should be modified

a. Basis for Opinion

b. Auditor's responsibility

c. Opinion

d. None

b. A significant uncertainty arises about the future outcome of exceptional litigation

93. The auditor would most likely to consider adding an emphasis of matter paragraph when

a. The auditor, was not able to obtain sufficient appropriate evidence to conclude that the financial statements are fairly presented.

b. A significant uncertainty arises about the future outcome of exceptional litigation

c. The Company's inventories are presented in the financial statements at fair value.

d. The client requested the auditor not to confirm significant receivables and no alternative procedures were performed.

c. Meets the criteria of a complete audit with satisfactory results

94. The report that contains "unmodified opinion with emphasis of matter paragraph"

a. Arises as a result of an incomplete audit

b. Arises when the financial statements are not quite "presented fairly"

c. Meets the criteria of a complete audit with satisfactory results

d. Meets the criteria of a complete audit but with unsatisfactory results.

b. consider the adequacy of disclosure in the notes to financial statements

95. When the auditor concludes that the use of the going concern assumption is appropriate in the circumstances but material uncertainty exists, the auditor should

a. issue either qualified or adverse opinion

b. consider the adequacy of disclosure in the notes to financial statements

c. report to the audit committee the need to adjust management estimates

d. re-issue the prior year's audit report and add an emphasis of a matter paragraph

a. Unmodified opinion with a separate going concern section

96. The independent auditor has concluded that substantial doubt remains about a client's ability to continue in existence, but the client's financial statements have properly disclosed all of its solvency problems.

The auditor would probably issue a (an)

a. Unmodified opinion with a separate going concern section

b. Qualified opinion.

c. Unmodified opinion.

d. Adverse opinion.

d. Neither I nor II

97. When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, and this fact is adequately disclosed in the notes to financial statements; the appropriate audit report would be

I. An unmodified opinion with emphasis of matter paragraph.

II. A qualified opinion.

a. I only

b. II only

c. I or II

d. Neither I nor II

d. Uncertainty arises about entity's continued existence

98. Which of the following circumstances will least likely affect the auditor's opinion?

a. A client imposed scope limitation

b. A circumstance imposed scope limitation

c. Inadequacy of disclosure in the notes to financial statements

d. Uncertainty arises about entity's continued existence

Unmodified Opinion: YES

Qualified Opinion: YES

Adverse Opinion: YES

99. An auditor concludes that there is an uncertainty about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's disclosures concerning this matter are adequate, the auditor's report may include a(n):

Unmodified Opinion:

Qualified Opinion:

Adverse Opinion

d. An adverse opinion

100. When management prepares financial statements on the basis of a going concern but the auditor believes the use of the going concern assumption is not appropriate, the auditor would most likely issue an auditor's report that contains

a. A qualified opinion.

b. An unmodified opinion with respect to the income statement and an adverse opinion with respect to the statement of financial

position.

c. A disclaimer of opinion.

d. An adverse opinion.