St Ferdinand College Inc.

City Of Ilagan Isabela

AUDIT REVIEW

Name: _________________________________________________ Score:____________________

Course & Year:____________________________________________ Date: ____________________

DRILL – AUDIT OPINION

Write your answers on the box provided. USE CAPITAL LETTERS. Strictly no ALTERATIONS AND
ERASURES.

1. 11. 21. 31.

2. 12. 22. 32.
3. 13. 23. 33.
4. 14. 24. 34.
5. 15. 25. 35.
6. 16. 26. 36.
7. 17. 27. 37.
8. 18. 28. 38.
9. 19. 29. 39.
10. 20. 30. 40.

1. The auditor‘s responsibility in an audit engagement is limited to:

a. expression of an opinion on the financial statements
b. expression of an opinion on the financial statements and adequacy of summary of accounting policies
and other notes
c. opinion issued and the fairness of presentation of the financial statements
d. expression of opinion and an inclusion of supplementary information if necessary
2. Under certain circumstances, the CPA may wish to emphasize specific matters regarding the financial
statements even though he or she intends to express an unqualified opinion. Normally, such an explanatory
information should be included in
a. the introductory paragraph
b. a separate paragraph following the opinion paragraph in the report
c. the opinion paragraph
d. A separate paragraph preceding the opinion paragraph
3. 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. unqualified opinion
b. except for qualified opinion
c. "subject to" qualified opinion
d. adverse opinion
4. In extreme cases such as situations involving multiple uncertainties that are significant to the financial
statements, the auditor
a. may consider to express a disclaimer of opinion
b. may qualify his opinion instead of issuing an unqualified opinion with emphasis of matter paragraph
c. may issue an adverse opinion because of their significance
d. may issue a "subject to" opinion because the situations related to uncertainties
5. A client company has issues that cause substantial doubt regarding the entity's ability to continue as a going
concern. If this is the only major audit issue, which type of opinion will the auditor usually refrain from issuing?
a. Adverse
b. Unqualified with explanatory language
c. Clean opinion
d. Disclaimer of opinion
6. 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. The prior year's financial statements were audited by other CPAs
c. An important subsidiary whose financial statements were included in the consolidated financial
statements were audited by other CPAs
d. A substantial doubt about the client's ability to continue as a going concern that is adequately disclosed
in the financial statements.
7. In which of the following situations would qualified opinion be inappropriate?
a. Financial statements are materially misstated
b. A doubt that is more than substantial about the ability of the company to continue as a going concern
c. A significant scope limitation
d. The management insisted of not attaching the statement of cash flows
8. Which of the following is not a reason to issue a modified audit report with opinion other than unqualified
opinion?
a. The scope of the auditor's work is restricted by the client
b. The amount of inventories at cost as presented in the balance sheet significantly exceeded their market
values
c. Certain significant matter is omitted from either the financial statements or notes to financial statement
d. An adequately disclosed significant uncertainty, the resolution of which is dependent upon future
events and which may affect the financial statements.
9. Which of the following circumstances may not result- to a disclaimer of opinion?
a. A significant scope limitation in auditing the existence of inventories. The inventory amount comprises 75
percent of the total assets of the client
b. The auditor believes that there are multiple, uncertainties that are significant to the financial statements
c. The accounts receivable of the client comprises 80 percent of the total assets. The auditor was instructed
by the client not to confirm account balances. The auditor, however, was satisfied by the results of
alternative audit procedures
d. The auditor's wife owns very a few number of common shares of the client.
10. Whenever an auditor issues a qualified report, he or she
a. must use the term "subject to" in the opinion paragraph
b. may use either the terms "subject to" or " except for" in the opinion paragraph, depending on the nature of
the qualification
c. must use the term "except for" in the opinion paragraph
d. must not use the terms "subject to" or "except for" in the opinion paragraph
11. Under which of the following sets of circumstances might an auditor disclaim an opinion?
a. The financial statements contain a departure from PFRS, 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.
12. 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. either an "except for" qualified opinion or an adverse opinion
b. either a disclaimer or opinion or an "except for" qualified opinion
c. either an adverse opinion or disclaimer of opinion
d. an unqualified opinion.
13. An adverse opinion is issued when the auditor believes
 a. some parts of the financial statements are materially misstated or misleading
b. the financial statements investigation be found to be misleading or misstated, if an adequate investigation
is performed
c. 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
d. the audit firm is not independent
14. If the scope of the auditors 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
15. The auditor would most likely disclaim his opinion because of
a. the client's failure to present supplementary information required by the FRSC
b. inadequate disclosure of material information
c. the qualification of an opinion by the other auditor of a subsidiary where there is a division of
responsibility
d. a client-imposed scope limitation
16. An entity changed from the straight-line method to the declining balance method of depreciation for all newly
acquired assets. This change has no material effect on the current year’s financial statements but is reasonably
certain to have a substantial effect in later years. If the changes is disclosed in the notes to the financial
statements, the auditor should issue a report with a (an)
a. “Except for” qualified opinion
b. Unqualified opinion
c. Explanatory paragraph
d. Consistency modification
17. When the audited financial statements of the prior year are presented together with those of the current year,
the continuing auditor's report should cover
a. Both years
b. Only the current year
c. Only the current year, but the prior year's report should be presented
d. Only the current year, but the prior year's report should be referred to
18. . An auditor includes a separate paragraph in an otherwise unqualified report to emphasize that the entity being
reported upon had significant transactions with related parties. The inclusion of this separate paragraph
a. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the
financial statements
b. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation"
c. Is appropriate and would not negate the unqualified opinion
d. Is considered an "except for" qualification of the report
19. Client A reports property, plant, and equipment at appraisal values and records depreciation based on the
appraised amounts. Also, the company does not defer income taxes for temporary differences arising from using
the installment method of recognizing gross profit for tax purposes. The company uses the accrual method for
financial reporting purposes. Under these circumstances, the auditor will probably issue a(n)
a. Audit opinion qualified for a departure from GAAP
b. Adverse audit opinion
c. Disclaimer of opinion
d. Unqualified audit opinion with an explanatory paragraph describing the client's unique accounting
practices
20. X, an independent auditor, was engaged to perform an audit of the financial statements of a corporation one
month after its fiscal year had ended. Although the inventory count was not observed by X, and accounts
receivable were not confirmed by direct communication with customers, X was able to gain satisfaction by
applying alternative auditing procedures. X’s audit report will probably contain
a. A standard unqualified opinion
b. An unqualified opinion and an explanatory paragraph
c. Either a qualified opinion or a disclaimer of opinion
 d. An "except for" qualification
21. The following statements relate to the auditor’s reporting responsibilities regarding comparative information.
Which is incorrect?
I. For corresponding figures, the auditor’s report only refers to the financial statements of the current
period
II. For comparative financial statements, the auditor’s report refers to each period that financial statements
are presented
a. I only
b. II only
c. Both I and II
d. Neither I nor II
22. Which of the following best describes the auditor’s responsibility when reporting on comparatives?
a. For corresponding figures, the auditor’s opinion on the financial statements refers to the current period
only
b. For all comparatives, the auditor’s opinion refers to each period for which the financial statements are
presented
c. For all comparatives, the auditor’s opinion refers to the current period only
d. For comparative financial statements, the auditor’s opinion on the financial statements refers to the current
period only
23. A framework of presentation 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
a. Current period figures
b. Comparative financial statements
c. Comparatives
d. Corresponding figures
24. When audited financial statements are presented in a client’s document containing other information, the
auditor should
a. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable
b. Add an explanatory paragraph to the auditor’s report without changing the opinion on the financial
statements
c. Perform the appropriate substantive auditing procedures to corroborate the other information
d. Read the other information to determine that it is consistent with the audited financial statements
25. Before the date of the auditor’s report, the auditor found a material inconsistency between the other information
and the information presented in the financial statements. If revision of the financial statements is necessary and
management refuses to make the revision, the auditor shall
a. Modify the opinion on the financial statements
b. Include Other Matter paragraph in the unmodified report to describe the material inconsistency
c. Disclaim an opinion on the financial statements
d. Disclaim an opinion on the other information
26. When the auditor concludes that the use of the going concern assumption is appropriate in the circumstances,
but material uncertainty exists, the auditor shall
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. Reissue the prior year’s audit report and add an emphasis of a matter paragraph
27. An auditor who concludes that an uncertainty is not adequately disclosed in the financial statements would most
likely issue a
a. Disclaimer of opinion
b. Special report
c. A report with emphasis of matter paragraph
d. Qualified opinion
28. 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 opinion
b. Disclaimer of opinion
 c. A report with emphasis of matter paragraph
d. Adverse opinion
29. When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going
concern because of the probable discontinuance of operations, the auditor most likely would express a qualified
opinion if
a. The effects of the adverse financial conditions likely will cause a bankruptcy filing
b. Information about the entity's ability to continue as a going concern is not disclosed
c. Management has no plans to reduce or delay future expenditures
d. Negative trends and recurring operating losses appear to be irreversible
30. An independent auditor has concluded that a substantial doubt remains about a client's ability to continue as a
going concern, 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 emphasis of paragraph
b. Standard unqualified opinion
c. "Except for" qualified opinion
d. Adverse opinion
31. An auditor concludes that a client’s illegal act, which has a material effect on the financial statements, has not
been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements,
the auditor should express either a(n)
a. Adverse opinion or a disclaimer of opinion.
b. Qualified opinion or an adverse opinion.
c. Disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph.
d. Unmodified opinion with a separate emphasis-of matter paragraph or a qualified opinion.
32. Which of the following phrases would an auditor most likely include in the auditor’s report when expressing a
qualified opinion because of inadequate disclosure?
a. Subject to the departure from US generally accepted accounting principles, as described above.
b. With the foregoing explanation of these omitted dis closures.
c. Except for the omission of the information discussed in the preceding paragraph.
d. Does not present fairly in all material respects.
33. In which of the following circumstances would an auditor be most likely to express an adverse opinion?
a. The chief executive officer refuses the auditor ac cess to minutes of board of directors’ meetings.
b. Tests of controls show that the entity’s internal control is so poor that it cannot be relied upon.
c. The financial statements are not in conformity with a t FASB requirement regarding the capitalization of
leases
d. Information comes to the auditor’s attention that raises substantial doubt about the entity’s ability to
continue as a going concern
34. In which of the following situations would an auditor ordinarily choose between expressing an “except for”
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 generally accepted accounting
principles
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
35. 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 about its
balance by other auditing procedures
b. Conditions that cause the auditor to have substantial doubt about the entity’s ability to continue as a going
concern are inadequately disclosed
c. There has been a change in accounting principles that has a material effect on the comparability of the
entity’s financial statements
d. The auditor is unable to apply necessary procedures concerning an investor’s share of an investee’s
earnings recognized on the equity method
36. An auditor decides to issue 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 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
37. A scope limitation sufficient to preclude an unmodified opinion always will result when management
a. Prevents the auditor from reviewing the working papers of the predecessor auditor
b. Engages the auditor after the year-end physical inventory is completed
c. Requests that certain material accounts receivable not be confirmed
d. Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity
with GAAP
38. An uncertainty facing the firm relating to the possible future results of litigation filed against client is most
likely to result in which of the following types of audit report?
a. Adverse with a basis for adverse opinion paragraph
b. Qualified due to a scope limitation
c. Qualified with a basis for qualification paragraph
d. Unqualified with emphasis-of-matter paragraph
39. An auditor may not issue a qualified opinion when
a. An accounting principle at variance with GAAP is used
b. The auditor lacks independence with respect to the audited entity
c. A scope limitation prevents the auditor from completing an important audit procedure
d. The auditor’s report refers to the work of a specialist
40. 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 unmodified opinion