Question 1

Which of the following situations would require auditors to add an explanatory paragraph to their report on comparative financial statements?

Accepted Answer

A) An unqualified opinion is issued in the current year while a qualified opinion was issued in prior years. 
B) A qualified opinion is issued in the current year because of a scope limitation; because this limitation was not encountered in prior years, the opinion issued in those years was unqualified. 
C) The updated opinion issued on prior years' financial statements differs from the opinion originally issued on those financial statements. 
D) The auditors' unqualified opinion issued on prior years' financial statements is still considered to be appropriate. 
A) An unqualified opinion is issued in the current year while a qualified opinion was issued in prior years. 
B) A qualified opinion is issued in the current year because of a scope limitation; because this limitation was not encountered in prior years, the opinion issued in those years was unqualified. 
C) The updated opinion issued on prior years' financial statements differs from the opinion originally issued on those financial statements. 
D) The auditors' unqualified opinion issued on prior years' financial statements is still considered to be appropriate.

Question 2

"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 20x1…" is an illustration of a

Accepted Answer

A) consistency change requiring a qualified opinion. 
B) scope limitation. 
C) departure from generally accepted accounting principles. 
D) report with a consistency modification. 
A) consistency change requiring a qualified opinion. 
B) scope limitation. 
C) departure from generally accepted accounting principles. 
D) report with a consistency modification.

Question 3

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. The entity's financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s).  $\begin{array}{llc}& \text { "Except for the Effects of}& \text {"Possible Discontinuance}\
& \text {Such Adjustments"}& \text {of the Entity's}\
& \text {Operations"}\
\end{array}$
A. $\begin{array}{llc}&&& \text { Yes } &&&&&&&&&& \text { Yes } \\end{array}$
B. $\begin{array}{llc}&&& \text { Yes }&&&&&&&&&&  \text { No } \\end{array}$
C.$\begin{array}{llc}&&& \text { No } &&&&&&&&&& \text { Yes } \\end{array}$
D. $\begin{array}{llc}&&& \text { No } &&&&&&&&&&  \text { No }
\end{array}$

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 4

An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should

Accepted Answer

A) issue an updated comparative report indicating the involvement of component auditors. 
B) explain to the client that comparative financial statements may not be presented under these circumstances. 
C) express an opinion only on the current year's financial statements and make no reference to the prior years' statements. 
D) indicate the substantive reasons for the qualification in the predecessor auditors' opinion. 
A) issue an updated comparative report indicating the involvement of component auditors. 
B) explain to the client that comparative financial statements may not be presented under these circumstances. 
C) express an opinion only on the current year's financial statements and make no reference to the prior years' statements. 
D) indicate the substantive reasons for the qualification in the predecessor auditors' opinion.

Question 5

If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would

Accepted Answer

A) disclose the fact that alternative procedures were used due to client-imposed scope limitation. 
B) disclose in the Basis for Opinion Section that confirmation of accounts receivable was impracticable. 
C) not mention the alternative procedures. 
D) include an other-matter paragraph that discloses the performance of alternative procedures. 
A) disclose the fact that alternative procedures were used due to client-imposed scope limitation. 
B) disclose in the Basis for Opinion Section that confirmation of accounts receivable was impracticable. 
C) not mention the alternative procedures. 
D) include an other-matter paragraph that discloses the performance of alternative procedures.

Question 6

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n)

Accepted Answer

A) disclaimer of opinion. 
B) qualified opinion referencing a departure from generally accepted accounting principles. 
C) unmodified opinion with an emphasis-of-matter paragraph. 
D) adverse opinion. 
A) disclaimer of opinion. 
B) qualified opinion referencing a departure from generally accepted accounting principles. 
C) unmodified opinion with an emphasis-of-matter paragraph. 
D) adverse opinion.

Question 7

Management determined it was probable that a pending litigation claim would result in a material loss. The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement. If the auditors believe an accrual should be made, what type of report should be issued?

Accepted Answer

A) Standard report. 
B) Unqualified opinion with an explanatory paragraph. 
C) Qualified opinion based on a circumstance-imposed scope limitation. 
D) Qualified or adverse opinion based on a departure from GAAP. 
A) Standard report. 
B) Unqualified opinion with an explanatory paragraph. 
C) Qualified opinion based on a circumstance-imposed scope limitation. 
D) Qualified or adverse opinion based on a departure from GAAP.

Question 8

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 9

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements

Accepted Answer

A) is complete with respect to disclosures required by the SEC. 
B) is fairly stated, in all material respects, in accordance with generally accepted accounting principles. 
C) is consistent, in all material respects, with the prior years' summary financial statements. 
D) is fairly stated, in all material respects, in relation to the complete financial statements. 
A) is complete with respect to disclosures required by the SEC. 
B) is fairly stated, in all material respects, in accordance with generally accepted accounting principles. 
C) is consistent, in all material respects, with the prior years' summary financial statements. 
D) is fairly stated, in all material respects, in relation to the complete financial statements.

Question 10

Which of the following statements is not included in the Basis for Opinion section of the standard report?

Accepted Answer

A) "These financial statements are the responsibility of [the company's] management." 
B) "Those standards require that we plan and perform the audit to obtain reasonable assurance…" 
C) "…it is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement…" 
D) "We believe that our audit provides a reasonable basis for our opinion" 
A) "These financial statements are the responsibility of [the company's] management." 
B) "Those standards require that we plan and perform the audit to obtain reasonable assurance…" 
C) "…it is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement…" 
D) "We believe that our audit provides a reasonable basis for our opinion"

Question 11

Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of

Accepted Answer

A) involvement of component auditors in the audit of the group financial statements. 
B) the portion of the group statements audited by the component auditors not being considered material. 
C) group auditors' recognition of the component auditors' competence, reputation, and professional certification. 
D) different opinions the auditors are expressing on the components of the financial statements that each audited. 
A) involvement of component auditors in the audit of the group financial statements. 
B) the portion of the group statements audited by the component auditors not being considered material. 
C) group auditors' recognition of the component auditors' competence, reputation, and professional certification. 
D) different opinions the auditors are expressing on the components of the financial statements that each audited.

Question 12

Auditors would not normally issue a qualified opinion on the entity's financial statements when

Accepted Answer

A) an accounting principle at variance with generally accepted accounting principles is used. 
B) the auditors lack independence with respect to the audited entity. 
C) a scope limitation prevents the auditors from completing an important auditing procedure. 
D) the entity has undertaken a change in accounting principle with which the auditor does not agree. 
A) an accounting principle at variance with generally accepted accounting principles is used. 
B) the auditors lack independence with respect to the audited entity. 
C) a scope limitation prevents the auditors from completing an important auditing procedure. 
D) the entity has undertaken a change in accounting principle with which the auditor does not agree.

Question 13

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is

Accepted Answer

A) limited to the previously issued report date. 
B) extended to the date of the updated audit report. 
C) limited to 30 days after the date of the prior years' financial statements. 
D) extended to the updated report date only if information comes to the auditors' attention requiring modification of the previously expressed opinion. 
A) limited to the previously issued report date. 
B) extended to the date of the updated audit report. 
C) limited to 30 days after the date of the prior years' financial statements. 
D) extended to the updated report date only if information comes to the auditors' attention requiring modification of the previously expressed opinion.

Which of the following situations would require auditors to add an explanatory paragraph to their report on comparative financial statements?

"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 20x1…" is an illustration of a

An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should

If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n)

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

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements

Which of the following statements is not included in the Basis for Opinion section of the standard report?

Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of

Auditors would not normally issue a qualified opinion on the entity's financial statements when

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is

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

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Exam 12: Reports on Audited Financial Statements

Which of the following situations would require auditors to add an explanatory paragraph to their report on comparative financial statements?

"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 20x1…" is an illustration of a

An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should

If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n)

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

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements

Which of the following statements is not included in the Basis for Opinion section of the standard report?

Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of

Auditors would not normally issue a qualified opinion on the entity's financial statements when

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is

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