Question 1

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

Accepted Answer

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

Question 2

Auditing standards require that the audit report must be titled and that the title must:

Accepted Answer

A)  include the word "independent." 
B)  indicate if the auditor is a CPA. 
C)  indicate if the auditor is a proprietorship, partnership, or corporation. 
D)  indicate the type of audit opinion issued. 
A)  include the word "independent." 
B)  indicate if the auditor is a CPA. 
C)  indicate if the auditor is a proprietorship, partnership, or corporation. 
D)  indicate the type of audit opinion issued.

Question 3

The scope paragraph of the auditor's responsibility section of the audit report issued for financial statements of a non-public company should refer to generally accepted auditing standards .

Accepted Answer

A) True 
 B)False

Question 4

An audit of historical financial statements most commonly includes the:

Accepted Answer

A)  balance sheet, statement of retained earnings, and the statement of cash flows. 
B)  income statement, the statement of cash flows, and the statement of net working capital. 
C)  statement of cash flows, balance sheet, and the statement of retained earnings. 
D)  balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity. 
A)  balance sheet, statement of retained earnings, and the statement of cash flows. 
B)  income statement, the statement of cash flows, and the statement of net working capital. 
C)  statement of cash flows, balance sheet, and the statement of retained earnings. 
D)  balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity.

Question 5

The introductory paragraph of the standard audit report for a non-public company performs which functions?
I.It states the CPA has performed an audit.
II.It lists the financial statements being audited.
III.It states the financial statements are the responsibility of the 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 6

Auditing standards in the United States allow an auditor to perform an audit of a U.S.entity in accordance with both generally accepted auditing standards in the U.S.and the ISAs.

Accepted Answer

A) True 
 B)False

Question 7

If most or all users' decisions that are based on the financial statements are likely to be significantly affected,the materiality level is:

Accepted Answer

A)  unrestricted. 
B)  material. 
C)  pervasive. 
D)  risky. 
A)  unrestricted. 
B)  material. 
C)  pervasive. 
D)  risky.

Question 8

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

Accepted Answer

A)  discover all errors and/or irregularities. 
B)  discover material errors and/or irregularities. 
C)  conform to generally accepted accounting principles. 
D)  obtain reasonable assurance whether the statements are free of material misstatement. 
A)  discover all errors and/or irregularities. 
B)  discover material errors and/or irregularities. 
C)  conform to generally accepted accounting principles. 
D)  obtain reasonable assurance whether the statements are free of material misstatement.

Question 9

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 10

Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction.

Accepted Answer

A) True 
 B)False

Question 11

If the auditor lacks independence,a disclaimer of opinion must be issued:

Accepted Answer

A)  if the client requests it. 
B)  only if it is highly material. 
C)  only if it is material but not pervasive. 
D)  in all cases. 
A)  if the client requests it. 
B)  only if it is highly material. 
C)  only if it is material but not pervasive. 
D)  in all cases.

Question 12

Your CPA firm has completed the fieldwork for the 2012 audit of Sharp Corporation,a private company with an October year-end.You were preparing to draft a standard,unqualified audit report when you discovered that the audit manager on the Sharp engagement owns 10 shares of Sharp's common stock.Prepare the appropriate report.

Accepted Answer

We are not independent with respect to S

Question 13

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 14

An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph.The auditor should also modify the:

Accepted Answer

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

Question 15

The independent auditor must issue a qualified opinion when which of the financial(s)are missing?
I.Balance Sheet
II.Income Statement
III.Statement of Cash Flows

Accepted Answer

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

Question 16

A lack of independence will override any other scope limitations and requires a disclaimer of opinion.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Academic research is underway to study the effectiveness of communications provided by auditors in the audit report.

Accepted Answer

A) True 
 B)False

Question 19

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 20

In which of the following situations would the auditor most likely issue an unqualified report?

Accepted Answer

A)  The client valued ending inventory by using the replacement cost method. 
B)  The client valued ending inventory by using the Next-In-First-Out (NIFO) method. 
C)  The client valued ending inventory at selling price rather than historical cost. 
D)  The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement cost of inventory in the Notes to the Financial Statements. 
A)  The client valued ending inventory by using the replacement cost method. 
B)  The client valued ending inventory by using the Next-In-First-Out (NIFO) method. 
C)  The client valued ending inventory at selling price rather than historical cost. 
D)  The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement cost of inventory in the Notes to the Financial Statements.

Exam 3: Audit Reports

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

Auditing standards require that the audit report must be titled and that the title must:

The scope paragraph of the auditor's responsibility section of the audit report issued for financial statements of a non-public company should refer to generally accepted auditing standards .

An audit of historical financial statements most commonly includes the:

The introductory paragraph of the standard audit report for a non-public company performs which functions? I.It states the CPA has performed an audit. II.It lists the financial statements being audited. III.It states the financial statements are the responsibility of the auditor.

Auditing standards in the United States allow an auditor to perform an audit of a U.S.entity in accordance with both generally accepted auditing standards in the U.S.and the ISAs.

If most or all users' decisions that are based on the financial statements are likely to be significantly affected,the materiality level is:

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

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

Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction.

If the auditor lacks independence,a disclaimer of opinion must be issued:

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

An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph.The auditor should also modify the:

The independent auditor must issue a qualified opinion when which of the financial(s)are missing? I.Balance Sheet II.Income Statement III.Statement of Cash Flows

A lack of independence will override any other scope limitations and requires a disclaimer of opinion.

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.

Academic research is underway to study the effectiveness of communications provided by auditors in the audit report.

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.

In which of the following situations would the auditor most likely issue an unqualified 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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