Question 1

The audit report is normally addressed to the company's president or chief executive officer.

Accepted Answer

A) True 
 B)False

Question 2

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,CPA,is unable...

Question 3

In most audits,the auditor issues a:

Accepted Answer

A)  qualified audit report. 
B)  unqualified audit report. 
C)  scope limited audit report. 
D)  adverse audit report. 
A)  qualified audit report. 
B)  unqualified audit report. 
C)  scope limited audit report. 
D)  adverse audit report.

Question 4

All of the following would require an emphasis of matter paragraph except for:

Accepted Answer

A)  the existence of material related party transactions. 
B)  the lack of auditor independence. 
C)  important events occurring subsequent to the balance sheet date. 
D)  material uncertainties disclosed in the footnotes. 
A)  the existence of material related party transactions. 
B)  the lack of auditor independence. 
C)  important events occurring subsequent to the balance sheet date. 
D)  material uncertainties disclosed in the footnotes.

Question 5

The date of the auditor's report is indicative of the last day of the auditor's responsibility for the review of significant events occurring after the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 6

A pervasive exception is one that affects different parts of the financial statements.

Accepted Answer

A) True 
 B)False

Question 7

When other auditors are involved in the audit and they qualify their portion of the audit,the principal auditor must decide if the amount in question is material to the financial statements as a whole.

Accepted Answer

A) True 
 B)False

Question 8

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to:

Accepted Answer

A)  inform the reader that disclosure is not adequate, and to issue an adverse opinion. 
B)  inform the reader that disclosure is not adequate, and to issue a qualified opinion. 
C)  present the information in the audit report and issue an unqualified or qualified opinion. 
D)  present the information in the audit report and to issue a qualified or an adverse opinion. 
A)  inform the reader that disclosure is not adequate, and to issue an adverse opinion. 
B)  inform the reader that disclosure is not adequate, and to issue a qualified opinion. 
C)  present the information in the audit report and issue an unqualified or qualified opinion. 
D)  present the information in the audit report and to issue a qualified or an adverse opinion.

Question 9

More than one modification should be included in the audit report when:

Accepted Answer

A)  the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles. 
B)  there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes. 
C)  there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern. 
D)  all of the above. 
A)  the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles. 
B)  there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes. 
C)  there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern. 
D)  all of the above.

Question 10

William Gregory,CPA,is the principal auditor for a multi-national corporation.Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation.Gregory is satisfied with the independence and professional reputation of the other auditor,as well as the quality of the other auditor's examination.With respect to his report on the consolidated financial statements,taken as a whole,Gregory:

Accepted Answer

A)  must not refer to the examination of the other auditor. 
B)  must refer to the examination of the other auditor. 
C)  may refer to the examination of the other auditor. 
D)  must refer to the examination of the other auditors along with the percentage off consolidated assets and revenue that they audited. 
A)  must not refer to the examination of the other auditor. 
B)  must refer to the examination of the other auditor. 
C)  may refer to the examination of the other auditor. 
D)  must refer to the examination of the other auditors along with the percentage off consolidated assets and revenue that they audited.

Question 11

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

Accepted Answer

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

Question 12

All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for:

Accepted Answer

A)  emphasis of a matter. 
B)  reports involving other auditors. 
C)  lack of consistent application of generally accepted accounting principles. 
D)  auditor agrees with a departure from promulgated accounting principles.. 
A)  emphasis of a matter. 
B)  reports involving other auditors. 
C)  lack of consistent application of generally accepted accounting principles. 
D)  auditor agrees with a departure from promulgated accounting principles..

Question 13

If the balance sheet of a private company is dated December 31,2011,the audit report is dated February 8,2012,and both are released on February 15,2012,this indicates that the auditor has searched for subsequent events that occurred up to:

Accepted Answer

A)  December 31, 2011. 
B)  January 1, 2012. 
C)  February 8, 2012. 
D)  February 15, 2012. 
A)  December 31, 2011. 
B)  January 1, 2012. 
C)  February 8, 2012. 
D)  February 15, 2012.

Question 14

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

Accepted Answer

A)  The entity is suing a competitor for a minor patent infringement. 
B)  The entity has lost a major customer. 
C)  The entity has significant recurring operating losses. 
D)  The entity has working capital deficiencies. 
A)  The entity is suing a competitor for a minor patent infringement. 
B)  The entity has lost a major customer. 
C)  The entity has significant recurring operating losses. 
D)  The entity has working capital deficiencies.

Question 15

Discuss each of the five circumstances when an auditor would issue an unqualified audit report with an explanatory paragraph or modified wording.

Accepted Answer

An unqualified report with an explanator

Question 16

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 17

If there is a deviation in the statements' preparation in accordance with GAAP and another accounting principle was applied on a basis that was not consistent with that of the preceding year:

Accepted Answer

A)  the auditor must choose which modification to include in the audit report. 
B)  only the most material modification can be disclosed. 
C)  more than one modification should be included in the report. 
D)  none of the above. 
A)  the auditor must choose which modification to include in the audit report. 
B)  only the most material modification can be disclosed. 
C)  more than one modification should be included in the report. 
D)  none of the above.

Question 18

The final step in the auditor's decision process for audit reports is to write the audit report.

Accepted Answer

A) True 
 B)False

Question 19

There are four conditions that must be met before an auditor can issue a standard unqualified report for the audit of a private company.Please discuss each of these five conditions.

Accepted Answer

The four conditions that justify issuing

Exam 3: Audit Reports

The audit report is normally addressed to the company's president or chief executive officer.

In most audits,the auditor issues a:

All of the following would require an emphasis of matter paragraph except for:

The date of the auditor's report is indicative of the last day of the auditor's responsibility for the review of significant events occurring after the balance sheet date.

A pervasive exception is one that affects different parts of the financial statements.

When other auditors are involved in the audit and they qualify their portion of the audit,the principal auditor must decide if the amount in question is material to the financial statements as a whole.

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to:

More than one modification should be included in the audit report when:

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

All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for:

If the balance sheet of a private company is dated December 31,2011,the audit report is dated February 8,2012,and both are released on February 15,2012,this indicates that the auditor has searched for subsequent events that occurred up to:

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

Discuss each of the five circumstances when an auditor would issue an unqualified audit report with an explanatory paragraph or modified wording.

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.

If there is a deviation in the statements' preparation in accordance with GAAP and another accounting principle was applied on a basis that was not consistent with that of the preceding year:

The final step in the auditor's decision process for audit reports is to write the audit report.

There are four conditions that must be met before an auditor can issue a standard unqualified report for the audit of a private company.Please discuss each of these five conditions.

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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