CHAPTER 14 - CPAR
In extreme cases, such as situations involving multiple uncertainties that are significant to the
1. 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
2. The financial statements audited by the auditor are identified in the
a. Opening paragraph c. Opinion paragraph
b. Scope paragraph. d. All of the above.
3. Which of the following statements can be found on the scope paragraph of the standard audit
report?
a. The financial statements are the responsibility of the Company’s management.
b. Our responsibility is to express an opinion on these financial statements based on our audit.
c. We believe that our audit provides a reasonable basis for our opinion.
d. The financial statements ‘present fairly, in all material respects’.
4. Which statement is incorrect regarding the date of the auditor’s report?
a. The auditor should date the report as of the completion date of the audit.
b. The date of the report informs the reader that the auditor has considered the effect on the
financial statements and on the report of events and transactions of which the auditor became
aware and that occurred up to that date.
c. The auditor should not date the report earlier than the date on which the financial statements
are signed or approved by management.
d. The auditor should date the report as of date the report is delivered to the entity audited.
5. The following will usually result in a modified report but will not affect the auditor’s opinion,
except
a. Existence of going concern problem.
b. There is a significant uncertainty (other than a going concern problem), the resolution of which
is dependent upon future events and which may affect the financial statements.
c. Emphasis of a matter.
d. There is a disagreement with management regarding the acceptability of the accounting
policies selected.
6.
financial statements, the auditor may consider it appropriate to express a
a. Qualified or adverse opinion c. Unqualified opinion with explanatory paragraph
b. Disclaimer of opinion. d. Unqualified opinion.
7. If a company’s external auditor expresses an unqualified opinion as a result of the audit of the
company’s financial statements, readers of the audit report can assume that
a. The external auditor found no fraud.
b. The company is financial sound and the financial statements are accurate.
c. Internal control is effective.
d. All material disagreements between the company and external auditor about the
application of accounting principles were resolved in the satisfaction of the external auditor.
8. The management of a client company 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. c. adverse
b. qualified due to a scope limitation. d. unqualified
9. 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. c. qualified opinion
b. emphasis on a matter d. unacceptable reporting practice
10. The following are special purpose audit engagements, except
a. Financial statements prepared in accordance with a comprehensive basis of accounting other
than generally accepted accounting principles in the Philippines.
b. Specified accounts, elements of accounts, or items in a financial statement.
c. Compliance with contractual agreements.
d. Compiled financial statements.
11. Which statement is incorrect regarding special purpose audit engagements?

a. Before undertaking a special purpose audit engagement, the auditor should ensure there is
agreement with the client as to the exact nature of the engagement and the form and content of the
report to be issued.
b. To avoid the possibility of the auditor’s report being used for purposes for which it was not
intended, the auditor may wish to indicate in the report the purpose for which the report is
prepared and any restrictions on its distribution and use.
c. When requested to report in a prescribed format, the auditor should consider the substance and
wording of the prescribed report.
d. The auditor need not consider whether any significant interpretations of an agreement on
which the financial information is based are clearly disclosed in the financial information.
12. A comprehensive basis of accounting comprises a set of criteria used in preparing financial
statements which applies to all material items and which has substantial support. Other
comprehensive financial reporting frameworks may include the following, except
a. A conglomeration of accounting conventions devised to suit individual preference.
b. That used by an entity to prepare its income tax return.
c. The cash receipts and disbursements basis of accounting.
d. The financial reporting provisions of a government regulatory agency.
13. The CPA is asked to audit financial statements prepared on a modified cash basis. This is
acceptable provided the CPA
a. Converts the financial statement to an accrual basis before rendering an audit report.
b. Qualifies the audit opinion for a departure from GAAP.
c. Issues an adverse opinion.
d. States clearly in the audit report that fairness was evaluated within the framework of the
other basis rather than GAAP.
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14. Which statement is correct regarding report on a component of financial statements?
a. This type of engagement may be undertaken as a separate engagement or in conjunction with
an audit of the entity’s financial statements.
b. In determining the scope of the engagement, the auditor need not consider those financial
statement items that are interrelated and which could materially affect the information on which
the audit opinion is to be expressed.
c. The auditor’s examination will ordinarily be less extensive than if the same component were to
be audited in connection with a report on the entire financial statements.
d. When an adverse opinion or disclaimer of opinion on the entire financial statements has been
expressed, the auditor may report on components of the financial statements even if those
components are so extensive as to constitute a major portion of the financial statements.
15. Which statement is incorrect regarding report on compliance with contractual agreements?
a. The auditor cannot be requested to report on an entity’s compliance with certain aspects
of contractual agreements, such as bond indentures or loan agreements.
b. Engagements to express an opinion as to an entity’s compliance with contractual agreements
should be undertaken only when the overall aspects of compliance relate to accounting and
financial matters within the scope of the auditor’s professional competence.
c. When there are particular matters forming part of the engagement that are outside the auditor’s
expertise, the auditor would consider using the work of an expert.
d. The report should state whether, in the auditor’s opinion, the entity has complied with the
particular provisions of the agreement.
16. Which statement is incorrect regarding report on summarized financial statements?
a. Unless the auditor has expressed an audit opinion on the financial statements from which the
summarized financial statements were derived, the auditor should not report on summarized
financial statements.
b. Summarized financial statements are presented in considerably less detail than annual audited
financial statements.
c. Summarized financial statements need to be appropriately titled to identify the audited financial
statements from which they have been derived.
d. Summarized financial statements contain all the information required by the financial
reporting framework used for the annual audited financial statements.
17. The auditor’s report on summarized financial statements least likely include

a. An identification of the audited financial statements from which the summarized financial
statements were derived.
b. A reference to the date of the audit report on the unabridged financial statements and the type
of opinion given in that report.
c. An opinion as to whether the information in the summarized financial statements is
presented fairly, in all material respects
d. A statement which indicates that for a better understanding of an entity’s financial performance
and position and of the scope of the audit performed, the summarized financial statements should
be read in conjunction with the unabridged financial statements and the audit report thereon.
18. In an engagement to examine prospective financial information, the auditor should obtain
sufficient appropriate evidence as to whether:
I. Management’s best-estimate assumptions on which the prospective financial information is
based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are
consistent with the purpose of the information.
II. The prospective financial information is properly prepared on the basis of the assumptions.
III. The prospective financial information is properly presented and all material assumptions are
adequately disclosed, including a clear indication as to whether they are best-estimate
assumptions or hypothetical assumptions.
IV. The prospective financial information is prepared on a consistent basis with historical
financial statements, using appropriate accounting principles.
a. I, II, III and IV
b. I, II and III
c. I and II
d. I, II and IV
19. Forecast means
a. Financial information based on assumptions about events that may occur in the future and
possible actions by an entity.
b. Prospective financial information prepared on the basis of assumptions as to future
events which management expects to take place and the actions management expects to take
as of the date the information is prepared (best-estimate assumptions).
c. Prospective financial information prepared on the basis of hypothetical assumptions about
future events and management actions which are not necessarily expected to take place.
d. Prospective financial information prepared on the basis of a mixture of best-estimate and
hypothetical assumptions.
20. Prospective financial information can include financial statements or one or more elements of
financial statements and may be prepared for distribution to third parties in
a. A prospectus to provide potential investors with information about future expectations.
b. An annual report to provide information to shareholders, regulatory bodies and other interested
parties.
c. A document for the information of lenders which may include, for example, cash flow
forecasts.
d. Any of the above.
21. An auditor should not issue a report on
a. The achievability of forecasts.
b. Internal control
c. Management performance
d. Quarterly financial information
22. Which statement is incorrect regarding examination of prospective financial information?
a. The auditor should not accept, or should withdraw from, an engagement when the assumptions
are clearly unrealistic or when the auditor believes that the prospective financial information will
be inappropriate for its intended use.
b. The auditor and the client should agree on the terms of the engagement.
c. The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate
whether all significant assumptions required for the preparation of the prospective financial
information have been identified.
d. The auditor need not obtain written representations from management regarding the
intended use of the prospective financial information, the completeness of significant
management assumptions and management’s acceptance of its responsibility for the
prospective financial information.
23. When the auditor believes that the presentation and disclosure of the prospective financial
information is not adequate, the auditor should
a. Express a qualified or adverse opinion in the report on the prospective financial information.
b. Withdraw from the engagement.
c. Disclaim the opinion in the report on the prospective financial information.
d. Either a or b.
24. If management fails to provide adequate justification for a change from one generally
accepted accounting principle to another, the auditor should
a. Add an explanatory paragraph and express a qualified or an adverse opinion for lack of
conformity with generally accepted accounting principles.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate explanatory paragraph(s) but not modify the opinion
paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are generally
accepted.
25. Which statement is incorrect regarding comparatives?
a. The auditor is not required to determine whether the comparatives comply in all material
respects with GAAP relevant to the financial statements being audited.
b. There are two broad financial reporting frameworks for comparatives: the corresponding
figures and the comparative financial statements.
c. Under the corresponding figures framework, the corresponding figures for the prior period(s)
are an integral part of the current period financial statements and have to be read in conjunction
with the amounts and other disclosures relating to the current period.
d. Under the comparative financial statements framework, the comparative financial statements
for the prior period(s) are considered separate financial statements.
26. Which statement is incorrect regarding corresponding figures?
a. The corresponding figures are not presented as complete financial statements capable of
standing alone.
b. The level of detail presented in the corresponding amounts and disclosures is dictated primarily
by its relevance to the current period figures.
c. The auditor’s report refers only to the financial statements of the current period.
d. The auditor’s report refers to each period that financial statements are presented.
27. When the comparatives in which the prior audit report is unmodified, the auditor should issue
an audit report in which:
a. The comparatives are specifically identified in the opening paragraph but not referred to in the
opinion paragraph of the auditor’s report.
b. The comparatives are specifically identified in the opening paragraph and are referred to in the
opinion paragraph.
c. The comparatives are not specifically identified in the audit report.
d. The comparatives are described in the emphasis of matter paragraph of the auditor’s report.
28. In case the prior period financial statements were audited by another auditor and the incoming
auditor decides to refer to another auditor, the incoming auditor’s report should indicate:
a. That the financial statements of the prior period were audited by another auditor.
b. The type of report issued by the predecessor auditor and, if the report was modified, the
reasons therefore.
c. The date of that report.
d. All of the above.
29. In relation to comparatives as corresponding figures, which of the following is incorrect?
 c. Refuses to furnish a management representation letter to the auditor.
a. When the prior period financial statements are not audited, the incoming auditor should state in
the auditor’s report that the corresponding figures are unaudited. d. Prevents the auditor from reviewing the working papers of the predecessor auditor.

b. The incoming auditor must refer to the predecessor auditor’s report on the corresponding
figures in the incoming auditor’s report for the current period.
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c. When the financial statements of the prior period were audited by another auditor, the incoming
auditor’s report should state that the prior period was audited by another auditor. 1. These are financial statements prepared in accordance with special-purpose framework.

d. In situations were the incoming auditor identified that the corresponding figures are materially a. Modified financial statements
misstated, the auditor should request management to revise the corresponding figures or if b. Particular-use of financial statements
management refuses to do so, appropriately modify the report. c. Special-purpose financial statements
d. Specialized reporting statements

30. When the financial statements of the prior period were not audited, the incoming auditor 2. A financial reporting framework designed to meet information of specific users.
should:
a. Philippine Standards on Special Reports
b. Special purpose framework
a. Insist that an audit of prior year’s financial statements must be made. c. Particular purpose framework
d. Customized financial reporting standards
b. Not allow the inclusion of the corresponding figures in the financial statements of the current
period. 3. Examples of special-purpose frameworks are (select the exception):
c. Disclaim his opinion and treat the unaudited corresponding figures as basis of scope limitation. A B C D
A tax basis of accounting for a set of FS that
d. Obtain sufficient appropriate audit evidence that the corresponding figures meet the
requirements of the relevant financial reporting framework. accompany an entity’s tax return. Yes Yes Yes Yes

31. An auditor may wish to emphasize a matter included in the financial statements by adding an The cash receipts and disbursements basis of
explanatory paragraph to the audit report. In this case the following paragraphs of the audit report accounting for cash flow information that an entity
should be modified: may be requested to prepare for creditors. No Yes No Yes

The financial reporting provisions established by a

a. Introductory paragraph. regulator to meet the requirements of that regulator.
b. Scope paragraph
Yes Yes No No
c. Opinion paragraph.
d. None
The financial reporting provisions of a contact, such as a bond
32. A limitation on the scope of an audit sufficient to preclude an unqualified opinion will always indenture, a loan agreement, or a project grant. No Yes Yes No
result when management

a. Engages the auditor after the year-end physical inventory count is completed.
4. The auditor should determine the acceptability of the financial reporting framework
b. Fails to correct a material internal control weakness that had been identified during the prior applied in preparation of FS. In an audit of special-purpose FS, the auditor shall obtain
year’s audit. understanding of:
 A B C D c. Part of FS
d. FS Category
The purpose for which the FS are prepared Yes Yes Yes Yes
The intended users No Yes No Yes 10. Jude, CPA was asked by Isaac Company to audit the company’s Loans and receivables
The steps taken by management to determine the account, in conjunction with the audit of Isaac’s complete FS. Jude issued a report with
applicable financial reporting framework is acceptable the unqualified opinion and with emphasis of a matter paragraph on the complete set of
in the circumstances Yes Yes No No FS of Isaac Company. Accordingly, Jude shall:
a. Issue a qualified opinion on the Loans and Receivables account.
5. In determining the acceptability of the special-purpose financial reporting framework b. Issue a disclaimer of opinion on the Loans and receivables account.
applied, the factor is: c. Consider the effect of the emphasis of a matter on the auditor’s report for Loans
a. Cost-benefit consideration in applying the framework. and receivables.
b. Global acceptance of the special-purpose framework. d. Issue also an unqualified opinion with emphasis of a matter paragraph for loans and
c. Ease in auditing the FS produced under the special-purpose framework. receivables.
d. The financial information needs of the intended users.

6. Select the incorrect statement:

a. In planning and performing an audit of special purpose FS, the auditor shall
determine whether application of the PSAs requires special consideration in the
circumstances of the engagement.
b. In the case of FS prepared in accordance with the provisions of a contract , the
auditor shall obtain an understanding of any significant interpretations of the contract
that management made in the preparation of those FS.
c. An interpretation is insignificant when adoption of another reasonable
interpretation would have produced a material difference in the information
presented in the FS.
d. All of these are incorrect.

7. S1: When forming an opinion and reporting on special purpose FS, the auditor shall
apply the requirements in PSA 700 (Redrafted).
S2: In the case of FS prepared in accordance with the provisions of a contract, the auditor
shall evaluate whether the FS adequately describe any significant interpretations of the
contract in which the FS are based.
a. True, True b. True, False c. False, True d. False, False
8. If the special-purpose FS is not suitably titled or the basis of accounting is not adequately
disclosed, the auditor should:
a. Withdraw from the engagement.
b. Issue an appropriately modified report.
c. Reword the title of the financial statements.
d. Request for an additional representation in the management representation letter.

9. This refers to an element, account, or an item of a financial statement.

a. Element of FS
b. Component