[Escala] Audit Reporting

Users’ confidence in the financial statements is enhanced

a. When the auditor expresses an opinion on those statements

The expression “financial statements, taken as a whole” applies:

a. Equally to a complete set of financial statements and to an individual financial statement.

The term “reasonable assurance” in the auditor’s responsibility paragraph indicate that

c. There is a possibility that material misstatements still exist in the financial statements.

If a company’s external auditor expresses an unmodified opinion as a result of the audit of the company’s financial statements, readers of the audit report can assume that:

d. All material disagreements between the company and external auditor in the application of accounting principles were resolved in the satisfaction of the external auditor.

The first section in the new auditors report

b. Opinion section

To distinguish it from report 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 auditor’s report should have an appropriate

b. Title

Which of the following is included in the opinion section of the auditor’s report?

a. Identification of the financial statements audited, including the date of and period covered by the financial statements

The auditor’s report should be addressed

d. Either to the shareholders or the board of directors, or both, of the entity whose statements are being audited

The opinion section of the auditor’s report

I. Identifies the applicable financial reporting framework on which the financial statements are based

II. Express an opinion on the financial statements

b. Both I and II

In which of the following circumstances would an auditor most likely add an emphasis of matter paragraph to the auditor’s report while expressing an unmodified opinion?

a. The company applied a new standard before its effectivity date.

The independent auditor refers to both PFRS and PSA when writing the standard audit report. These terms are mentioned in which section?

d. Auditor's Responsibility: PSA | Management's Responsibility: PFRS | Opinion: PFRS

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

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

An explanatory paragraph following an opinion section describes an uncertainty as follows:

"As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements."

What type of opinion should the auditor express in these circumstances?

a. Unmodified

An auditor’s responsibility to express an opinion on the financial statements is

c. Explicitly represented in the “Auditor’s Responsibility” paragraph of the auditor’s report

Which of the following statements indicates a disclaimer of opinion?

b. The auditor does not express an opinion on the financial statements.

A note to the financial statements of the Prudent Bank indicates that all of the records relating to the bank’s 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 should express

c. An unmodified opinion

A modified opinion on the financial statements is necessary when

I. The auditors concludes, based on the audit evidence obtained, that the financial statements as a whole are not free from material misstatement

II. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement

c. Either I or II

Which of the following terms is used in the standard to describe the effects on the financial statements of misstatements or the possible effects on the financial statements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence?

b. Pervasive

A limitation on the scope of the audit may arise from

I. Circumstances beyond the control of the entity

II. Circumstances relating to the nature and timing of the auditor’s work

III. Limitations imposed by management

d. I, II and III

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

b. The financial statements fail to disclose information that is required by Philippine Financial Reporting Standards.

Which of the following phrases would an auditor most likely include in the auditor’s report when expressing a qualified opinion because of inadequate disclosure?

b. Except for the omission of the information included in the Basis for Opinion section

An auditor’s report includes the following statement:

“In our opinion, because of the effects of the matters discussed in the subsequent paragraph, the financial statements do not present fairly, in all material respects, the financial position of ABC Company as of December 31 and of its financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards.”

This auditor’s report contains a/an

d. Adverse opinion

It refers to those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period.

c. Key audit matters

An independent auditor discovers that a payroll supervisor of the company being audited has misappropriated ₱50,000. The company’s total assets and income before tax are ₱70 million and ₱15 million, respectively. Assuming no other issues affect the report, the auditor’s report will most likely contain a/an

a. Unmodified opinion

If an accounting change has no material effect on the financial statements in the current year but the change is reasonably certain to have a material effect in later years, the change should be

b. Disclosed in the notes to the financial statement of the current year.

An auditor concludes that a client’s illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements, the auditor should express

a. Either a qualified opinion or an adverse opinion

An auditor is engaged to audit the financial statements of a publicly listed company. During the audit, the auditor identified several Key Audit Matters (KAMs). Which of the following statements regarding the communication of KAMs in the auditor’s report is NOT correct?

d. The inclusion of KAMs in the auditor’s report modifies the auditor’s opinion on the financial statements.

Which of the following is NOT considered a purpose of communicating Key Audit Matters (KAMs) in the independent auditor’s report?

d. Providing a basis for further engagement with management and those charged with governance.

When communicating Key Audit Matters (KAMs), the auditor should

d. Express a separate opinion on each Key Audit Matter.