AUDITING THEORY L. R.

CABARLES
AT.116-The Auditors Oi!io!s "!d Reorts 1
st
Se#. SY $%1&-1'
LECTURE NOTES
I!trodu(tio!
At the end of the audit, the auditor shall:
a) Form an opinion on the financial statements (FSs)
based on an evaluation of the conclusions drawn from
the audit evidence obtained; and
b) Express clearly that opinion throuh a written report
that also describes the basis for the opinion!
Auditors Oi!io!s
Types of Auditors Opinions
a) "nmodified (un#ualified) opinion$%he opinion
expressed when the FSs are prepared, in all material
respects, in accordance with the applicable F&F!
b) 'odified opinion$%he three types of are:
i! (ualified opinion ) the auditor is satisfied that the
FSs are presented fairly, except for a specific
aspect of them!
ii! Adverse opinion ) the auditor does not believe the
FSs are fairly presented!
iii! *isclaimer of opinion ) the auditor does not +now
if the FSs are presented fairly!
%he table below illustrates how the auditor,s -udment
about the affects the type of opinion to be expressed!
Nature of Matter Giving
Rise to the Modification
Material but
Not
Pervasive
Material and
Pervasive
FSs are materially
misstated
(ualified
opinion
Adverse
opinion
Inability to obtain SAA !Scope li"itation#$
*ue to manaement
imposed limitation
(ualified
opinion
&esin, if
appropriate; or
*isclaimer of
opinion
.ther limitations (ualified
opinion
*isclaimer of
opinion
/ervasive effects or possible effects on the FSs are those
that, in the auditor,s -udment:
a) Are not confined to specific elements, accounts or
items of the FSs;
b) 0f so confined, represent or could represent a
substantial proportion of the FSs; or
c) 0n relation to disclosures, are fundamental to users,
understandin of the FSs!
Auditors Reorts
%he auditor,s report shall be in writin (hard copy format
or an electronic medium)!
Standard Auditors Report
%he followin are the parts of a standard auditor,s report
with un#ualified opinion without emphasis of matter
pararaph and other matter pararaph:
a) %itle
b) Addressee
c) Sub1title (if the report includes 2.ther &eportin
&esponsibilities3 pararaph in (h))
d) 0ntroductory /araraph
e) 'anaement,s &esponsibility for the financial
statements
f) Auditor,s &esponsibility
) Auditor,s .pinion
h) .ther &eportin &esponsibilities, if applicable
i) Sinature of the Auditor
-) *ate of the Auditor,s &eport
+) Auditor,s Address
%itle
%he auditor,s report shall have a title that clearly indicates
that it is the report of an independent auditor! For
example, 20ndependent Auditor,s &eport,3 affirms that the
auditor has met all of the relevant ethical re#uirements
reardin independence and distinuishes the independent
auditor,s report from reports issued by others!
Addressee
%he auditor,s report is normally addressed to those for
whom the report is prepared, often either to the
shareholders and4or to %567 of the entity!
0ntroductory /araraph
%he introductory pararaph in the auditor,s report shall:
a) 0dentify the entity whose FSs have been audited;
b) State that the FSs have been audited;
c) 0dentify the title of each statement comprisin the FSs;
d) &efer to the summary of sinificant accountin policies
and other explanatory information; and
e) Specify the date or period covered by each FS
comprisin the FSs!
'anaement,s &esponsibility for the Financial Statements
%his section describes the responsibilities of those in the
orani8ation responsible for the FSs and internal control
relevant to the preparation of FSs that are free from
material misstatement, whether due to fraud or error!
Auditor,s &esponsibility
%his section states that the responsibility of the auditor is
to express an opinion on the FSs based on the audit!
Auditor,s .pinion
%his includes a section with the headin 2.pinion!3 "se the
phrase: %he financial statements present fairly, in all
material respects, in accordance with 9the applicable
financial reportin framewor+:!
.ther &eportin &esponsibilities
0f the auditor addresses other reportin responsibilities
(e!!, reportorial re#uirement of reulatory authorities) in
the auditor,s report on the FSs that are in addition to to
report on the FSs, these shall be addressed in a separate
section in the auditor,s report that shall be sub1titled
2&eport on .ther ;eal and &eulatory &e#uirements3!
Sinature of the Auditor
%he auditor,s report shall be sined! %he auditor,s
sinature is either in the name of the audit firm, the
personal name of the auditor or both, as appropriate!
0n the /hilippines, Securities &eulation 5ode (S&5) &ule
<= re#uires that the auditor,s report on FSs filed with the
Securities and Exchane 5ommission (SE5), which will
li+ewise be filed with the >ureau of 0nternal &evenue
(>0&), be "anually signed! 0n case of an auditin firm, the
certifyin partner shall sin his4her own sinature and shall
indicate that he4she is sinin for the firm, the name of
which is also indicated in the report! %he auditor is also
re#uired to state the sinin accountant,s license number,
%ax 0dentification ?o! (%0?), /rivilee %ax &eceipt (/%&)
?o!, reistration number with the /&54>.A, and
accreditation issued by the SE5!
Page % of & AT.116
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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
*ate of the Auditor,s &eport
%he auditor,s report shall be dated no earlier than the date
on which the auditor has obtained SAAE on which to base
the auditor,s opinion on the FSs, includin evidence that:
a! All the statements that comprise the FSs, includin the
related notes, have been prepared; and
b! %hose with the reconi8ed authority have asserted that
they have ta+en responsibility for those FSs!
%he 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!
0n the /hilippines, under S&5 &ule <=, manaement is
re#uired to submit to the SE5, toether with the FSs, a
@Statement of 'anaement &esponsibility, that indicates,
that the company,s >oard of *irectors reviewed and
approved the FSs before such statements are submitted to
the stoc+holders of the company!
Modifications to Auditors Report
%he instances of modifications include when the auditor:
adds 2Emphasis of 'atter /araraph3
includes 2.ther of 'atter /araraph3
provides modified auditor,s opinion
Emphasis of 'atter /araraph
A pararaph included in the auditor,s report that refers to a
matter appropriately presented or disclosed in the FSs, in
the auditor,s -udment, is of such importance that it is
fundamental to users, understandin of the FSs! %he
auditor can include emphasis of matter pararaph provided
the auditor has obtained SAAE that the matter is not
materially misstated in the FSs! %he inclusion of this
pararaph in the auditor,s report does not affect the
auditors opinion!
6hen the auditor includes an Emphasis of 'atter
pararaph in the auditor,s report, the auditor shall:
0nclude it immediately after the .pinion pararaph;
"se the headin 2Emphasis of 'atter,3 or other
appropriate headin;
0nclude in the pararaph a clear reference to the
matter bein emphasi8ed and to where relevant
disclosures that fully describe the matter can be found
in the FSs; and
0ndicate that the auditor,s opinion is not modified in
respect of the matter emphasi8ed
.ther 'atter /araraph
A pararaph included in the auditor,s report that refers to a
matter other than those presented or disclosed in the FSs
that, in the auditor,s -udment, is relevant to users,
understandin of the audit, the auditor,s responsibilities or
the auditor,s report!
%he auditor shall include this pararaph immediately after
the .pinion pararaph and any Emphasis of 'atter
pararaph, or elsewhere in the auditor,s report if the
content of the .ther 'atter pararaph is relevant to the
.ther &eportin &esponsibilities section!
'odified Auditor,s .pinions
*escription of 0ntroductory /araraph
(ualified or Adverse .pinion ) ?o modification made!
*isclaimer of .pinion ) Amend this pararaph of the
auditor,s report to state that the auditor was only
enaed (not audited) to audit the FSs!
*escription of Auditor,s &esponsibility /araraph
(ualified or Adverse .pinion ) Amend this section to
state that the auditor believes that the audit evidence
the auditor has obtained is sufficient and appropriate
to provide a basis for the auditor,s modified audit
opinion!
*isclaimer of .pinion ) Amend this section to state
only the followin: 2.ur responsibility is to express an
opinion on the financial statements based on
conductin the audit in accordance with /hilippine
Standards on Auditin! >ecause of the matter(s)
described in the >asis for *isclaimer of .pinion
pararaph, however, we were not able to obtain
sufficient appropriate audit evidence to provide a basis
for an audit opinion!3
>asis for 'odification /araraph
%he auditor shall include additional pararaph on the
standard auditor,s report immediately before the
opinion pararaph, and use the headin 2>asis for
(ualified .pinion,3 2>asis for Adverse .pinion,3 or
2>asis for *isclaimer of .pinion,3 as appropriate!
.pinion /araraph
%he auditor shall use the headin 2(ualified .pinion,3
2Adverse .pinion,3 or 2*isclaimer of .pinion,3 as
appropriate, for the opinion pararaph!
S"#)e o* Auditors Reorts
INDE+ENDENT AUDITORS RE+ORT
%he >oard of *irectors and Shareholders
&eport on the Financial Statements
6e have audited 9if disclaimer of opinion, 6e were
enaed to audit: the accompanyin financial statements
of 9?ame of 5lient:, which comprise the statements of
financial position as at 9&eportin *ate:, ABCA and ABCC,
and the statements of 9comprehensive income, income,
operations, or other appropriate title used in the financial
statements:, statements of chanes in e#uity and
statements of cash flows for the years then ended, and a
summary of sinificant accountin policies and other
explanatory information!
Manage"ents Responsibility for the 'inancial State"ents
'anaement is responsible for the preparation and fair
presentation of these financial statements in accordance
with 9Applicable Financial &eportin Framewor+:, and for
such internal control as manaement determines is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error!
Auditors Responsibility
9If (ualified opinion or adverse:
.ur responsibility is to express an opinion on these
financial statements based on our audits! 6e conducted
our audits in accordance with /hilippine Standards on
Auditin! %hose standards re#uire that we comply with
ethical re#uirements and plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free from material misstatement!

An audit involves performin procedures to obtain audit
evidence about the amounts and disclosures in the
financial statements! %he procedures selected depend on
the auditors, -udment, includin the assessment of the
ris+s of material misstatement of the financial statements,
whether due to fraud or error! 0n ma+in those ris+
assessments, the auditors consider internal control

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
relevant to the entity,s preparation and fair presentation of
the financial statements in order to desin audit
procedures that are appropriate in the circumstances, but
not for the purpose of expressin an opinion on the
effectiveness of the entity,s internal control! An audit also
includes evaluatin the appropriateness of accountin
policies used and the reasonableness of accountin
estimates made by manaement, as well as evaluatin the
overall presentation of the financial statements!
6e believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our
9#ualified or adverse, as appropriate: audit opinion!
9If disclai"er of opinion:
.ur responsibility is to express an opinion on these
financial statements based on conductin the audit in
accordance with /hilippine Standards on Auditin! >ecause
of the matter described in the >asis for *isclaimer of
.pinion pararaph, however, we were not able to obtain
sufficient appropriate audit evidence to provide a basis for
an audit opinion!
Opinion )If un(ualified*un"odified opinion+
0n our opinion, the financial statements present fairly, in all
material respects, the financial position of 9?ame of 5lient:
as at 9&eportin *ate:, ABCA and ABCC, and its financial
performance and its cash flows for the years then ended in
accordance with 9Applicable financial reportin
framewor+:!
9If (ualified opinion:
,asis for -ualified Opinion
%he 5ompany,s inventories are reconi8ed in the statement
of financial position at /C< million >ased on the audit
evidence obtained, we believe that an ad-ustment to
inventories of /D million is re#uired to reconi8e slow
movin items at their net reali8ed value! %he tax effect of
this ad-ustment is /C!D million! Accordinly, we believe
that shareholders, e#uity and profit for the year are
overstated by /E!D million respectively!:
-ualified Opinion
0n our opinion, except for the effects of the matters
descried in the basis for #ualified opinion pararaph, the
financial statements present fairly, in all material respects,
the financial position of 9?ame of 5lient: as of 9&eportin
*ate:, ABCA and ABCC, and its financial performance and
its cash flows for the years ended in accordance with
/hilippine Financial &eportin Standards!
9If adverse opinion:
,asis for Adverse Opinion
As discussed in ?ote F to the financial statements, the
5ompany,s financin arranements expired and the
amount outstandin was payable on *ecember EC, ABF0!
%he company has been unable to re1neotiate or obtain
replacement financin and is considerin fillin for
ban+ruptcy! >ased on the audit evidence obtained, we
believe that the company will not be able to meet its
obliations in the ordinary course of business! Accordinly,
we do not aree with manaement,s preparation and
presentation of financial statements on a oin concern
basis! Gad the financial statements been prepared on a
li#uidation basis of accountin, we believe that it would
have had a sinificant neative effect on the company,s
financial position and financial performance!
Adverse .pinion
Adverse Opinion
0n our opinion, because of the sinificance of the matter
discussed in the basis for adverse opinion pararaph, the
financial statements do not present fairly, in all material
respects the financial position 9?ame of 5lient: as of
9&eportin *ate:, ABCA and ABCC, and of its financial
performance and its cash flows for the years then ended in
accordance with /hilippine Financial &eportin Standards!
9If disclai"er of opinion:
,asis for .isclai"er of Opinion
%he company,s investment in its -oint venture FHI
(5ountry F) 5ompany is carried at xxx on the company,s
statement of financial position, which represents over JBK
of the company,s net assets as at *ecember EC, ABCA! 6e
were not allowed access to the manaement and the
auditors of FHI, includin FHI,s auditors, audit
documentation! As a result, we were unable to determine
whether any ad-ustments were necessary in respect of the
company,s proportional share of FHI,s assets that it
controls -ointly, its proportional share of FHI,s liabilities for
which it is -ointly responsible, its proportional share of
FHI,s income and expenses for the year, and the elements
ma+in up the statement of chanes in e#uity and
statement of cash flow!
.isclai"er of Opinion
>ecause of the sinificance of the matter described in the
>asis for *isclaimer of .pinion pararaph, we have not
been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion! Accordinly, we do not
express an opinion on the financial statements!
9If /ith e"phasis of a "atter :
"phasis of Matter
6e draw attention to ?ote F to the financial statements,
which appropriately describe the sinificant uncertainty
related to the outcome of a lawsuit in which the company
is the defendant! %he lawsuit allees infrinement of
certain patent riht and claims royalties and punitive
damaes in the amount of /CB million to the outcome of
the lawsuit, the company believes that it will be able to
successfully defend its case and, accordinly, no provision
for any liability that may result has been reconi8ed in the
financial statements! .ur opinion is not #ualified in respect
of this matter!
&eport on .ther ;eal and &eulatory &e#uirements
9?A'E .F A"*0%0?7 F0&':
>.A &eistration ?o!
SE5 Accreditation ?o!
%0?
>y:
9?A'E .F /A&%?E&:
/artner
5/A ;icense ?o!
SE5 A!?!
%0?
>0& A?!
/%& ?o!, 0ssued on 9*ate, /lace of 0ssue:
'a+ati 5ity, /hilippines
9*ate of Auditors, &eport:

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
Su)e#e!t"r, I!*or#"tio! +rese!ted -ith the
.i!"!(i") St"te#e!ts
Supplementary information ) information that is presented
toether with the FSs that is not re#uired by the applicable
F&F used to prepare the FSs, normally presented in either
supplementary schedules or as additional notes!
%he auditor shall evaluate whether such supplementary
information is clearly differentiated from the audited FSs!
0f such supplementary information is not clearly
differentiated, the auditor shall as+ manaement to chane
how the unaudited supplementary information is
presented! 0f manaement refuses to do so, the auditor
shall explain in the auditor,s report that such
supplementary information has not been audited! %he fact
that supplementary information is unaudited does not
relieve the auditor of the responsibility to read that
information to identify material inconsistencies with the
audited financial statements!
Co#"r"ti/e I!*or#"tio!
%he two broad approaches to the auditor,s reportin
responsibilities in respect of comparative information are:
a) 5orrespondin fiures )comparative information where
amounts and other disclosures for the prior period are
included as an integral part of the current period 'Ss,
and are intended to be read only in relation to the
amounts and other disclosures relatin to the current
period (referred to as 2current period fiures3)! %he
level of detail presented in the correspondin amounts
and disclosures is dictated primarily by its relevance to
the current period fiures; and
b) 5omparative FSs )comparative information where
amounts and other disclosures for the prior period are
included for co"parison /ith the 'Ss of the current
period but, if audited, are referred to in the auditor,s
opinion! %he level of information included in those
comparative FSs is comparable with that of the FSs of
the current period!
Audit Procedures
%he auditor shall evaluate whether:
a) %he comparative information arees with the amounts
and other disclosures presented in the prior period or,
when appropriate, have been restated; and
b) %he accountin policies reflected in the comparative
information are consistent with those applied in the
current period or, if there have been chanes in
accountin policies, whether those chanes have been
properly accounted, presented and disclosed!
0f the auditor becomes aware of a possible material
misstatement in the comparative information while
performin the current period audit, the auditor shall
perform such additional audit procedures necessary to
obtain SAAE, includin re#uestin written representations
for all periods referred to in the auditor,s opinion!
Audit Reporting
%he essential audit reportin differences between the
approaches are:
a) For correspondin fiures, the auditor,s opinion on the
FSs refers to the current period only; whereas
b) For comparative FSs, the auditor,s opinion refers to
each period for which FSs are presented!
5orrespondin fiures
%he auditor,s opinion shall not refer to the correspondin
fiures because the auditor,s opinion is on the current
period FSs includes correspondin fiures, except:
a) 'odification in auditor,s report on the prior period
remain unresolved
b) 'isstatement in prior period FSs
c) /rior period FSs not audited
d) /rior period FSs audited by a predecessor auditor
'odification in auditor,s report on the prior period remain
unresolved
%he auditor shall modify the auditor,s opinion on the
current period,s FSs!
'isstatement in prior period FSs
0f the auditor obtains audit evidence that a material
misstatement exists in the prior period FSs on which an
unmodified opinion has been previously issued, and the
correspondin fiures have not been properly restated, the
auditor shall express a #ualified opinion or an adverse
opinion in the auditor,s report on the current period FSs!
6hen the prior period FSs that are misstated have not
been amended and an auditor,s report has not been
reissued, but the correspondin fiures have been properly
restated or appropriate disclosures have been made in the
current period FSs, the auditor,s report may include an
Emphasis of 'atter pararaph!
/rior period FSs not audited
%he auditor shall state in an .ther 'atter pararaph in the
auditor,s report that the correspondin fiures are
unaudited!
/rior period FSs audited by a predecessor auditor
%he auditor shall state (if nor prohibited by law to do so) in
an .ther 'atter pararaph in the auditor,s report:
a) %hat the FSs of the prior period were audited by the
predecessor auditor;
b) %he type of opinion expressed and, if the opinion was
modified, the reasons therefore; and
c) %he date of that report!
5omparative financial statements
%he auditor,s opinion shall refer to each period for which
FSs are presented on which an audit opinion is expressed!
.pinion on /rior /eriod FSs *ifferent from /revious .pinion
%he opinion expressed on the prior period FSs may be
different from the opinion previously expressed if the
auditor becomes aware of circumstances or events that
materially affect the FSs of a prior period durin the course
of the audit of the current period! %he auditor shall disclose
the substantive reasons for the different opinion in an
.ther 'atter pararaph!
/rior /eriod FSs Audited by a /redecessor Auditor
0n addition to expressin an opinion on the current period,s
FSs, the auditor shall state in an .ther 'atter pararaph:
a) that the FSs of the prior period were audited by a
predecessor auditor;
b) the type of opinion expressed and, if the opinion was
modified, the reasons therefore; and
c) the date of that report,
unless the predecessor auditor,s report on the prior
period,s FSs is reissued with the FSs!
/rior /eriod Financial Statements ?ot Audited
0f the prior period FSs were not audited, the auditor shall
state in an .ther 'atter pararaph that the comparative
FSs are unaudited!
Other I!*or#"tio! i! Do(u#e!ts Co!t"i!i!0 Audited
.i!"!(i") St"te#e!ts

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
.ther information refers to financial and non1financial
information (other than the FSs and the auditor,s report
thereon) which is included, either by law, reulation or
custom, in a document containin audited FSs and the
auditor,s report thereon! .ther information may comprise,
for example:
A report by manaement or %567 on operations!
Financial summaries or hihlihts!
Employment data!
/lanned capital expenditures!
Financial ratios!
?ames of officers and directors!
Selected #uarterly data!
2*ocuments containin audited FSs3 refers to annual
reports (or similar documents), that are issued to owners
(or similar sta+eholders), containin audited FSs and the
auditor,s report, as well as other documents containin
audited FSs, such as those used in securities offerins!
%he auditor,s opinion does not cover other information and
the auditor has no specific responsibility for determinin
whether or not other information is properly stated!
Gowever, the auditor reads the other information because
the credibility of the audited FSs and the auditor,s report
"ay be under"ined by "aterial inconsistencies between
the audited FSs and other information!
Material Inconsistencies
0f, on readin the other information, the auditor identifies a
material inconsistency, the auditor shall determine whether
the audited FSs or the other information needs to be
revised!
'aterial 0nconsistencies 0dentified in .ther 0nformation
.btained /rior to the *ate of the Auditor,s &eport
0f revision of the audited FSs is necessary and
manaement refuses to ma+e the revision, the auditor
shall modify the opinion in the auditor,s report!
0f revision of the other information is necessary and
manaement refuses to ma+e the revision, the auditor
shall communicate this matter to %567; and
a) 0nclude in the auditor,s report an .ther 'atter
pararaph describin the material inconsistency!
b) 6ithhold the auditor,s report!
c) 6ithdraw from the enaement, if possible!
d) See+ advice from the auditor,s leal counsel!
'aterial 0nconsistencies 0dentified in .ther 0nformation
.btained Subse#uent to the *ate of the Auditor,s &eport
0f revision of the audited FSs is necessary, the auditor shall
follow the relevant re#uirements in 2Subse#uent Events3!
0f revision of the other information is necessary and
manaement arees to ma+e the revision, the auditor shall
carry out the procedures necessary under the
circumstances, which may include reviewin the steps
ta+en by manaement to ensure that individuals in receipt
of the previously issued FSs, the auditor,s report thereon,
and the other information are informed of the revision!
0f revision of the other information is necessary, but
manaement refuses to ma+e the revision, the auditor
shall notify %567 of the auditor,s concern reardin the
other information and ta+e any further appropriate action,
which may include obtainin advice from the auditor,s leal
counsel!
Material Misstate"ents of 'act
0f, on readin the other information for the purpose of
identifyin material inconsistencies, the auditor becomes
aware of an apparent material misstatement of fact, the
auditor shall discuss the matter with manaement!
'isstatement of fact occurs when other information that is
unrelated to matters appearin in the audited FSs that is
incorrectly stated or presented! A material misstatement of
fact may undermine the credibility of the document
containin audited FSs!
0f the auditor concludes that there is a material
misstatement of fact in the other information which
manaement refuses to correct, the auditor shall notify
%567 of the auditor,s concern and ta+e any further
appropriate action, which may include obtainin advice
from the auditor,s leal counsel!
- do!e -
MULTIPLE CHOICE
St"!d"rd Auditors Reort
C! %o distinuish it from reports that miht be issued by
others, such as by officers of the entity, the board of
directors, or from the reports of other auditors who
may not have to abide by the same ethical
re#uirements as the independent auditor, the auditor,s
report should have an appropriate
a! Addressee c! Sinature
b! %itle d! .pinion
A! %he audit report is normally addressed to the
>oard of Shareholders /resident of the
*irectors entity
a! Hes Hes Hes
b! ?o Hes Hes
c! Hes Hes ?o
d! Hes ?o ?o
E! %he introductory pararaph of the standard audit
report includes the followin:
0! 0dentification of the entity whose financial
statements (FSs) have been audited!
00! Statement that the FSs have been audited!
000! %itle of each of the FSs that comprise the complete
set of FSs!
0L! &eference to Mbasic financial statementsM without
indicatin the title of each of the FSs!
L! &eference to the summary of sinificant accountin
policies and other explanatory notes
L0! Specific date and period covered by the
FSs!
L00!&eference to /hilippine Standards on Auditin!
6hich of the foreoin are specifically re#uired by the
applicable standards on auditin to be included or
referred to in the introductory pararaph of the
standard audit reportN
a! 0,00, 0L, L0, L00 c! 0, 00, 000, L, L0
b! 0, 00, 000, L, L0, L00 d! 00, 000, L, L0
O! An entity,s manaement is responsible for the
preparation and fair presentation of the financial
statements! 0ts responsibility includes the followin,
except
a! *esinin, implementin, and maintainin internal
control relevant to the preparation and
presentation of financial statements!
b! 'a+in accountin estimates that are reasonable
in the circumstances!
c! Selectin and applyin appropriate accountin
policies!

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
d! Assessin the ris+s of material misstatement of the
financial statements!
D! An auditor,s responsibility to express an opinion on the
financial statements is
a! 0mplicitly represented in the auditor,s report!
b! Explicitly represented in the 2Auditor,s
&esponsibility3 pararaph of the auditor,s report!
c! Explicitly represented in the 2'anaement,s
&esponsibility3 pararaph of the auditor,s report!
d! Explicitly represented in the opinion pararaph of
the auditor,s report!
<! %he auditor,s report should describe an audit by
addressin some concerns that may include:
0! An audit includes evaluatin the appropriateness of
the accountin policies used!
00! An audit includes evaluatin the reasonableness of
accountin estimates made by auditor!
000! Evaluatin the overall presentation of the financial
statements!
0L! An audit involves performin procedures to obtain
audit evidence about the amounts and
disclosures in the financial statements!
L! %he procedures selected depend on the auditorPs
-udment!
6hich of the foreoin concerns are stated in the audit
reportN
a! 0, 000, 0L, L c! 0, 000, L
b! 0, 00, 000 d! 0, 00, 0L
Q! %he opinion pararaph of the auditor,s report
0! 0dentifies the applicable financial reportin
framewor+ (/F&Ss) on which the FSs are based!
00! Expresses an opinion on the financial statements!
a! 0 only c! >oth 0 and 00
b! 00 only d! ?either 0 nor 00
=! 6hich pararaphs of an auditor,s report on financial
statements should refer to /hilippine Financial
&eportin StandardsN
a! 0ntroductory and opinion
b! Auditor,s &esponsibility and 'anaement,s
&esponsibility
c! 0ntroductory and Auditor,s &esponsibility
d! 'anaement,s &esponsibility and .pinion
J! 6hen financial statements are audited by an
accountin firm, the partner1in1chare of enaement
ordinarily sins in the name of the firm because:
a! %he partner1in1chare of enaement should be
relieved of any responsibility reardin the opinion
issued!
b! 0t is re#uired by reportin standards!
c! %he firm assumes responsibility for the audit!
d! %he opinion becomes more credible if sined in
name of the firm!
CB! 6hich of the followin information is(are) re#uired
when an auditor,s report is issued on financial
statements to be filed with the Securities and
Exchane 5ommissionN
C! Audit report is manually sined!
A! 5ertifyin partner to sin his name!
E! /artner,s %ax 0dentification ?umber!
O! /&5 reistration number
D! Accreditation with SE5
a! C, A, E, O, D c! C, E, O, D
b! A, O, D d! A, E, O, D
CC! %he followin statements relate to the date of the
auditor,s report! 6hich is falseN
a! %he auditor should date the report as of the
completion date of the audit
b! %he date of the auditor,s report should not be
earlier than the date on which the financial
statements are sined or approved by
manaement
c! %he date of the auditor,s report should not be later
than the date on which the financial statements
are sined or approved by manaement!
d! %he date of the auditor,s report should always be
later than the date of the financial statements (i!e!,
the balance sheet date)!
CA! %he auditor,s report shall name the location in the
country or -urisdiction where the auditor practices!
6hen the auditor addresses other reportin
responsibilities in the auditor,s report on the financial
statements that are in addition to the auditor,s
responsibility to express the opinion on the financial
statements, these other reportin responsibilities shall
be addressed in a separate section in the auditor,s
report followin the .pinion section! %his separate
section shall be sub1titled 2&eport on .ther ;eal and
&eulatory &e#uirements!3
a! %rue, %rue c! False, %rue
b! False, False d! %rue, False
1odi*i("tio!s to the St"!d"rd Auditors Reort
CE! /SA QBD establishes three types of modified opinions,
namely, a #ualified opinion, an adverse opinion, and a
disclaimer of opinion! %he decision reardin which
type of modified opinion is appropriate depends upon:
0! %he nature of the matter ivin rise to the
modification, i!e!, whether the financial statements
are materially misstated or whether there is an
inability to obtain sufficient appropriate audit
evidence
00! %he auditor,s -udment about the pervasiveness of
the effects or possible effects of the matter on the
financial statements
a! 0 only c! >oth 0 and 00
b! 00 only d! ?either 0 nor 00
CO! 6hen an auditor issues an adverse opinion, the
implication is that the auditor
a! *oes not +now if the financial statements are
presented fairly!
b! *oes not believe the financial statements are fairly
presented!
c! 0s satisfied that the financial statements are
presented fairly except for a specific aspect of
them!
d! 0s satisfied that the financial statements are
presented fairly!
E#h"sis o* #"tter
CD! 6hen the auditor includes an Emphasis of 'atter
pararaph in the auditor,s report, the auditor shall
0! 0nclude it immediately before the .pinion
pararaph in the auditor,s report
00! "se the headin 2Emphasis of 'atter3
000! 0nclude in the pararaph a clear reference to the
matter bein emphasi8ed and to where relevant
disclosures that fully describe the matter can be
found in the financial statements; and
0L! 0ndicate that the auditor,s opinion is not modified in
respect of the matter emphasi8ed
a! 00 and 000 only c! 0 and 00 only
b! 0, 000 and 0L only d! 00, 000 and 0L
C<! An auditor includes a separate pararaph in an
otherwise unmodified report to emphasi8e that the
entity bein reported on had sinificant transactions
with related parties! %he inclusion of this separate
pararaph
a! 0s considered an 2except for3 #ualification of the
opinion!
b! Liolates /SAs if this information is already
disclosed in notes to the financial statements!

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
c! ?ecessitates a revision of the opinion pararaph to
include the phrase 2with the foreoin
explanation3!
d! 0s appropriate and would not neate the
un#ualified opinion!
CQ! An additional pararaph reads as follows:
.n .ctober CD, ABCE, the 5ompany emered from
ban+ruptcy! As discussed in the notes the financial
statements, the 5ompany accounted for the
reorani8ation usin 2fresh accountin3 and, as a
result, the post1reorani8ation financial statements are
not comparable to the pre1orani8ation financial
statements
%he pararaph li+ely is intended to:
a! (ualify an opinion
b! Emphasi8e a matter
c! &eport an inconsistency
d! 0ndicate a departure from /F&S
Other 1"tter +"r"0r"h
C=! 6hich of the followin circumstances in which an .ther
'atter /araraph may be necessary, exceptN
a! 6here the auditor is unable to resin from an
enaement when the possible effect of an inability
to obtain sufficient appropriate audit evidence due
to a limitation on the scope of the audit imposed
by manaement is pervasive!
b! Elaboration on matters that provide further
explanation of the auditor,s responsibilities for the
financial statements!
c! An entity may prepare one set of FSs in
accordance with a eneral purpose framewor+ and
another set of FSs in accordance with another
eneral purpose framewor+, and enae the
auditor to report on both sets of FSs!
d! FSs prepared for a specific purpose may be
prepared in accordance with a eneral purpose
framewor+ because the intended users have
determined that such eneral purpose financial
statements meet their financial information needs!
I!"2i)it, to o2t"i! su**i(ie!t "!d "rori"te "udit
e/ide!(e 3S(oe Li#it"tio!4
CJ! Rin, 5/A, was enaed to audit the financial
statements of ?ewton 5ompany after its fiscal year
had ended! Rin neither observed the inventory count
nor confirmed the receivables by direct communication
with debtors, but was satisfied concernin both after
applyin alternative procedures! Rin,s auditor,s
report most li+ely contained a(an)
a! (ualified opinion!
b! *isclaimer of opinion!
c! "n#ualified opinion without mentionin the
alternative procedures!
d! "n#ualified opinion with an explanatory pararaph!
AB! &estrictions imposed by a client prohibit the
observation of physical inventories, which account for
EDK of all assets! Alternative audit procedures cannot
be applied, althouh the auditor was able to examine
satisfactory evidence for all other items in the financial
statements! %he auditor should issue a(an)
a! 2Except for3 #ualified opinion!
b! *isclaimer of opinion!
c! "n#ualified opinion with a separate explanatory
pararaph!
d! "n#ualified opinion with an explanation in the
auditor,s responsibility pararaph!
AC! 6hen disclaimin an opinion due to a client1imposed
scope limitation, an auditor should indicate in a
separate pararaph why the audit did not comply with
/SAs! %he auditor should also omit the
Auditors responsibility
paragraph Opinion paragraph
a! ?o Hes
b! Hes Hes
c! ?o ?o
d! Hes ?o
AA! An auditor who #ualifies an opinion because of an
insufficiency of evidence should describe the limitation
in an explanatory pararaph! %he auditor should also
modify the
Auditors
Responsibility
paragraph
Opinion
paragraph
Notes to the
financial
state"ents
a! Hes ?o Hes
b!
c!
?o
?o
Hes
Hes
?o
?o
d! Hes Hes ?o
AE! %he opinion to be expressed when an auditor is
enaed to audit a client,s financial statements after
the annual physical inventory count and the accountin
records are not sufficiently reliable to enable the
auditor to become satisfied as to the year1end
inventory balances is
a! either an 2except for3 #ualified opinion or an
adverse opinion
b! either a disclaimer or an 2except for3 #ualified
opinion
c! either an adverse opinion or a disclaimer of opinion
d! an un#ualified opinion
AO! 6hen there is a limitation in the scope of the audit that
results to a disclaimer of opinion, the followin
pararaphs are modified, except
a! 0ntroductory pararaph
b! 'anaement,s responsibility pararaph
c! Auditor,s responsibility pararaph
d! .pinion pararaph
.S "re #"teri")), #isst"ted 3De"rture *ro# +.RS4
AD! 0f the financial statements, includin accompanyin
notes, fail to disclose information that is re#uired by
/F&Ss, the auditor should express either a(an)
a! 2Except for #ualified opinion or adverse opinion!
b! Adverse opinion or a 2sub-ect to3 #ualified opinion!
c! 2Sub-ect to3 #ualified opinion or un#ualified opinion
with a separate explanatory pararaph!
d! "n#ualified opinion with a separate explanatory
pararaph or an 2except for3 #ualified opinion!
A<! A departure from /F&S is disclosed in a note to the
financial statements! %he auditor should:
a! 0ssue an un#ualified opinion, with no explanatory
pararaph, since the departure from /F&Ss is
disclosed
b! 0ssue an un#ualified opinion, but emphasi8e the
matter in an explanatory pararaph
c! 0ssue a #ualified opinion
d! *isclaim an opinion
AQ! Eale 5ompany,s financial statements contain a
departure from /F&Ss because, due to unusual
circumstances, the statements would otherwise be
misleadin! %he auditor should express an opinion
that is
a! "n#ualified but not mention the departure in the
auditor,s report!
b! "n#ualified and describe the departure in a
separate pararaph!
c! (ualified and describe the departure in a separate
pararaph!

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
d! (ualified or adverse, dependin on materiality, and
describe the departure in a separate pararaph!
A=! An explanatory pararaph reads as follows:
2%he 5ompany has adopted the first1in, first1out
method of determinin inventory costs, whereas it
previously used the weihted averae method!
Athouh use of the first1in, first1out method is in
conformity with enerally accepted accountin
principles, in our opinion the 5ompany has not
provided reasonable -ustification for see+in a chane
as re#uired by >0&!3
%he pararaph li+ely appears in:
a! An un#ualified opinion
b! An un#ualified opinion that emphasi8ed the matter
c! A #ualified opinion
d! A disclaimer of opinion
AJ! 6hen financial statements are presented wherein
accountin principles have not been applied
consistently, an auditor, may issue a(an):
-ualified opinion .isclai"er of opinion
a! Hes Hes
b! ?o ?o
c! Hes ?o
d! ?o Hes
EB! 6hen usin the wor+ of a specialist, an auditor may
refer to and identify the specialists in the auditor,s
report if the
a! Auditor wishes to indicate a division of
responsibility!
b! Specialist,s wor+ provides the auditor reater
assurance of reliability!
c! Auditor expresses an adverse opinion as a result of
the specialist,s findins!
d! Specialist is not independent of the client!
Goi!0 (o!(er! u!(ert"i!ties
EC! 7rant 5ompany,s financial statements ade#uately
disclosed uncertainties that concern future events, the
outcome of which are not susceptible of reasonable
estimation! %he auditor,s report should include a(an)
a! "n#ualified opinion!
b! 2Sub-ect to3 #ualified opinion!
c! 2Except for3 #ualified opinion!
d! Adverse opinion!
EA! An auditor concludes that there is substantial doubt
about an entityPs ability to continue as a oin
concern! 0f the entityPs disclosures about uncertainties
are ade#uate, the audit report should include
A disclaimer of opinion A #ualified opinion
a! Hes Hes
b! ?o ?o
c! ?o Hes
d! Hes ?o
EE! 0n extreme cases such as situations involvin multiple
uncertainties that are sinificant to the financial
statements, the auditor
a! may consider to express a disclaimer of opinion
b! may #ualify his opinion instead of issuin an
un#ualified opinion with emphasis of matter
pararaph
c! may issue an adverse opinion because of their
sinificance
d! may issue a 2sub-ect to3 opinion because the
situations related to uncertainties
Di/isio! o* Reso!si2i)it,
EO! /rincipal auditor is
a! %he auditor who audited and reported on
the prior periodPs financial statements and
continues as the auditor for the current period!
b! A current periodPs auditor who did not
audit the prior periodPs financial statements!
c! %he auditor who was previously the auditor
of an entity and who has been replaced by an
incomin auditor!
d! %he auditor with responsibility for reportin
on the financial statements of an entity when those
financial statements include financial information of
one or more components audited by another
auditor!
ED! /art of an audit examination was made by another
auditor! 0n the report of the principal auditor, reference
to that effect is
a! not in accordance with 7AAS!
b! not a #ualification of the opinion but an indication
of divided responsibility!
c! an example of a dual opinion re#uirin the
sinature of both auditors!
d! not in conformity with 7AA/!
E<! %he principal auditor is satisfied with the independence
and professional reputation of the other auditor who
has audited a subsidiary but wants to indicate the
division of responsibility! %he principal auditor should
a! 'odify only the scope pararaph of the report!
b! 'odify only the opinion pararaph of the report!
c! 'odify both the scope and opinion pararaphs of
the report!
d! 'odify the introductory, scope and opinion
pararaphs of the report
EQ! %he introductory pararaph of an auditor,s report
contains the followin sentences:
6e did not audit the financial statements of EI 0nc!, a
wholly1owned subsidiary, which statements reflect total
assets and revenues constitutin AQ percent and AJ
percent, respectively, of the related consolidated
totals! %hose statements were audited by other
auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts
included for EI 0nc!, is based solely on the report of
the other auditors!
%hese sentences
a! 0ndicate division of responsibility!
b! Assume responsibility for the other auditor!
c! &e#uire a departure from an un#ualified opinion!
d! Are an improper form of reportin!
L"(5 o* I!dee!de!(e
E=! 6hen a disclaimer of opinion is issued because the
auditor lac+s independence:
a! no report title is included on the report!
b! a one1pararaph audit report is issued!
c! the only reason cited for issuin the disclaimer is
the lac+ of independence!
d! all of the above are correct!
Su)e#e!t"r, I!*or#"tio!
EJ! 6hich statement is correct concernin re#uired
supplementary informationN
a! %he auditor has no responsibility for re#uired
supplementary information as lon as it is outside
the basic financial statements!
b! %he auditorPs only responsibility for re#uired
supplementary information is to determine that
such information has not been omitted!
c! %he auditor should apply certain limited procedures
to the re#uired supplementary information, and
report deficiencies in, or omissions of, such
information!
d! %he auditor should apply tests of details of
transactions and balances to the re#uired

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.
supplementary information, and report any
material misstatements in such information!
OB! 0f manaement chooses to place supplementary
information in footnotes to the financial statements,
this information should be clearly mar+ed as
a! "naudited!
b! Supplementary information re#uired by the SE5!
c! *isclosures re#uired by the SE5!
d! Audited financial data re#uired by 7AA/!
Co#"r"ti/e I!*or#"tio!
OC! An auditor expressed a #ualified opinion on the prior
yearPs financial statements because of a lac+ of
ade#uate disclosure! %hese financial statements are
properly restated in the current year and presented in
comparative form with the current yearPs financial
statements! %he auditorPs updated report on the prior
yearPs financial statements should
a! >e accompanied by the auditorPs oriinal report on
the prior yearPs financial statements!
b! 5ontinue to express a #ualified opinion on the prior
yearPs financial statements!
c! 'a+e no reference to the type of opinion expressed
on the prior yearPs financial statements!
d! Express an un#ualified opinion on the restated
financial statements of the prior year!
OA! Sewel, 5/A, audited 0nfinite 5o!Ps prior year financial
statements! %hese statements are presented with
those of the current year for comparative purposes
without SewelPs auditorPs report, which expressed a
#ualified opinion! 0n draftin the current yearPs
auditorPs report, 5rain, 5/A, the successor auditor,
should
0! ?ot name Sewel as the predecessor auditor!
00! 0ndicate the type of report issued by Sewel!
000! 0ndicate the substantive reasons for SewelPs
#ualification!
a. 0 only! c! 00 and 000 only!
b. 0 and 00 only! d! 0, 00, and 000!
OE! 6hen unaudited financial statements are presented in
comparative form with audited financial statements in
a document filed with the Securities and Exchane
5ommission, such statements should be
Mar0ed as
1unaudited
1
2ithhel
d until
audited
Referred to in
the auditor3s
report
a! Hes ?o ?o
b! Hes ?o Hes
c! ?o Hes Hes
d! ?o Hes ?o
Other I!*or#"tio!
OO! 6hich of the followin best describes the auditorPs
responsibility for Mother informationM included in the
annual report to stoc+holders, which contains financial
statements and the auditorPs reportN
a! %he auditor has no obliation to read the Mother
information!M
b! %he auditor has no obliation to corroborate the
Mother informationM but should read the Mother
informationM to determine whether it is materially
inconsistent with the financial statements!
c! %he auditor should extend the examination to the
extent necessary to verify the Mother information!M
d! %he auditor must modify the auditorPs report to
state that the Mother information is unauditedM or
Mnot covered by the auditorPs report!M
OD! An auditor concludes that there is a material
inconsistency in the other information in an annual
report to shareholders containin audited financial
statements! 0f the auditor concludes that the financial
statements do not re#uire revision, but the client
refuses to revise or eliminate the material
inconsistency, the auditor may
a! &evise the auditorPs report to include a separate
explanatory pararaph describin the material
inconsistency!
b! 0ssue an Mexcept forM #ualified opinion after
discussin the matter with the clientPs board of
directors!
c! 5onsider the matter closed since the other
information is not in the audited financial
statements!
d! *isclaim an opinion on the financial statements
after explainin the material inconsistency in a
separate explanatory pararaph!
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