© ReSA - THE REVIEW ScHoor oF ACCOUNTANCY AT-17 ] CPA Review Batch 47 » May 2024 CPA Licensure Examination, AUDITING (Auditing Theory) TRENEO + ALLAUIGAN + ARANAS = TUGAS = YABUT AUDITOR’S REPORT ON GENERAL PURPOSE FS PSA 700 deals with the auditor's responsibility to form an opinion on the financial statements. It also deals with the form and content of the auditor's report issued as a result of an audit of financial statements. The objectives of the auditor are: 1. To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and 2. To express clearly that opinion through a written report. Financial statements prepared in accordance with a general purpose framework. General purpose framework is a financial reporting amework designed to meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework. The auditor shall evaluate whether in view of the requirements of the applicable financial reporting framework: 1. The financial statements adequately disclose the significant accounting policies selected and applied; 2. The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate; 3. The accounting estimates made by management are reasonable; 4. The information presented in the financial statements is relevant, reliable, comparable, and understandable; 5. The financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and 6. The terminology used in the financial statements, including the title of each financial statement, is appropriate. THE AUDITOR'S REPORT Title Addressee Auditor's Opinion Basis for Opinion Going Concern * Key Audit Matters (KAM)** Responsibilities of Management for the Financial Statements Auditor's Responsibilities for the Audit of the Financial Statements Other Reporting Responsibilities Name of the Engagement Partner Signature of the Auditor Auditor's Address Date of the Auditor's Report * PSA 570 deals with the auditor's responsibilities In the audit of financial statements relating to gaing concern and the implications for the auditor’s report. The auditor's responsibilities are to obtain Sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management's use of the going concern basis of accounting in the preparation of the financial statements, and to conclude, based on the audit evidence obtained, whether a material uncertainty exists about the entity's ability to continue as a going concern. These responsibilities exist even if the financial reporting framework used in the preparation of the financial statements does not include an explicit requirement for management to make a sp2cific assessment of the entity’s ability to continue as a going concern 4 PSA 701 deals with the auditor's responsibility to communicate key audit matters in the auditor's report. The purpose of communicating key audit matters is to enhance the communicative value of the auditor's report by providing greater transparency about the audit that was performed. KAM are those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period, They are selected from matters communicated with those charged with governance. Page TofS (0915-2508213 - resacpareview@gmail comReSA — THE Review SCHOOL OF ACCOUNTANCY AT-17 ‘AUDITOR'S REPORT on GENERAL PURPOSE FS QUESTIONS: 1, According to PSA 700 Revised, the objectives of the auditar are to: 1. Form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained, IL. Express clearly that opinion through a written report. A. Lonly B. Il only C, BothTand IID. Neither I nor II 2. These refer to financial statements prepared in accordance with a general purpose framework. A. General purpose financial statements B. Annual report C. Common-size financial statements D. Uniform financial statements 3. A financial reporting framework designed to meet the common financial information needs of a wide range of users. A. Financial reporting rules and regulations 8. Philippine Standards on Auditing C. General purpose framework D. Fair presentation framework 4, Not an example of a general purpose framework A. PERS C. PFRS for SMEs B. IFRS D. Cash-basis accounting 5. With respect to applicable financial reporting framework, the term “fair presentation framework" differs from “compliance framework” in a manner that the latter does NOT: A. Acknowledge explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework. B. Acknowledge explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements; such departures are expected to be necessary only in extremely rare circumstances. ¢. Both Aand B D. Neither A'nor 8 If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor shall discuss the matter with management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, shall determine whether it is necessary to modify the opinion in the auditor's report. $2: When the financial statements are prepared in accordance with a compliance framework, the auditor is required to evaluate whether the financial statements achieve fair presentation A. True, True B. True, False —C. False, False. False, True $1: It Is common for financial statements prepared in accordance with a general purpose framework to present an entity’s financial position, financial performance and cash flows. ‘52: When the financial statements are prepared in accordance with a compliance framework, the auditor is not required to evaluate whether the financial statements achieve fair presentation. A. True, True —-B. True, False —C. False, False. ‘False, True 8. The opinion expressed by the auditor when the auditor concludes that the financial scatements are prepared, in all material respects, in accordance with the applicable financial reporting framework. ‘A. Modified opinion C. Standardized statement B. Unqualified opinion D. Unmodified opinion 9. A qualified opinion, an adverse opinion, or a disclaimer of opinion are known as: ‘A. Modified opinions C. Standardized statements B. Unqualified explanations D. Unmodified opinions 10. The expression “financial statements, taken as a whole” applies: ‘A. Equally to a complete set of financial statements and to an individual financial statement. B. Only to a complete set of financial statements. CC. Equally to each item in each financial statement. D. Equally to each material item in each financial statement. age 20f 5 (0915-2303213 » resaeparAT-17 AUDITOR'S REPORT on GENERAL PURPOSE FS 11. The auditor's report shall have a tit! A. The name of the client audited. B, The period covered by the financial statements. C. That it is the report of an independent auditor. D. When the audit was completed. 12. Per PSA 700, the auditor's report should be addressed A. Only to the shareholders of the entity whose financial statements are being audited 8. Only to the board of directors of the entity whore financial statements are being audited C. Either to the shareholders or the board of directors of the entity whose financial statement are being audited D. Either to the shareholders or the board of directors, or both, of the entity whose statements are being audited 13. The date of the auditor's report (choose the exception) A. Indicates that the auditor has performed procedures for subsequent events that would materially affect the financial statements through the date of the report B. Should not be earlier than the date management approves the financial statements and furnishes a written representation Should be later than the date of the statement of financial position D. Must not coincide with the date of the Management Representation Letter 14. The opinion paragraph in an auditor's report should include a statement that: A. Includes the word independent to clearly indicate thet the report is from an independent auditor. 8. Describes the auditor's responsibility for expressing an opinion on the financial statements. C. Identifies the applicable financial reporting framework and its origin. D. Indicates that management is responsible for the fair presentation of the financial statements. that clearly indicates: 15.$4: The date of the auditor's report informs the user of the auditor’s report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date. ‘$2: Since auditor's report shall always be in writing, the use of an electronic medium for such purpose is not acceptable. A. True, True B. True, False C. False, False —D, False, True [Link] auditor's address is also presented in the auditor's report. The address is normally A. The principal place of business of the audit client. B. The exact location where the auditor's report was signed. C. The location in the jurisdiction where the auditor practices. D. The address of the majority shareholders of the audit client. 17. Not induded in the Auditor’s Responsibilities for the Audit of the Financial Statements section A. Objective of an audit that is to obtain rcasonabie assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error and issue an auditor’s report that includes the auditor's opinion B. Statement that reasonable assurance 1s a high icvel of assurance, but is not a guarantee ‘hat ‘an audit conducted in accordance with PSAs witl always detect a material misstatement when it exists CC. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements D, Auditors’ consideration of internal control reievant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the effectiveness of the entity's internal control 18, Which of the following statements is a basic clement of the auditor's standard report on financial statements? A. The auditor evaluated the overall internal control and provides limited assurance on it. B. The disclosures provide reasonable assurance that the financial statements are free of matenal misstatement. C. The financial statements are consistent with those of the prior period. D. An audit includes assessing significant estimaies made by management. Page 3 of 5 (©M15-2505213 « resacpareview@ymail comReSA — THE REVIEW SCHOOL OF ACCOUNTANCY AT-17 ‘AUDITOR'S REPORT on GENERAL PURPOSE FS 5 4 existence of audit risk is recognized by the statement in the auditor's standard report that the auditor A. Obtains reasonable assurance about whether the financial statements are free of material misstatement. B. Assesses the accounting principles used and also evaluates the overall financial statement presentation, C. Realizes some matters, elther individually or in the aggregate, are important while other- matters are not important. D. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management. [Link] in the auditor’s report are the name of the audit client, financial statements audited and periods covered, and a reference to the summary of significant accounting policies first mentioned? A. Introduction Section C. KAM Section 8. Basis for Opinion Section D. Opinion Section [Link] in the auditor's report is the auditor's compliance with relevant auditing and ethical standards mentioned? A. Introduction Section C. Basis for Opinion B. Auditor's Responsibilities D. KAM Section 22. In order to form an opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account: 1 - The auditor’s conclusion, in accordance with PSA 330, whether sufficient appropriate audit evidence has been obtained. II - The auditor's conclusion, in accordance with PSA 450, whether uncorrected misstatements are material, individually or in aggregate. A. Lonly B. Ionly C, BothIandII —D. Neither Inor I 23. The auditor's report shall include a section, directly before the Opinion section, with the heading “Basis for Opinion”, that: I - States that the audit was conducted in accordance with Philippine Standards on Auditing. II - States whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor's opinion. A. Tonly B. Ionly C. Both tand It —D. Neither Inor II 24, $1: The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. : S2: If financial statements prepared in accordance with the requirements of a fair presentation framework do not acrieve fair presentation, there is no need for the auditor to discuss the matter with the client. A. True, false B. False, true C. False, false D. True, true 25.$1: Where applicable, the auditor shall include additional paragraph related to going concern in accordance with PSA 570. $2: When the auditor is otherwise required by law or regulation or decides to communicate key audit matters in the auditor’s report, the auditor shall do so in accordance with PSA 701, A. True, false B. False, true C. False, false D. True, true 26. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern? A. Significant related-party transactions are pervasive. B. Usual trade credit from suppliers is denied. C. Arrearages in preferred stock dividends are paid. D. Restrictions on the disposal of principal assets are present. 27.81: The identification of KAM usually starts with all matters communicated with those charged with governance. ‘$2: After which, the auditor determines those that required significant audit attention. A. True, True B. True, False C. False, False —_D. ‘False, True 28,1: KAM may be significant events or transactions that have transpired during the year. ‘$2: KAM should not consider the related disclosure in the financial statements. A. True, True B. True, False C. ‘False, False —D. False, True sae 4 of 5 : 0915-2303213 « resacpareview@gmail comReSA — THE Review SCHOOL OF ACCOUNT ANC ‘AUDITOR'S REPORT on GENERAL PURPOSE FS — AT-17 29. Which of the following are included in the key audit matter section of the auditor's report? A. Description of the KAM and its significance B. How it was addressed in the audit. C. Reference to the related disclosure to the FS. D. All of the choices 30. If supplementary information that is not required by the applicable financial reporting framework is presented with the audited financial staements, the auditor shall Withdraw from the engagement, Issue a qualified opinion due to disagreement with management. Issue an adverse opinion due to departure from the applicable financial reporting framework. Evaluate whether such supplementary information is clearly differentiated from the audited financial statements. one> 31. Supplementary information that is not required by the applicable financial reporting framework but is nevertheless an integral part of the financial statements because it cannot be clearly differentiated from the audited financial statements due to its nature and how it is presented shall be Covered by special citation in the management letter. Covered by the auditor's opinion Covered by a separate opinion, apart from the opinion on the financial statements. Cannot be determined from the given information. goe> - END - Page Sof om. 2303218-rencparoviewsymaicon O)—_ ma) ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY AT-18 CPA Review Batch 47 « May 2024 CPA Licensure Examination i ‘AUDITING (Auditing Theory) TRENTO - ALLAUIGAN + ARANAS - TUGAS = VABUT MODIFICATION TO THE AUDITOR’S REPORT PSA 705 deals with the auditor’s responsibility to Issue an appropriate report in circumstances when, in forming an opinion in accordance with PSA 700, the auditor concludes that a modification to the auditor's opinion on the financial statements is necessary. It also deals with how the form and content of the auditor's report is affected when the auditor expresses a modified opinion PSA 705 establishes three types of modified opinions, namely, 2 qualified opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is appropriate depends upon: the nature of the matter giving rise to the modification, that is, whether the financial staternents are materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially misstated; and = the auditor's judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements. Pervasive - a term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possibie effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditor's judgment: = are not confined to specific elements, accounts or items of the financial statements; = if so confined, represent or could represent a substantial proportion of the financial statements; or = in relation to disclosures, are fundamental tc users’ understanding of the financial statements. DETERMINING THE TYPE OF MODIFICATION TO THE AUDITOR'S OPINION = Qualified Opinion ~ The auditor shall express a qualified opinion when: © the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or © the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the augitcr concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive. = Adverse Opinion ~ The auditor shall exoress an adverse opinion when the auditor, having ‘obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. * Disclaimer of Opinion - The auditor shail disclaim an opinion when the auditor is unable to ‘obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. The auditor shall disclaim an opinion when, in ‘extremely rare circumstances involving multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possivie to form an opinion on the financial statements due to the potential interaction of the uncertainties und their possible cumulative effect on the financial statements. OTHER CONSIDERATIONS ‘= When the auditor considers it necessary to express an adverse opinion or disclaim an opinion ‘on the financial statements as a whoie, the auditor's report shall not also include an unmocified opinion with respect to the same financial reporting framework on a single financial statement for one or more specific elements, accounts or items of a financial statement. To include such an unmodified opinion in the same report in these circumstances would contradict the auditor's adverse opinion or disclaimer of opinion on the tinancial statements as a whole. When the auditor modifies the audit opinion, the auditor shall use the heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the Opinion section PSA 600 - Special Considerations - Audits of Group Financial Statements (including the Work of Component Auditors) + PSA 620 (Revised and Redrafted) ~ Using the Work of an Auditor's Expert = PSA 706 (Revised and Redrafted) - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report (0915-2303215 « resacpareview@gmailcom