Question 1

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 2

A modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

Accepted Answer

A) True 
 B)False

Question 3

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 4

When comparing misstatements with a measurement base,the auditor must consider the pervasiveness of the misstatement.Of the following examples,the most pervasive misstatement is a(n):

Accepted Answer

A)  understatement of inventory. 
B)  understatement of retained earnings caused by a miscalculation of dividends payable. 
C)  misclassification of notes payable as a long-term liability when it should be current. 
D)  misclassification of salary expense as a selling expense. 
A)  understatement of inventory. 
B)  understatement of retained earnings caused by a miscalculation of dividends payable. 
C)  misclassification of notes payable as a long-term liability when it should be current. 
D)  misclassification of salary expense as a selling expense.

Question 5

An auditor can express a qualified opinion due to a:

Accepted Answer

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

Question 6

The standard unqualified audit report:

Accepted Answer

A)  is sometimes called a clean opinion. 
B)  can be issued only with an explanatory paragraph. 
C)  can be issued if only a balance sheet and income statement are included in the financial statements. 
D)  is sometimes called a disclaimer report. 
A)  is sometimes called a clean opinion. 
B)  can be issued only with an explanatory paragraph. 
C)  can be issued if only a balance sheet and income statement are included in the financial statements. 
D)  is sometimes called a disclaimer report.

Question 7

An audit provides a high level of assurance,but is not a guarantee that a material misstatement will exist in the financial statements.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit?

Accepted Answer

A)  Issue a joint report signed by both CPA firms. 
B)  Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion. 
C)  Make reference to the other auditor in the report by using modified wording (a shared opinion or report). 
D)  A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor. 
A)  Issue a joint report signed by both CPA firms. 
B)  Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion. 
C)  Make reference to the other auditor in the report by using modified wording (a shared opinion or report). 
D)  A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor.

Question 10

If the phrase "except for" is present in the opinion paragraph of the audit report,the auditor has issued a(n):

Accepted Answer

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

Question 11

An adverse opinion is issued when the auditor believes:

Accepted Answer

A)  some parts of the financial statements are materially misstated or misleading. 
B)  the financial statements would be found to be materially misstated if an investigation were performed. 
C)  the auditor is not independent. 
D)  the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. 
A)  some parts of the financial statements are materially misstated or misleading. 
B)  the financial statements would be found to be materially misstated if an investigation were performed. 
C)  the auditor is not independent. 
D)  the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Question 12

When a pervasive scope limitation exists:

Accepted Answer

A)  a disclaimer of opinion rather than a qualified opinion is generally required. 
B)  the auditor's responsibility paragraph is modified to indicate that the auditor was not able to obtain sufficient appropriate evidence to express an audit opinion. 
C)  sections of the auditor's responsibility paragraph are eliminated to avoid stating anything that might lead readers to believe that other parts of the financial statements might be fairly stated. 
D)  all of the above. 
A)  a disclaimer of opinion rather than a qualified opinion is generally required. 
B)  the auditor's responsibility paragraph is modified to indicate that the auditor was not able to obtain sufficient appropriate evidence to express an audit opinion. 
C)  sections of the auditor's responsibility paragraph are eliminated to avoid stating anything that might lead readers to believe that other parts of the financial statements might be fairly stated. 
D)  all of the above.

Question 13

Users of the financial statements rely on the auditor's report because of the absolute assurance the report provides.

Accepted Answer

A) True 
 B)False

Question 14

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?

Accepted Answer

A)  The auditor lacks independence. 
B)  A client-imposed scope limitation 
C)  A circumstance imposed scope limitation 
D)  Lack of full disclosure within the footnotes 
A)  The auditor lacks independence. 
B)  A client-imposed scope limitation 
C)  A circumstance imposed scope limitation 
D)  Lack of full disclosure within the footnotes

Question 15

No reference is made in the auditor's report to other auditors who perform a portion of the audit when:
I.The other auditor audited an immaterial portion of the audit.
II.The other auditor is well known or closely supervised by the principle auditor.
III.The principle auditor has thoroughly reviewed the work of the other auditor.

Accepted Answer

A)  I and II 
B)  I and III 
C)  II and III 
D)  I, II and III 
A)  I and II 
B)  I and III 
C)  II and III 
D)  I, II and III

Question 16

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?

Accepted Answer

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

Question 17

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 18

Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.

Accepted Answer

A) True 
 B)False

Question 19

After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the client's facility in a foreign country has been expropriated.Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event.The auditor should:

Accepted Answer

A)  add a footnote to the financial statements. 
B)  disclaim an opinion due to the client imposed scope limitation. 
C)  provide the information in the report and modify the opinion. 
D)  issue an unqualified opinion but provide the information in the auditor report. 
A)  add a footnote to the financial statements. 
B)  disclaim an opinion due to the client imposed scope limitation. 
C)  provide the information in the report and modify the opinion. 
D)  issue an unqualified opinion but provide the information in the auditor report.

Question 20

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

Accepted Answer

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

Exam 3: Audit Reports

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 modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

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:

When comparing misstatements with a measurement base,the auditor must consider the pervasiveness of the misstatement.Of the following examples,the most pervasive misstatement is a(n):

An auditor can express a qualified opinion due to a:

The standard unqualified audit report:

An audit provides a high level of assurance,but is not a guarantee that a material misstatement will exist in the financial statements.

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.

Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit?

If the phrase "except for" is present in the opinion paragraph of the audit report,the auditor has issued a(n):

An adverse opinion is issued when the auditor believes:

When a pervasive scope limitation exists:

Users of the financial statements rely on the auditor's report because of the absolute assurance the report provides.

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?

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?

Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.

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

The Assurance Services Market

The Audit Standards Setting Process

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan 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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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