1.

According to PSA 560, “subsequent events” refer to:

A. Events occurring between the period end and the date of the auditor’s report
B. Facts discovered after the date of the auditor’s report
C. Events occurring between the period end and the date of the auditor’s reports and facts that
become known to the auditor after the date of the auditor’s report.
D. Events occurring between the week immediately before the end of the period and the date of
the auditor’s report.

2. The following events occurred subsequent to the balance sheet date, December 31, 2010. Which
of these would require an adjustment to the financial statements before they are issued?
A. A Company converted majority of its convertible bonds into ordinary shares.
B. B Company lost all of its cement line due to a flash flood that hit the area.
C. C Company settled its damages payable, originally estimated at P500,000, by paying
P525,000 to the parties concerned. The damages have arisen from an accident in C
Company’s plant in October 2009.
D. D Company acquired E Company through stock acquisition.

3. Which of the following procedures should an auditor generally perform regarding subsequent
events?
A. Obtaining an understanding of any procedures management has established to ensure that
subsequent events are identified.
B. Inquiring of management and, where appropriate, those charged with governance as to
whether any subsequent events have occurred which might affect the FS.
C. Reading minutes, if any, of the meetings, of the entity’s owners, management and those
charged with governance, that have been held after the date of the financial statements and
inquiring about matters discussed at any such meetings for which minutes are not yet
available.
D. Reading the entity’s latest subsequent interim financial statements, if any.
E. All of these.

4. After issuing a report, an auditor has no obligation to make continuing inquiries or perform other
procedures concerning the audited financial statements unless:
A. The auditor becomes aware of a fact which existed at the date of the auditor’s report and
which, if known at the date, may have caused the auditor to amend the auditor’s report.
B. Management of the entity has made a written request for the external auditor to reprint the
report.
C. The auditor becomes aware of a fact which existed at the date of the financial statements for
the latest period, and which, if known at that date, may have caused the auditor to modify
the auditor’s report.
D. Management of the entity admits to a material fraud which has been committed between the
date of the financial statements and the date of the auditor’s report.

5. After the date of the audit report but before the financial statements are issued, the auditor
becomes aware of a material subsequent event which requires adjustment in the financial
statements. If management amends the financial statements, and assuming the auditor is satisfied
after the performance of the necessary additional audit procedures, the audit opinion to be issued
would be:
A. Unqualified opinion
B. “Except for” Qualified opinion
C. “Subject to” Qualified opinion
D. Adverse opinion
6. Shortly after the audit report has already been released to the entity, an auditor discovered that a
material subsequent event requiring adjustment of the financial statements. Accordingly, the
auditor should:
A. Notify the persons ultimately responsible for the overall direction of the entity not to issue the
financial statements and the audit report thereon to third parties.
B. Issue a modified report, as a corrigendum, together with a written apology addressed to the
board of directors and shareholders of the entity.
C. Issue a modified report, as a corrigendum, but without a written apology.
D. Issue a statement, in a newspaper of general circulation, asking the public at large not to rely
on the financial statements and the audit report thereon.

7. Refer to no. 6. Despite asking the client not to release the financial statements and the audit report
thereon, the client issued both documents. Related to this, what is the best course of action on part
of the auditor?
A. Issue a modified report, as a corrigendum, together with a written apology addressed to the
board of directors and shareholders of the entity.
B. Issue a modified report, as a corrigendum, but without a written apology.
C. Ask for legal advice, and take action to prevent reliance on the auditor’s report.
D. Issue a modified report, with a qualified or adverse opinion, to be printed in a newspaper of
general circulation, no less than 15 days after the issuance of the unamended financial
statements and the original audit report.

8. Shortly after the financial statements have been issued, the auditor becomes aware of a material
subsequent event, requiring adjustment of the financial statements. Steps are taken to prevent
reliance on the previously issued financial statements and audit report. Assume that management
revises the financial statements and the auditor is satisfied after performing the necessary audit
procedures. Accordingly:
A. The old audit report is re-issued after revising the audit report date.
B. A new audit report is issued, with an emphasis of a matter paragraph to discuss the reason for
the revision of the previously issued financial statements and the earlier report issued by the
auditor.
C. A new audit report is issued, without an emphasis of a matter paragraph since to add an
explanation would increase the chances of confusion on the part of the readers of the
financial statements.
D. The old audit report is re-issued after revising the audit report date, and after adding an
emphasis of a matter paragraph to discuss the reason for the revision of the previously issued
financial statements and the earlier report issued by the auditor.

9. Whiskey, CPA, dated her audit report (on a client’s 2013 financial statements) as of February 10,
2014, except for Note J, as to which the date is March 3, 2014. In this case, Whiskey is taking
responsibility for:
A. All subsequent events occurring through March 3, 2014.
B. All subsequent events occurring through February 10, 2014 only.
C. All subsequent events occurring through February 10, 2014, and the specific subsequent event
referred to in Note J through March 3, 2014.
D. Only the specific subsequent event referred to in Note J through March 3, 2014.

10. The primary source of information to be reported about litigation, claims, and assessments is the
A. Client’s lawyer
B. Court records
 C. Client’s management
D. Independent auditor

11. Regarding litigation, the auditor’s primary means of obtaining corroboration of management’s
information is a:
A. Letter of corroboration from the auditor’s lawyer upon review of the legal documentation.
B. Confirmation of claims and assessments from the other parties to the litigation.
C. Letter of audit inquiry to the client’s lawyer.
D. Confirmation of claims and assessments from an officer of the court presiding over the
litigation.

12. The audit inquiry letter to the client’s legal counsel should be mailed only by the
A. Client after the auditor has reviewed it for appropriate content.
B. Auditor after preparation by the client and review by the auditor.
C. Auditor’s attorney after preparation by the client and review by the auditor.
D. Client after review by the auditor’s attorney.

13. An attorney responding to an auditor as a result of the client’s letter of audit inquiry may
appropriately limit the response to
A. Items, which have high probability of being resolved to the client’s detriment.
B. Asserted claims and pending or threatened litigation.
C. Legal matters subject to unsettled points of law, uncorroborated information, or other complex
judgments.
D. Matters to which the attorney has given substantive attention in the form of legal consultation
or representation.

14. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments,
the auditor should:
A. Honor the confidentiality of the client-lawyer relationship.
B. Consider the refusal to be tantamount to a scope limitation.
C. Seek to obtain the corroborating information from management.
D. Disclose this fact in the notes to the financial statements.

15. The appropriate date for the client to specify as the effective date in the audit inquire to a lawyer
is:
A. The balance sheet date.
B. Seven working days after the request is received by the lawyer.
C. The date of the audit inquiry itself.
D. The expected date of the completion of audit field work.

16. The primary objective of analytical procedures used in the final review of an audit is to
A. Obtain evidence from details tested to corroborate particular assertions.
B. Identify areas that represent specific risks relevant to the audit.
C. Assist the auditor in assessing the validity of the conclusions reached.
D. Satisfy doubts when questions arise about a client’s ability to continue in existence.

17. Analytical procedures used in the overall review stage of an audit generally include
A. Considering unusual or unexpected account balances that were not previously identified.
B. Performing tests of transactions to corroborate management’s financial statement assertions.
C. Gathering evidence concerning accounts that have not changed from the prior year.
 D. Retesting control procedures that appeared to be ineffective during the assessment of control
risk.

18. Travis, CPA, believes there is substantial doubt about the ability of Alice Co. to continue as a going
concern for a reasonable period of time. in evaluating Alice Co.’s plans for dealing with the
adverse effects of future conditions and events, Travis most likely would consider, as a mitigating
factor, Alice Co.’s plans to:
A. Accelerate research and development projects related to future products
B. Accumulate treasury stock at prices favorable to Alice Co.’s historic price range
C. Purchase equipment and production facilities currently being leased
D. Negotiate reductions in required dividends being paid on preference shares

19. Soon after Boyd’s audit report was issued, Boyd learned of certain related party transactions that
occurred during the year under audit. These transactions were not disclosed in the notes to the
financial statements. Boyd should
A. Plan to audit the transactions during the next engagements.
B. Recall all copies of the audited financial statements.
C. Determine whether the lack of disclosure would affect the auditor’s report.
D. Ask the client to disclose the transactions in subsequent interim statements.

20. This refers to a written statement by management provided to the auditor to confirm certain
matters or to support other audit evidence.
A. Assertions
B. Written representation
C. Confirmation reply
D. Management letter

21. The auditor should obtain evidence of management’s acknowledgment of responsibility for
I. The fair presentation of the financial statements in accordance with GAAP in the
Philippines
II. Approval of the financial statements.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

22. Management representation letters

A. Reduce inherent risk and control risk to an aggregate level of misstatement that could be
considered material.
B. Increase an auditor’s responsibility to detect material misstatements only to the extent that the
letter is relied on.
C. Clarifies the scope of a professional accountant’s procedures concerning the going concern
assumption and events after balance sheet date.
D. Reduce the possibility of misunderstanding or misinterpretation concerning management’s
responsibility for the financial statements.

23. Written client representation letters are normally signed by the

A. President and the chairperson of the board.
B. Treasurer and the internal auditor.
C. Chief executive officer and the chief financial officer.
D. Corporate counsel and the audit committee chairperson.
24. Management representation letters should be dated as of the date of the:
A. Balance sheet
B. Latest interim financial statements
C. Auditor’s report
D. Latest related party transaction

25. An auditor should obtain written representations form management concerning litigation claims
and assessments. These representations may be limited to matters that are considered either
individually or collectively material, provided an understanding on the limits of materiality for this
purpose has been reached by:
A. The auditor and the client’s lawyer.
B. Management and the auditor.
C. Management, the client’s lawyer, and the auditor.
D. The auditor independently of management.

26. Management’s refusal to furnish a written representation letter on a matter, which the auditor
considers essential, constitutes
A. Prima facie evidence that the financial statements are not presented fairly.
B. A violation of the International Corrupt Practices Act.
C. An uncertainty sufficient to preclude an unqualified opinion.
D. A scope limitation sufficient to preclude an unqualified opinion.

27. An auditor concludes that the omission of a substantive procedure considered necessary at the
time of the examination may impair the auditor’s present ability to support the previously expressed
opinion. The auditor need not apply the omitted procedure if:
A. The risk of adverse publicity or litigation is low.
B. The results of other procedures that were applied tend to compensate for the procedure
omitted.
C. The auditor’s opinion was qualified because of a departure from PFRS.
D. The results of the subsequent period’s tests of controls make the omitted procedure less
important.