Question 1

A predecessor auditor should complete the following before reissuing a report on statements presented on a comparative basis:

Accepted Answer

A) read the financial statements of the current period. 
B) read the financial statements of the past five years. 
C) obtain a letter of representations from the current-year, successor auditor. 
D) read the financial statements of the current period and obtain a letter of representation from the management of the entity and from the current-year, successor auditor. 
A) read the financial statements of the current period. 
B) read the financial statements of the past five years. 
C) obtain a letter of representations from the current-year, successor auditor. 
D) read the financial statements of the current period and obtain a letter of representation from the management of the entity and from the current-year, successor auditor.

Question 2

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records. Cravens has observed the current inventory but has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance, which is not auditable, is a material factor in the determination of cost of goods sold for the current year. Cravens will probably:

Accepted Answer

A) decline the engagement. 
B) express an unqualified opinion on the balance sheet and income statement except for inventory. 
C) issue a disclaimer of opinion. 
D) issue an adverse opinion. 
A) decline the engagement. 
B) express an unqualified opinion on the balance sheet and income statement except for inventory. 
C) issue a disclaimer of opinion. 
D) issue an adverse opinion.

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. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s):

Accepted Answer

A) "reasonable period of time, not to exceed one year" and "going concern." 
B) "reasonable period of time, not to exceed one year" but not "going concern." 
C) "going concern" but not "reasonable period of time, not to exceed one year." 
D) neither "going concern" nor "reasonable period of time, not to exceed one year." 
A) "reasonable period of time, not to exceed one year" and "going concern." 
B) "reasonable period of time, not to exceed one year" but not "going concern." 
C) "going concern" but not "reasonable period of time, not to exceed one year." 
D) neither "going concern" nor "reasonable period of time, not to exceed one year."

Question 4

An auditor must disclaim an opinion when the auditor lacks independence.

Accepted Answer

A) True 
 B)False

Question 5

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n):

Accepted Answer

A) "except for" opinion. 
B) adverse opinion. 
C) unqualified opinion. 
D) disclaimer of opinion. 
A) "except for" opinion. 
B) adverse opinion. 
C) unqualified opinion. 
D) disclaimer of opinion.

Question 6

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n):

Accepted Answer

A) "subject to" qualified opinion. 
B) disclaimer of opinion. 
C) adverse opinion. 
D) unqualified opinion with a separate explanatory/emphasis-of-matter paragraph. 
A) "subject to" qualified opinion. 
B) disclaimer of opinion. 
C) adverse opinion. 
D) unqualified opinion with a separate explanatory/emphasis-of-matter paragraph.

Question 7

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should:

Accepted Answer

A) clearly state the specific reasons for lack of independence. 
B) not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards. 
C) not describe the reason for lack of independence but should state specifically that the CPA is not independent. 
D) include a middle paragraph clearly describing the CPA's association with the entity and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion. 
A) clearly state the specific reasons for lack of independence. 
B) not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards. 
C) not describe the reason for lack of independence but should state specifically that the CPA is not independent. 
D) include a middle paragraph clearly describing the CPA's association with the entity and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.

Question 8

An auditor would issue an adverse opinion if:

Accepted Answer

A) the audit was begun by other independent auditors who withdrew from the engagement. 
B) a qualified opinion cannot be given because the auditor lacks independence. 
C) a restriction on the scope of the audit was significant. 
D) the statements taken as a whole do not fairly present the financial condition and results of operations of the company. 
A) the audit was begun by other independent auditors who withdrew from the engagement. 
B) a qualified opinion cannot be given because the auditor lacks independence. 
C) a restriction on the scope of the audit was significant. 
D) the statements taken as a whole do not fairly present the financial condition and results of operations of the company.

Question 9

The choice of which audit report to issue depends on the nature and the materiality of the condition giving rise to the departure.

Accepted Answer

A) True 
 B)False

Question 10

When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the nature and impact of the faulty accounting or misstatement in the auditor's report and express a(n):

Accepted Answer

A) qualified opinion or a disclaimer of opinion. 
B) qualified opinion or an adverse opinion. 
C) adverse opinion or a disclaimer of opinion. 
D) qualified opinion or an unqualified opinion. 
A) qualified opinion or a disclaimer of opinion. 
B) qualified opinion or an adverse opinion. 
C) adverse opinion or a disclaimer of opinion. 
D) qualified opinion or an unqualified opinion.

Question 11

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose:

Accepted Answer

A) the name of the other CPA and the type of report issued by the other CPA. 
B) the portion of the financial statements examined by the other CPA. 
C) the nature of Frazier's review of the other CPA's work. 
D) in a footnote the portions of the financial statements that were covered by the examinations of both auditors. 
A) the name of the other CPA and the type of report issued by the other CPA. 
B) the portion of the financial statements examined by the other CPA. 
C) the nature of Frazier's review of the other CPA's work. 
D) in a footnote the portions of the financial statements that were covered by the examinations of both auditors.

Question 12

Which of the following parties is responsible for the fairness of the representations made in financial statements?

Accepted Answer

A) Entity's management. 
B) Independent auditor. 
C) Audit committee. 
D) AICPA. 
A) Entity's management. 
B) Independent auditor. 
C) Audit committee. 
D) AICPA.

Question 13

A going concern issue requires an explanatory paragraph to be added to the standard unqualified audit report (public company).

Accepted Answer

A) True 
 B)False

Question 14

Discuss three circumstances that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit because of these circumstances.

Accepted Answer

There are three circumstances that may r

Question 15

Abbot, CPA, as principal auditor for consolidated financial statements, is using a qualified report of another auditor. Abbot does not consider the qualification material relative to the consolidated financial statements and Abbot is willing to accept responsibility for the work of the other auditor. What recognition, if any, must Abbot make in his report to the report of the other audit?

Accepted Answer

A) He need make no reference. 
B) He must refer to the qualification of the other auditor and qualify his report likewise. 
C) He must include the other auditor's report with his report but need not qualify his report. 
D) He must include the other auditor's report with his report and give an explanation of its significance. 
A) He need make no reference. 
B) He must refer to the qualification of the other auditor and qualify his report likewise. 
C) He must include the other auditor's report with his report but need not qualify his report. 
D) He must include the other auditor's report with his report and give an explanation of its significance.

Question 16

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to:

Accepted Answer

A) prepare prospective financial information to verify whether management's plans can be effectively implemented. 
B) project future conditions and events for a period of time not to exceed one year following the date of the financial statements. 
C) issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements. 
D) consider the adequacy of disclosure about the entity's possible inability to continue as a going concern. 
A) prepare prospective financial information to verify whether management's plans can be effectively implemented. 
B) project future conditions and events for a period of time not to exceed one year following the date of the financial statements. 
C) issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements. 
D) consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Question 17

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's material investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?

Accepted Answer

A) Adverse and unqualified with an explanatory/emphasis-of-matter paragraph added. 
B) Disclaimer and unqualified with an explanatory/emphasis-of-matter paragraph added. 
C) Qualified and adverse. 
D) Qualified and disclaimer. 
A) Adverse and unqualified with an explanatory/emphasis-of-matter paragraph added. 
B) Disclaimer and unqualified with an explanatory/emphasis-of-matter paragraph added. 
C) Qualified and adverse. 
D) Qualified and disclaimer.

Question 18

An auditor may be unable to express an unqualified opinion if an immaterial departure from GAAP is present in the financial statements.

Accepted Answer

A) True 
 B)False

Question 19

When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover:

Accepted Answer

A) both years. 
B) only the current year. 
C) only the current year, but the prior year's report should be presented. 
D) only the current year, but the prior year's report should be referred to. 
A) both years. 
B) only the current year. 
C) only the current year, but the prior year's report should be presented. 
D) only the current year, but the prior year's report should be referred to.

Question 20

Which of the following would be considered a change that does not affect comparability?

Accepted Answer

A) Change in accounting estimate. 
B) Change in accounting principle. 
C) Correction of principle material misstatement in previously issued financial statements. 
D) None of these are considered changes that do not affect comparability. 
A) Change in accounting estimate. 
B) Change in accounting principle. 
C) Correction of principle material misstatement in previously issued financial statements. 
D) None of these are considered changes that do not affect comparability.

A predecessor auditor should complete the following before reissuing a report on statements presented on a comparative basis:

An auditor must disclaim an opinion when the auditor lacks independence.

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n):

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n):

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should:

An auditor would issue an adverse opinion if:

The choice of which audit report to issue depends on the nature and the materiality of the condition giving rise to the departure.

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose:

Which of the following parties is responsible for the fairness of the representations made in financial statements?

A going concern issue requires an explanatory paragraph to be added to the standard unqualified audit report (public company).

Discuss three circumstances that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit because of these circumstances.

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to:

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's material investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?

An auditor may be unable to express an unqualified opinion if an immaterial departure from GAAP is present in the financial statements.

When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover:

Which of the following would be considered a change that does not affect comparability?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 18: Reports on Audited Financial Statements

A predecessor auditor should complete the following before reissuing a report on statements presented on a comparative basis:

An auditor must disclaim an opinion when the auditor lacks independence.

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n):

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n):

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should:

An auditor would issue an adverse opinion if:

The choice of which audit report to issue depends on the nature and the materiality of the condition giving rise to the departure.

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose:

Which of the following parties is responsible for the fairness of the representations made in financial statements?

A going concern issue requires an explanatory paragraph to be added to the standard unqualified audit report (public company).

Discuss three circumstances that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit because of these circumstances.

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to:

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's material investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?

An auditor may be unable to express an unqualified opinion if an immaterial departure from GAAP is present in the financial statements.

When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover:

Which of the following would be considered a change that does not affect comparability?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters