Question 1

As a result of management's refusal to permit the auditor to physically examine inventory,the auditor must depart from the unqualified audit report because:

Accepted Answer

A)  the financial statements have not been prepared in accordance with GAAP. 
B)  the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. 
C)  the financial statements have not been audited in accordance with GAAS. 
D)  the scope of the audit has been restricted. 
A)  the financial statements have not been prepared in accordance with GAAP. 
B)  the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. 
C)  the financial statements have not been audited in accordance with GAAS. 
D)  the scope of the audit has been restricted.

Question 2

A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued.Normally,such explanatory information is:

Accepted Answer

A)  included in the scope paragraph. 
B)  included in the opinion paragraph. 
C)  included in a separate paragraph in the report. 
D)  included in the introductory paragraph. 
A)  included in the scope paragraph. 
B)  included in the opinion paragraph. 
C)  included in a separate paragraph in the report. 
D)  included in the introductory paragraph.

Question 3

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 4

Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP,and that it is also necessary to:

Accepted Answer

A)  determine that they are not in violation of FASB statements. 
B)  examine the substance of transactions and balances for possible misinformation. 
C)  review the statements using the accounting principles promulgated by the SEC. 
D)  assure investors that net income reported this year will be exceeded in the future. 
A)  determine that they are not in violation of FASB statements. 
B)  examine the substance of transactions and balances for possible misinformation. 
C)  review the statements using the accounting principles promulgated by the SEC. 
D)  assure investors that net income reported this year will be exceeded in the future.

Question 5

When there is a justified departure from GAAP which is considered material,the auditor should issue a(n):

Accepted Answer

A)  standard unqualified audit report. 
B)  disclaimer of opinion. 
C)  unqualified audit report with an explanatory paragraph. 
D)  adverse opinion. 
A)  standard unqualified audit report. 
B)  disclaimer of opinion. 
C)  unqualified audit report with an explanatory paragraph. 
D)  adverse opinion.

Question 6

Which of the following is incorrect concerning scope limitations?

Accepted Answer

A)  If client imposed, the auditor should be concerned about the client trying to prevent discovery of a material misstatement. 
B)  An unqualified opinion can result if auditors can perform alternative procedures and are satisfied that the information is fairly stated. 
C)  The most common circumstance imposed scope restriction is due to the client changing their auditors. 
D)  The most common circumstance imposed scope limitation is when the auditor is appointed after the balance sheet date. 
A)  If client imposed, the auditor should be concerned about the client trying to prevent discovery of a material misstatement. 
B)  An unqualified opinion can result if auditors can perform alternative procedures and are satisfied that the information is fairly stated. 
C)  The most common circumstance imposed scope restriction is due to the client changing their auditors. 
D)  The most common circumstance imposed scope limitation is when the auditor is appointed after the balance sheet date.

Question 7

Subsequent to the close of Spacely Sprockets fiscal year ending October 31,2012,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 8

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 9

An item with a "psychic" effect (e.g.,where the item maintains an increasing earnings trend)is a qualitative factor that may affect the auditors decision regarding materiality.

Accepted Answer

A) True 
 B)False

Question 10

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

Accepted Answer

A) True 
 B)False

Question 11

When accounting principles are not consistently applied,and the materiality level is immaterial,the auditor will issue a(n):

Accepted Answer

A)  unqualified opinion. 
B)  unqualified opinion with an explanatory paragraph. 
C)  adverse opinion. 
D)  disclaimer opinion. 
A)  unqualified opinion. 
B)  unqualified opinion with an explanatory paragraph. 
C)  adverse opinion. 
D)  disclaimer opinion.

Question 12

The management's responsibility section of the standard audit report for a non-public company states that the financial statements are:

Accepted Answer

A)  the responsibility of the auditor. 
B)  the responsibility of management. 
C)  the joint responsibility of management and the auditor. 
D)  none of the above. 
A)  the responsibility of the auditor. 
B)  the responsibility of management. 
C)  the joint responsibility of management and the auditor. 
D)  none of the above.

Question 13

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 14

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.

Question 15

The following is a portion of an adverse audit report issued for a public company.(Note:
 A separate report was issued on the effectiveness of internal control over financial reporting.)
Independent Auditor's Report
To the shareholders of Wallace Corporation
We have audited the accompanying balance sheet of Wallace Corporation as of December 31,2012,and the related statements of income,retained earnings,and cash flows for the year then ended.These financial statements are the responsibility of the company's management.Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.
The company has excluded from property and debt in the accompanying balance sheet certain lease obligations that,in our opinion,should be capitalized in order to conform with generally accepted accounting principles.If these lease obligations were capitalized,property would be increased by $14,500,000,long-term debt by $13,200,000,and retained earnings by $1,300,000 as of December 31,2012,and net income and earnings per share would be increased by $1,300,000 and $2.25,respectively,for the year then ended.
Required:
Complete the above adverse audit report by preparing the opinion paragraph.Do not date or sign the report.

Accepted Answer

In our opinion,because of the significan

Question 16

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 17

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 18

Describe the standard unqualified report to be issued for an audit of a private company.Begin by specifying the eight parts of the report,and then discuss the contents of each part.

Accepted Answer

The parts of the standard unqualified re

Question 19

Which of the following scenarios does not result in a qualified opinion?

Accepted Answer

A)  A scope limitation prevents the auditor from completing an important audit procedure. 
B)  Circumstances exist that prevent the auditor from conducting a complete audit. 
C)  The auditor lacks independence with respect to the audited entity. 
D)  An accounting principle at variance with GAAP is used. 
A)  A scope limitation prevents the auditor from completing an important audit procedure. 
B)  Circumstances exist that prevent the auditor from conducting a complete audit. 
C)  The auditor lacks independence with respect to the audited entity. 
D)  An accounting principle at variance with GAAP is used.

Question 20

When there is uncertainty about a company's ability to continue as a going concern,the auditor's concern is the possibility that the client may not be able to continue its operations or meet its obligations for a "reasonable period of time." For this purpose,a reasonable period of time is considered not to exceed:

Accepted Answer

A)  six months from the date of the financial statements. 
B)  one year from the date of the financial statements. 
C)  six months from the date of the audit report. 
D)  one year from the date of the audit report. 
A)  six months from the date of the financial statements. 
B)  one year from the date of the financial statements. 
C)  six months from the date of the audit report. 
D)  one year from the date of the audit report.

Exam 3: Audit Reports

As a result of management's refusal to permit the auditor to physically examine inventory,the auditor must depart from the unqualified audit report because:

A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued.Normally,such explanatory information is:

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

Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP,and that it is also necessary to:

When there is a justified departure from GAAP which is considered material,the auditor should issue a(n):

Which of the following is incorrect concerning scope limitations?

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

An item with a "psychic" effect (e.g.,where the item maintains an increasing earnings trend)is a qualitative factor that may affect the auditors decision regarding materiality.

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

When accounting principles are not consistently applied,and the materiality level is immaterial,the auditor will issue a(n):

The management's responsibility section of the standard audit report for a non-public company states that the financial statements are:

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.

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

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.

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

Describe the standard unqualified report to be issued for an audit of a private company.Begin by specifying the eight parts of the report,and then discuss the contents of each part.

Which of the following scenarios does not result in a qualified opinion?

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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