AT2 – REVIEW QUESTIONS (MIDTERM)

1. Statement 1: If the accounts receivable did not conform to a predictable pattern, a

practitioner will most likely investigate cash and credit sales.
Statement 2: The sole purpose of the auditor’s report is to express an opinion on the
fairness of the financial statements but it may serve as guide for decision making.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

2. Statement 1: For an entity’s financial statements to be presented fairly in conformity

with PFRSs, the policies selected should match the principles used by most other
entities within the entity’s particular industry.
Statement 2: An adverse opinion is inappropriate when the financial statements are
not materially misstated.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

3. Statement 1: Before accepting the engagement, the auditor should first assess if it
would still be possible for him to gather sufficient appropriate audit evidence to serve
as basis for issuing an unmodified opinion.
Statement 2: The application of accounting policies should be consistent for the
financial statements to become fair.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

4. Statement 1: A disclaimer of opinion is appropriate when the audit evidence gathered

do not permit an auditor to issue an opinion.
Statement 2: A company may change to a new accounting policy if it is deemed
appropriate (e.g., form FIFO to weighted average method). For as long as the
accounting policies are in conformity with, for example, PFRS, the financial
statements are still considered fairly presented.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

5. An auditor engaged to audit financial statements observes that the accounting for
leases is not in accordance with the applicable financial reporting framework, although
the departure is prominently disclosed in a note to the financial statements. The
auditor should

a. Express an unmodified opinion with an Emphasis of Matter paragraph.

b. Modify his opinion.
c. Disclaim an opinion.
d. Not allow this to affect his audit opinion because the departure was disclosed.

6. Statement 1: Confirmations from third parties are performed in an audit but not in an
engagement to review the financial statements.
Statement 2: An auditor will refer to the work of an appraiser in the auditor’s report
if a qualified opinion is expressed because of a matter unrelated to the work of the
appraiser.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

7. Statement 1: An entity should apply the same accounting policies as those being used
by other entities belonging to the same industry.
Statement 2: Material misstatements will result to qualified or adverse opinion,
depending on materiality and pervasiveness of the misstatements.
 a. TRUE; TRUE c. TRUE; FALSE
b. FALSE; FALSE d. FALSE; TRUE

8. Statement 1: if a misstatement is immaterial to the financial statements of the

company for the current year, but is expected to have a material effect in future
periods, the auditor should issue a qualified opinion.
Statement 2: If client management refuses to change its inventory costing method
from FIFO to weighted average, the auditor should issue a qualified or adverse opinion.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

9. An auditor would choose between expressing a qualified opinion or an adverse opinion

when

a. The auditor was not able to observe the client’s inventory count.
b. The auditor was asked to audit only the statement of comprehensive income and
not the other financial statements.
c. There is a significant doubt on the ability of the client to continue as a going
concern.
d. The financial statements failed to disclose information which is required by PFRSs.

10. An auditor would choose between expressing a qualified opinion or a disclaimer of

opinion when

a. Departure from PFRSs.

b. Unreasonable justification for a change in accounting policy.
c. Inability to obtain sufficient appropriate audit evidence.
d. Inadequate disclosure of accounting policies.

11. Statement 1: Communicating KAM is a substitute for the auditor’s expression of a

modified opinion.
Statement 2: Communicating KAM is a separate opinion on individual matters.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

12. Statement 1: An auditor is prohibited from communicating KAM when he expresses

an adverse opinion.
Statement 2: An auditor is prohibited from communicating KAM when he expresses a
disclaimer of opinion.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

13. Statement 1: To distinguish the auditor’s report from reports that might be issued by
others, the auditor’s report should have an appropriate title.
Statement 2: An auditor’s responsibility to express an opinion on the financial
statements is implicitly represented in the Auditor’s Responsibilities section of the
auditor’s report.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

14. Which is not an independent auditor’s responsibility when auditing financial

statements?

a. Obtain understanding of the entity’s ICS.

b. Maintain professional skepticism.
c. Identify and assess the risks of material misstatements.
d. Express an opinion on the entity’s internal control.
15. Statement 1: An auditor who uses the work of an expert may refer to the auditor’s
expert in the auditor’s report if the auditor expresses a qualified opinion or an adverse
opinion related to the work of the expert.
Statement 2: The practitioner should obtain a client representation letter from his
client in audit and review engagements.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

16. Statement 1: A client makes test counts on the basis of a statistical plan. The auditor
observes such counts as are deemed necessary and is able to become satisfied as to
the reliability of the client’s procedures. In reporting on the results of the audit, the
auditor is required to disclaim an opinion if the inventories were material.
Statement 2: An entity’s management is responsible for the preparation and fair
presentation of the financial statements, which responsibility includes assessing the
risks of material misstatement of the financial statements.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

17. If a company’s independent auditor issues an unmodified opinion of its financial

statements, readers of the auditor’s report can assume that

a. The independent auditor found no fraud.

b. The client’s internal control is effective.
c. The client is financially sound and the financial statements are accurate.
d. None of these are correct.

18. Statement 1: Analytical procedures are necessary in review and audit engagements.
Statement 2: A disclaimer of opinion is appropriate when the auditor is able 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
misstatements, if any, could be both material and pervasive.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

19. Statement 1: A substantial doubt about the entity’s continued existence would not
result to an adverse opinion.
Statement 2: The independent auditor should make an assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

20. Statement 1: A disclaimer of opinion is expressed if there is a scope limitation imposed

on the auditor by the appraiser.
Statement 2: Specific audit procedures that have been performed by the auditor are
not provided in the auditor’s report but are documented in the auditor’s working paper.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

21. Statement 1: When asked to audit the financial statements of a company whose fiscal
year has ended, a CPA should ascertain whether an understanding of internal control
can be obtained and control risk can be assessed after completion of the field work.
Statement 2: The Auditor’s Responsibilities section of the auditor’s report only
provides a general explanation of what an audit entails.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE
22. Statement 1: A client makes test counts on the basis of a statistical plan. The auditor
observes such counts as are deemed necessary and is able to become satisfied as to
the reliability of the client’s procedures. In reporting on the results of the audit, the
auditor can express an unmodified opinion.
Statement 2: When there is a material uncertainty that may cast significant doubt
about an entity’s ability to continue as a going concern, and such fact is clearly
disclosed in the financial statements, the auditor may issue an unmodified opinion but
refer to such matter in a separate section of the auditor’s report with the heading
“Material Uncertainty Related to Going Concern”.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

23. When audited financial statements are presented in a document containing other
information, the auditor

a. Must express a qualified opinion is the other information has a material

misstatement of fact.
b. Should read the other information.
c. Has no responsibility for the other information.
d. Must audit the other information.

24. Statement 1: An auditor who uses the work of an expert may refer to the auditor’s
expert in the auditor’s report if the expert is employed by the entity.
Statement 2: The auditor’s report on special purpose financial statements shall include
an ‘Other Matter’ paragraph alerting users that the financial statements are prepared
in accordance with a special purpose framework.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

25. Statement 1: The auditor’s report on special purpose financial statements shall include
an ‘emphasis of matter’ paragraph alerting users that the financial statements are
prepared in accordance with a special purpose framework.
Statement 2: An unmodified opinion may be issued even when the client’s internal
controls are ineffective.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

26. Statement 1: Audits and reviews are assurance engagements.

Statement 2: When the independent auditor issues an adverse opinion, the Auditor’s
Responsibilities section should be amended.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

27. Statement 1: Distribution of review reports must be restricted.

Statement 2: When audited financial statements are presented in a document
containing other information, the auditor should read the other information to consider
whether it is consistent with the audited financial statements.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

28. Statement 1: When a client will not allow the outside legal counsel to respond to an
audit inquiry letter, the auditor’s report will likely contain an adverse opinion.
Statement 2: When an auditor expresses an adverse opinion, the Opinion section of
the auditor’s report should include the principal effects of the departure from the
requirements of the PFRSs.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE
29. Statement 1: When an auditor expresses an adverse opinion, the Opinion section of
the auditor’s report should include the substantive reasons for the financial statement
being misleading.
Statement 2: The inclusion of an Other Matter section in an auditor’s report requires
modification of the auditor’s opinion.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

30. 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, include 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, include a
modified opinion and the matter which gave rise to the modification is unresolved,
and results in modification of the auditor’s report regarding the current period
figures.
c. When the auditor’s report on the prior period, as previously issued, include 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.

31. Statement 1: If client management insists on financial statement disclosures that the
auditor finds unacceptable, the auditor can issue either an adverse or a qualified
opinion.
Statement 2: An auditor who is not independent with respect to his client during the
audit period should disclaim an opinion on the financial statements.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

32. If the incoming auditor refers 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 name of the predecessor auditor.
III. The type of opinion issued by the predecessor auditor.
IV. The date of the prior period financial statements.

a. I and III. c. I, III and IV.

b. II and IV. d. I, II, III and IV.

33. RR 15-2010 requires disclosures of specific information on various taxes in the Notes
to Financial Statements that will accompany the income tax return to be filed with the
BIR. These disclosure requirements

a. Form part of the disclosure requirements under PFRSs.

b. Form part of the disclosure requirements under PFRSs for SMEs.
c. Form part of the disclosure requirements under PFRSs and PFRSs for SMEs.
d. Do not form part of the disclosure requirements under PFRSs and other OFRS
frameworks.
34. Statement 1: The tax information disclosures under RR 15-2010 are required to be
presented both in the consolidated financial statements and the separate financial
statements of the parent company and its subsidiaries.
Statement 2: The auditor is precluded from expressing an opinion on the
supplementary information when his “Report on the Financial Statements” contains
either an adverse opinion or a disclaimer of opinion.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

35. Statement 1: In a review engagement, the practitioner observes the safeguards over
access to and use of assets and records.
Statement 2: Review procedures include comparing the financial statement with
anticipated results in budgets and forecasts.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

36. Statement 1: Review procedures include studying the relationships of financial

statement elements expected to confirm to predictable patterns.
Statement 2: Assessing the risk of material misstatement is a common review
procedure.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

37. Statement 1: A review report describes the principal procedures performed by the
practitioner.
Statement 2: The date used to date the review report should coincide with the date
of the financial statements.

a. TRUE; TRUE c. TRUE; FALSE

b. FALSE; FALSE d. FALSE; TRUE

38. The purpose in performing a review of financial statements is

a. To enable a practitioner to state whether, on the basis of procedures which do not

provide all the evidence that would be required in an audit, anything has come to
the auditor’s attention that causes the auditor to believe that the financial
statements are not prepared, in all material respects, in accordance with an
applicable financial reporting framework.
b. To enable an auditor to express an opinion whether the financial statements are
prepared, in all material respects, in accordance with the applicable financial
reporting framework.
c. For the practitioner to carry out procedures of an audit nature to which the
practitioner and the entity and any appropriate third party have agreed and to report
on factual findings.
d. For the practitioner to use accounting expertise, as opposed to auditing expertise,
to collect, classify and summarize financial information.

39. In a review engagement, when the practitioner modifies the conclusion expressed on
the financial statements, the practitioner shall

I. Use the heading “Qualified Conclusion,” “Adverse Conclusion” or “Disclaimer of

Conclusion,” as appropriate, for the Conclusion paragraph in the practitioner’s
report.
II. Provide a description of the matter giving rise to the modification, under an
appropriate heading, in a separate paragraph in the practitioner’s report
immediately after the Conclusion paragraph

a. I only. c. I and II.

b. II only. d. Neither I nor II.
40. The practitioner shall withdraw from the review engagement if the following conditions
are present, except

a. Due to a limitation on the scope of the review imposed by management after the
practitioner has accepted the engagement, the practitioner is unable to obtain
sufficient appropriate evidence to form a conclusion on the financial statements.
b. There have been material misstatements in the financial statements.
c. The practitioner has determined that the possible effects on the financial statements
of undetected misstatements are material and pervasive
d. Withdrawal is possible under applicable law or regulation.