Question 1

Whenever an auditor issues a qualified report,he or she must use the term "except for " in the opinion paragraph.

Accepted Answer

A) True 
 B)False

Question 2

The appropriate audit report date for a standard unmodified opinion audit report for a nonpublic entity should be

Accepted Answer

A) the date the financial statements are given to the Board of Directors. 
B) the date of the financial statements. 
C) the date the auditor completed the auditing procedures in the field. 
D) 60 days after the date of the financial statements as required by the SEC. 
A) the date the financial statements are given to the Board of Directors. 
B) the date of the financial statements. 
C) the date the auditor completed the auditing procedures in the field. 
D) 60 days after the date of the financial statements as required by the SEC.

Question 3

When an auditor discovers a highly material GAAP violation in the financial statements and the client refuses to correct it,the auditor should issue a disclaimer of opinion.

Accepted Answer

A) True 
 B)False

Question 4

When there is a lack of consistent application in accounting principles

Accepted Answer

A) the nature and impact of the change should be adequately disclosed. 
B) the auditor should discuss the nature of the change and point the reader to the footnote that discusses the change. 
C) the materiality of the change is evaluated based on the current year effect of the change. 
D) all of the above. 
A) the nature and impact of the change should be adequately disclosed. 
B) the auditor should discuss the nature of the change and point the reader to the footnote that discusses the change. 
C) the materiality of the change is evaluated based on the current year effect of the change. 
D) all of the above.

Question 5

Client imposed restrictions on the audit always require a disclaimer of opinion.

Accepted Answer

A) True 
 B)False

Question 6

William Gregory,CPA,is the principal auditor for an international corporation.Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation.Gregory is satisfied with the independence and professional reputation of the other auditor,as well as the quality of the other auditor's examination.With respect to his report on the consolidated financial statements,taken as a whole,Gregory

Accepted Answer

A) must not refer to the examination of the other auditor. 
B) must refer to the examination of the other auditor. 
C) may refer to the examination of the other auditor. 
D) must refer to the examination of the other auditors along with the percentage of consolidated assets and revenue that they audited. 
A) must not refer to the examination of the other auditor. 
B) must refer to the examination of the other auditor. 
C) may refer to the examination of the other auditor. 
D) must refer to the examination of the other auditors along with the percentage of consolidated assets and revenue that they audited.

Question 7

An audit report prepared by Garrett and Brown,CPAs,is provided below.The audit for the year ended December 31,2016 was completed on March 1,2017,and the report was issued to Javlin Corporation,a private company,on March 13,2017.List any deficiencies in this report.Do not rewrite the report.
We have examined the accompanying financial statements of Dalton Corporation as of December 31,2016.These financial statements are the responsibility of the company's management.
Management's Responsibility for the Financial Statements:
Management is responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted auditing standards;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from all misstatement,whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to give an opinion on these financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted throughout the world.Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on management's judgment,including the assessment of the risks of material misstatement of the income statement,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the auditor's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.An audit also includes evaluating the appropriateness of accounting policies and the accuracy of accounting estimates made by management,as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion,the financial statements referred to above present accurately the financial position of Javlin Corporation as of December 31,2016,in conformity with accounting principles generally accepted in the United States of America.
Garrett and Brown,CPAs
March,2017

Accepted Answer

The audit report contains the following

Question 8

Subsequent to the close of Spacely Sprockets fiscal year ending October 31,2016,a major debtor has declared bankruptcy due to a series of events.The receivable is significantly material in relation to the financial statements,and recovery is doubtful.The debtor had confirmed the full amount due to Spacely Sprocket at the balance sheet date.Because the account was confirmed at the balance sheet date,Spacely refuses to disclose any information in relation to this subsequent event.The CPA believes that all other accounts were stated fairly at the balance sheet date.In addition,Spacely changed their method of inventory valuation from FIFO to LIFO.This change was disclosed in Note X to the financial statements.Accordingly,what type of opinion should be expressed?

Accepted Answer

A) unqualified with an explanatory paragraph 
B) qualified due to a GAAP departure 
C) qualified due to a scope limitation 
D) a combination of B and C 
A) unqualified with an explanatory paragraph 
B) qualified due to a GAAP departure 
C) qualified due to a scope limitation 
D) a combination of B and C

Question 9

Which of the following requires recognition in the auditor's opinion as to consistency?

Accepted Answer

A) The correction of an error in the prior year's financial statements resulting from a mathematical mistake in capitalizing interest. 
B) A change in the estimate of provisions for warranty costs. 
C) The change from the cost method to the equity method of accounting for investments in common stock. 
D) A change in depreciation method which has no effect on current year's financial statements but is certain to affect future years. 
A) The correction of an error in the prior year's financial statements resulting from a mathematical mistake in capitalizing interest. 
B) A change in the estimate of provisions for warranty costs. 
C) The change from the cost method to the equity method of accounting for investments in common stock. 
D) A change in depreciation method which has no effect on current year's financial statements but is certain to affect future years.

Question 10

In which of the following circumstances would an auditor most likely express an adverse opinion?

Accepted Answer

A) The CEO refuses to let the auditor have access to the board of director meeting minutes. 
B) The financial statements are not in conformity with the FASB statement on loss contingencies. 
C) Information comes to the auditor's attention that raises substantial doubt about the ability for the client to continue as a going concern. 
D) Tests of controls show that the internal control structure is so poor that the auditor has to assess control risk at the maximum. 
A) The CEO refuses to let the auditor have access to the board of director meeting minutes. 
B) The financial statements are not in conformity with the FASB statement on loss contingencies. 
C) Information comes to the auditor's attention that raises substantial doubt about the ability for the client to continue as a going concern. 
D) Tests of controls show that the internal control structure is so poor that the auditor has to assess control risk at the maximum.

Question 11

The phrase "Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material error" is included in the auditor's opinion section of an audit report.

Accepted Answer

A) True 
 B)False

Question 12

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion,only the auditor's responsibility paragraph should be modified.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is True?
I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty.
II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) I and II 
D) Neither I nor II

Question 14

When other auditors are involved in the audit and they qualify their portion of the audit,the principal auditor must decide if the amount in question is material to the financial statements as a whole.

Accepted Answer

A) True 
 B)False

Question 15

More than one modification should be included in the audit report when

Accepted Answer

A) the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles. 
B) there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes. 
C) there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern. 
D) all of the above 
A) the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles. 
B) there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes. 
C) there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern. 
D) all of the above

Question 16

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to

Accepted Answer

A) inform the reader that disclosure is not adequate,and to issue an adverse opinion. 
B) inform the reader that disclosure is not adequate,and to issue a qualified opinion. 
C) present the information in the audit report and issue an unqualified or qualified opinion. 
D) present the information in the audit report and to issue a qualified or an adverse opinion. 
A) inform the reader that disclosure is not adequate,and to issue an adverse opinion. 
B) inform the reader that disclosure is not adequate,and to issue a qualified opinion. 
C) present the information in the audit report and issue an unqualified or qualified opinion. 
D) present the information in the audit report and to issue a qualified or an adverse opinion.

Question 17

For the report containing a disclaimer for lack of independence,the disclaimer is in the

Accepted Answer

A) second or scope paragraph. 
B) third or opinion paragraph. 
C) first and only paragraph. 
D) fourth or explanatory paragraph. 
A) second or scope paragraph. 
B) third or opinion paragraph. 
C) first and only paragraph. 
D) fourth or explanatory paragraph.

Question 18

Changes in accounting estimates requires the auditor to issue a modified audit report with a consistency paragraph inserted after the opinion paragraph.

Accepted Answer

A) True 
 B)False

Question 19

Financial statement users are typically more concerned with an unmodified report with explanatory paragraphs than they are with a disclaimer of opinion.

Accepted Answer

A) True 
 B)False

Question 20

Changes in an estimate,such as a change in the estimated useful life of an asset for depreciation purposes,affect consistency but not comparability,and therefore require an explanatory paragraph in the audit report.

Accepted Answer

A) True 
 B)False

Exam 3: Audit Reports

Whenever an auditor issues a qualified report,he or she must use the term "except for " in the opinion paragraph.

The appropriate audit report date for a standard unmodified opinion audit report for a nonpublic entity should be

When an auditor discovers a highly material GAAP violation in the financial statements and the client refuses to correct it,the auditor should issue a disclaimer of opinion.

When there is a lack of consistent application in accounting principles

Client imposed restrictions on the audit always require a disclaimer of opinion.

Which of the following requires recognition in the auditor's opinion as to consistency?

In which of the following circumstances would an auditor most likely express an adverse opinion?

The phrase "Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material error" is included in the auditor's opinion section of an audit report.

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion,only the auditor's responsibility paragraph should be modified.

Which of the following statements is True? I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.

When other auditors are involved in the audit and they qualify their portion of the audit,the principal auditor must decide if the amount in question is material to the financial statements as a whole.

More than one modification should be included in the audit report when

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to

For the report containing a disclaimer for lack of independence,the disclaimer is in the

Changes in accounting estimates requires the auditor to issue a modified audit report with a consistency paragraph inserted after the opinion paragraph.

Financial statement users are typically more concerned with an unmodified report with explanatory paragraphs than they are with a disclaimer of opinion.

Changes in an estimate,such as a change in the estimated useful life of an asset for depreciation purposes,affect consistency but not comparability,and therefore require an explanatory paragraph in the audit report.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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