Question 1

Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in

Accepted Answer

A) the Adverse Opinion Section. 
B) the Basis for Adverse Opinion Section. 
C) the Auditor's Responsibilities for the Audit of the Financial Statements Section. 
D) the footnotes to the financial statements. 
A) the Adverse Opinion Section. 
B) the Basis for Adverse Opinion Section. 
C) the Auditor's Responsibilities for the Audit of the Financial Statements Section. 
D) the footnotes to the financial statements.

Question 2

Hart, CPA, is auditing the year 2 financial statements of Kell Co. Previously, Hart audited Kell's year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include an other-matter paragraph in the year 2 report because comparative financial statements are being presented for year 2 and year 1. This paragraph should indicate the

Accepted Answer

A) substantive reasons for the prior year's qualification. 
B) reason that Hart continued to provide audit services, despite the previous scope limitation. 
C) consistency of application of accounting principles between year 2 and year 1. 
D) restriction on the distribution of the report. 
A) substantive reasons for the prior year's qualification. 
B) reason that Hart continued to provide audit services, despite the previous scope limitation. 
C) consistency of application of accounting principles between year 2 and year 1. 
D) restriction on the distribution of the report.

Question 3

Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report?

Accepted Answer

A) The report should be modified to include an explanatory paragraph describing the pending litigation. 
B) A disclaimer of opinion should be issued because the auditors' independence is impaired. 
C) The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty. 
D) A qualified or adverse opinion should be issued depending on the severity of the lawsuit. 
A) The report should be modified to include an explanatory paragraph describing the pending litigation. 
B) A disclaimer of opinion should be issued because the auditors' independence is impaired. 
C) The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty. 
D) A qualified or adverse opinion should be issued depending on the severity of the lawsuit.

Question 4

Zag Co. issues financial statements that present financial position and results of operations, but Zag omits the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows although Brown's access to all of the information underlying the basic financial statements would not be limited. Under the circumstances, Brown most likely would

Accepted Answer

A) add an other-matter paragraph to the standard (unmodified)report that justifies the omission. 
B) refuse to accept the engagement as proposed because of the client-imposed scope limitation. 
C) explain to Zag that the omission requires a qualification of the auditors' opinion. 
D) prepare the statement of cash flows as an accommodation to Zag and express an unmodified opinion. 
A) add an other-matter paragraph to the standard (unmodified)report that justifies the omission. 
B) refuse to accept the engagement as proposed because of the client-imposed scope limitation. 
C) explain to Zag that the omission requires a qualification of the auditors' opinion. 
D) prepare the statement of cash flows as an accommodation to Zag and express an unmodified opinion.

Question 5

The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements. If the auditors conclude that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditors may

Accepted Answer

A) issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. 
B) consider the matter closed since the other information is not included in the audited financial statements. 
C) issue an adverse opinion on the entity's financial statements due to inadequate disclosure. 
D) revise the report on the entity's financial statements to include an additional section describing the material inconsistency. 
A) issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. 
B) consider the matter closed since the other information is not included in the audited financial statements. 
C) issue an adverse opinion on the entity's financial statements due to inadequate disclosure. 
D) revise the report on the entity's financial statements to include an additional section describing the material inconsistency.

Question 6

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the $\begin{array}{cc}
\text { Basis tor opinion } & \text {Notes to the rinancial } \
\text { section } & \text { statements }
\end{array}$
A.$\begin{array}{lcc} && \text { Yes } &&&&&&& \text { Yes } \\end{array}$
B. $\begin{array}{lcc}&& \text { Yes } &&&&&&& \text { No } \\end{array}$
C.$\begin{array}{lcc} && \text { No } &&&&&&& \text { Yes } \\end{array}$
D. $\begin{array}{lcc}&& \text { No } &&&&&&& \text { No }
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 7

In which of the following circumstances would auditors be most likely to express an adverse opinion?

Accepted Answer

A) The chief executive officer refuses to provide the auditors access to minutes of board of directors' meetings. 
B) Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon. 
C) The financial statements are not in accordance with generally accepted accounting principles regarding the capitalization of leases. 
D) Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern. 
A) The chief executive officer refuses to provide the auditors access to minutes of board of directors' meetings. 
B) Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon. 
C) The financial statements are not in accordance with generally accepted accounting principles regarding the capitalization of leases. 
D) Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern.

Question 8

The issuance of a disclaimer of opinion generally indicates

Accepted Answer

A) the auditors cannot form an opinion on the fairness of presentation of the financial statements as a whole. 
B) the auditors have some uncertainties, but these uncertainties are not so material that they cannot form an opinion on the fairness of presentation of the financial statements as a whole. 
C) the auditors have observed a departure from generally accepted accounting principles but the departure is not of sufficient materiality to justify a qualified opinion. 
D) the auditors have observed a departure from generally accepted accounting principles that is so material and pervasive that a qualified opinion is not justified. 
A) the auditors cannot form an opinion on the fairness of presentation of the financial statements as a whole. 
B) the auditors have some uncertainties, but these uncertainties are not so material that they cannot form an opinion on the fairness of presentation of the financial statements as a whole. 
C) the auditors have observed a departure from generally accepted accounting principles but the departure is not of sufficient materiality to justify a qualified opinion. 
D) the auditors have observed a departure from generally accepted accounting principles that is so material and pervasive that a qualified opinion is not justified.

Question 9

When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not

Accepted Answer

A) identify management's responsibility for the financial statements. 
B) refer to any scope limitation in the Basis for Opinion Section. 
C) identify the scope limitation as a critical audit matter. 
D) indicate that the auditors were engaged to audit the financial statements in the Disclaimer of Opinion on the Financial Statements section. 
A) identify management's responsibility for the financial statements. 
B) refer to any scope limitation in the Basis for Opinion Section. 
C) identify the scope limitation as a critical audit matter. 
D) indicate that the auditors were engaged to audit the financial statements in the Disclaimer of Opinion on the Financial Statements section.

Question 10

Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors' work did not identify any issues affecting the group auditors' report?

Accepted Answer

A) Issue a standard (unmodified)report that does not reference any involvement by the component auditors. 
B) Identify the component auditors by name and present their report along with the group auditors' report. 
C) Refer to the component auditors' work and disclose the extent of their work in the group auditors' report. 
D) Disclaim an opinion on the portion of the financial statements examined by the component auditors. 
A) Issue a standard (unmodified)report that does not reference any involvement by the component auditors. 
B) Identify the component auditors by name and present their report along with the group auditors' report. 
C) Refer to the component auditors' work and disclose the extent of their work in the group auditors' report. 
D) Disclaim an opinion on the portion of the financial statements examined by the component auditors.

Question 11

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment and the start of fieldwork made confirmation of accounts receivable by direct communication with the customers not feasible. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditors' report most likely contained a(n)

Accepted Answer

A) unqualified opinion. 
B) unqualified opinion with an explanatory paragraph. 
C) qualified opinion due to a scope limitation. 
D) qualified opinion due to a departure from generally accepted auditing standards. 
A) unqualified opinion. 
B) unqualified opinion with an explanatory paragraph. 
C) qualified opinion due to a scope limitation. 
D) qualified opinion due to a departure from generally accepted auditing standards.

Question 12

The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements. If the auditors conclude that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditors may

Accepted Answer

A) issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. 
B) consider the matter closed since the other information is not included in the audited financial statements. 
C) issue an adverse opinion on the entity's financial statements due to inadequate disclosure. 
D) revise the report on the entity's financial statements to include an additional section describing the material inconsistency. 
A) issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. 
B) consider the matter closed since the other information is not included in the audited financial statements. 
C) issue an adverse opinion on the entity's financial statements due to inadequate disclosure. 
D) revise the report on the entity's financial statements to include an additional section describing the material inconsistency.

Question 13

The standard report issued in the audit of an issuer includes a(n)

Accepted Answer

A) Responsibilities of Management for the Financial Statements Section providing a general description of an audit conducted in accordance with the applicable auditing standards. 
B) Opinion on the Financial Statements section identifying the responsibility of management and auditors in the financial reporting process. 
C) Critical Audit Matters section indicating that an audit was conducted in accordance with PCAOB standards. 
D) Opinion on the Financial Statements section providing the auditors' conclusion as to the fair presentation of the financial statements. 
A) Responsibilities of Management for the Financial Statements Section providing a general description of an audit conducted in accordance with the applicable auditing standards. 
B) Opinion on the Financial Statements section identifying the responsibility of management and auditors in the financial reporting process. 
C) Critical Audit Matters section indicating that an audit was conducted in accordance with PCAOB standards. 
D) Opinion on the Financial Statements section providing the auditors' conclusion as to the fair presentation of the financial statements.

Question 14

The auditors conclude that an entity's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the overall materiality and pervasiveness of the effect of this illegal act on the financial statements, the auditors should express either a(n)

Accepted Answer

A) adverse opinion or a disclaimer of opinion. 
B) qualified opinion or an adverse opinion. 
C) disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph. 
D) unqualified opinion with a separate explanatory paragraph or a qualified opinion. 
A) adverse opinion or a disclaimer of opinion. 
B) qualified opinion or an adverse opinion. 
C) disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph. 
D) unqualified opinion with a separate explanatory paragraph or a qualified opinion.

Question 15

Issuers' financial statements should be accompanied by all of the following reports except the

Accepted Answer

A) auditors' report on internal control over financial reporting. 
B) management's report on internal control over financial reporting. 
C) auditors' report on financial statements and related disclosures. 
D) management's report on financial statements and related disclosures. 
A) auditors' report on internal control over financial reporting. 
B) management's report on internal control over financial reporting. 
C) auditors' report on financial statements and related disclosures. 
D) management's report on financial statements and related disclosures.

Question 16

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of

Accepted Answer

A) inadequate disclosure of material information. 
B) the omission of the Statement of Cash Flows. 
C) a material departure from generally accepted accounting principles. 
D) management's refusal to furnish written representations. 
A) inadequate disclosure of material information. 
B) the omission of the Statement of Cash Flows. 
C) a material departure from generally accepted accounting principles. 
D) management's refusal to furnish written representations.

Question 17

The auditors include an emphasis-of-matter paragraph in an otherwise unmodified report on the entity's financial statements to emphasize that the entity being reported on had significant transactions with related parties. The inclusifis considered a qualification of the opinion.on of this separate paragraph

Accepted Answer

A) is considered a qualification of the opinion. 
B) violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. 
C) necessitates a revision of the Opinion Section to include the phrase "with the foregoing explanation." 
D) is appropriate and would not otherwise affect the unmodified opinion. 
A) is considered a qualification of the opinion. 
B) violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. 
C) necessitates a revision of the Opinion Section to include the phrase "with the foregoing explanation." 
D) is appropriate and would not otherwise affect the unmodified opinion.

Question 18

Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure?

Accepted Answer

A) "Subject to the departure from generally accepted accounting principles, as described below." 
B) "With the foregoing explanation of these omitted disclosures." 
C) "Except for the effects of the matter described in the Basis for Qualified Opinion Section of our report" 
D) "Does not present fairly in all material respects." 
A) "Subject to the departure from generally accepted accounting principles, as described below." 
B) "With the foregoing explanation of these omitted disclosures." 
C) "Except for the effects of the matter described in the Basis for Qualified Opinion Section of our report" 
D) "Does not present fairly in all material respects."

Question 19

Issuers' financial statements should be accompanied by all of the following reports except the

Accepted Answer

A) auditors' report on internal control over financial reporting. 
B) management's report on internal control over financial reporting. 
C) auditors' report on financial statements and related disclosures. 
D) management's report on financial statements and related disclosures. 
A) auditors' report on internal control over financial reporting. 
B) management's report on internal control over financial reporting. 
C) auditors' report on financial statements and related disclosures. 
D) management's report on financial statements and related disclosures.

Question 20

In which of the following circumstances would a qualified opinion not be appropriate?

Accepted Answer

A) A scope limitation prevents the auditors from completing an important auditing procedure. 
B) The entity has failed to properly disclose going-concern uncertainties. 
C) An accounting principle at variance with generally accepted accounting principles is used. 
D) The auditors lack independence with respect to the audited entity. 
A) A scope limitation prevents the auditors from completing an important auditing procedure. 
B) The entity has failed to properly disclose going-concern uncertainties. 
C) An accounting principle at variance with generally accepted accounting principles is used. 
D) The auditors lack independence with respect to the audited entity.

Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in

Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report?

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the Basis tor opinion Notes to the rinancial section statements A. Yes Yes B. Yes No C. No Yes D. No No

In which of the following circumstances would auditors be most likely to express an adverse opinion?

The issuance of a disclaimer of opinion generally indicates

When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not

Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors' work did not identify any issues affecting the group auditors' report?

The standard report issued in the audit of an issuer includes a(n)

Issuers' financial statements should be accompanied by all of the following reports except the

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of

Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure?

Issuers' financial statements should be accompanied by all of the following reports except the

In which of the following circumstances would a qualified opinion not be appropriate?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Filters

Exam 12: Reports on Audited Financial Statements

Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in

Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report?

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the Basis tor opinion Notes to the rinancial section statements A. Yes Yes B. Yes No C. No Yes D. No No

In which of the following circumstances would auditors be most likely to express an adverse opinion?

The issuance of a disclaimer of opinion generally indicates

When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not

Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors' work did not identify any issues affecting the group auditors' report?

The standard report issued in the audit of an issuer includes a(n)

Issuers' financial statements should be accompanied by all of the following reports except the

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of

Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure?

Issuers' financial statements should be accompanied by all of the following reports except the

In which of the following circumstances would a qualified opinion not be appropriate?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Filters