CHAPTER 10: The Auditor's Report on 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 for the opinion.

2. If a company’s external auditor expresses am unmodified opinion as a result of the audit of the
company's financial statements, readers of the audit report can assume that
A. The external auditor found no fraud.
B. The company is financially sound and the financial statements are accurate.
C. Internal control is effective.
D. The auditor concludes that the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.

3. When the financial statements contain material but not pervasive misstatements because the
accounting policies selected are not consistent with the applicable financial re framework, the auditor
should
A. Express a qualified opinion and describe the matter giving rise to the modification in a separate
paragraph.
B. Express a qualified opinion and describe the matter giving rise to the modification within the opinion
paragraph.
C. Disclaim an opinion and describe the matter giving rise to the modification in a separate paragraph.
D. Disclaim an opinion and describe the matter giving rise to the modification within the opinion
paragraph.

4. A CPA engaged to audit financial statements observes that accounting for a certain material item is not
in accordance the applicable financial reporting framework, although the departure is prominently
disclosed in a note to the financial statements. The CPA should
A. Express an unmodified opinion but insert an Emphasis of Matter paragraph emphasizing the matter
by reference to the note.
B. Disclaim an opinion.
C. Not allow the accounting treatment for this item to affect the type of opinion because the departure
from the requirement of the applicable financial reporting framework was disclosed.
D. Modify the opinion because of the departure from the requirement of the applicable financial
reporting framework.

5. Whenever there is a scope limitation, the appropriate response is to issue a/an

A. Qualified opinion
B. Adverse opinion
C. Disclaimer of opinion
D. Unmodified report, a qualification of scope and opinion, or a disclaimer, depending on materiality.

6. When a qualified opinion is expressed, the implication is that the auditor

A. Does not believe the financial statements are presented in accordance with the applicable financial
reporting frame work.
B. Does not know if the financial statements are presented in accordance with the applicable financial
reporting frame work.
C. Believes the financial statements are presented fairly.

7. If a misstatement is immaterial to the financial statements of the company for the current period, but
is expected to have a material effect in the future periods, it is appropriate to express a/an
A. Qualified opinion
B. Unmodified opinion
C. Disclaimer of opinion
D. Adverse opinion

8. On January 2, 2013, the TANYA CO. received a notice from primary suppliers that effective
immediately all wholesale prior would be increased 10%. On the basis of the notice, TANYA revalued its
December 31, 2012 Inventory to reflect the higher costs. As a result, the statement of financial position
reflects inventory stated at an amount higher than its net realizable value. The inventory constituted a
material proportion of total assets; however, the effect of the revaluation was material to current assets
but not to total assets or net income. In reporting on the company's financial statements for the year
ended December 31, 2012, in which inventory is valued at the adjusted amount, the auditor would
most likely
A. Express an unmodified opinion provided the nature of the adjustment and the amounts involved are
disclosed in notes to the financial statements.
B. Express a qualified opinion.
C. Disclaim an opinion.
D. Express an adverse opinion.

9. SAMANTHA APARTMENTS Co. completed construction and began to lease a 100-unit apartment on
May 28, 2012. During June, 50 units were leased, and an additional 30 units were eased in July 2013.
During the month of May 2012, the company charged to expense P46, 000 for the cost of advertising, a
grand opening party, and the advertising agency fee for planning the campaign. At December 31, 2013,
the statement of financial position reflected P175,000 of initial direct costs incurred by the company
including commissions and legal fees paid in negotiating the These costs are as carrying amount of the
leased asset and is being recognized as an expense over the term of the lease on the same basis as the
lease income. During your audit of the company's financial statements for the year ended December 31,
2013(conducted in accordance with PSAs), no facts other than those described above came to your
knowledge that would cause your opinion to be other than that the financial statements were presented
fairly in accordance with Philippine Financial Reporting Standards.
What type of opinion should your contain?
A. An adverse opinion
B. An unmodified opinion
C. A disclaimer of opinion
D. A qualified opinion

10. When an auditor modifies an opinion because of inadequate disclosure, the auditor should describe
the nature of the omission in a separate "Basis for Modification” paragraph and modify the

Introductory Paragraph Auditor’s Responsibility Paragraph Opinion Paragraph

A. Yes No No
B. Yes Yes No
C. No Yes Yes
D. No No Yes

11. In which of the following situations would an auditor ordinary choose between expressing a
qualified opinion or an 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 required by the applicable financial reporting
framework
C. The auditor is asked to report only on the entity's statement of financial position and not on the
other gen purpose financial statements.
D. Events disclosed in the financial statements cause the auditor to have substantial doubt about the
entity's ability continue as a going concern.

12. Jervs CPA, concludes that there is significant doubt about GARAY CO.’s ability to continue as a going
concern. If Garay’s financial statements adequately disclose its financial difficulties, Jervs’ report should
Include and Specifically Specifically
Matter Paragraph Use the Word’s Use the
Following the “Going Concern” Words
Opinion Paragraph “Significant
Doubt”
A. Yes Yes Yes
B. Yes Yes No
C. Yes No Yes
D. No Yes Yes
13. Which sections of an auditor's unmodified report on financial statements should refer to Philippine
Standards on Auditing (PSA) and Philippine Financial Reporting Standards (PFRS)?
PSA PFRS
A. Management's Opinion
Responsibility Auditor's Responsibility
B. Auditor's Responsibility Management's Responsibility
Opinion
C. Opinion Management's Responsibility
D. Auditor's Responsibility Opinion

14. Without affecting the CPA’s willingness to express an unmodified opinion on the client’s financial
statements, corporate management may refuse a request to
A. Authorize its attorney to confirm that a list of pending or threatened litigation prepared by
management includes all items known to the attorney.
B. Change its basis of accounting for inventories from first-in, first-out (FIFO) method to weighted
average method.
C. Write down to salvage value certain equipment that is no longer useful.

15. 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 auditor is asked to report on a single financial statement (e.g., a statement of financial position).
B. There is significant doubt about the entity's ability to continue as a going concern.
C. Management's estimates of the effects future events are unreasonable.
D. Certain transactions cannot be tested because of management's records retention policy.

16. If an auditor is satisfied that sufficient evidence supports management’s assertions about an
uncertainly and its presentation or disclosure, the auditor should
A. Express a modified opinion with an Emphasis of Matter paragraph.
B. Express an unmodified opinion with an Emphasis of Matter paragraph.
C. Express an unmodified opinion with an Other Matter paragraph.
D. Express a qualified opinion or disclaim an opinion, depending upon the materiality of the loss.

17. During the year ended December 31, VICTORIA Co. reported its property, plant and equipment at
the lower of cost or market (LCM) because their fair value had declined. The loss has been included in
the income statement and the adjustment has been fully disclosed in the notes. If a CPA believes that
the values reported in the financial statements are reasonable, what opinion should be expressed?
A. An unmodified opinion.
B. A "subject to” qualified opinion.
C. An adverse opinion
D. A disclaimer of opinion
18. Reference to “financial statements” in PSA 700 (Forming an Opinion and Reporting on Financial
Statements), means
A. A complete set of general purpose financial statements, inducing related notes.
B. A complete set of financial statements the financial information needs of specific prepared to meet
the financial information needs of specific users.
C. A complete set of financial statements prepared in accordance with special purpose framework.
D. A complete set of financial statements prepared in accordance with either a general or special
purpose framework.

19. Which of the following statements best describes a compliance framework?

a. Compliance framework requires compliance with the requirements of the framework and
acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statement, it may
be necessary for management to provide disclosures beyond those specifically required by the
framework.
B. A compliance framework requires compliance with the requirements of the framework and
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.
C. A compliance framework only requires compliance with the requirements of the framework.
D. A compliance framework refers to a financial reporting framework designed to meet the financial
information needs of specific users.

20. Which of the following should be considered when forming an opinion on the audited financial
statements?
I. Whether sufficient appropriate audit evidence has been obtained.
II. Whether uncorrected misstatement are material, individually or in aggregate.
III. The qualitative aspects of the entity’s accounting practices, including indicators of possible bias in
management’s judgments.

A. I only
B. I and III only
C. I and II only
D I, II, and III

21. When reporting on financial statements prepared in accordance with a compliance framework, the
auditor shall evaluate
A B C D
a. The overall presentation, structure and content of
the financial statements. No Yes No Yes
b. Whether the financial statements, including
the related notes, represent the underlying
transactions and events in a manner that
achieves fair presentation. No Yes Yes No
22. Management and, when appropriate, those charged with governance have responsibility for
I. The preparation of the financial statements.
II. An adequate description of the framework applied in the preparation of the financial statements.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

23. An audit client’s description that its financial statements are prepared in accordance with a particular
applicable financial reporting framework is appropriate only if
A. The financial statements comply with all the requirements of that framework that are effectively
during the period covered by the financial statements.
B. The financial statements are in substantial compliance with that framework.
C. The financial statement adequately discloses the significant accounting policies selected and applied.
D. The terminology used in the financial statements, including the title of each financial statement, is
appropriate.

24. 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 the other auditors who may not abide by the same ethical
requirements as the independent auditor, the auditor’s report should have an appropriate
A. Addressee
B. Title
C. Signature
D. Opinion

25. The audit report date on an unmodified report indicates

A. The last date on which users may institute a lawsuit against either the client or the auditor.
B. The last day of the auditor's responsibility for the review of significant events occurring after the end
of the reporting period.
C. The end of the reporting period.
D. The date on which the financial statements were filed with the Securities and Exchange Commission.

26. The auditor’s report should be addressed

A. Only to the shareholders of the entity whose financial statements are being directors of the entity
whose financial statements are being audited.
B. Only to the board of directors of the entity whose financial statement are being audited.
C .To the CEO or the CFO of the entity whose financial statements are being audited.
D. Either to the shareholders or the board of directors of the entity whose financial statements are being
audited.
27. Which of the following is included in the introductory or opening paragraph of the auditor’s report?
A. Identification of the financial statement audited, including the date of and period covered by the
financial statements.
B. A statement that the financial statements are the responsibility of the entity’s management.
C. A statement that 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.

28. An entity’s management is responsible for the preparation and fair presentation of the financial
statements. Its responsibility includes the following, expect
A. Designing, implementing, and maintaining internal control relevant to the presentation of the
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.

29. The opinion paragraph of the auditor’s 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

30. The following statements relate to the date of the auditor's report. Which 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 the financial statements are
signed or approved by management.

31. Which of the following statements best express the objective of the traditional of financial audit
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.
32. 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 management's
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 company's financial position,
financial performance, and cash flows without the expertise of an independent auditor.
D. It is management's responsibility to seek available independent aid in the appraisal of the financial
information shown in its financial statements.

33. How are management’s responsibility and the auditor’s responsibility represent in the auditor’s
report?

Management’s Auditor’s
Responsibility Responsibility
A. Implicitly Implicitly
B. Implicitly Explicitly
C. Explicitly Implicitly
D. Explicitly Explicitly

34. In which of the following circumstance would an auditor most likely add an Emphasis of Matter
paragraph to the auditor’s report while expressing an unmodified opinion?
A. There is a substantial doubt about the entity’s ability to continue as a going concern.
B. Management’s estimates of the effects of the future events are unreasonable.
C. No depreciation has been provided in the financial statements.
D. Certain transactions cannot be tested because of management’s records retention policy.

35. An Emphasis of Matter paragraph of an auditor’s report describes an uncertainly 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 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. Unmodified
B. “Except for” qualified
C. “Subject to” qualified
D. Disclaimer of opinion
36. An auditor’s responsibility to express an opinion on the financial statement is
A. Implicitly represented in the auditor’s report.
B. Explicitly represented in the “Auditor’s Responsibility” section of the auditor’s report.
C. Explicitly represented in the “Management’s Responsibility” paragraph of the auditor’s report.
D. Explicitly represented in the opinion paragraph of the auditor’s report.

37. The existence of audit risks is recognized by the statement in the auditor’s 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 misstatement.
D. Assesses the accounting principles used and also evaluates the overall financial statement
presentation.

38. Which of the following statements is a basic element of the auditor’s 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.

39. Which paragraphs of an auditor’s report on financial statements should refer to Philippine Financial
Reporting Standards?
A. Introductory and Opinion
B. Auditor’s Responsibility and Management’s Responsibility
C. Introductory and Auditor’s Responsibility
D. Management’s Responsibility and Opinion

40. An independent auditor discovers that a payroll supervisor of the company being audited has
misappropriated P50, 000. The company’s total assets income before tax are P70 million and P15 million,
respectively. Assuming no other issues affect the report, the auditor’s report will most likely contain a/an
A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Scope qualification

41. A client makes test counts in 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 unmodified 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.

42. 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 auditor’s report should express
A. A qualified opinion
B. An unmodified opinion
C. An adverse opinion
D. A “subject to” opinion

43. An auditor who uses the work of an expert may refer to the auditor’s expert in the auditor’s report if
the
A. Expert is employed by the entity.
B. Expert’s 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.

44. When would the auditor refer to the work of an appraiser in the auditor’s 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 the appraiser.
D. An unmodified opinion is expressed and an Emphasis of Matter paragraph is added to disclose the use
of the appraiser’s work.

45. A modified opinion on the financial statement is necessary when

I. The auditor 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.
A. I only.
B. II only.
C. Either I or II
D. Neither I nor II

46. Which on 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?
A. Persuasive
B. Pervasive
C. Material
D. Extensive

47. The auditor shall express an adverse opinion when

A. The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatement,
individually or in the aggregate, is material, but not pervasive, to the financial statements.
B. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but
the auditor concludes that the possible effects on the financial statements of undetected misstatements,
if any, could be material but not pervasive.
C. The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatement,
individually or in the aggregate, are both material and pervasive to the financial statements.
D. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion,
and the auditor concludes that the possible effects on the financial statements of undetected
misstatement, if any, could be both material and pervasive.

48. 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.
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III

49. The auditor’s inability to obtain sufficient appropriate audit evidence (limitation on scope of the
audit) arising from circumstances beyond the control of the entity includes when
A. The entity’s accounting records have been destroyed.
B. Management prevents the auditor from observing the counting of the physical inventory.
C. The auditor determines that performing substantive procedures alone is not sufficient, but the entity’s
controls are not effective.
D. The timing of the auditor’s appointment is such that the auditor is unable to observe the counting of
the physical inventories.

50. A paragraph include in the auditor’s report that refers to a matter appropriately presented or
disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is
fundamental to users' understanding of the financial statements is called
A. Explanatory paragraph
B. Other Matter paragraph
C. Basis for Modified Opinion paragraph
D. Emphasis of Matter paragraph

51. When the auditor includes an Emphasis of Matter paragraph in the auditor’s unmodified report, the
auditor shall
A. Include it immediately before the Opinion paragraph.
B. Use the heading “Emphasis of Matter” or other appropriate heading.
C. Indicate that the auditor’s opinion is modified in the respect of the matter emphasized.
D. Include it immediately after the Management’s Responsibility paragraph.

52. Which of the following should be included in the opinion paragraph when an auditor expresses a
qualified opinion?

Subject to With the Foregoing Explanation

A. Yes No
B. No Yes
C. No No
D. Yes Yes

53. In which of the following circumstances would an auditor usually choose between expressing a
qualified opinion or disclaiming an opinion?
A. Departure from the requirements of the applicable financial reporting framework.
B. Unreasonable justification for a change in accounting principle.
C. Inability to obtain sufficient appropriate audit evidence.
D. Inadequate disclosure of accounting policies.

54. An auditor decides to express a qualified opinion on an entity’s financial statements because a major
inadequacy in its computerized accounting records prevents the auditor from applying necessary
procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to
A. A client-imposed scope limitation.
B. A departure from PSAs.
C. Inadequate disclosure of necessary information.
D. The possible effects on the financial statements.

55. Sam, CPA, was engaged to audit the financial statements of Mantha Corp. after its fiscal year had
ended. The timing of Sam's appointment as auditor and the start of field work made confirmation of
accounts receivable by direct communication with the debtors ineffective. However, Sam applied other
procedures and was satisfied as to the reasonableness of the account balances. Sam's auditor's report
most likely contained a/an
A. Qualified opinion because of a scope-limitation.
B. Qualified opinion because of a departure from PSAs.
C. Unmodified opinion
D. Unmodified opinion with an Emphasis of Matter paragraph.

56. 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 the entity’s
ability to continue as a going concern.
D. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to its
by other auditing procedures.

57. 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 client's
management.
D. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.

58. 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. Unmodified opinion with an Emphasis of Matter paragraph emphasizing the matter.
D. Qualified opinion because of inadequate disclosure.
59. When a client will not permit inquiry of outside legal counsel the audit report will ordinarily contain
a/an
A. Disclaimer of opinion.
B. Adverse opinion.
C. "Subject to” qualified opinion.
D. Unmodified opinion with an Emphasis of Matter paragraph.

60. Which on the following phrases would an auditor most likely include in the auditor's report when
expressing a qualified opinion because of inadequate disclosure?
A. Do not present fairly in all material respects.
B. Except for the omission of the information included in the Basis for Qualified Opinion paragraph.
C. With the foregoing explanation of these omitted procedures.
D. Subject to the departure from PFRS, as described above.

61. An auditor's report includes the following statement: “In our opinion, because of the effects of the
matters discussed in the Basis for Adverse opinion paragraph, the financial statements do not present
fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, 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
A. Adverse opinion with an Emphasis of Matter paragraph.
B. Adverse opinion with an Other Matter paragraph.
C. Adverse opinion and Explanatory paragraph.
D. Adverse opinion with a Basis for Adverse Opinion paragraph.

62. In which of the following circumstances would an auditor be most likely to express an adverse
opinion?
A. The financial statements are not in conformity with the Philippine Accounting Standards (PAS) on
capitalization of leases.
B. Tests of controls show that the entity’s internal control is so poor that it cannot be relied upon.
C. The Chief Executive Officer refuses the auditor access to minutes of board of directors’ meetings.
D. Information comes to the auditor’s attention that raises substantial doubt about the entity’s ability to
continue as a going concern.

63. An auditor should disclose the substantive reasons for expressing an adverse opinion in the Basis for
Adverse opinion paragraph
A. Following the opinion paragraph.
B. Preceding the opinion paragraph.
C. Following the introductory paragraph.
D. Within the notes to the financial statements.

64. When an auditor expresses an adverse opinion, the paragraph should include
A. The principle effects of the departure from the requirements of the PFRS.
B. The substantive reasons for the financial statements being misleading.
C. A direct reference to a separate paragraph disclosing the basis for the opinion.
D. A description of the uncertainty or scope limitation that prevents an unmodified opinion.

65. There are two broad financial reporting frameworks for comparatives: the corresponding figures and
the comparative financial statements. Which of the following statements is correct concerning these
reporting frameworks?
A. Under the corresponding figures framework, the corresponding figures for the prior period(s) are
integral parts of the current period financial statements.
B. Under the corresponding figures framework, the corresponding figures for the prior period(s) are
considered separate financial statements.
C. Under the comparative financial statements framework, the comparative financial statements for the
prior period(s) are intended to be read in conjunction with the amounts and other disclosures relating to
the current period.
D. Under the comparative financial statements frameworks, the amounts and other disclosures for the
prior period(s) from part of the current period financial statements.

66. The following statements relate to the auditor’s reporting responsibilities regarding comparative
information. Which is/are correct?
I. For corresponding figures, the auditor's report only refers to the financial statements of the current
period.
II. For comparative financial statements, the auditor's report refers to each period that financial
statements are presented.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

67. PSA 710 states that the extent of audit procedures performed on the corresponding figures is
significantly less than for the audit of the current period figures. The auditor’s procedures are ordinarily
limited to ensuring that the corresponding figures have been correctly reported and are appropriately
classified.
The auditor should assess whether
I. Accounting policies used for the corresponding figures are consistent with those of the current period
or whether appropriate adjustments and/or disclosures have been made.
II. Corresponding figures agree with the amounts and the other disclosures presented in the prior period
or whether appropriate adjustments and/or disclosures have been made.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

68. In which of the following circumstances would an auditor's report least likely include specific
reference to the corresponding figures?
A. When the auditor's report on the prior period, as previously issued, included a modified opinion and
the matter which gave rise to the modification is resolved and properly dealt with in the financial
statements.
B. When the auditor's 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
auditor's report regarding the current period figures.
C. When the auditor's report on the prior period, as previously issued, included a modified opinion and
the matter which gave rise to the modification is unresolved, but does not result in a modification of the
auditor's report regarding the current period figures.
D. When the auditor's report on the prior period financial statements containing a material
misstatement included an unmodified opinion and the prior period financial statements have not been
revised and reissued, and the corresponding figures have not been properly restated and/or appropriate
disclosures have not been made.

69. According to PSA 710, the incoming auditor may refer to the predecessor auditor’s report on the
corresponding figures in the incoming auditor's report for the current period. The incoming auditor's
report should indicate
I. That the financial statements of the prior period were audited by the predecessor auditor.
II. The type of opinion issued by the predecessor auditor.
III. The date of the predecessor auditor's report.
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III

70. When the prior period financial statements are not audited, the incoming auditor should state in the
auditor's report that
I. The corresponding figures are unaudited.
II. The incoming auditor is not required to perform procedures regarding opening balances of the
current period.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

71. J, CPA, audited JST Company’s prior-year financial statements, These statements are presented with
those of the current year for comparative purpose without J’s auditor’s report, which expressed a
qualified opinion. In drafting the current year’s auditor’s report, S, CPA, the incoming auditor, should
I. Not name J as the predecessor auditor.
II. Indicate the type of opinion issued by J.
III. Indicate the substantive reasons for J’s qualification.
IV. Indicate the date of J’s auditor’s report.

A. I, II, and IV only

B. II, III, and IV only
C. I, II and III only
D. I, II, III and IV

72. When comparative financial statements are presented, the auditor's opinion on the financial
statements shall refer to
A. Current period only.
B. Current period and those of the other periods presented.
C. Current and immediately preceding period only
D. Periods presented plus one preceding period

73. Comparative financial statements include the financial statements of the prior year that were audited
by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the
incoming auditor should
A. Express an opinion only on the current year's statements and make no reference to the prior year's
statements.
B. Issue an updated comparative audit report indicating the division of responsibility.
C. Request the client to reissue the predecessor's report on the prior year's statements.
D. Indicate the substantive reasons for the qualification in the predecessor auditor's opinion.
74. Comparative financial statements include the prior year’s statements that were audited by a
predecessor auditor whose report is not presented. If the predecessor’s report was unqualified, the
incoming auditor should
A. Indicate in the auditor’s report that the predecessor auditor expressed an unmodified opinion.
B. Express an opinion on the current year's statements alone, and make no reference to the prior year's
statements.
C. Obtain a letter of representations from the predecessor auditor concerning any matters that might
affect the incoming auditor's opinion.
D. Request the predecessor auditor to reissue the prior year's report.

75. The predecessor auditor, who is satisfied after properly communicating with the incoming auditor,
has reissued his/her auditor's report on prior year financial statements. The predecessor auditor's
report should
A. Refer to the work of the incoming auditor in the scope and opinion paragraphs.
B. Refer to the report of the incoming auditor only in the scope paragraph.
C. Refer to both the work and the report of the incoming auditor only in the opinion paragraph.
D. Not refer to the report or the work of the incoming auditor.

76. An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of
adequate disclosure. These financial statements are properly restated in the current year and presented
in comparative form with the current year's financial statements. The auditor's updated report on the
prior year's financial statements should
A. Make no reference to the type of opinion expressed on the prior year's financial statements.
B. Express an unmodified opinion on the restated financial statements of the prior year.
C. Be accompanied by the auditor's original report on the prior year's financial statements.
D. Continue to express a qualified opinion on the prior year’s financial statements.

77. In performing the audit on the current period financial statements, the incoming auditor, in certain
unusual circumstances may become aware of a material misstatement that affects the period statements
on which the predecessor auditor had previously reported without modification. In these circumstances,
the incoming auditor should
I. Discuss the matter with management.
II. Request that the predecessor auditor be informed.

A. I only
B. II only
C. Both I and II
D. Neither I nor II
78. The following statements relate to unaudited prior year financial statements that are presented in
comparative form with audited current year financial statements. Which is incorrect?
A. The incoming auditor should state in the auditor’s report that the comparative financial statements
are unaudited.
B. The incoming auditor need not perform audit procedures regarding opening balances of the current
period.
C. Clear disclosure in the financial statements that the comparative financial statements are unaudited is
encouraged.
D. In situations where the incoming auditor identifies that the prior year unaudited figures are
materially misstated, the auditor should request management to revise the prior year's figures or if
management refuses to do so, appropriately modify the report.

79. A client is presenting comparative (two-year) financial statements. Which of the following is correct
concerning reporting responsibilities of a continuing auditor?
A. The auditor may issue either one audit report on both presented years, or two audit reports, one on
each year.
B. The auditor should issue one audit report, but only on the most recent year.
C. The auditor should issue two audit reports, one on each year.
D. The auditor should issue one audit report that is on both presented years.

80. 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 whether 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.

81. An auditor concludes that there is a material inconsistency in the other information in an annual
report to shareholders con tainting audited financial statements. If the auditor concludes that the
financial statements do not require client refuses to revise eliminate the material revision, but the
inconsistency the auditor may
A. Disclaim an opinion on the financial statements after explaining the material inconsistency in an
emphasis of matte paragraph.
B. Revise the auditor's report to include an Other Matter paragraph describing the material
inconsistency.
C. Express a qualified opinion after discussing the matter with the client's directors.
D. Consider the matter dosed because the other information is not in the audited statements.

82. PSA 720(The Auditors Responsibility in Relation to other Information in Documents Containing
Audited Financial Statements) 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 revised." What type of opinion should be expressed if the client refuses
to make the necessary revision in the financial statements?
A. Disclaimer of opinion.
B. Qualified opinion or disclaimer of opinion.
C. Unmodified opinion with an Other Matter paragraph describing the material inconsistency.
D. Qualified or adverse opinion.

83. 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?
A. Subject to the departure from generally accepted accounting principles, as described above.
B. With the foregoing explanation of these omitted disclosures.
C. Except for the omission of the information discussed in the Basis for Qualified opinion paragraph.
D. Do not present fairly in all material respects.

84. LEONOR CO.’s financial statements adequately disclose uncertainties that concern future events, the
outcome of which are not susceptible to reasonable estimation. The auditor’s report should include
A. An unmodified opinion
B. A “subject to” qualified opinion
C. An “except for” qualified opinion
D. An adverse opinion

85. RR 15-2010 requires disclosure of specific information on various taxes in the Notes to Financial
Statements that will accompany the income tax returns to be filed with the BIR. These disclosure
requirements
A. Form part of the disclosure requirements under PFRS.
B. Form part of the disclosure requirements under PFRS for SMEs.
C. Form part of the disclosure requirements under PFRS a PFRS for SMEs.
D. Do not form part of the disclosure requirements under PFRS and other Philippine financial reporting
frameworks such as PFRS for SMEs.

86. Under the PSAs, the tax information required by RR 15-2010 that is presented as part of the notes to
the financial statements is considered
A. Significant information
B. Other information
C. Supplementary information
D. Material information

87. The tax information disclosures under RR 15-2010 are required to be presented
A. Only in the consolidated financial statements.
B. Both in the consolidated financial statements and the separate financial statements of the parent
company and its subsidiary/ies.
C. Only in the consolidated financial statements and the separate financial statements of the parent
company.
D. Only in the separate financial company and the separate financial statements of the parent
statements of the subsidiary/ies.

88. Where the supplementary information required by RR 15-2010 is not clearly differentiated from the
financial statement, such supplementary information shall be
A. Addressed in separate section in the auditor’s report under the sun-title “Report on Other Legal
Regulatory Requirements.”
B. Addressed in a separate section in the auditor’s report under the sub-title “Report on the
Supplementary Information Required under RR 15-2010.”
C. Addresses in an emphasis-of-matter paragraph in the auditor’s report.
D. Covered by the auditor’s opinion on the financial statements.

89. When the supplementary information required under RR 15-2010 is not presented
A. The auditor’s “Report on the Financial Statement” would not be affected because such supplementary
information is not part of the basic financial statements.
B. The auditor is precluded from expressing an opinion on the financial statements.
C. The auditor’s report should contain a qualified opinion.
D. The auditor’s report should contain an adverse opinion.

90. The supplementary information required under RR 15-2010 is clearly differentiated from the audited
financial statements. How would the “Report on the Supplementary Information” be affected if the
auditor’s “Report on the Financial Statements” contains an adverse opinion?
A. The auditor should express a qualified opinion on the supplementary information.
B. To attain consistency in reporting, the auditor should express an adverse opinion on the
supplementary information.
C. The auditor is precluded from expressing an opinion on the supplementary information.
D. The auditor should express an unmodified opinion on the supplementary information because such
information is not a required part of the audited financial statements.

KEY ANSWER
1. B 19. C 37. C 55. C 73. D
2. D 20. D 38. C 56. B 74. A
3. A 21. A 39.D 57. A 75. D
4. D 22. C 40. A 58. D 76. B
5. D 23. A 41.B 59. A 77. C
6. D 24. B 42. B 60. B 78. B
7. B 25. B 43. C 61. D 79. D
8. B 26. D 44. A 62. A 80. A
9. B 27. A 45. C 63. B 81. B
10. C 28. D 46. B 64. C 82. D
11. B 29. C 47. C 65. A 83. C
12. A 30. C 48. D 66. C 84. A
13. B 31. A 49. A 67. C 85. D
14. B 32. B 50. D 68. A 86. C
15. B 33. D 51. B 69. D 87. D
16. B 34. A 52. C 70. A 88. D
17. C 35. A 53. C 71. D 89. A
18. A 36. B 54. D 72. B 90. C