Performance Tasks
Choose the best answer.
1. The auditor’s judgment as to whether the financial statements are presented fairly, in all material
respects, is made in the context of
a. Philippine Standards on Auditing.
b. applicable financial reporting framework.
c. the professional ethical requirements.
d. generally accepted auditing standards
2. The auditing profession recognizes the need for uniformity in reporting as a means of
a. defending against lawsuits
b. standardizing the policies of various CPA firms
c. upgrading the communications skills of auditors
d. promoting credibility of the report in the global marketplace
3. Auditing standards require that the audit report must be titled. This is done in order to
a indicate that the auditor is a CPA
b distinguish the report from the report that might be issued by others.
c identify the financial statements audited
d emphasize that the report is not a guarantee as to the fair presentation of the financial
statements.
4. An auditor has been engaged by the ACE Company to audit the financial statements of CRC
Corporation in conjunction with a loan commitment. The report would most likely be addressed
to
a. The shareholders, CRC Corporation
b. The board of directors, XYZ Corporation
c. To whom it may concern
d. ACE Company
5. The auditor may address the report to all of the following, except:
a. the client company
b. the president or the chief executive officer of client company
c. the board of directors of client company
d. the stockholders of client company
6. The audit report is normally addressed to the:
Board of Directors
Stockholders
Audit Committee
a.
b.
c.
No
Yes
Yes
Yes
Yes
Yes
No
No
Yes
d.
Yes
No
Yes
7. The element of the auditor’s report that identifies the financial statement audited is the
a. title
b. introductory paragraph
c. management’s responsibility for the financial statements paragraph
d. opinion paragraph
8. The introductory paragraph of the auditor’s report should
a. identify the name of the entity for whom the report is prepared.
b. state that the management is responsible for the preparation and fair presentation of the
financial statements.
c. state the auditor’s responsibility to express an opinion on the financial statements.
d. refer to the summary of significant accounting policies and explanatory notes.
9. The responsibility of the management for the preparation and fair presentation of the financial
statements includes all of the following except:
a. designing, implementing and maintaining internal control that prevents collusion among
employees.
b. selecting appropriate accounting policies.
c. applying appropriate policies.
d. making accounting estimates that are reasonable in the circumstances.
10. The auditor’s report does not
a. state that the auditor’s responsibility is to express an opinion on the financial statements.
b. state that the audit was conducted in accordance with an identified financial reporting
framework.
c. state that the auditor obtained sufficient appropriate evidence to provide a basis for the
auditor’s opinion.
d. indicate the name of the entity whose financial statements have been audited.
11. If the independent auditor expresses an unqualified opinion on the financial statements, the
readers of the audit report can assume that
a. The independent auditor did not find error or fraud that could materially affect the financial
statements.
b. The company is financially sound.
c. All material disagreements between the management and external auditor regarding
acceptability of accounting policies and the methods of their application were resolved to the
auditor’s satisfaction.
d. The auditor is responsible for the fair presentation of the financial statements.
12. The appropriate date for the audit report is the one on which the
a. client’s fiscal year ended
b. auditor has completed all the essential audit procedures
c. auditor and client entered into a contract
d. auditor types and delivers the report to client
13. The date of the auditor’s report normally coincide with the date
a. the audit report is issued.
b. the financial statements are issued
c. the management approves the financial statements.
d. the client engaged the services of the auditor.
14. The date of the audit report is important because
a. The user has a right to expect that the auditor has performed certain procedures to detect
subsequent events that would materially affect the financial statements through the date of
the report
b. The auditor bills time to the client up to and including the audit report date, and the statement
to the client should reflect this date
c. PSAs require all audits to be performed on a timely basis
d. It should coincide with the date of the financial statements
15. The audit report should be dated
a. Earlier than the date management approves the financial statement
b. Later than the date of issuance of the financial statements
c. Earlier than the date of the issuance of the audit report.
d. Later than the balance sheet date.
16. The most common type of audit report contains a(n)
a. adverse opinion
c. qualified opinion
b. disclaimer of opinion
d. unqualified opinion
17. The three main types of audit reports other than the Unqualified Report are the
a. adverse opinion, disclaimer of opinion, and qualified opinion
b. adverse opinion, reports on unaudited financial statements, and disclaimer of opinion
c. disclaimer of opinion, the qualified opinion, and reports on unaudited financial statements.
d. Special audit reports, reports on unaudited financial statements, and adverse opinions.
18. Which of the following is not one of the basic elements of the auditor’s report?
a. Title
b. Date of the report
c. Client’s address
d. Auditor’s signature
19. How are management’s responsibility and the auditor’s responsibility represented in the
standard auditor’s report?
Management’s Responsibility
Auditor’s Responsibility
a.
Explicitly
Explicitly
b.
Implicitly
Implicitly
c.
Implicitly
Explicitly
d.
Explicitly
Implicitly
Matters that affect the Unqualified Opinion
20. The adverse opinion report will be issued by the independent auditor when he/she
a. Suspects that client has not followed the identified financial reporting framework..
b. Suspects that client’s financial statements are not in conformity with PSAs.
c. Has knowledge that the financial statements are not in conformity with an identified
financial reporting framework
d. Has knowledge that PSAs were not followed.
21. A disclaimer is issued whenever the auditor
a. Has been unable to satisfy him/herself that the overall financial statements are presented
fairly.
b. Believes that the overall financial statements are not presented fairly.
c. Believes that some material part(s) of the financial statements are not presented fairly.
d. Has determined that the financial statements are presented fairly.
22. Both disclaimers and adverse opinions are used
a. Only when the condition is highly material
b. Irregardless of the auditor’s independence
c. Whether the condition is material or not.
d. Irregardless of client’s choice of a non-GAAP accounting method.
23. The auditor may disagree with management about matters such as the acceptability of
accounting policies selected, the methods of their application, or the adequacy of disclosures in
the financial statements. If such disagreements are significant to the financial statements, the
auditor’s report may contain
Qualified opinion Adverse opinion
Disclaimer of opinion
a.
YES
YES
YES
b.
YES
NO
YES
c.
NO
YES
YES
d.
YES
NO
NO
24. Which of the following does not properly describe a scope limitation?
a. the auditor is unable to perform necessary audit procedures.
b. the client’s accounting records are inadequate.
c. the auditor is unable to gather sufficient appropriate evidence.
d. the client refuses to disclose essential information in the notes to financial statements.
25. An auditor’s report includes the following statement:
“The financial statements do not present fairly the financial position, result of operations, or cash
flows in conformity with generally accepted accounting principles.”
This report was most likely issued in connection with financial statements that are
CRC-ACE/AT: Audit Reports – 2
a.
b.
c.
d.
Page 5
Inconsistent
Based on prospective financial information
Misleading
Affected by a material uncertainty
26. When a scope limitation has precluded the auditor from obtaining sufficient appropriate
evidential matter, the report would most likely contain
a. An unqualified opinion with an emphasis of a matter paragraph
b. Either a qualified opinion or an adverse opinion
c. Either a disclaimer of opinion or a qualified opinion
d. Either an adverse opinion or a disclaimer of opinion
27. Under which of the following circumstances is a disclaimer of opinion inappropriate?
a. The auditor is engaged after fiscal year end and is unable to observe physical inventories or
apply alternative procedures to verify their balances
b. The auditor is unable to determine the amounts associated with fraud committed by the
client’s management
c. The financial statements fail to contain adequate disclosure concerning related party
transactions
d. The client refuses to permit its attorney to furnish information requested in a letter of audit
inquiry
28. When management does not amend the financial statements in circumstances where the auditor
believes they need to be amended and the auditor's report has not been released to the entity, the
auditor should express
a. Qualified or adverse opinion
b. Qualified or disclaimer of opinion
c. Unqualified opinion with explanatory paragraph
d. Unqualified opinion.
29. An auditor may reasonably issue a qualified opinion for
Inadequate Disclosure
Scope Limitation
a.
b.
c.
d.
Yes
No
Yes
No
Yes
Yes
No
No
30. In which of the following situations would an auditor ordinarily choose between expressing a
qualified opinion or an adverse opinion?
a. The auditor did not observe the entity's physical inventory and is unable to become satisfied
as to its balance by other auditing procedures.
b. The financial statements fail to disclose information that is required by financial reporting
standards.
c. The auditor is asked to report only on the entity's balance sheet and not on the other basic
financial statements.
d. Events disclosed in the financial statements cause the auditor to have substantial doubt
about the entity's ability to continue as a going concern.
31. Von, CPA, was engaged to audit the financial statements of Coleen Company after its fiscal year
had ended. Von neither observed the inventory count nor confirmed the receivables by direct
communication with debtors, but was satisfied concerning both after applying alternative
procedures. Von’s auditor’s report most likely contained a (an)
a. Qualified opinion
b. Unqualified opinion
c. Disclaimer of opinion
CRC-ACE/AT: Audit Reports – 2
Page 6
d. Unqualified opinion with an emphasis of a matter paragraph.
32. An auditor has been asked to report on the balance sheet of Ryan Company but not on the other
basic financial statements. The auditor will have access to all information underlying the basic
financial statements. Under these circumstances, the auditor
a. May accept the engagement because such engagements merely involve limited reporting
objectives
b. May accept the engagement but should disclaim an opinion because of an inability to apply
the procedures considered necessary
c. Should refuse the engagement because there is a client-imposed scope limitation
d. Should refuse the engagement because such engagement is tantamount to piecemeal
opinion.
33. The auditor would most likely issue a disclaimer of opinion because of
a. Inadequacy of the accounting records
b. Inadequate disclosure of material information.
c. A client-imposed scope limitation.
d. The qualification of an opinion by the other auditor of subsidiary where there is a division of
responsibility.
34. The management of a client believes that the statement of cash flow is not a useful document and
refuses to include one in the annual report to stockholders. As a result, the auditor's opinion
should be
a. qualified due to inadequate disclosure
b. qualified due to a scopes limitation
c. adverse
d. unqualified
35. When the financial statements contain a departure from generally accepted accounting principles,
the effect of which is material, the auditor should
a. Qualify the opinion and explain the effect of the departure from GAAP in a separate
paragraph
b. Qualify the opinion and describe the departure from GAAP within the opinion paragraph
c. Disclaim an opinion and explain the effect of the departure from GAAP in a separate
paragraph
d. Disclaim an opinion and describe the departure from GAAP within the opinion paragraph
36. When an auditor expresses an adverse opinion, the opinion paragraph should include
a. The principal effects of the departure from generally accepted accounting principles
b. A direct reference to a separate paragraph disclosing the basis for the opinion
c. The substantive reasons for the financial statements being misleading
d. A description of the uncertainty or scope limitation that prevents an unqualified opinion
37. An auditor decides to express a qualified opinion on an entity's financial statements because a
major inadequacy in its computerized accounting records prevents the auditor from applying
necessary procedures. The opinion paragraph of the auditor's report should state that the
qualification on pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. The possible effects on the financial statements.
d. Inadequate disclosure of necessary information.
38. Which of the following statements is incorrect about the auditor’s responsibility when the auditor
expresses an opinion that is other than unqualified?
a. a clear description of all the substantive reasons should be included in the report
b. unless impracticable, a quantification of the possible effect(s) on the financial statements
should be indicated in the report.
CRC-ACE/AT: Audit Reports – 2
Page 7
c. the information would ordinarily be set out in a separate explanatory paragraph following
the opinion or disclaimer of opinion.
d. the information may include a reference to a more extensive discussion, if any, in the notes to
financial statements.
39. An auditor's opinion reads as follows:
"In our opinion, except for the above-mentioned limitation on the scope of our audit..,"
This is an example of a(n)
a. review opinion
b. qualified opinion
c. emphasis on a matter
d. unacceptable reporting practice
40. Inadequacy of disclosures in the notes to financial statements normally requires the auditor to
express a qualified opinion on the client’s financial statements. When this occurs, the auditor
should disclose the substantive reasons for expressing a qualified opinion in an explanatory
paragraph
a. Preceding the paragraph that describes the auditor’s responsibility
b. Following the opinion paragraph
c. Within the notes to the financial statements
d. Preceding the opinion paragraph
41. An auditor should disclose the substantive reasons for expressing an adverse opinion in an
explanatory paragraph
a. Preceding the management’s responsibility paragraph
b. Preceding the opinion paragraph
c. Following the opinion paragraph
d. Within the notes to the financial statements
42. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should
describe the nature of the omission in a separate explanatory paragraph and modify the
Introductory
Management responsibility
Auditor’s
paragraph
paragraph
Responsibility
OpinionYes
Paragraph
a.
Yes
No
No
paragraph
b.
Yes
Yes
No
No
c.
No
Yes
Yes
Yes
d.
No
No
No
Yes
43. When the auditor expresses an opinion that is other than unqualified, a clear description of all the
substantive reasons should be included in the report and, unless practicable a quantification of
possible effects on the financial statements. This information would ordinarily be set out in
a. the opinion paragraph of the auditor’s report
b. the paragraph that describes the auditor’s responsibility.
c. a separate paragraph preceding the opinion paragraph.
d. a separate paragraph following the opinion paragraph.
Matters that do not affect the Unqualified Opinion
44. Which of the following statements is not correct about “emphasis of a matter paragraph”?
a. The addition of such paragraph is not to be construed as a modification of the auditor’s report.
b. The addition of such paragraph does not affect the auditor’s opinion.
c. The paragraph would preferably be presented after the opinion paragraph.
d. The paragraph is normally used by the auditor to highlight certain items in the financial
statements.
45. Which of the following circumstances will not affect the auditor’s opinion?
CRC-ACE/AT: Audit Reports – 2
Page 8
a. a limitation on the scope of the auditor’s work imposed by the client
b. a limitation on the scope of the auditor’s work imposed by the circumstances.
c. Disagreement with management about matters such as acceptability of the accounting
policies or the methods of their application.
d. Significant uncertainties affecting the financial statements.
46. Three of the following conditions would, by itself, require the auditor to issue a report other than
the Unqualified Report. Which one would not require such a departure?
a. Client company’s financial statements show a significant net loss for each of the last three
years, including the current fiscal period.
b. The financial statements have not been prepared in accordance with generally accepted
accounting principles.
c. The auditor is not independent during the fiscal period under audit.
d. The scope of the auditor’s examination has been restricted, although the cause of the
restriction was not the client’s fault.
47. What is the purpose of the following paragraph in an audit report on financial statements:
“…….we draw attention to note X in the financial statements which discusses that the
company is a subsidiary of another Company”
a. A standard reporting requirement.
b. Emphasis of a matter
c. Qualification of an opinion
d. An inappropriate reporting.
48. An auditor who concludes, that an uncertainty is not adequately disclosed in. the financial
statements should issue a:
a. Disclaimer of opinion.
c. Special report.
b. Unqualified report with an explanatory
d. Qualified report.
paragraph.
49. An auditor may wish to emphasize a matter included in the financial statements by adding a
separate paragraph to the audit report. In this case the following paragraphs of the audit report
should be modified:
a. Introductory paragraph
b. Auditor’s responsibility paragraph
c. Opinion paragraph
d. None
50. `When the auditor concludes that there is substantial doubt about the entity’s ability to
continue as a going concern for a reasonable period of time, the auditor should
a. issue either qualified or adverse opinion
b. consider the adequacy of disclosure in the notes to financial statements
c. report to the audit committee the need to adjust management estimates
d. re-issue the prior years audit report and add explanatory paragraph that specifically
refers to “substantial doubt” and “going concern”
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
51. The independent auditor has concluded that a substantial doubt remains about a client’s
ability to continue in existence, but the client’s financial statements have properly
disclosed all of its solvency
problems. The auditor would probably issue a (an)
a. Unqualified opinion with an appropriate explanatory paragraph.
b. “Except for” qualified opinion.
c. Standard unqualified opinion.
d. Adverse opinion.
52. In extreme cases, such as situations involving multiple uncertainties that are significant
to the financial statements, the auditor may consider it appropriate to express a
a. Qualified or adverse opinion
b. Unqualified opinion with explanatory paragraph
c. Disclaimer of opinion
d. Unqualified opinion.
53. The auditor should consider adding a separate paragraph to the standard unqualified
report when
a. The auditor is prevented from completing a procedure required by PSA.
b. The financial statements fail to disclose information required by GAAP
c. The auditor decides to make reference to the report of another auditor
d. An uncertainty arises about the entity's continued existence
54. 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 may include a(n):
Adverse opinion
a.
b.
c.
d.
Yes
No
No
Yes
Qualified opinion
Yes
Yes
No
No
55. When management prepares financial statements on the basis of a going concern and the
auditor believes the company may not continue as a going concern the auditor should
issue
a. qualified opinion
b. unqualified opinion with an explanatory paragraph
LSPU SELF-PACED LEARNING MODULE: AUDITING AND ASSURANCE PRINCIPLES
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
c. disclaimer of opinion
d. adverse opinion
56. The consistency standard does not apply to an accounting change that results from a
change in
a. Accounting principle
b. Accounting estimate
c. The reporting entity
d. Accounting principle inseparable from a change in accounting estimate
57. Which of the following requires recognition in the auditor’s opinion as to consistency?
a. The correction of an error in the prior year’s financial statements resulting from a
mathematical mistake in capitalizing interest
b. The change from the cost method to the equity method of accounting for
investments in common stock
c. A change in the estimate of provisions for warranty cost
d. A change in depreciation method which has no effect on current year’s financial
statements but is certain to affect future years
58. Which of the following should have a consistency paragraph in the auditor's report,
whether or not the item is fully disclosed in the financial statements?
a. A change in accounting estimate
b. A change from an unacceptable accounting principle to a generally accepted one
c. Correction of an error not involving a change in accounting principle
d. A change in classification
59. When there is a significant change in accounting principle, an auditor's report should
refer to the lack of consistency in:
a. The scope paragraph
b. An explanatory paragraph between the second paragraph and the opinion
paragraph
c. The opinion paragraph
d. An explanatory paragraph following the opinion paragraph
60. Below are lists of accounting changes affecting consistency and comparability. All items
are material. Which list does not contain a change requiring recognition in the audit
report?
a. Correction of an error in an accounting principle; change in accounting estimate; a
reclassification
LSPU SELF-PACED LEARNING MODULE: AUDITING AND ASSURANCE PRINCIPLES
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
b. Reclassification; a substantially different transaction; an accounting change having
no material effect on the financial statements in the current year but having a
substantial effect in subsequent years
c. Substantially different transactions; certain changes in the presentation of cash
flows; a change in reporting entity
d. Correction of an error not involving an accounting principle; change in accounting
estimate; a change in reporting entity
Understanding Directed Assess
Rubric for Class Participation, and Engaging Activity
PERFORMANCE
LEVEL OF
ENGAGEMENT
Knowledge
shared accurate
and broad
Demonstrate excellent
preparation, all ideas are
related to prior knowledge and
experience
Contribute knowledge,
skills, and
understanding in a very
significant way to class
discussion
Advance (5 points)
Knowledge
shared accurate
but limited
Demonstrate good preparation,
most ideas to prior knowledge
and experience are well
organized
Understanding in a very
significant way to class
discussion
Proficient (4 points)
Adequate preparation, some
ideas to prior knowledge and
experience are related
Contribute some ideas
to class discussion
Coherence
Only some preparation prior
knowledge and experience are
illogically arranged
Contribute some ideas
to class discussion only
when called on
Approaching
Little preparation and only few
ideas on knowledge and
experience
Very minimal
involvement in class
Needs Improvement
Somewhat
accurate and
limited
Inaccurate and
limited
Attempted to
share knowledge
LSPU SELF-PACED LEARNING MODULE: AUDITING AND ASSURANCE PRINCIPLES
POINTS/RATING
(3 points)
(2 points)
(1 point)
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
Learning Resources
•
•
•
•
•
•
Bercasio, R.C. and Escala, R. A. (2021) Auditing and Assurance Services
Cabarles, L., Ocampo, R. Valdez, R. (2019) Auditing: A Risk Based Approach Part 1Theory, Made Easy Books
Cabrera, Ma. Elenita, Cabrera, Gilbert Anthony (2017) Auditing Theory, GIC Enterprises
Salosagcol, J., Tiu, M., Hermosilla, R., (2018) Auditing Theory, Cunanan Educational
Supply
International Standards on Auditing (ISA) issued by the International Federation of
Accountants (IFAC) through the International Auditing and Assurance Standards Board
(IAASB) .
Philippine Standards in Auditing (PSAs) accessed from www.aasc.org.ph
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LSPU SELF-PACED LEARNING MODULE: AUDITING AND ASSURANCE PRINCIPLES