ASUPRIN

ACTIVITY WORKSHEET
Compiled by: A. S. MALQUISTO No. 006

Name: Time & Schedule:

I. SHORT ANSWER QUESTIONS: Answer each question in a clear and organized paragraph. One or two sentences
that directly answer the short-answer question. Each question is worth 2 points.

1. Describe the two primary types of subsequent events that require consideration by management and
evaluation by the auditor

2. How is management representation letter dated?

3. Who is responsible for assessing the reasonableness of the going-concern assumption?

4. What are key audit matters?

5. Why is a client-imposed limitation generally considered more serious?

II. TRUE OR FALSE: Write the word TRUE for each correct statement; otherwise, write FALSE.

1. When testing for contingent liabilities, the primary objective at the initial stage of the tests is
to determine the existence of contingencies.
2. A lawsuit has been filed against your client. If, in the opinion of legal counsel, the likelihood
your client will lose the lawsuit is remote, no financial statement accrual or disclosure of the potential loss
is required.
3. The issuance of bonds by the client subsequent to year-end would require a footnote disclosure
in, but no adjustment to, the financial statements under audit.
4. Auditors are not required to evaluate the going concern assumption as part of each audit.
5. Although the letter of representation is typed on the client’s letterhead and signed by the
client, it is common for the auditor to prepare the letter.
6. Audit reports should be dated the date on which the financial statements are issued.
7. If financial statements fail to disclose a material fact, the auditors may disclose the information
in an explanatory paragraph and issue an unqualified opinion on the statements.
8. A client imposed scope limitation will generally result in a disclaimer of opinion.
9. Analytical review procedures are required all throughout the audit engagement
10. Key Audit Matters are required for all entities.

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III. MULTIPLE CHOICE QUESTIONS: Read each item carefully. Select the correct/best answer for each of the following
questions and write the letter of your choice before the number.

1. Which of the following material events occurring subsequent to the balance sheet date would
require an adjustment to the financial statements before they could be issued?
A. Sale of long-term debt or capital stock
B. Loss of a plant as a result of a flood
C. Major purchase of a business which is expected to double the sales volume
D. Settlement of litigation in excess of the recorded liability

2. The primary source of information to be reported about litigation, claims and assessments is
the
A. Client’s lawyer C. Client’s management
B. Court records D. Independent auditor

3. When an auditor concludes there is substantial doubt about an entity’s ability to continue as a
going concern for a reasonable period of time, the auditor responsibility is to
A. Prepare prospective financial information to verify whether management’s plan can be
effectively implemented
B. Project future conditions and events for a period of time not to exceed one year following
the date of the financial statements.
C. Issue a qualified or adverse opinion, depending upon materiality, due to the possible
effects on the financial statements
D. Consider the adequacy of disclosure about the entity’s possible inability to continue as a
going concern

4. For which of the following matters should an auditor obtain written management
representations?
A. Management’s cost-benefit justifications for not correcting internal control weaknesses
B. Management’s knowledge of future plans that may affect the price of the entity’s stock.
C. Management’s knowledge of allegations of fraud or suspected fraud affecting the entity.
D. Management’s acknowledgement of its responsibility for employees’ violations of laws.

5. Which of the following is not a typical analytical review procedure?

A. Study of relationships of financial information to relevant nonfinancial information.
B. Comparison of financial information with similar information.
C. Comparison of recorded amounts of major disbursements with appropriate invoices.
D. Comparison of recorded amounts of major disbursements with budgeted amounts.

6. Which of the following is not a procedure that auditors typically perform to search for
significant events during the subsequent period?
A. Review minutes of board of directors' meeting.
B. Review the latest available interim financial statements.
C. Inquire about any unusual adjustments made subsequent to the balance sheet date.
D. Review changes in internal control during the period subsequent to the balance
sheet date.

7. Which of the following events or activities normally occurs following the issuance of the
auditor's opinion on the client's financial statements?
A. Interim testing. C. "Roll-forward" work.
B. Subsequent events. D. Subsequent discovery of facts.

8. A subsequent event that provides additional information about a condition that existed at the
balance sheet date is referred to as a(n):
A. Revised disclosure. C. Subsequent discovery of facts.
B. Type I subsequent event. D. Type II subsequent event.

9. The primary objective of analytical procedures used in the final review stage of an audit is to
A. Obtain evidence from details tested to corroborate management assertions.
B. Obtain evidence on the validity of the assessment of control risk.
C. Assist the auditor in evaluating the overall financial statement presentation.
D. Identify areas that represent specific risks relevant to the audit.
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10. In an audit of contingent liabilities, which of the following procedures would be least effective?
A. Examining customer confirmation replies.
B. Reviewing a bank confirmation letter.
C. Examining invoices for professional services.
D. Reading the minutes of the board of directors meetings.

11. The element of the auditor’s report that distinguishes it from reports that might be issued by
others is
A. Title C. Auditor’s signature
B. Addressee D. Opinion paragraph

12. The most common type of audit report contains a(n):

A. Adverse opinion. C. Disclaimer of opinion.
B. Qualified opinion. D. Unqualified

13. An auditor would issue an adverse opinion if

A. The audit was begun by other independent auditors who withdrew from the engagement.
B. The statements taken as a whole do not fairly present the financial condition and results
of operations of the company.
C. A qualified opinion cannot be given because the auditor lacks independence.
D. The restriction on the scope of the audit was significant.

14. Under which of the following sets of circumstances might an auditor disclaim an opinion?
A. The financial statements contain a departure from GAAP, the effect of which is material.
B. The principal auditor decides to make reference to the report of another auditor who
audited a subsidiary.
C. There has been a material change between periods in the method of the application of
accounting principles.
D. There were significant limitations on the scope of the audit.

15. If the auditor concludes that the fraud or error has a material effect on the financial
statements and has not been properly corrected in the financial statements, the auditor
should issue a:
A. Unqualified opinion with explanatory paragraph.
B. Qualified or disclaimer of opinion.
C. Qualified or adverse opinion.
D. Adverse or disclaimer of opinion.

16. A scope restriction is least likely to result in a(an):

A. Qualified opinion. C. Disclaimer of opinion.
B. Adverse opinion. D. Standard unqualified opinion.

17. The term "except for" in an audit report is:

A. Used in an adverse opinion.
B. No longer considered appropriate.
C. Used in a qualified opinion
D. Used for an unqualified opinion when an explanatory paragraph is added.

18. An audit report should be dated as of the

A. date the report is delivered to the client entity
B. date of management approving the audited financial statements
C. balance sheet date of the latest period reported on
D. date a letter of audit inquiry is received from the entity’s attorney

19. Which of the following should not be included in the description of KAM?
A. Why the matter was considered to be a KAM
B. How the matter was addressed in the audit
C. Reference to the related disclosure(s), if any
D. Contain or imply discrete opinions on separate elements of the financial statements.

20. What is the first section of the revised Auditor’s Report?

A. Introductory paragraph C. Opinion paragraph
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B. Key Audit Matters paragraph D. Basis for Opinion

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IV. SITUATIONAL PROBLEM (This is will be your FINAL OUTPUT for the ASUPRIN course)

The auditor’s report was drafted by a junior auditor of ASUPRIN Youngster & Co., at the completion of the audit of
the financial statements of COVID Company for the years ended December 31, 2020. COVID is a privately held and
not a publicly-listed entity in the Philippines that prepares its financial statements in accordance with PAS/PFRS.

The engagement team completed the audit fieldwork and documentation on March 15, 2021. The report was
submitted to the engagement partner (YOU), who reviewed matters thoroughly and properly concluded that an
unmodified opinion should be expressed. The draft of the report prepared by the inexperienced staff auditor is as
follows:

Auditors' Report

To the Board of Directors, Shareholders and Chief

Accountant COVID Company
Tacloban City

We have reviewed the statement of financial position of COVID Company as of December 31, 2020, and the related
statements of income, retained earnings, and cash flows for the year then ended. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted accounting standards. Those standards require that
we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present the financial position of COVID Company as of
December 31, 2020, and the results of operations and its cash flows for the year then ended in conformity with
auditing standards generally accepted in the Philippines applied on a consistent basis with the preceding year.

ASUPRIN Youngster & Co.

Engagement Partner
Cum laude @ SPSPS
CPA Certificate No. 123456
Palo, Leyte, Philippines

December 31, 2020

Required:
1. Assuming you are the engagement partner with SEC Accreditation No. 14344 valid until October 1, 2022,
Tax Identification No. 111-222-333 and PTR No. 8080111 issued February 14, 2021, Palo, Leyte, identify
the deficiencies (including both incorrect statements and omissions/missing) contained in the auditors'
report as drafted above.

2. Prepare a revised audit report in accordance with PSA 700R. (Use short bond paper)

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