Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

AT.3218 SOLIMAN/UY/RICAFRENTE
The Auditor’s Report MAY 2022

References:
• PSA 220, Quality Control for an Audit of Financial Statements
• PSA 260, Communication with Those Charged with Governance
• PSA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
• PSA 450, Evaluation of Misstatements Identified during the Audit
• PSA 500, Audit Evidence
• PSA 700, Forming an Opinion and Reporting on the Financial Statements
• PSA 701, Communicating Key Audit Matters in the Independent Auditor’s Report
• PSA 705, Modifications to the Opinion in the Independent Auditor’s Report
• PSA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
• PSA 710, Comparative Information—Corresponding Figures and Comparative Financial Statements
• PSA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial
Statements

LECTURE NOTES
Introduction Evaluating Misstatements

At the end of the audit, the auditor shall:
1. Form an opinion on the financial statements (financial
statements) based on the conclusions drawn from the
audit evidence obtained; and
2. Express clearly that opinion through a written report.
Forming the Auditor’s Opinion
Misstatement is a difference between the amount,
classification, presentation, or disclosure of a reported
financial statement item and the amount, classification,
presentation, or disclosure that is required for the item to
be in accordance with the applicable financial reporting
framework. Misstatements can arise from error or
fraud. Misstatements may be identified at any stage of the
audit. Misstatements may result from:

1. Unmodified (unqualified) opinion—The opinion • An inaccuracy in gathering or processing data from

expressed when the financial statements are prepared,
in all material respects, in accordance with the
applicable financial reporting framework.
2. Modified opinion—The three types of are:
• Qualified opinion—the auditor is satisfied that the
financial statements are presented fairly, except for
a specific aspect of them.
• Adverse opinion—the auditor does not believe the
financial statements are fairly presented.
• Disclaimer of opinion—the auditor does not know if
the financial statements are presented fairly.
which the financial statements are prepared
• An omission of an amount or disclosure
• An incorrect accounting estimate arising from
overlooking or clear misinterpretation of facts
• Judgments of management concerning accounting
estimates that the auditor considers unreasonable or
the selection and application of accounting policies that
the auditor considers inappropriate.
Types of Misstatements
• Factual misstatements are misstatements about which
there is no doubt.

Pervasive effects or possible effects on the financial
statements are those that, in the auditor’s judgment:
1. Are not confined to specific elements, accounts or items
of the financial statements;
2. If so confined, represent or could represent a
substantial proportion of the financial statements; or
3. In relation to disclosures, are fundamental to users’
understanding of the financial statements.
Evaluating Audit Evidence
Based on the audit procedures performed and the audit
evidence obtained, the auditor shall evaluate, before the
conclusion of the audit whether the assessments of the risks
of material misstatement at the assertion level remain
appropriate. The sufficiency and appropriateness of audit
evidence obtained primarily depend on the auditor’s
professional judgment.
• Judgmental misstatements are differences arising from
the judgments of management concerning accounting
estimates that the auditor considers unreasonable, or
the selection or application of accounting policies that
the auditor considers inappropriate.
• Projected misstatements are the auditor’s best estimate
of misstatements in populations, involving the
projection of misstatements identified in audit samples
to the entire population from which the samples were
drawn.
• Uncorrected misstatements Any misstatements (except
those clearly trivial) that the auditors find should be
corrected; otherwise, they cannot issue an unqualified
opinion on the financial statements. Unrecorded
misstatements are combined as total likely
misstatement in the financial statements and
considered.

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EXCEL PROFESSIONAL SERVICES, INC.
Forming the Auditor’s Reports
The auditor’s report shall be in writing (hard copy format or
an electronic medium). The auditor’s may be an unmodified
report or a modified report, depending upon the results of
the audit.
Unmodified Auditor’s Report
With the exception of the Opinion and Basis for Opinion
sections, PSA 700 does not establish requirements for
ordering the elements of the auditor’s report. However, it
requires the use of specific headings, which are intended to
assist in making auditor’s reports more recognizable. The
elements of unmodified auditor’s report are:
Unmodified Auditor’s Report – Elements
1. Title
2. Addressee
3. Report on the Audit of the Financial Statements -
Omitted if no Other Reporting Responsibilities
4. Opinion
5. Basis for Opinion
6. Material Uncertainty Related to Going Concern (If
applicable)
7. Key Audit Matters (KAP) (if applicable e.g., Listed
entities)
8. Other Information (if applicable)
9. Responsibilities of Management and Those Charge With
Governance for the Financial Statements
10. Auditor's Responsibilities for the Audits of Financial
Statements
11. Other Reporting Responsibilities (ORR) - If applicable
12. Name of the Engagement Partner (Required only for
listed entities)
13. Signature of the auditor
14. Auditor's address
15. Date of Auditor's Report
Title
• Clearly indicates report of an independent auditor.
• Distinguishes this report from reports issued by others.
• Signifies compliance with independence requirements.
Addressee
• Addressed based on engagement’s circumstances.
• Normally those for whom the report is prepared, often
either to the shareholders or to TCWG.
Report on the Audit of the Financial Statements
• Serves as the sub-title.
• Used to separate other reporting responsibilities.
Opinion
The first section of the auditor’s report, which also:
a. Identify the entity whose financial statements have
been audited;
b. State that the financial statements have been audited;
c. Identify the title of each statement comprising the
financial statements;
d. Refer to the notes, including the summary of significant
accounting policies; and
e. Specify the date of, or period covered by, each financial
statements comprising the financial statements
Basis for Opinion
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a. States that the audit was conducted based on PSAs;
b. Refers to the section of the auditor’s report that
describes the auditor’s responsibilities under the PSAs;
c. Includes a statement that the auditor is independent of
the entity in accordance with the relevant ethical
requirements relating to the audit, and has fulfilled the
auditor’s other ethical responsibilities in accordance
with these requirements; and
d. States whether the auditor believes that the audit
evidence the auditor has obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion.
Material Uncertainty Related to Going Concern (GC)
• Applicable if the auditor considers a material
uncertainty related to going concern exists.
Example:
Material Uncertainty Related to Going Concern
We draw attention to Note X in the financial
statements, which indicates that the Company
incurred a net loss of (amount) during the year ended
December 31, 20X1 and, as of that date, the
Company’s current liabilities exceeded its total assets
by (amount). As stated in Note X, these events or
conditions, along with other matters as set forth in
Note X, indicate that a material uncertainty exists that
may cast significant doubt on the Company’s ability to
continue as a going concern. Our opinion is not
modified in respect of this matter.
Key Audit Matters (KAM)
• Applicable to audit of listed entities, or where required
by law or regulation.
• KAM refer to matters that, in the auditor’s professional
judgement, are most significant to the audit.
• Auditor is required to include each KAM unless (1) law
or regulation precludes disclosure, or (2) in extremely
rare circumstances, the auditor determines that the
matter should not be communicated when adverse
consequences of communicating the KAM would
reasonably be expected to outweigh the public interest
benefits of such communication.
• KAM is prohibited for a disclaimer of opinion, but
required for a qualified or adverse opinion.
• In certain limited circumstances, there may be no KAM
to be communicated. The auditor’s report includes a
statement to that effect.
Example:
Revenue Recognition
The amount of revenue and profit recognized in the
year on the sale of [name of product] and aftermarket
services is dependent on the appropriate assessment
of whether or not each long-term aftermarket contract
for services is linked to or separate from the contract
for sale of [name of product]. As the commercial
arrangements can be complex, significant judgment is
applied in selecting the accounting basis in each case.
In our view, revenue recognition is significant to our
audit as the Company might inappropriately account
for sales of [name of product] and long-term service
agreements as a single arrangement for accounting
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EXCEL PROFESSIONAL SERVICES, INC.
purposes and this would usually lead to revenue and
profit being recognized too early because the margin
in the long-term service agreement is usually higher
than the margin in the [name of product] sale
agreement.
Our audit procedures to address the risk of material
misstatement relating to revenue recognition, which
was considered to be a significant risk, included:
• Testing of controls, assisted by our own IT
specialists, including, among others, those over:
input of individual advertising campaigns’ terms
and pricing; comparison of those terms and
pricing data against the related overarching
contracts with advertising agencies; and linkage
to viewer data; and
• Detailed analysis of revenue and the timing of its
recognition based on expectations derived from
our industry knowledge and external market data,
following up variances from our expectations.
Other Information
• For the audit of listed entities or any other entity where
the auditor has obtained other information, an ‘Other
information’ section should be included in the auditor’s
report. This section should include:
• a statement that management is responsible for the
other information
• an identification of the other information obtained
before the date of the auditor’s report (for listed
entities, also the other information expected to be
obtained after the date of the auditor’s report)
• a statement that the auditor’s opinion does not cover
the other information
• a description of the auditor’s responsibilities for reading,
considering and reporting on other information, and
• where other information has been obtained, either a
statement that the auditor has nothing to report, or a
description of any uncorrected material misstatement
(See “Auditor’s Report—Other Information Included in an
Entity’s Annual Report” below for further discussion.)
Responsibilities of MGT and TCWG for the Financial
Statements
This part of the report describes the responsibilities of those
who are responsible for the preparation of the financial
statements. This section should describe management's
responsibility including the following:
• The preparation of the financial statements.
• The implementation of internal control necessary to
enable the preparation of financial statements that are
free from material misstatement, whether due to error
or fraud.
• The assessment of the entity’s ability to continue as a
going concern, the appropriateness of the going
concern.
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Auditor’s Responsibilities for the Audit of the
Financial Statements
The report must state that:
• the auditor’s objectives are to obtain reasonable
assurance whether the financial statements as a whole
are free from material misstatement, and to issue an
auditor’s report that includes the auditor’s opinion; and
• reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in
accordance with the PSAs will always detect a material
misstatement when it exists.
The report must also:
• explain that misstatements can arise from fraud or error
• describe the meaning of materiality
• explain that the auditor exercises professional
judgement and maintains professional skepticism
throughout the audit
• describe the auditor’s responsibilities in an audit.
The description of the auditor’s responsibilities must either
be set out in the body of the auditor’s report, in an appendix
to the auditor’s report or by including a specific reference in
the body of the auditor’s report to such a description on the
website of an appropriate authority, where this is permitted
by law and regulation.
Other Reporting Responsibilities (ORR)
If the auditor is required by law to report on any other
matters, this must be done in an additional paragraph titled
“Report on other legal and regulatory requirements’ or
otherwise as appropriate.
(See “Auditor’s Report—Supplementary Information
Presented with Financial Statements” below for further
discussion.)
Name of the Engagement Partner and Signature of
the Auditor
The name of the engagement partner should be identified,
unless such a disclosure is reasonably expected to lead to a
significant personal security threat. The report must contain
the auditor's signature, whether this is the auditor's own
name or the audit firm's name or both.
In the Philippines, Securities Regulation Code (SRC) Rule 68
requires that the auditor’s report on financial statements
filed with the Securities and Exchange Commission (SEC),
which will likewise be filed with the Bureau of Internal
Revenue (BIR), be manually signed. In case of an auditing
firm, the certifying partner shall sign his/her own signature
and shall indicate that he/she is signing for the firm, the
name of which is also indicated in the report. The auditor
is also required to state the signing accountant’s license
number, Tax Identification No. (TIN), Privilege Tax Receipt
(PTR) No., registration number with the PRC/BOA, and
accreditation issued by the SEC.
Auditor’s Address
The auditor’s report shall name the location in the
jurisdiction where the auditor practices.
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EXCEL PROFESSIONAL SERVICES, INC.
Date of the Auditor’s Report
The report must be dated no earlier than the date sufficient
appropriate audit evidence was obtained on which to base
the auditor's opinion on the financial statements.
Modified Auditor’s Report
There are two ways in which the auditor’s report may be
modified: (1) modifying the auditor’s opinion and (2)
including Emphasis of Matter and Other Matter paragraph
without necessarily modifying the auditor’s opinion.
Modified Auditor’s Report—Modified Opinion
The auditor modifies the following sections of the auditor’s
report in case a modified opinion is expressed:
1. Auditor’s opinion;
2. Basis for opinion;
3. Description of auditor’s responsibilities, in case of
disclaimer of opinion; and
4. Omission of KAM, in case of disclaimer of opinion.
Auditor’s Opinion
When the auditor modifies the audit opinion, the auditor
shall use the heading “Qualified Opinion,” “Adverse
Opinion,” or “Disclaimer of Opinion,” as appropriate, for the
Opinion section, such as:
Qualified Opinion
Wordings are the same with unmodified opinion but
with additional phrase, as follows: “…except for the
effects of the matter described in the Basis for
Qualified Opinion section of our report…”
When the auditor expresses a qualified opinion, it
would not be appropriate to use phrases such as “with
the foregoing explanation” or “subject to” in the
Opinion section as these are not sufficiently clear or
forceful.
Adverse Opinion
“In our opinion, because of the significance of the
matter discussed in the Basis for Adverse Opinion
section of our report, the accompanying financial
statements do not present fairly…”
Disclaimer of Opinion
“We do not express an opinion on the accompanying
financial statements of the Company. Because of the
significance of the matter described in the Basis for
Disclaimer of Opinion section of our report, we have
not been able to obtain sufficient and appropriate audit
evidence to provide a basis for an audit opinion on
these consolidated financial statements.”
Basis for Opinion
When the auditor modifies the opinion on the financial
statements, the auditor shall, in addition to the specific
elements of the unmodified report:
1. Amend the heading “Basis for Opinion” to “Basis for
Qualified Opinion,” “Basis for Adverse Opinion,” or
“Basis for Disclaimer of Opinion,” as appropriate; and
2. Within this section, include a description of the matter
giving rise to the modification.
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Examples of are given below:
Qualified Opinion
The company's inventories are carried in the
statement of financial position at xxx. Management
has not stated inventories at the lower of cost and net
realizable value but has stated them solely at cost,
which constitutes a departure from PFRSs. The
company's records indicate that, had management
stated the inventories at the lower of cost and net
realizable value, an amount of xxx would have been
required to write the inventories down to their net
realizable value. Accordingly, cost of sales would have
been increased by xxx, and income tax, net income
and shareholders' equity would have been reduced by
xxx, xxx and xxx, respectively.
Adverse Opinion
As explained in Note X, the Group has not consolidated
subsidiary XYZ Company that the Group acquired
during 20X1 because it has not yet been able to
determine the fair values of certain of the subsidiary’s
material assets and liabilities at the acquisition date.
This investment is therefore accounted for on a cost
basis. Under PFRSs, the Company should have
consolidated this subsidiary. Had XYZ Company been
consolidated, many elements in the accompanying
consolidated financial statements would have been
materially affected. The effects on the consolidated
financial statements of the failure to consolidate have
not been determined.
Disclaimer of Opinion
We were not appointed as auditors of the company
until after December 31, 20X1 and thus did not
observe the counting of physical inventories at the
beginning and end of the year. We were unable to
satisfy ourselves by alternative means concerning the
inventory quantities held at December 31, 20X0 and
20X1 which are stated in the statement of financial
position at xxx and xxx, respectively. In addition, the
introduction of a new computerised accounts
receivable system in September 20X1 resulted in
numerous errors in accounts receivable. As of the date
of our audit report, management was still in the
process of rectifying the system deficiencies and
correcting the errors. We were unable to confirm or
verify by alternative means accounts receivable
included in the statement of financial position at a total
amount of xxx as at December 31, 20X1. As a result
of these matters, we were unable to determine
whether any adjustments might have been found
necessary in respect of recorded or unrecorded
inventories and accounts receivable, and the elements
making up the statement of profit or loss, statement
of changes in equity and cash flow statement.
Description of Auditor’s Responsibilities, In Case of
Disclaimer of Opinion
Include only the following:
1. A statement that the auditor’s responsibility is to
conduct an audit of the entity’s financial statements in
accordance with PSAs and to issue an auditor’s report;
2. A statement that, however, because of the matter(s)
described in the Basis for Disclaimer of Opinion section,
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EXCEL PROFESSIONAL SERVICES, INC.
the auditor was not able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on
the financial statements; and
3. The statement about auditor independence and other
ethical responsibilities.
Omission of KAM, In Case of Disclaimer of Opinion
Unless required by law or regulation, when the auditor
disclaims an opinion on the financial statements, the
auditor’s report shall not include a KAM.
Modified Auditor’s Report—Emphasis of Matter (EOM) and
Other Matter (OM)
The placement of an EOM paragraph or OM paragraph in the
auditor’s report depends on (1) the nature of the
information to be communicated, and (2) the auditor’s
judgment as to the relative significance of such information
to intended users compared to other elements required to
be reported.
Emphasis of Matter (EOM)
EOM refers to a paragraph included 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.
Including an EOM in the auditor’s report is appropriate
provided the auditor would not be required to (1) modify
the opinion as a result of the matter, and (2) the matter has
not been determined to be a KAM.
EOM paragraphs are no longer used in relation to going
concern. Instead the auditor now uses a “Material
uncertainty” paragraph.
When the auditor includes an EOM paragraph in the
auditor’s report, the auditor shall:
1. Include the paragraph within a separate section of the
auditor’s report with an appropriate heading that
includes the term “Emphasis of Matter”;
2. Include in the paragraph a clear reference to the matter
being emphasized and to where relevant disclosures
that fully describe the matter can be found in the
financial statements. The paragraph shall refer only to
information presented or disclosed in the financial
statements; and
3. Indicate that the auditor’s opinion is not modified in
respect of the matter emphasized.
An example is given below.
Emphasis of Matter – Effects of Fire
We draw attention to Note X of the financial
statements, which describes the effects of a fire in the
Company’s production facilities. Our opinion is not
modified in respect of this matter.
Other Matter (OM)
OM refers to a paragraph included in the auditor’s report
that refers to a matter other than those presented or
disclosed in the financial statements that, in the
auditor’s judgment, is relevant to users’ understanding of
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the audit, the auditor’s responsibilities or the auditor’s
report.
Including OM in the auditor’s report is appropriate provided
the auditor (1) is not prohibited by law or regulation, and
(2) the matter has not been determined to be a KAM.
When the auditor includes an OM paragraph in the auditor’s
report, the auditor shall include the paragraph within a
separate section with the heading “Other Matter,” or other
appropriate heading. An example of an OM is:
Other Matter
The financial statements of ABC Company for the year
ended December 31, 20X0, were audited by another
auditor who expressed an unmodified opinion on those
statements on March 31, 20X1.
Auditor’s Report—Other Information Included in an
Entity’s Annual Report
Other information refers to financial or non-financial
information (other than financial statements and the
auditor’s report thereon) included in an entity’s annual
report. Examples of other information include the following:
• A report by MGT or TCWG on operations
• Financial summaries or highlights
• Employment data
• Planned capital expenditures
• Financial ratios
• Names of officers and directors
• Selected quarterly data
The auditor shall read the other information to identity
material inconsistencies with the audited financial
statements. If a material inconsistency is identified, the
auditor shall determine whether the audited financial
statements or other information is misstated.
If the financial statements are materially misstated but
management refuses to correct the misstatement, the
auditor shall modify the audit opinion.
If the other information is materially misstated and needs
to be revised but management refuses, the auditor shall
communicate this matter to TCWG and:
• Include an Other information section in the auditor's
report that describes the material inconsistency, or
• Withdraw from the engagement (where this is legally
permitted).
Misstatement of the other information exists when the other
information is incorrectly stated or otherwise
misleading. For example, omission of a key performance
indicator used by management could indicate that the other
information is misleading.
Auditor’s Report—Supplementary Information
Presented with the financial statements
Supplementary information refers to information that is
presented together with the financial statements that is not
required by the applicable financial reporting framework
used to prepare the financial statements, normally
presented in either (1) supplementary schedules or as (2)
additional notes. The auditor’s reporting responsibilities
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EXCEL PROFESSIONAL SERVICES, INC.
depend on whether or not supplementary information is
considered integral part of the financial statements, as
discussed below.
Integral Part of the Financial Statements
The supplementary information shall be covered by the
auditor’s opinion. The auditor’s opinion would also cover
notes or supplementary schedules that are cross-referenced
from the financial statements. An example is given below.
Report on the Supplementary Information Required
Under Revenue Regulations 15-2010
Our audit was conducted for the purpose of forming
an opinion on the basic financial statements taken as
a whole. The supplementary information required
under Revenue Regulations 15-2010 in [Note XX] to
the financial statements is presented for purposes of
filing with the Bureau of Internal Revenue and is not
part of the basic financial statements. Such
information is the responsibility of management of
[Name of Client]. The information has been subjected
to the auditing procedures applied in our audit of the
basic financial statements. In our opinion, the
information is fairly stated, in all material respects, in
relation to the basic financial statements taken as a
whole.
Not Integral Part of the Financial Statements
Evaluate whether such supplementary information is
presented in a way that sufficiently and clearly differentiates
it from the audited financial statements. One way of
differentiating unaudited supplementary information is by
labeling it as “unaudited.” If management refuses to do so,
the auditor shall identify the unaudited supplementary
information and explain in the auditor’s report that such
supplementary information has not been audited. This
identification may most likely be done as part of Other
Matter (OM) paragraph or in other sections of auditor’s
report, as may be judged appropriate by the auditor.
DISCUSSION QUESTIONS
Forming Opinion and Report—An Overview
1. Forming the auditor’s opinion and report includes
a. b. c.
Determining the sufficiency
and appropriateness of
audit evidence obtained. Yes Yes Yes Yes
Evaluating the materiality of
misstatements identified. Yes Yes Yes No
Performing necessary quality
control review. Yes Yes No Yes
Communicating audit results
with management and
those charged with Yes No No Yes
governance.
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Auditor’s Report—Comparative Information
The two types of comparative information are:
1. Corresponding figures—comparative information where
amounts and other disclosures for the prior period are
included as an integral part of the current period
financial statements, and are intended to be read only
in relation to the amounts and other disclosures relating
to the current period (referred to as “current period
figures”). The level of detail presented in the
corresponding amounts and disclosures is dictated
primarily by its relevance to the current period figures;
and
2. Comparative Financial Statements—comparative
information where amounts and other disclosures for
the prior period are included for comparison with the
financial statements of the current period but, if
audited, are referred to in the auditor’s opinion. The
level of information included in those comparative
financial statements is comparable with that of the
financial statements of the current period. PAS
1, Presentation of Financial Statements, requires this
approach. The auditor shall update the previously
expressed opinion on the comparative financial
statements.
In case that the prior period financial statements were
unaudited or audited by a predecessor auditor, the auditor
shall state (if not prohibited) in an Other Matter paragraph
in the auditor’s report:
• That the financial statements of the prior period were
audited by the predecessor auditor;
• The type of opinion expressed and, if the opinion was
modified, the reasons therefore; and
• The date of that report.
An example of Other Matter of that is given below.
Other Matter
The financial statements of the Company for the year
ended December 31, 20X0, were audited by another
auditor who expressed an unmodified opinion on those
statements on March 31, 20X1.
2. After the auditor has completed all audit procedures, it
is necessary to combine the information obtained to
reach an overall conclusion as to whether the financial
d. statements are fairly presented. This is a highly
subjective process that relies heavily on:
a. generally accepted auditing standards.
b. the Code of Professional Ethics.
c. generally accepted accounting principles.
d. the auditor’s professional judgment.
Evaluating Materiality of Misstatements
3. Projected misstatements refer to
a. Misstatements about which there is no doubt
b. Differences arising from management’s judgments
concerning accounting estimates that the auditor
considers unreasonable, or the selection or
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EXCEL PROFESSIONAL SERVICES, INC.
application of accounting policies that the auditor
considers inappropriate
c. The auditor’s best estimate of misstatements in
populations, involving the projection of
misstatements identified in audit samples to the
entire populations from which the samples were
drawn
d. Misstatements that the auditor has accumulated
during the audit and that management has not
corrected
4. Management estimates the company's allowance for
doubtful accounts as P200,000, and the auditors
develop an estimate that suggests that the amount
should be between P230,000 and P250,000. The factual
(known) misstatement in this situation is:
a. P0 c. P40,000
b. P30,000 d. P50,000
5. Which of the following statements is correct regarding
the auditor's accumulation of identified misstatements?
a. The auditor must accumulate all misstatements
identified during the audit.
b. The auditor must only accumulate individually
material misstatements identified during the audit.
c. The auditor must accumulate misstatements
identified during the audit, other than those that are
clearly trivial.
d. None of the above.
6. At the end of the audit the auditor is supposed to
accumulate and evaluate the need for adjustment of
a. known uncorrected errors.
b. unknown projected errors.
c. carryover of prior year errors.
d. all of the above.
7. What is the likely aggregate misstatement when the
audit results are as follows?
• Likely misstatement = P1,000
• Identified misstatement found in non-
representative samples = P850
• Misstatements found in prior year’s financial
statements = P2,500 (of which P1,900 was
corrected in the prior year)
a. P1,850 c. P2,900
b. P2,450 d. P3,500
8. When expressing an unqualified opinion, the auditor
who evaluates the audit findings should be satisfied that
the
a. Amount of known misstatement is documented in
the management representation letter.
b. Estimate of the total likely misstatement is less than
a material amount.
c. Amount of known misstatement is acknowledged
and recorded by the client.
d. Estimate of the total likely misstatement includes
the adjusting entries already recorded by the client.
Performing Engagement Quality Control Review
(EQCR)
9. Which of the following is likely to be carried out as part
of an engagement quality control review for a listed
entity?
(1) Review of audit working paper files to ensure that
the audit has been performed in accordance with
professional standards and regulatory and legal
requirements
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(2) Review of selected audit documentation relating to
significant audit judgements
(3) Review of the engagement team's evaluation of the
firm's independence towards the audit
(4) Consideration of whether appropriate consultations
have taken place on differences of
opinion/contentious matters
a. (1) and (3)
b. (2) and (4)
c. (1), (2) and (4)
d. (2), (3) and (4)
Communicating with TCWG, MGT, and Other Parties
10. All of the following matters need to be communicated
with those charged with governance in an audit of
financial statements irrespective of an entity’s
governance structure or size. In accordance with PSA
260, Communication with Those Charged with
Governance, which of the following shall be
communicated in writing in case of listed entities?
a. The auditor’s responsibilities in relation to the
financial statement audit.
b. Planned scope and timing of the audit.
c. Significant findings from the audit.
d. Auditor independence.
11. Which of the following statements is correct concerning
an auditor’s required communication with those charged
with governance of an audit client?
a. This communication is required to occur before the
auditor’s report on the financial statements is
issued.
b. This communication should include discussion of
any significant disagreements with management
concerning the financial statements.
c. Any significant matter communicated to the audit
committee should be communicated to
management.
d. Significant audit adjustments proposed by the
auditor and recorded by management need not be
communicated with those charged with governance.
12. Which of the following shall be included in the written
communication of significant deficiencies in internal
control?
a. A description of the deficiencies and an explanation
of their potential effects.
b. The purpose of the audit was for the auditor to
express an opinion on the financial statements.
c. The audit included consideration of internal control
relevant to the preparation of the financial
statements in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the
effectiveness of internal control.
d. All of the above.
The Auditor's Opinions
13. A client decides not to make an auditor’s proposed
adjustments that collectively are not material and wants
the auditor to issue the report based on the unadjusted
numbers. Which of the following statements is correct
regarding the financial statement presentation?
a. The financial statements are free from material
misstatement, and no disclosure is required in the
notes to the financial statements.
b. The financial statements do not conform with GAAP.
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EXCEL PROFESSIONAL SERVICES, INC.
c. The financial statements contain unadjusted
misstatements that should result in a qualified
opinion.
d. The financial statements are free from material
misstatement, but disclosure of the proposed
adjustments is required in the notes to the financial
statements.
14. The auditor’s opinions on the effectiveness of internal
control over financial reporting (ICFR) in an integrated
audit in accordance with PCAOB AS include the following
types except:
a. Unqualified where no material weaknesses exist.
b. Qualified opinion where one or more material
weaknesses exist.
c. Disclaimer of opinion where the audit team cannot
perform all of the procedures considered necessary
and is unable to determine whether material
weaknesses exist.
d. Adverse opinion where one or more material
weaknesses exist.
15. 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 of the two responses
d. none of the two responses.
16. This term is used to describe the effects or possible
effects on the financial statements of a matter that, in
the auditor’s judgment, are not confined to specific
elements, accounts or items of the financial statements,
or, if confined, represent or could represent a
substantial proportion of the financial statements.
a. Persuasive c. Pervasive
b. Reasonable d. Effective
17. What audit opinions would be possible when the audited
company refuses to record adequate amortization for
fixed assets? Assume the amount in question exceeds
materiality.
a. Only unqualified or adverse opinions are possible.
b. Only qualified or adverse opinions are possible.
c. Only adverse or denial opinions are possible.
d. Only qualified or unqualified opinions are possible.
18. If the financial statements, including accompanying
notes, fail to disclose information that is required by
PFRSs, the auditor should express either a(an)
a. “Except for qualified opinion or adverse opinion.
b. Adverse opinion or a “subject to” qualified opinion.
c. “Subject to” qualified opinion or unqualified opinion
with a separate explanatory paragraph.
d. Unqualified opinion with a separate explanatory
paragraph or an “except for” qualified opinion.
19. A departure from PFRS is disclosed in a note to the
financial statements. The auditor should:
a. Issue an unqualified opinion, with no explanatory
paragraph, since the departure from PFRSs is
disclosed
b. Issue an unqualified opinion, but emphasize the
matter in an explanatory paragraph
c. Issue a qualified opinion
d. Disclaim an opinion
20. Eagle Company’s financial statements contain a
departure from PFRSs because, due to unusual
circumstances, the statements would otherwise be
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misleading. The auditor should express an opinion that
is
a. Unqualified but not mention the departure in the
auditor’s report.
b. Unqualified and describe the departure in a separate
paragraph.
c. Qualified and describe the departure in a separate
paragraph.
d. Qualified or adverse, depending on materiality, and
describe the departure in a separate paragraph.
21. Of the two major categories of scope restrictions, (1)
those caused by client and (2) those caused by
conditions beyond the control of either client or auditor,
the effect on the auditor’s judgment is
a. the same for either.
b. More serious for 1 than for 2.
c. More serious for 2 than for 1.
d. Negligible.
22. Restrictions imposed by a client prohibit the observation
of physical inventories, which account for 35% of all
assets. Alternative audit procedures cannot be applied,
although the auditor was able to examine satisfactory
evidence for all other items in the financial statements.
The auditor should issue a(an)
a. “Except for” qualified opinion.
b. Disclaimer of opinion.
c. Unqualified opinion with a separate explanatory
paragraph.
d. Unqualified opinion with an explanation in the auditor’s
responsibility paragraph.
23. King, CPA, was engaged to audit the financial
statements of Newton Company after its fiscal year had
ended. King neither observed the inventory count nor
confirmed the receivables by direct communication with
debtors, but was satisfied concerning both after
applying alternative procedures. King’s auditor’s report
most likely contained a(an)
a. Qualified opinion.
b. Disclaimer of opinion.
c. Unqualified opinion without mentioning the
alternative procedures.
d. Unqualified opinion with an explanatory paragraph.
The Auditor's Reports
24. Which of the following is not a classification of an
independent auditor’s report?
a. Unmodified.
b. Modified due to modified opinions.
c. Modified due to emphasis of matter and other
matter paragraphs without necessarily modifying
the opinion.
d. Qualified.
Unmodified Auditor’s Report
25. PSA 700 Forming an opinion and reporting on financial
statements sets out the basic elements of an auditor's
report. Which of the following is not included in an
unmodified auditor's report?
a. Management's responsibility for the financial
statements
b. Auditors' responsibilities
c. Audit opinion
d. Deficiencies of internal controls
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EXCEL PROFESSIONAL SERVICES, INC.

26. Under PSA 700, the following are mandatory to be
included in the auditor’s report for audits of financial
statements of listed entities but only voluntary for
entities other than listed entities, except
a. A section to communicate key audit matters.
b. Disclosure of the name of the engagement partner,
with a “harm’s way” exemption.
c. Material uncertainty related to going concern.
d. None of the above.
c. A statement that the auditor is independent of the
entity in accordance with the relevant ethical
requirements relating to the audit, and has fulfilled
the auditor’s other ethical responsibilities in
accordance with these requirements; and
d. A conclusion that whether the auditor believes that
the audit evidence the auditor has obtained is
sufficient and appropriate to provide a basis for the
auditor’s opinion.

Title and Addressee Material Uncertainty Related to Going Concern

27. To distinguish it from reports that might be issued by 33. Enhanced auditor reporting on going concern (GC)
others, such as by officers of the entity, the board of caused the following changes to PSAs and the auditor's
directors, or from the reports of other auditors who may report to focus more on GC, except?
not have to abide by the same ethical requirements as a. Explicit description of the respective responsibilities
the independent auditor, the auditor’s report should of management and the auditor in all auditor’s
have an appropriate reports
a. Addressee c. Signature b. Separate GC section required when material
b. Title d. Opinion uncertainty exists, with a heading “Material
Uncertainty Related to Going Concern”
28. The audit report is normally addressed to the c. New requirement to challenge adequacy of
Board of Shareholders President of the disclosures for GC “close calls”
Directors entity d. None of the above
a. Yes Yes Yes
b. No Yes Yes 34. Which of the following is not a condition to include a
c. Yes Yes No separate going concern section with a heading “Material
d. Yes No No Uncertainty Related to Going Concern” in the auditor’s
report?
Opinion a. The use of the GC basis of accounting is
appropriate.
29. The opinion section of the auditor’s report includes the b. A modified opinion is appropriate.
following, except: c. Reference to the note in the financial statements
a. Identification of the entity whose financial that describes the material uncertainty.
statements (financial statements) have been d. A statement that these events or conditions indicate
audited. that a material uncertainty exists that may cast
b. Statement that the financial statements have been significant doubt on the entity’s ability to continue
audited. as a going concern.
c. Title of each of the financial statements that
comprise the complete set of financial statements. 35. C Co has a substantial bank loan which is due to mature
d. Reference to "basic financial statements" without in 20X8, and the company plans to negotiate for a new
indicating the title of each of the financial loan in March 20X8. The auditors concluded that the
statements. company’s use of the going concern assumption in the
financial statements for the year ended 31 December
30. The opinion section of the auditor’s report includes the 20X7 is appropriate. However, they believe there is a
following, except: material uncertainty related to going concern, which has
a. Reference to the summary of significant accounting been appropriately disclosed in the financial
policies and other explanatory notes statements. What action should the auditor take with
b. Specific date and period covered by the financial regards to going concern in the auditor’s report?
statements. a. Express an unmodified opinion and describe the
c. Reference to Philippine Standards on Auditing. material uncertainty in the other matter paragraph
d. Identifies the applicable financial reporting b. Express an unmodified opinion and describe the
framework on which the financial statements are material uncertainty in the material uncertainty
based. related to going concern paragraph
c. Express a modified opinion and describe the
31. The auditor's standard report states that the financial material uncertainty in the emphasis of matter
statements are presented fairly paragraph
a. with reasonable assurance. d. Express a qualified opinion and describe the
b. in all material respects. material uncertainty in the basis for qualified
c. without significant errors. opinion paragraph
d. on a consistent basis.
Key Audit Matter
Basis for Opinion
36. In the following situations the auditor should not
32. The basis for opinion section of the auditor’s report communicate KAM in the auditor’s report, except
includes the following, except: a. Law or regulation precludes disclosure.
a. That the audit was conducted based on PSAs. b. It is determined that the matter should not be
b. A reference to the section of the auditor’s report communicated as in the case when adverse
that describes the auditor’s responsibilities under consequences of communicating the KAM would
the PFRSs.

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EXCEL PROFESSIONAL SERVICES, INC.
reasonably be expected to outweigh the public
interest benefits of such communication.
c. When a disclaimer of opinion is expressed.
d. When a qualified or adverse opinion is expressed.
37. Under PAS 701, which of the following refers to the term
“Key Audit Matters (KAM)”?
a. Matters that were communicated with those
charged with governance.
b. Matters that required significant auditor attention.
c. Matters that, in the auditor’s professional judgment,
were of most significance in the audit of the financial
statements of the current period.
d. It exists when the magnitude of its potential impact
is such that, in the auditor’s judgment, clear
disclosure of the nature and implications of the
uncertainty is necessary for the presentation of the
financial statements not to be misleading.
38. PSA 701 sets out a decision framework for auditors
using the communications with those charged with
governance as a starting point. From the matters
communicated with those charged with governance, the
auditor determines those matters that required
significant auditor attention. In fulfilling this
requirement, the auditor is always required to explicitly
consider, except?
a. Areas of higher assessed risks of material
misstatement, or significant risks identified.
b. Areas of lower assessed risks of material
misstatement, or no significant risks identified.
c. Significant auditor judgments relating to areas in
the financial statements that involved significant
management judgment, including accounting
estimates that have been identified as having high
estimation uncertainty.
d. The effect on the audit of significant events or
transactions that occurred during the year.
39. Which of the following is not included in the description
of a KAM in the auditor’s report?
a. Why the matter was considered to be a KAM
b. How the matter was addressed in the audit
c. Reference to the any related disclosure(s)
d. Standardized, highly technical language and not
entity-specific to promote comparability of reports
Other Information
40. Which of the following best describes the auditor's
responsibility for "other information" included in the
annual report to stockholders, which contains financial
statements and the auditor's report?
a. The auditor has no obligation to read the "other
information."
b. The auditor has no obligation to corroborate the
"other information" but should read the "other
information" to determine whether it is materially
inconsistent with the financial statements.
c. The auditor should extend the examination to the
extent necessary to verify the "other information."
d. The auditor must modify the auditor's report to
state that the "other information is unaudited" or
"not covered by the auditor's report."
41. It exists when other information contradicts information
contained in the audited financial statements.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
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d. Misstatement
42. It exists when other information, not related to matters
appearing in the audited financial statements, is
incorrectly stated or presented.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
43. If an amendment to other information in a document
containing audited financial statements is necessary
and the entity refuses to make the amendment, the
auditor would consider issuing:
a. Qualified or adverse opinion
b. Unqualified opinion with explanatory paragraph
c. Qualified or disclaimer of opinion
d. Unqualified opinion.
Responsibilities of MGT and TCWG for the financial
statements
44. An entity’s management is responsible for the
preparation and fair presentation of the financial
statements. Its responsibility includes the following,
except
a. Designing, implementing, and maintaining internal
control relevant to the preparation and presentation
of financial statements.
b. Making accounting estimates that are reasonable in
the circumstances and selecting and applying
appropriate accounting policies.
c. The assessment of the entity’s ability to continue as
a going concern and the appropriateness of the
going concern.
d. Assessing the risks of material misstatement of the
financial statements.
Auditor’s Responsibilities for the Audit of the financial
statements
45. The auditor’s responsibility section of the auditor’s
report includes the which of the following, except:
a. The auditor’s objectives to obtain limited assurance.
b. An explanation that misstatements can arise from
fraud or error.
c. A description of the meaning of materiality.
d. An explain that the auditor exercises professional
judgement and maintains professional skepticism
throughout the audit.
Other Reporting Responsibilities
46. Statement 1: The auditor’s report shall name the
location in the country or jurisdiction where the auditor
practices.
Statement 2: When the auditor addresses other
reporting responsibilities in the auditor’s report on the
financial statements that are in addition to the auditor’s
responsibility to express the opinion on the financial
statements, these other reporting responsibilities shall
be addressed in a separate section in the auditor’s
report. This separate section shall be sub-titled “Report
on Other Legal and Regulatory Requirements.”
a. True, True
b. False, True
c. False, False
d. True, False
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EXCEL PROFESSIONAL SERVICES, INC.
47. When is the case that supplementary information is
covered by the auditor’s opinion?
a. The supplementary information is integral part of
the financial statements and is presented as a
supplementary schedule.
b. The supplementary information is integral part of
the financial statements and is presented as an
additional note disclosure.
c. The supplementary information is not integral part
of the financial statements but is presented as an
additional note disclosure.
d. Both (a) and (b).
48. Which of the following is not one of the ways to report
on supplementary information that is considered
integral part of financial statements?
a. In the auditor’s report as part of “Report on Other
Legal and Regulatory Requirements”.
b. In the auditor’s report as part of “Report on the
Audit of Financial Statements”.
c. As a separate independent auditor’s report on
supplementary information.
d. None of the above.
49. Which statement is correct concerning required
supplementary information not considered integral part
of the financial statements?
a. The auditor has no responsibility for required
supplementary information as long as it is outside
the basic financial statements.
b. The auditor's only responsibility for required
supplementary information is to determine that
such information has not been omitted.
c. The auditor should apply certain limited procedures
to the required supplementary information, and
report deficiencies in, or omissions of, such
information.
d. The auditor should apply tests of details of
transactions and balances to the required
supplementary information, and report any material
misstatements in such information.
50. If management chooses to place supplementary
information that is not considered integral part of the
financial statements in footnotes to the financial
statements, this information should be clearly marked
as
a. Unaudited.
b. Supplementary information required by the SEC.
c. Disclosures required by the SEC.
d. Audited financial data required by GAAP.
51. If management declines to present supplementary
information that is not considered integral part of the
financial statements required by the Securities and
Exchange Commission (SEC), the auditor should issue
a(n)
a. Adverse opinion.
b. Qualified opinion with an other-matter paragraph.
c. Unmodified opinion.
d. Unmodified opinion with an additional other-matter
paragraph.
Name of Partner, Signature, Address and Date
52. When financial statements are audited by an accounting
firm, the partner-in-charge of engagement ordinarily
signs in the name of the firm because:
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a. The partner-in-charge of engagement should be
relieved of any responsibility regarding the opinion
issued.
b. It is required by reporting standards.
c. The firm assumes responsibility for the audit.
d. The opinion becomes more credible if signed in
name of the firm.
53. Which of the following information is(are) required when
an auditor’s report is issued on financial statements to
be filed with the Securities and Exchange Commission?
1. Audit report is manually signed.
2. Certifying partner to sign his name.
3. Partner’s Tax Identification Number.
4. PRC registration number
5. Accreditation with SEC
a. 1, 2, 3, 4, 5
b. 1, 3, 4, 5
c. 2, 4, 5
d. 2, 3, 4, 5
54. 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 date of the financial statements (i.e.,
the balance sheet date).
55. The audit report date is important to users because it
indicates the
a. Last day of the fiscal period.
b. Last day of the auditor’s responsibility for the review
of significant events that occurred after the date of
the financial statements.
c. Date on which the financial statements were filed
with the SEC.
d. Last day on which users may institute a lawsuit
either client or auditor.
Modified Auditor’s Report—Modified Opinion
Modified Auditor’s Report—Modified Opinion
56. In cases where the auditor expressed a modified
opinion, which section of the auditor’s report is not
modified?
a. Auditor’s opinion
b. Basis for opinion
c. Description of auditor’s responsibilities, in case of
disclaimer of opinion
d. Responsibilities for the financial statements
57. When an auditor expresses an adverse opinion he/she
should disclose the substantive reasons for such an
opinion in an explanatory paragraph.
a. Within the notes to the financial statements
b. Preceding the opinion paragraph
c. Following the opinion paragraph
d. Preceding the introductory paragraph
58. If the auditor expresses disclaimer of opinion in the
auditor’s report, which section should be omitted?
a. KAM
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EXCEL PROFESSIONAL SERVICES, INC.
b. Auditor’s responsibilities
c. Management’s responsibilities
d. Other reporting responsibility
Modified Auditor’s Report—Emphasis of Matter
(EOM) and Other Matter (OM)
59. An additional paragraph reads as follows:
On October 15, 2019, the Company emerged from
bankruptcy. As discussed in the Note 25 to the financial
statements, the Company accounted for the
reorganization using “fresh accounting” and, as a result,
the post-reorganization financial statements are not
comparable to the pre-organization financial
statements. Our opinion is not modified in respect of
this matter.
The paragraph likely is intended to:
a. Qualify an opinion
b. Emphasize a matter
c. Report an inconsistency
d. Indicate a departure from PFRS
60. Statement 1: The inclusion of an emphasis of matter
paragraph in the auditor's report does not affect the
auditor's opinion on the financial statements.
Statement 2: An emphasis of matter paragraph is not
used when the issue has been covered as a key audit
matter.
a. True, true c. False, true
b. True, false d. False, false
61. Which of the following statements is correct relating to
Other Matter paragraph in the financial statements?
a. A paragraph that refers to a matter other in the
financial statements that is relevant
understanding of the audit, the auditor’s
responsibilities or the auditor’s report.
b. The auditor shall include this paragraph
immediately after the Opinion paragraph.
c. The auditor shall include this paragraph
immediately after any Emphasis of Matter
paragraph
d. The auditor shall provide a modified opinion as a
result of adding Other Matter paragraph.
62. Which of the following circumstances will the auditor
least likely add an Other Matter paragraph?
a. The auditor is unable to resign from an engagement
even though the possible effect of an inability to
obtain sufficient appropriate audit evidence due to
a limitation on the scope of the audit imposed by
management is pervasive.
b. Restriction on distribution of the auditor’s report.
c. Reporting on comparative information, and such
information had not been audited or was audited by
a different auditor.
d. Report on the pervasiveness of related party
transactions that have been disclosed in the
financial statements.
Auditor’s Report—Comparative Information
63. In accordance with PSA 710, comparative information
may be
a. Corresponding figures
b. Comparative financial statements
c. Either a or b
d. Neither a nor b
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64. They are not presented as complete financial
statements capable of standing alone, but are an
integral part of the current period.
a. Corresponding figures
b. Comparative financial statements
c. Supplementary report
d. Notes of financial statements
65. 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 should issue one audit report that is on
both presented years.
b. The auditor should issue two audit reports, one on
each year.
c. The auditor should issue one audit report, but only
on the most recent year.
d. The auditor may issue either one audit report on
both presented years, or two audit reports, one on
each year.
66. 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. Be accompanied by the auditor's original report on
the prior year's financial statements.
b. Continue to express a qualified opinion on the prior
year's financial statements.
c. Make no reference to the type of opinion expressed
on the prior year's financial statements.
d. Express an unqualified opinion on the restated
to financial statements of the prior year.
67. When comparative financial statements are presented,
which refers to financial statements "taken as a whole,"
should be considered to apply to the financial statement
of the
a. Periods presented plus one preceding period.
b. Current period only.
c. Current period and those of the other periods
presented.
d. Current and immediately preceding period only.
68. An auditor's report on comparative financial statements
should be dated as of the date the
a. Report is issued.
b. Auditor's fieldwork is completed.
c. Fiscal year ends.
d. Last subsequent event occurred.
69. Mike, CPA, audited Advance Co.'s prior year financial
statements. These statements are presented with those
of the current year for comparative purposes without
Mike's auditor's report, which expressed a qualified
opinion. In drafting the current year's auditor's report,
Vic, CPA, the successor auditor, should do the following
in an Other Matter paragraph
I. Not name Mike as the predecessor auditor.
II. Indicate the type of report issued by Mike.
III. Indicate the substantive reasons for Mike's
qualification.
a. I only. c. II and III only.
b. I and II only. d. I, II, and III.
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EXCEL PROFESSIONAL SERVICES, INC.

70. When unaudited financial statements are presented in

comparative form with audited financial statements in a
document filed with the Securities and Exchange
Commission, such statements should be
Marked as State as “unaudited” in an
"unaudited" Other Matter paragraph
a. Yes No
b. Yes Yes
c. No Yes
d. No No

End of AT.3218

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