Polytechnic University of the Philippines

ACC 3016

1)The audit objective: “The accounts receivable balance represents gross claims on customers and agrees with the sum of the accounts receivable subsidiary ledger” is derived from the assertion of

1. 1. presentation and disclosure.
   2. completeness.
   3. valuation or allocation.
   4. existence.

2. A shipping document used in vouching will primarily meet the:

1. 1. completeness assertion.
   2. valuation or allocation assertion.
   3. rights and obligations assertion.
   4. occurrence assertion.

3. A shipping document used in tracing will primarily meet the:
   1. completeness assertion.
   2. valuation or allocation assertion.
   3. rights and obligations assertion.
   4. occurrence assertion.

4. An auditor is examining accounts receivable. Which one is the most competent type of evidence in this situation?
   1. Interviewing the personnel who records accounts receivable.
   2. Verifying that postings to the receivable account from journals have been made.
   3. Receipt by the auditor of a positive confirmation.
   4. No response received for a request for a negative confirmation.

5. Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because
   1. a majority of recipients usually lack the willingness to respond objectively.
   2. some recipients may report incorrect balances that require extensive follow-up.
   3. the auditor can not infer that all nonrespondents have verified their account information.
   4. negative confirmations do not produce evidential matter that is statistically quantifiable.

6. Although most substantive testing is performed during the final audit, some substantive tests may be done during the interim period. Which of the following statements concerning the timing of substantive tests is true?
   1. When internal control is weak, extensive substantive testing should be performed during the interim audit.
   2. Substantive testing should be performed during the interim audit only under conditions of excellent internal control.
   3. As a general rule, the auditor performs substantive tests of balances as of the balance sheet date and tests of transactions during the interim as well as the year-end audit.
   4. If internal control is weak, the auditor should confirm accounts receivable as of a point in time at least one month prior to the client's fiscal year-end.

7. Before applying principal substantive tests to the details of asset and liability accounts at an interim date, the auditor should
   1. assess the difficulty in controlling incremental audit risk.
   2. investigate significant fluctuations that have occurred in the asset and liability accounts since the previous balance sheet date.
   3. select only those accounts which can effectively be sampled during year-end audit work.

1. 4. consider the control tests that must be applied at balance sheet date to extend the audit conclusions reached at the interim date.

8. Confirming accounts receivable is required whenever:
   1. they are material and it is practicable and reasonable to do so.
   2. they are material in amount.
   3. it is practicable to do so.
   4. it is reasonable to do so.

9. In the processing of accounts receivable confirmations, the auditor would not normally be expected to:
   1. reconcile the information to the corresponding customer?s account.
   2. personally deposit the requests in the mail.
   3. include his own return address envelope.
   4. personally prepare the confirmation letter.

10. The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance, since
    1. the confirmation form also seeks information about indebtedness to the bank.
    2. this procedure will detect kiting activities which would otherwise not be detected.
    3. the mailing of confirmation forms to all the client?s depository banks is required by Philippine standards on auditing.
    4. this procedure relieves the auditor of any responsibility with respect to non-detection of forged checks.

11. An analysis of the aged accounts receivables is most directly related to which substantive test objective?
    1. Existence and occurrence.
    2. Presentation and disclosure.
    3. Rights and obligations.
    4. Valuation.

12. The tests of balances to evaluate the adequacy of the allowance for uncollectible accounts do not involve which of the following?
    1. Considering the evidence concerning the collectibility of past due amounts.
    2. Testing the aging of the amounts shown in the aging categories on the aged trial balance.
    3. Considering the evidence concerning the collectibility of current amounts.
    4. Assessing the reasonableness of the percentages used to compute the allowance component required for each aging category and the adequacy of the overall allowance.
13. When scheduling audit work, the auditors are most likely to confirm accounts receivable balances at an interim date if:
    1. negative confirmations are being used.
    2. internal control is weak.
    3. internal control is strong.

1. 4. there is a simultaneous examination of cash and accounts payable.

14. Which of the following is the best argument against the use of negative accounts receivable confirmations?
    1. The cost-per-response is excessively high.
    2. There is no way of knowing if the intended recipients actually receive them.
    3. The recipients are likely to feel that in reality the confirmation is a subtle request for payment.
    4. The inference drawn from receiving no reply may not be correct.

15. Which of the following procedures least likely helps the auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts?
    1. Investigate confirmation exceptions for any indication of amounts in dispute.
    2. Review the accounts which have been written off as uncollectible prior to year-end.
    3. Investigate credit ratings for large accounts receivable.
    4. Discuss with the credit manager the current status of doubtful accounts.

16. Which of the following is a proper alternative audit procedure for no responses to positive accounts receivable confirmation requests?
    1. Examination of subsequent cash receipts in payment of the receivable.
    2. Mailing of negative confirmation requests to nonrespondents.
    3. Expansion of the sample by the number of nonrespondents.
    4. Reduction of accounts receivable by the amount of the no responses.

17. Which of the following might be detected by an auditor's review of the client's sales cut- off?
    1. Excessive goods returned for credit.
    2. Unrecorded sales discounts.
    3. Lapping of year end accounts receivable.
    4. Inflated sales for the year.

18. During the process of confirming receivables as of December 31, 2009, a positive confirmation was returned indicating that the "balance owed as of December 31 was paid by a customer on January 9, 2010." The auditor would most likely
    1. determine whether there were any changes in the account between January 1 and January 9, 2010.
    2. determine whether a customary trade discount was taken by the customer.
    3. reconfirm the zero balance as of January 10, 2010.
    4. verify that the amount was received.

19. Which of the following analytical audit findings would most likely indicate a possible problem?
    1. A material decrease in the receivables turnover.
    2. A material increase in inventory turnover.
    3. A material decrease in days' sales outstanding.
    4. A material increase in the acid test ratio.

20. When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the best available evidence would normally be
    1. oral evidence obtained by discussing adjustment-related procedures with controller personnel.
    2. analytical evidence obtained by comparing sales adjustments to gross sales for a period of time.
    3. physical evidence obtained by inspection of goods returned for credit.
    4. documentary evidence obtained by inspecting documents supporting entries to adjustment accounts.

21. Two types of accounts receivable confirmation requests are used in practice - positive and negative. Negative confirmations may be used
    1. when internal control over sales and accounts receivable is weak.
    2. only when the auditor has assessed inherent risk and control risk as low, the auditor believes that the recipients will review the request, and a large number of small balances are involved.
    3. only when internal control over sales and accounts receivable is strong.
    4. only when the auditor has assessed inherent risk and control risk as low, the auditor believes that the recipients will review the request, and a small number of large balances are involved.

22. An auditor has found many new assets on the plant floor, which coincides with an increase in the equipment subsidiary ledger. However, the auditor has noticed that lease payments are being made to an equipment leasing company. The auditor should primarily be concerned with which financial statement assertion?
    1. Rights and obligations.
    2. Relevance.
    3. Clerical accuracy.
    4. Completeness.

23. The accuracy of perpetual inventory records may be established in part by comparing perpetual inventory records with

1. purchase requisitions.
2. receiving reports.
3. purchase orders.
4. vendor payments.

24. When auditing merchandise inventory at year end, the auditor performs a purchase cutoff test to obtain evidence that

1. all goods purchased before year end are received before the physical inventory count.
2. no goods held on consignment for customers are included in the inventory balance.
3. no goods observed during the physical count are pledged or sold.
4. all goods owned at year end are included in the inventory balance.

25. A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the result of the failure to record:
    1. sales.
    2. sales discounts.
    3. purchases.
    4. purchase returns.

26. Which of the following audit procedures is not appropriate for addressing the assertion of valuation?
    1. verifying accounts payable trial balance
    2. confirming with creditors
    3. testing for unrecorded liabilities
    4. performing analytical procedures.

27. When there are few property and equipment transactions during the year, the continuing auditor usually makes a

1. complete review of the related internal controls and assesses control risk relative to them.
2. complete review of the related internal controls and performs analytical review tests to verify current year additions to property and equipment.
3. preliminary review of the related internal controls and performs a thorough examination of the balances at the beginning of the year.
4. preliminary review of the related internal controls and performs extensive tests of current year property and equipment transactions.

28. In analyzing the plant assets account, why is the examination of repairs and maintenance records important?
    1. Rights.
    2. Existence.
    3. Valuation.
    4. Presentation and disclosure.

29. In examining the miscellaneous revenue account, an auditor discovers income from plant assets. What should be a primary audit concern?
    1. That such assets have been removed from the ledger of property owned.
    2. That such assets are not available for physical examination.
    3. That the assets sold were fully depreciated prior to the decision to sell them.
    4. That such assets have been replaced by comparable equipment.

30. Which of the following statements is not correct concerning intangible assets?
    1. Auditors review the reasonableness of the client's amortization program.
    2. A lack of physical substance.
    3. Valuation is a primary audit concern.
    4. Proper presentation as current assets.

31. When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?
    1. A gain was recognized when a new asset was acquired at a price lower than its listed retail price.
    2. Interest has been capitalized for self-constructed equipment.
    3. Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements.
    4. The cost of freight-in on an acquisition has been capitalized.

32. The auditors are least likely to learn of retirements of equipment through which of the following?
    1. Review of the purchase returns and allowances account.
    2. Review of depreciation.
    3. Analysis of the debits to the accumulated depreciation account.
    4. Review of insurance policy riders.

33. A weakness in internal accounting control over the recording of retirements of equipment may cause the auditor to

1. inspect certain items of equipment in the plant and trace those items to the accounting records.
2. review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
3. trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.
4. select certain items of equipment from the accounting records and locate them in the plant.

34. When auditing inventories of raw materials, purchased parts, and/or merchandise inventory, the auditor's most effective means for evaluating the valuation assertion is to

1. examine recent invoices from vendors, along with freight bills and compare with client's unit costs, as adjusted for freight and discount.
2. compare purchases with prior year and with industry averages and account for significant fluctuations.
3. trace quantities from tags or count sheets to final inventory listings.
4. scan inventory listings for large extended amounts, and trace related quantities to auditor's copy of the inventory tag or listing.

35. The auditor tests the quantity of materials charged to work in process by tracing these quantities to

1. cost ledgers.
2. perpetual inventory records.
3. receiving reports.
4. material requisitions.

36. Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?

1. Repairs and maintenance expense.
2. Depreciation expense.
3. Gain on disposal of equipment.
4. Accounts payable.

37. The most significant audit step in substantiating additions to the office furniture account balance is

1. examination of vendors' invoices and receiving reports for current year's acquisitions.
2. review of transactions near the balance sheet date for proper period cutoff.
3. calculation of ratio of depreciation expense to gross office equipment cost.
4. comparison to prior year's acquisitions.

38. Instead of taking a physical inventory count on the balance sheet date, the client may take physical counts prior to the year end if internal controls are adequate and

1. computerized records of perpetual inventory are maintained.
2. inventory is slow moving.
3. CBIS error reports are generated for missing pre-numbered inventory tickets.
4. obsolete inventory items are segregated and excluded.

39. Which of the following matters do auditors need not communicate to the audit committee of a public company?
    1. All critical accounting policies
    2. Compensation arrangements related to the chief executive officer
    3. Schedule of unadjusted differences
    4. Management letter comments

40. Analytical procedures are required to be performed during the: A. planning and substantive test stages.

2. substantive test and overall review stages.
3. planning and overall review stages.
4. planning stage only.

41. Which of the following factors would least influence an auditor?s consideration of the reliability of data for purposes of analytical procedures?
    1. Whether the data are processed in a computer system or in a manual accounting system
    2. Whether sources within the entity are independent of those who are responsible for the amount being audited
    3. Whether the data are subjected to audit testing in the current or prior year
    4. Whether the data are obtained from independent sources outside the entity or from sources within the entity

42. Analytical procedures are

1. 1. substantive tests designed to evaluate a system of            internal control.

1. 2. tests of control procedures designed to evaluate the validity of management's representation letter.
   3. substantive tests designed to evaluate the reasonableness of financial information.
   4. tests of control procedures designed to detect errors in reported financial information.

43. The auditor notices significant fluctuations in key elements of the company's financial statements. If management is unable to provide an acceptable explanation, the auditor should
    1. consider the matter as a scope limitation.
    2. perform additional audit procedures to investigate the matter further.
    3. intensify the examination with the expectation of detecting management fraud.
    4. withdraw from the engagement.

44. Who is responsible for establishing the process and controls for preparing accounting estimates?

5. The independent auditor
6. The internal auditor
7. The management
8. The controller

45. The auditor should adopt one or a combination of the following approaches in the audit of an accounting estimate:

1. Review and test the process used by management to develop the estimate.
2. Use an independent estimate for comparison with what the management prepares.
3. Review subsequent events which confirm the estimate made.

1. Any of them

10. None of them
11. Either I or II

50. I only

46. Which of the following is not one of the primary approaches that the auditors may use when evaluating the reasonableness of accounting estimates?
    1. Review and test management's process of developing estimates.
    2. Confirm estimates directly with outsiders.
    3. Independently develop an estimate of the amount to be compared to management's estimate.
    4. Review subsequent events or transactions that have bearing on the estimate.

47. The auditor should normally concentrate on the key factors and assumptions used by management including all of the following except those that are

1000. insignificant to the accounting estimates.
14. sensitive to variations.
15. deviations from historical patterns.
16. susceptible to misstatements and biases.

48. In evaluating the assumptions on which the estimate is based, the auditor would need to pay particular attention to assumptions which are

17. reasonable in light of actual results in prior periods.
18. consistent with those used for other accounting estimates.
19. consistent with management?s plans which appear appropriate.
20. subjective or susceptible to material misstatement.

49. Subsequent events refer to
    1. only significant events that occur between the balance sheet date and the date of the auditor?s report which have been discovered by the auditor during the same period.
    2. only significant events that occur between the balance sheet date and the date of the auditor?s report irrespective of the date they have been discovered by the auditor.
    3. only significant events that occur between the balance sheet date and the date the audited financial statements have been released to the client, irrespective of the date of their discovery by the auditor.
    4. all significant events that occur after balance sheet date.

50. Which of the following is not correct concerning a type I and a type II subsequent event?
    1. A type I may require adjustment to financial statements while a type II would not.
    2. Both a type I and a type II subsequent event may require note disclosure.
    3. A type I is an event that occurred prior to year end, but was discovered after, while a type II is one that arises subsequent to year end.
    4. A type II event may require adjustment to the financial statements and a type I may require note disclosure.

51. Which of the following statements that relates to subsequent events is inappropriately described?
    1. The auditor is expected to conduct a continuing review of all matters to which previously applied procedures have provided satisfactory conclusions.
    2. The auditor should consider the effect of subsequent events on the financial statements and on the auditor?s report.
    3. The procedures to identify events that may require adjustment of, or disclosure in, the financial statements would be performed as near as practicable to the date of the auditor?s report.
    4. The procedures that are designed to obtain sufficiently appropriate audit evidence that all events up to the date of the audit report that may require adjustment of, or disclosure in, the financial statements are in addition to routine procedures which may be applied to specific transactions.

52. The auditor's formal review of subsequent events normally should be extended through the date of the

21. auditor's report.

5. next formal interim financial statements.

23. delivery of the audit report to the client.

10. mailing of the financial statements to the stockholders.

53. Which of the following appropriately describes the auditor?s procedures with respect to subsequent events?
    1. The procedures to identity events that may require adjustments of, or disclosure in, the financial statements would be performed as early as practicable.
    2. Those routine procedures that are applied to specific transactions occurring after the period ends are designed to obtain sufficient appropriate audit evidence that all events up to the date of the audit report have been identified.
    3. When a component is audited by another CPA, the auditor would consider the other auditor?s procedures regarding events after period end and the need to inform the other auditor of the planned date of the audit report.
    4. The auditor is responsible to inquire regarding the financial statements after the date of the auditor?s report.

54. Which of the following is least likely a procedure that would be performed by the auditor near the auditor?s report date?
    1. Reading the minutes of the meetings of shareholders, the board of directors and audit executive committees held throughout the audit year.
    2. Reading the entity?s latest available interim financial statements.
    3. Inquiring of the client?s legal counsel concerning litigations and claims.
    4. Reviewing the procedures that management has established to ensure that subsequent events are identified.

55. Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
    1. Confirming a sample of material accounts receivable established after year-end.
    2. Comparing the financial statements being reported on with those of the prior period.
    3. Investigating personnel changes in the accounting department occurring after year-end.
    4. Inquiring as to whether any unusual adjustments were made after year-end.

56. Which of the following should the auditor do the least when, after the financial statements have been issued, the auditor becomes aware of a fact that existed at the date of the auditor?s report?
    1. Consider whether the financial statements need revisions.
    2. Discuss the matter with the management.
    3. Take the action appropriate in the circumstance.
    4. Inform those users who are currently relying on the financial statements about the fact that has been discovered.

57. If subsequent to the issuance of the audited financial statements, the auditor becomes aware of material misstatements in the financial statements that exist prior to the date of the audit report, the auditor should

25. notify the parties who are currently relying on the financial statements.
26. discuss the matter with the management, and should take the action appropriate in the circumstances.

AA.            document such information in the audit plan for succeeding audit.

BB. submit a revised copies of the financial statements and audit report to the stockholders.

58. If, after the audited financial statements have been issued, the auditor becomes aware that some information included in the statements is materially misleading, he or she has

CC. no obligation to disclose it, assuming he or she acted in good faith and without negligence in arriving at the audit opinion.

DD.            an obligation to inform the board of directors of the misleading statements. EE. an obligation to inform all users who are relying on the financial statements.

FF. an obligation to make certain that users who are relying on the financial statements are informed.

59. When a new audit report is issued on financial statements because of subsequent discovery of material misstatements on previously issued financial statements, the audit report should include
    1. no modification.
    2. qualified opinion because of scope limitation.
    3. qualified opinion because of inadequate disclosure.
    4. emphasis of a matter paragraph that refers to a note to the financial statements that more extensively discusses the reason for the revision of the previously issued financial statements.

60. When a fact, that existed before the date of the report is discovered and the management revises the previously issued audited financial statements, the following are appropriate except the:
    1. new auditor?s report should include an emphasis of a matter paragraph that refers to a note to the financial statements that discusses the reason for the revision of the financial statements and to the earlier report issued by the auditor.
    2. new auditor?s report should contain the original date.
    3. performance of the procedures that are designed to obtain sufficient evidence as to subsequent events would ordinarily be extended to the date the revised financial statements are approved by the entity?s management.
    4. auditor is permitted to restrict the audit procedures regarding the financial statements to the effects of the subsequent event that necessitated the revision.

61. The management should assess those events that may cast significant doubt about the entity?s ability to continue as a going concern for at least
    1. two years from the balance sheet date.
    2. two years from the date of the audit report.
    3. one year from the balance sheet date.
    4. one year from the date of the audit report.

62. Which of the following is incorrect about the management?s responsibility to make an assessment of an entity?s ability to continue as a going concern?

1. 1. In assessing whether the going concern assumption is appropriate, the management takes into account all the available information for the foreseeable future, which should be at least twelve months from the balance sheet date.
   2. Though there is a history of profitable operations and a ready access to financial resources, management must make its assessment with detailed analysis.
   3. Management?s assessment of the going concern assumption involves making a judgment, at a particular point of time, about the future outcomes of events or conditions which are inherently uncertain.
   4. Management should make explicit assessment of its ability to continue as a going- concern entity.

63. Which of the following least likely indicate a potential going-concern problem of an entity?
    1. Historical negative operating cash flows
    2. Failure to comply with loan covenants
    3. Refinancing of large short-term obligation with a medium-term loan
    4. Pending regulatory proceedings against the entity
64. Which of the following is correct about the auditor?s responsibility with respect to the entity?s ability to continue as a going concern?
    1. The auditor is responsible to make an assessment of the entity?s ability to continue as a going concern.
    2. The auditor?s responsibility is to consider the appropriateness of the management?s use of the going concern assumption in the preparation of the financial statements.
    3. The auditor can predict future events or conditions that may cause an entity to discontinue as a going concern.
    4. The auditor may allow the management to make an assessment of its ability to continue as a going concern if the management is believed to be objective in doing such an assessment.

65. In evaluating the management?s assessment of the entity?s ability to continue as a going concern, he should consider the following, except:
    1. the independence of the management.
    2. the process that the management has followed to make its assessment.
    3. the assumptions on which the assessment is based and management?s plan for future action.
    4. whether the assessment has taken into account all relevant information of which the auditor is aware of as a result of the audit procedures.

66. Which of the following is an appropriate procedure to test for an indication of events or conditions that cast significant doubt on the entity?s ability to continue as a going concern beyond the period assessed by management?
    1. Inspection
    2. Inquiry
    3. Observing
    4. Analysis

67. When events or conditions have been identified to cast significant doubt on the entity?s ability to continue as a going concern, the auditor should
    1. consider reassessing control risk at the maximum.
    2. consider the issuance of disclaimer of opinion due to scope limitation.
    3. review management plans for future actions based on its going-concern assessments.
    4. report the matter to the board of directors and stockholders.

68. Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate that there could be substantial doubt about an entity?s ability to continue as a going concern?
    1. Review compliance with the terms of debt agreements
    2. Confirm accounts receivable from principal customers
    3. Reconcile interest expense with debt outstanding
    4. Confirm bank balances

69. The auditor relies on the client representation letter to:
    1. confirm written representations given to the auditor.
    2. document the continuing materiality of client representations.
    3. guarantee the absence of management fraud.
    4. reduce the possibility of misunderstanding concerning management?s representations.

70. The auditors are required to obtain a letter of representation from their clients. Which of the following statements regarding the letter of representation is correct?

GG.           A letter of representation should impress upon management its responsibility for the assertions in the financial statements.

HH. A letter of representation should be signed by a company?s financial officials and attorneys.

II. A letter of representation documents the responses from the management to inquiries about various aspects of the audit.

JJ. A letter of representation is a written statement from a non-independent party and as such should not be regarded as a valid evidence.

71. A purpose of a management representation letter is to reduce
    1. audit risk to an aggregate level of misstatement that could be considered material.
    2. an auditor?s responsibility to detect material misstatements only to the extent that the letter is relied on.
    3. the possibility of a misunderstanding concerning management?s responsibility for the financial statements.
    4. the scope of an auditor?s procedures concerning related party transactions and subsequent events.

72. Which of the following statements is true with respect to management representations?
    1. Management representations are dated as of the balance sheet date.
    2. Management representations may serve as a substitute for various types of substantive procedures.

1. 3. Management representations are signed by the auditor and delivered to the client's officers.
   4. Management representations are used to corroborate information obtained during the audit.

73. When considering the use of management?s written representations as audit evidence about the completeness assertion, an auditor should understand that such representations
    1. complement, but do not replace, substantive tests designed to support the assertion.
    2. constitute sufficient evidence to support the assertion when considered in combination with a sufficiently low assessed level of control risk.
    3. are not part of the evidence considered to support the assertion.
    4. replace a low assessed level of control risk as evidence to support the assertion.

74. The auditor should obtain evidence that the management acknowledges its responsibility for the fair presentation of the financial statements in accordance with PFRS, and has approved the financial statements. The auditor can obtain evidence of management's acknowledgment of such responsibility and approval

1. From relevant minutes of meetings of the board of directors or similar body.
2. By obtaining a written representation from the management.
3. By obtaining a signed copy of the financial statements.

KK.             Any of the given procedures LL.Either I or II

MM.         I only

NN.           None of the procedures given

75. A management representation letter would ordinarily be dated as of the
    1. date the report is delivered to the entity audited.
    2. date the financial statements were approved by the client management.
    3. balance sheet date of the latest period reported on.
    4. date a letter of audit inquiry is received from the entity?s attorney of record.

76. A written representation from a client?s management that, among other matters, acknowledges its responsibility for the fair presentation of the financial statements, should normally be signed by the
    1. chief executive officer and the chief financial officer.
    2. chief financial officer and the chair of the board of directors.
    3. chair of the audit committee of the board of directors.
    4. chief executive officer, the chair of the board of directors, and the client?s lawyer.

77. If the management refuses to furnish certain written representations that the auditor believes are essential, which of the following is appropriate?
    1. The auditor can rely on oral evidence relating to the matter as a basis for an unqualified opinion.

1. 2. The client?s refusal does not constitute a scope limitation that may lead to a modification of the opinion.
   3. The client?s refusal may have an effect on the auditor?s ability to rely on other representations of the management.
   4. The auditor should express an adverse opinion because of management?s refusal.

78. For which of the following matters should an auditor obtain written management representations?
    1. Management?s      cost-benefit     justifications       for     not     correcting      internal     control weaknesses.
    2. Management?s knowledge of future plans that may affect the price of the entity?s stock.
    3. Management?s compliance with contractual agreements that may affect the financial statements.
    4. Management?s acknowledgment of its responsibility for employee?s violations of laws.

79. A written management representation letter is most likely to be an auditor?s best source of corroborative information of a client?s intention to
    1. terminate an employee pension plan.
    2. make a public offering of its common stock.
    3. settle an outstanding lawsuit for an amount less than the accrued loss contingency.
    4. discontinue a line of business.

80. Which of the following matters would an auditor most likely include in a management representation letter?
    1. Communications with the audit committee concerning weaknesses in the internal control structure.
    2. The completeness and availability of minutes of stockholders? and directors ? meetings.
    3. Plans to acquire or merge with other entities in the subsequent year.
    4. Management?s acknowledgment of its responsibility for the detection of employee fraud.

81. How are other reporting responsibilities addressed within the auditor?s report?

1. They should be addressed in a separate section that follows the opinion paragraph.
2. They should be addressed within the introductory paragraph.
3. They should be addressed within the scope paragraph.
4. They should be addressed within the scope paragraph and separately described in a separate paragraph.

82. Which of the following is incorrect regarding the auditor?s signature?
    1. The auditor?s signature is either in the name of the audit firm, the personal name of the auditor, or both, as appropriate.
    2. The auditor?s signature is either in the name of the audit firm or the personal name of the auditor, but not both.

1. 3. In addition to the auditor?s signature, the auditor may be required to declare the auditor?s professional accountancy designation.
   4. The auditor?s report filed with the Securities and Exchange Commission (SEC) must be manually signed.

83. Which of the following information is(are) required when an auditor?s report is issued on financial statements to be filed with the Securities and Exchange Commission?

1. Audit report is manually signed.
2. Certifying partner to sign his name.
3. Partner?s Tax Identification Number.
4. PRC registration number
5. Accreditation with SEC

A. 1, 2, 3, 4, 5

B. 2, 4, 5

C. 1, 3, 4, 5

D. 2, 3, 4, 5

84. An audit report should be dated as of the
    1. date the stockholders approve the audited financial statements.
    2. date of management approving the audited financial statements.
    3. balance sheet date of the latest period reported on.
    4. date a letter of audit inquiry is received from the entity?s attorney.

85. Why is the date of the auditor?s report important?

1. To have a basis of determining the audit fees to be paid to the auditor.
2. 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.
3. To emphasize completeness assertion.
4. To inform the users of the financial statements that the auditor complied with the applicable Philippine Standards on Auditing.

86. How is the auditor?s report on the financial statements that require final approval by stockholders before such financial statements are issued publicly dated?
    1. The auditor?s report should be dated coinciding the date of approval of the financial statements by the stockholders.
    2. The auditor?s report should be dated after the approval of the financial statements by the stockholders.
    3. The date of the auditor?s report coincides the date of approval of the financial statements by the board of directors.
    4. The audit report should be dual dated, the first date coinciding the approval by the board of directors and the second date to coincide with the approval by the stockholders.

87. The auditor?s address is indicated in the auditor?s report by:
    1. naming the location in the country where the auditor practices his profession.
    2. including the complete mailing address of the auditor.
    3. identifying the country from where the auditor had secured his professional license.
    4. the auditor?s address is omitted in the report.

88. Which of the following is ordinarily true of a modification of the audit report by adding an emphasis of matter paragraph?
    1. The modification by adding an emphasis of matter paragraph is an “except for” qualification of opinion.
    2. The emphasis of matter paragraph is a “subject to” qualification of opinion.
    3. The emphasis of matter paragraph would ordinarily refer to the fact that the auditor?s opinion is not qualified.
    4. The emphasis of matter paragraph is presented before the opinion paragraph.

89. When additional language is added to the auditor's report without modifying the opinion, the additional language should be included in:
    1. the introductory paragraph.
    2. the scope paragraph.
    3. the opinion paragraph.
    4. one or more additional paragraphs that follow the opinion paragraph.

90. Which of the following statements is not true?
    1. A one-paragraph report is generally used when the auditor is not independent.
    2. A modification of the audit report that involves modified wordings may contain an unqualified opinion.
    3. An addition of another paragraph to an otherwise standard audit report always requires a modification of an unqualified opinion.
    4. An unqualified opinion may be issued though the audit report requires an additional explanatory paragraph.

91. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph
    1. is considered an “except for” qualification of the opinion.
    2. violates generally accepted auditing standards if this information is already disclosed in the footnotes to the financial statements.
    3. necessitates a revision of the opinion paragraph to include the phrase “with the foregoing explanation.”
    4. is appropriate and would not negate the unqualified opinion.

92. 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)

Adverse opinion                               “Except for” qualified opinion

1. 1. Yes                                                         Yes

1. 2. No                                                          No
   3. No                                                          Yes
   4. Yes                                                         No

93. 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
    1. the introductory paragraph.
    2. a separate paragraph following the opinion paragraph in the report.
    3. the opinion paragraph.
    4. A separate paragraph preceding the opinion paragraph.

94. 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)
    1. unqualified opinion
    2. “except for” qualified opinion
    3. “subject to” qualified opinion
    4. adverse opinion

95. The paragraphs of the report which is modified for uncertainties are the same as the standard unqualified report. The explanatory paragraph as a form of the modification to describe the uncertainty is added as the
    1. first paragraph
    2. last paragraph
    3. third paragraph with the opinion paragraph last
    4. second paragraph with the opinion paragraph last

96. An explanatory paragraph following an opinion 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?

1. 1. Unqualified
   2. Disclaimer
   3. Qualified
   4. adverse

97. The audit report issued by Lozano and Co., CPAs, included the following paragraph that followed the opinion paragraph: