M6 PRACTICE SET QUESTIONS
1.An explanatory paragraph or modified wordings may be added the audit report while at the same time
issuing an unqualified opinion in all of these cases except when
a. the audit opinion is partly based on the work of another auditor
b. the audit work has been materially limited management
c. there is an immaterial departure from PFRS to ensure fair presentation with the agreement of the
auditor
d. the client has changed an accounting principle with the agreement of the auditor
The correct answer is: the audit work has been materially limited management
2.The first section of the auditor's report shall include the auditor's opinion, and shall have the heading
"Opinion" and shall also (choose the incorrect one)
a. Identify the entity whose financial statements have been audited and state that the financial
statements have been audited
b. State that the audit was conducted in accordance with Philippine Standards on Auditing
c. Identify the title of each statement comprising the financial statements and refer to the notes,
including the summary of significant accounting policies
d. Specify the date of, or period covered by; each financial statement comprising the financial
statements
The correct answer is: State that the audit was conducted in accordance with Philippine Standards
on Auditing
3.Management's responsibility for the financial statements is
a. Explicitly represented in the opinion paragraph of the auditor's standard report
b. Implicitly represented in the independent auditor's report
c. Explicitly represented in the scope - responsibility of the management paragraph of the
independent auditor's report
d. Explicitly represented in the basis for opinion paragraph of the independent auditor's report
The correct answer is: Explicitly represented in the scope - responsibility of the management
paragraph of the independent auditor's report
4.Which of the following least likely requires an expression of unqualified opinion with modified
wordings or an emphasis of matter paragraph?
a. The financial statements of prior period, which are presented for comparative purposes, were
audited by another CPAs
b. The entity changed the measurement of certain significant transaction from one GAAP to another
GAAP
c. The auditors have substantial doubt about the ability of the entity to continue as a going concern
d. The auditors failed to observe physical inventory count; however; the auditor was satisfied that
the inventory amount was fairly presented by doing alternative audit procedures
The correct answer is: The auditors failed to observe physical inventory count; however; the auditor
was satisfied that the inventory amount was fairly presented by doing alternative audit procedures
5.In forming an opinion on the financial statements
a. the auditor verifies that all errors that misstate the financial statements have been corrected by the
client
b. the auditor should evaluate the conclusions drawn from the audit evidence obtained during the
course of the audit
c. the auditor evaluates whether there is a reasonable assurance about whether the financial
statements are free from any misstatements
d. the auditor evaluates whether sufficiently appropriate audit evidence has been obtained to
eliminate the risk of material misstatements
The correct answer is: the auditor should evaluate the conclusions drawn from the audit evidence
obtained during the course of the audit
6.Why is the date of the auditor's report important?
a. To inform the users of the financial statements. that the auditor complied with the applicable
Philippine Standards on Auditing
b. The date of the auditor's report informs the readers that the auditor has considered the effect of
events and transactions of which the auditor became aware and that occurred up to that date
c. To emphasize completeness assertion
d. To have a basis of determining the audit fees to be paid to the auditor
The correct answer is: The date of the auditor's report informs the readers that the auditor has
considered the effect of events and transactions of which the auditor became aware and that
occurred up to that date
7.In accordance with PSA 700 (Revised), Forming An Opinion and Reporting on Financial Statements
(Effective for audits of financial statements for periods ending on or after December 15, 2016), an
independent auditor's report shall contain the following section(s)
A. Opinion
B. Basis for Opinion
a. Sometimes, Sometimes
b. Always, Sometimes
c. Sometimes, Always
d. Always, always
The correct answer is: Always, always
8.If an auditor is engaged to audit a client's financial statements after the annual physical inventory count
was made and the accounting records are not sufficiently reliable to enable the auditor to become satisfied
as to the year-end inventory balances, the opinion to be expressed is:
a. an unqualified opinion
b. either a disclaimer or opinion or an ""except for"" qualified opinion
c. either an ""except for"" qualified opinion or an adverse opinion
d. either an adverse opinion or disclaimer of opinion
The correct answer is: either a disclaimer or opinion or an ""except for"" qualified opinion
9.An audit report contains the following paragraph:
"Because of the inadequacies in the company's accounting records during the year ended June 30, 2016, it
was not practicable to extend our auditing procedures to the extent necessary to enable us to obtain certain
evidential matter as it relates to Classification of certain items in 1he consolidated statements of
operations. "
This paragraph most likely describes
a. An uncertainty that should not lead to a qualified opinion
b. A matter that the auditor wishes to emphasize and that does not lead to a qualified audit opinion
c. A material scope restriction requiring a qualification of the audit opinion
d. A material departure from PFRS requiring a qualified audit opinion
The correct answer is: A material scope restriction requiring a qualification of the audit opinion
10.Which of the following is not specifically referred to in the "Responsibilities of Management and
Those Charged with Governance for the Financial Statements" section of the independent auditor's report
as management’s responsibilities?
a. Selecting and applying appropriate accounting policies
b. Making accounting estimates that are reasonable in the circumstances
c. Effectiveness and efficiency of operating decisions
d. Designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of financial statements
The correct answer is: Effectiveness and efficiency of operating decisions
11.When there is uncertainty about a company's ability to continue as a going concern, the auditor's
concern is the possibility that the client may not be able to continue its operations or meet its obligations.
for a "reasonable period of time." For this purpose, a reasonable period of time is considered not to
exceed
a. six months from the date of the financial statements
b. one year from the date of the financial statements
c. one year from the date of the audit report
d. six months from the date of the audit report
The correct answer is: one year from the date of the financial statements
12.When an entity presents, together with the financial statements, supplementary information that cannot
be clearly differentiated from the financial statements because of its nature and how it is presented, such
supplementary information
a. must be specifically referred to in the introductory paragraph of the auditor's report
b. is not covered by the auditor's opinion
c. is referred by adding an emphasis of matter paragraph
d. is covered by the auditor's opinion
The correct answer is: is covered by the auditor's opinion
13.Which of the following statements is a basic element of the independent auditor's report?
a. The financial statements are consistent with those of the prior period
b. An audit includes assessing significant estimates made by the management
c. The disclosures provide reasonable assurance that the financial statements are free of material
misstatements
d. The auditor tested compliance to internal control by the client
The correct answer is: An audit includes assessing significant estimates made by the management
14.An auditor concludes that there is substantial doubt about an entity's ability to continue as a going
concern for a reasonable period of time. If the entity's disclosures concerning this matter are adequate, the
audit report should include a(an)
A. Adverse Opinion
B. "Except for " Qualified Opinion
a. Yes, no
b. No, no
c. No, yes
d. Yes, yes
The correct answer is: No, no
15.In determining the items that the auditor shall consider as key audit matters, the auditor takes into
account (choose the incorrect one)
a. The effect on the audit of significant events or transactions that have taken place during the
period
b. Areas which were considered to be susceptible to higher risks of material misstatement or which
were deemed to be 'significant risks' in accordance with PSA 315
c. Significant auditor judgments in relation to areas of the financial statements that involved
significant management judgment
d. Those that refers to a matter other than those presented or disclosed in the financial statements
that, in the auditor's judgment, is relevant to user's understanding of the audit, the auditor's
responsibilities or the auditor's report
The correct answer is: Those that refers to a matter other than those presented or disclosed in the
financial statements that, in the auditor's judgment, is relevant to user's understanding of the audit,
the auditor's responsibilities or the auditor's report
16.Under which of the following sets of circumstances might an auditor disclaim an opinion?
a. The principal auditor decides to make. reference to the report of another auditor who audited a
subsidiary
b. There has been a material change between periods in the method of the application of accounting
principles
c. There were significant limitations on the scope of the audit
d. The financial statements contain a departure from PFRS, the effect of which is material
The correct answer is: There were significant limitations on the scope of the audit
17.S1. For audits of complete sets of general purpose financial statements of listed entities, the auditor
shall communicate key audit matters in the auditor's report in accordance with PSA 701.
S2. When the auditor is otherwise required by law or regulation or decides to communicate key audit
matters in the auditor's report, the auditor shall do so in accordance with PSA 701.
a. Both statements are incorrect
b. Both statements are correct
c. First Statement is correct; Second Statement is incorrect
d. First Statement is incorrect; Second Statement is correct
The correct answer is: Both statements are correct
18.An explanatory paragraph that describes an uncertainty is as follows:
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging
infringement of certain patent rights and, claiming damages. Discovery proceedings are in' progress. The
ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying financial statements.
What type of opinion should the auditor express in this circumstance?
a. Qualified
b. Disclaimer
c. Adverse
d. Unqualified
The correct answer is: Unqualified
19.The auditor may continue to express unqualified opinion though there are modifications made in the
audit report. Which of the following situations, would the auditor likely modify his opinion?
a. The existence of multiple uncertainties that are adequately described in the notes to financial
statements
b. A substantial doubt about the client's ability to continue as a going concern that is adequately
disclosed in the financial statements
c. The prior year's financial statements were audited by other CPAs
d. An important subsidiary whose financial statements were included in the consolidated financial
statements were audited by other CPAs
The correct answer is: The existence of multiple uncertainties that are adequately described in the
notes to financial statements
20.Which of the following is not a reason to issue a modified audit report with opinion other than
unqualified opinion?
a. Certain significant matter is omitted from either the financial statements or notes to financial
statements
b. The amount of inventories at cost as presented in the statement of financial position significantly
exceeded their market values
c. The scope of the auditor's work is restricted by the client
d. An adequately disclosed significant uncertainty, the resolution of which is dependent upon future
events and which may affect the financial statements
The correct answer is: An adequately disclosed significant uncertainty, the resolution of which is
dependent upon future events and which may affect the financial statements
21.Which of the following is least likely considered by the auditor when he has to evaluate the fair
presentation of the financial statements?
a. Whether the financial statements, including the disclosures, faithfully represent the underlying
transactions and events. In a manner that gives a true and fair view of, in all material respects, the
information conveyed in the financial statements within the context of the financial reporting
framework
b. Whether the results of analytical procedures performed at or near the end of the audit help to
corroborate conclusion formed during the audit
c. Whether the financial statements, after any adjustments made by the management as a result of
audit process, are consistent with the auditor's understanding of the entity and its environment
d. Whether the financial statements are approved by the client's board of directors
The correct answer is: Whether the financial statements are approved by the client's board of
directors
22.Which of the following is ordinarily true of a modification of the audit report by adding an emphasis
of matter paragraph?
a. The emphasis of matter paragraph is a "subject to" qualification of" opinion
b. The modification by adding an emphasis of matter paragraph is an "except for" qualification of
opinion
c. The emphasis of matter paragraph would ordinarily refer to the fact that the auditor's opinion is
not qualified
d. The emphasis of matter paragraph is presented before the opinion paragraph
The correct answer is: The emphasis of matter paragraph would ordinarily refer to the fact that the
auditor's opinion is not qualified
23.When there is a limitation on. the scope of the auditor's work that requires a modification of the audit
report
a. The auditor's report may contain an unqualified opinion with an emphasis of matter paragraph
that follows the opinion paragraph
b. Should always contain a disclaimer of opinion
c. The auditor's report should describe the limitation and indicate the possible adjustments to the
financial statements that might have been determined to be necessary had the limitation not
existed
d. The auditor's report should either contain a qualified or adverse opinion
The correct answer is: The auditor's report should describe the limitation and indicate the possible
adjustments to the financial statements that might have been determined to be necessary had the
limitation not existed
24.Which of the following circumstances requires the modification of both the auditor's responsibility,
and the auditor's opinion paragraphs of the auditor's report?
a. Limitation on the scope of audit that results to qualified opinion
b. Disagreement with the client management regarding accounting policies that requires adverse
opinion
c. Inadequate disclosures that requires qualified opinion
d. Auditor's disagreement with the client management on accounting policies that requires qualified
opinion
The correct answer is: Limitation on the scope of audit that results to qualified opinion
25.If the auditor believes that a required material disclosure. is omitted from the financial statements, the
auditor should decide between issuing a(n)
a. qualified opinion or an adverse opinion
b. adverse opinion or a disclaimer of opinion
c. unqualified opinion or a qualified opinion
d. disclaimer of opinion or a qualified opinion
The correct answer is: qualified opinion or an adverse opinion
26.An adverse opinion is issued when the auditor believes
a. some parts of the financial statements are materially misstated or misleading
b. the overall financial statements are so materially misstated or misleading as a whole that they do
not present fairly the financial position or results of operations, changes in cash and stockholders'
equity in conformity with PFRS
c. the financial statements will be found .to be misleading or misstated, if an adequate investigation
is performed
d. the audit firm is not independent
The correct answer is: the overall financial statements are so materially misstated or misleading as a
whole that they do not present fairly the financial position or results of operations, changes in cash
and stockholders' equity in conformity with PFRS
27.Salmon Company's financial statements adequately disclose uncertainties that concern future events,
the outcome of which cannot reasonably be estimated. The auditor's report should include a(an)
a. adverse opinion
b. "subject to" qualified opinion
c. unqualified opinion
d. "except for" qualified opinion
The correct answer is: unqualified opinion
28.Which of the following statements is not true?
a. A one-paragraph report is generally used when the auditor is not independent
b. A modification of the audit report that involves modified wordings may contain an unqualified
opinion
c. An unqualified opinion may be issued though the audit report requires an additional explanatory
paragraph
d. An addition of another paragraph to an otherwise standard audit report always requires a
modification of an unqualified opinion
The correct answer is: An addition of another paragraph to an otherwise standard audit report
always requires a modification of an unqualified opinion
29.Which of the following is incorrect regarding the auditor's signature?
a. The auditor's signature is either in the name of the audit firm, the personal name of the auditor, or
both, as appropriate
b. The auditor's report filed with" the Securities and Exchange Commission (SEC) must be
manually signed
c. The auditor's signature is either in the name of the audit firm or the personal name of the auditor,
but not both
d. In addition to the auditor's signature, the auditor may" be required to declare the auditor's
professional accountancy designation
The correct answer is: The auditor's signature is either in the name of the audit firm or the personal
name of the auditor, but not both
30.Which of the following situations, the effect of which is significant, least likely require a decision of
whether to issue a qualified or adverse opinion?
a. Unjustified changes in accounting policies
b. Inadequate disclosures of financial information
c. Limitation on the scope of the auditor's work
d. Any disagreement with entity management regarding the acceptability of the accounting policies
selected by the management
The correct answer is: Limitation on the scope of the auditor's work
31.The audit report date is important to users of financial statements because it indicates
a. the last day of the fiscal period
b. The last day of the auditor's responsibility for the review of significant events that occurred after
the date of the financial statements
c. the last date on which users may institute a lawsuit against the client or the auditor
d. the date on which the financial statements were filed with the Securities and Exchange
Commission
The correct answer is: The last day of the auditor's responsibility for the review of significant events
that occurred after the date of the financial statements
32.In which of the following conditions is an unqualified audit opinion least likely issued?
a. The audit is conducted with no circumstance or imposed scope limitations
b. PFRS are not consistently applied from year to year
c. The auditor believes that inventory is valued at market values that accurately reflect market
conditions and materially exceed cost
d. The auditor believes that a substantial doubt about the entity’s ability to continue as going
concern exists
The correct answer is: The auditor believes that inventory is valued at market values that accurately
reflect market conditions and materially exceed cost
33.When the client is not following PFRS; and the auditor believes that adherence to PFRS would result
to misleading statements, the opinion paragraph of the audit report
a. Must express an adverse opinion
b. Should be unqualified with a required explanatory paragraph
c. Should be the standard unqualified opinion
d. Must express a qualified opinion
The correct answer is: Should be unqualified with a required explanatory paragraph
34. Which of the following circumstances requires an issuance of unqualified opinion with modified
wordings?
a. An insignificant scope limitation in the work of the auditor
b. The successor auditor reports on the current year’s financial statements. The prior-year's financial
statements that were presented as comparatives were audited by another CPA
c. The auditor agrees with client for a change in accounting policy that significantly affects the
financial statements
d. A significant uncertainty that may affect the financial statements of the future period is
adequately disclosed in the financial statements
The correct answer is: The successor auditor reports on the current year’s financial statements. The
prior-year's financial statements that were presented as comparatives were audited by another
CPA
35.The auditor's judgment regarding whether the financial statements give a "true and fair view" or "are
presented fairly", in all material respects, is made in the context of
a. applicable Philippine Standards on Auditing (PSAs)
b. standards of reporting of generally accepted auditing standards
c. applicable financial reporting framework
d. generally accepted auditing standards
The correct answer is: applicable financial reporting framework
36.In evaluating whether the financial statements have been prepared and presented in accordance with
the specific requirements of the applicable financial reporting framework for particular classes of
transactions, account balances and disclosures, the auditor should consider
a. All of the three other choices
b. that the accounting estimates made by the management are reasonable in the circumstances
c. that the information presented in the financial statements, including accounting policies, is
relevant, reliable, comparable and understandable
d. that the accounting policies selected and applied are consistent with the financial reporting
framework
The correct answer is: All of the three other choices
37.Which of the following statements is incorrect regarding the relationship between Emphasis of Matter
Paragraphs and Key Audit Matters in the Auditor's Report?
a. In communication a matter as a key audit matter in accordance with PSA 701, the auditor may
wish to highlight or draw further attention to its relative importance like presenting the matter
more prominently than other matters in Key Audit. Matters section or by including additional
information in the description of the key audit matter
b. There may be a matter that is not permitted to be a key audit matter in accordance with PSA 701,
but which in the auditor's judgment, is fundamental to users' understanding of the financial
statements
c. Matters that are determined to be key audit matters in accordance with PSA 701 may also be, in
the auditor's judgment, fundamental to users' understanding of the financial statements
d. All matters that in the auditor's judgment 'fundamental to users' understanding of the financial
statements may be considered as key audit matter
The correct answer is: All matters that in the auditor's judgment 'fundamental to users'
understanding of the financial statements may be considered as key audit matter
38.In extreme cases such as situations involving multiple uncertainties that are significant to the financial
statements, the auditor
a. may issue a "subject to" opinion because the situations related to uncertainties
b. may issue an adverse opinion because of their significance
c. may qualify his opinion instead of issuing an unqualified opinion with emphasis of matter
paragraph
d. may consider to express a disclaimer of opinion
The correct answer is: may consider to express a disclaimer of opinion
39.How are other reporting responsibilities addressed within the auditor's report?
a. They should be addressed within the scope paragraph
b. They should be addressed within the scope paragraph and separately described in a separate
paragraph
c. They should be addressed in a separate section that follows the auditor's responsibility paragraph
d. They should be addressed within the opinion paragraph
The correct answer is: They should be addressed in a separate section that follows the auditor's
responsibility paragraph
40.The auditor's address is indicated in the auditor's report by
a. naming the location in the country where the auditor practices his profession
b. including the complete mailing address of the auditor
c. identifying the country from where the auditor had secured his professional license
d. the auditor's address is omitted in the report
The correct answer is: naming the location in the country where the auditor practices his profession
41.If the scope of the auditor’s procedures in conducting an, audit is significantly restricted by the client
management, the audit opinion will most likely be a(n)
a. Adverse opinion
b. Qualified opinion
c. Unqualified with explanatory paragraph
d. Disclaimer of opinion
The correct answer is: Disclaimer of opinion
42.The complete set of general-purpose financial statements that are prepared in accordance with PFRS
comprises of
a. Statement of Assets and Liabilities, Statement of Comprehensive Income, Statement of Changes
in Retained Earnings, Statement of Cash Flows
b. Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in
Equity, Statement of Cash Flows
c. Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows,
Summary of Significant Accounting Policies and Other Explanatory Notes
d. Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows,
Statement of Changes in Equity, Summary of Accounting Policies and Other Explanatory Notes
The correct answer is: Statement of Financial Position, Statement of Comprehensive Income,
Statement of Cash Flows, Statement of Changes in Equity, Summary of Accounting Policies and
Other Explanatory Notes
43.When the auditor concludes that there is a substantial doubt about the entity's ability to continue as a
going concern, he should issue a(n)
a. adverse opinion, regardless of the adequacy of disclosures in the financial statements
b. standard unqualified report, provided that client has made adequate disclosures in the financial
statements
c. unqualified opinion with an explanatory paragraph provided that there is an adequacy of
disclosures in the financial statements
d. qualified opinion with an explanatory paragraph, regardless of the adequacy of disclosures in the
financial statements
The correct answer is: unqualified opinion with an explanatory paragraph provided that there is an
adequacy of disclosures in the financial statements
44.Once the auditor has determined that an exception is material enough to warrant a qualification of his
auditor's report, he must then determine if the exception is sufficiently material to negate an overall
opinion. If the auditor is applying this decision process to an exception base on a departure from
Philippine financial reporting standards, he is deciding
a. Whether to issue an adverse opinion rather than a disclaimer of opinion
b. Nothing because such a decision process is not applicable to this type of exception
c. Whether to issue an adverse opinion rather than a qualified opinion
d. Whether to issue a' disclaimer of opinion rather than a qualified opinion
The correct answer is: Whether to issue an adverse opinion rather than a qualified opinion
45.PSA 800, "The Independent Auditor's Report on Special Purpose Audit Engagements" least likely
applies to auditor's report issued as a result of an audit of
a. summarized financial statements
b. compliance to royalty agreement
c. complete set of general-purpose financial statements where the auditor is prohibited from
observing the inventory count
d. a component of a complete set of general-purpose financial statements wherein the opinion of the
auditor is unqualified
The correct answer is: complete set of general-purpose financial statements where the auditor is
prohibited from observing the inventory count
46. Which of the following. statements are true regarding Key Audit Matters?
I. Key Audit Matters are those matters that, in the auditor's professional judgment, were of most
significance in the audit of the financial statements of the current period.
II. Key Audit Matters are those matters that are selected from matters communicated by the auditor to
those charged with governance, which include significant findings from the audit of the financial
statements of the current period.
III. Key Audit Matters are required to be reported by auditors in all entities that they audit.
a. I and III only
b. I only
c. I, II, and III
d. I and II only
The correct answer is: I and II only
47.If the auditor encounters circumstances that led him to conclude that compliance with a specific
requirement results to financial statements that are misleading, the auditor
a. needs to disclaim his opinion
b.
needs to issue qualified opinion
c. does not need to modify the report
d. considers the need to appropriately modify the auditor's' report
The correct answer is: considers the need to appropriately modify the auditor's' report
48. The auditor's report may be addressed to any of the following, except the client's
a. Chief executive officer
b. Partners
c. Stockholders
d. Board of directors
The correct answer is: Chief executive officer
49.How should the auditor address the comparatives that are presented as corresponding figures?
a. The comparatives are not specifically identified because the auditor’s opinion applies to the current
period financial statements as a whole, including the corresponding figures
b. The comparatives are referred to in the opinion paragraph as the auditor applies to both the current
year’s financial statements and the corresponding figures
c. The comparatives are specifically identified in the audit report because the auditor’s opinion on the
current period financial statements applies also to the corresponding figures
d. The comparatives are specifically identified in the introductory paragraph and in the opinion paragraph
The correct answer is: The comparatives are not specifically identified because the auditor’s opinion
applies to the current period financial statements as a whole, including the corresponding figures
50.PSA 701 provides guidance on the
a. communicating key audit matters in the independent auditor's report
b. auditor's report issued as a result of an audit of a single statement or specified account(s)
c. auditor's report issued as a result of an audit of a complete set of general-purpose financial statements
d. auditor's report issued as a result of performing a special-purpose audit engagement
The correct answer is: communicating key audit matters in the independent auditor's report