Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Auditors of public company financial statements must issue separate reports on internal control over financial reporting.

Accepted Answer

A) True 
 B)False

Question 4

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 5

When a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:

Accepted Answer

A) the scope paragraph. 
B) an explanatory paragraph that appears before the opinion paragraph. 
C) the opinion paragraph. 
D) an explanatory paragraph after the opinion paragraph. 
A) the scope paragraph. 
B) an explanatory paragraph that appears before the opinion paragraph. 
C) the opinion paragraph. 
D) an explanatory paragraph after the opinion paragraph.

Question 6

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be: I.an unqualified opinion with an explanatory paragraph.
II)a disclaimer of opinion.

Accepted Answer

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

Question 7

The auditor's responsibility section of the standard audit report states that the auditor is:

Accepted Answer

A) responsible for the financial statements and the opinion on them. 
B) responsible for the financial statements. 
C) responsible for the opinion on the financial statements. 
D) jointly responsible for the financial statements with management. 
A) responsible for the financial statements and the opinion on them. 
B) responsible for the financial statements. 
C) responsible for the opinion on the financial statements. 
D) jointly responsible for the financial statements with management.

Question 8

Indicate which changes would require an explanatory paragraph in the audit report.

Accepted Answer

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

Question 9

When an auditor issues a qualified report due to a scope limitation an explanatory paragraph is normally added.Which, if any, of the following paragraphs are also modified?

Accepted Answer

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

Question 10

The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the:

Accepted Answer

A) auditor is not appointed until after the client's year-end. 
B) client won't allow the auditor to confirm receivables for fear of offending its customers. 
C) auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries. 
D) client is going through Chapter 11 bankruptcy. 
A) auditor is not appointed until after the client's year-end. 
B) client won't allow the auditor to confirm receivables for fear of offending its customers. 
C) auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries. 
D) client is going through Chapter 11 bankruptcy.

Question 11

A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles.The auditor's report on the financial statements of the year of the change should include:

Accepted Answer

A) no reference to consistency. 
B) a reference to a prior period adjustment in the opinion paragraph. 
C) an explanatory paragraph that justifies the change and explains the impact of the change on reported net income. 
D) an explanatory paragraph explaining the change. 
A) no reference to consistency. 
B) a reference to a prior period adjustment in the opinion paragraph. 
C) an explanatory paragraph that justifies the change and explains the impact of the change on reported net income. 
D) an explanatory paragraph explaining the change.

Question 12

The standard unqualified audit report for public entities includes the following three paragraphs:

Accepted Answer

A) introductory, scope and management's responsibility. 
B) materiality, scope and report. 
C) introductory, scope and opinion. 
D) scope, fieldwork and conclusion. 
A) introductory, scope and management's responsibility. 
B) materiality, scope and report. 
C) introductory, scope and opinion. 
D) scope, fieldwork and conclusion.

Question 13

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 14

After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:

Accepted Answer

A) write the report. 
B) decide the materiality for each condition. 
C) decide the appropriate type of report for the condition. 
D) discuss the report with management. 
A) write the report. 
B) decide the materiality for each condition. 
C) decide the appropriate type of report for the condition. 
D) discuss the report with management.

Question 15

When an adverse opinion is issued, a scope paragraph would be:

Accepted Answer

A) qualified. 
B) unchanged. 
C) deleted. 
D) expanded to identify the additional procedures which the auditor performed. 
A) qualified. 
B) unchanged. 
C) deleted. 
D) expanded to identify the additional procedures which the auditor performed.

Question 16

A qualified report can take the form of a qualification of both the scope and the opinion or of the opinion alone.

Accepted Answer

A) True 
 B)False

Question 17

To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be:

Accepted Answer

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

Question 18

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 19

In auditing the long-term investments account, Arens, CPA, is unable to obtain audited financial statements for an investee located in a foreign country.Levine concludes sufficient appropriate audit evidence regarding this investment cannot be obtained.
For each of the following situations below, identify the appropriate opinion type and report modification by selecting a choice from the appropriate tables below.

Accepted Answer

The answer of In auditing the long-term investments account, Arens,...

Question 20

Which of the following modifications of the auditor's report does not include an explanatory paragraph?

Accepted Answer

A) A qualified report is due to a GAAP departure. 
B) The report includes an emphasis of a matter. 
C) There is a very material scope limitation. 
D) A principal auditor accepts the work of an other auditor. 
A) A qualified report is due to a GAAP departure. 
B) The report includes an emphasis of a matter. 
C) There is a very material scope limitation. 
D) A principal auditor accepts the work of an other auditor.

Exam 3: Audit Reports

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

Auditors of public company financial statements must issue separate reports on internal control over financial reporting.

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 a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be: I.an unqualified opinion with an explanatory paragraph. II)a disclaimer of opinion.

The auditor's responsibility section of the standard audit report states that the auditor is:

Indicate which changes would require an explanatory paragraph in the audit report.

When an auditor issues a qualified report due to a scope limitation an explanatory paragraph is normally added.Which, if any, of the following paragraphs are also modified?

The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the:

A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles.The auditor's report on the financial statements of the year of the change should include:

The standard unqualified audit report for public entities includes the following three paragraphs:

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

After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:

When an adverse opinion is issued, a scope paragraph would be:

A qualified report can take the form of a qualification of both the scope and the opinion or of the opinion alone.

To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be:

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.

Which of the following modifications of the auditor's report does not include an explanatory paragraph?

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

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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