Question 1

The following four situations require a modification to the standard unqualified/unmodified audit report.Identify the modification required for each.
a.Opinion based in part on the report of another auditor.
b.Going concern.
c.Lack of consistency.
d.Additional emphasis.

Accepted Answer

The answer of The following four situations require a modification...

Question 2

The predecessor auditor,after properly communicating with the successor auditor,has reissued a report because the audit client desires comparative financial statements.The predecessor auditor's report should make

Accepted Answer

A)  No reference to the report or the work of the successor auditor. 
B)  Reference to the work of the successor auditor in the scope paragraph. 
C)  Reference to both the work and the report of the successor auditor in the opinion paragraph. 
D)  Reference to the report of the successor auditor in the scope paragraph.

Question 3

A special report related to compliance with contractual provisions provides

Accepted Answer

A)  Positive assurance. 
B)  Negative assurance. 
C)  No assurance. 
D)  None of the above.

Question 4

Which of the following would be considered a change that affects consistency?

Accepted Answer

A)  Change in accounting estimate. 
B)  Change in accounting principle. 
C)  Change in classification and reclassification. 
D)  All of the above.

Question 5

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

Accepted Answer

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

Question 6

Which of the following circumstances normally does not affect the consistency phrase in the auditor's standard report?

Accepted Answer

A)  A change in accounting estimate. 
B)  A change in accounting principle. 
C)  A change in the companies included in combined financial statements. 
D)  A correction of an error in principle.

Question 7

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.

Question 8

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 client and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

What is an auditor's responsibility for supplementary information,such as segment information,that is outside the basic financial statements,but required by the FASB?

Accepted Answer

A)  The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements. 
B)  The auditor's only responsibility for required supplementary information is to assist in preparing the supplementary information. 
C)  The auditor should apply certain limited procedures to the required supplementary information and report deficiencies in or omissions of, such information. 
D)  The auditor should apply tests of details of transactions and balances to the required supplementary information and report any material misstatements in such information.

Question 12

A scope limitation sufficient to preclude an unqualified opinion always will result when management

Accepted Answer

A)  Prevents the auditor from reviewing the working papers of the predecessor auditor. 
B)  Engages the auditor after the year-end physical inventory is completed. 
C)  Requests that certain material accounts receivable not be confirmed. 
D)  Refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.

Question 13

An engagement to express an opinion on a system of internal control will generally

Accepted Answer

A)  Only require those procedures already applied in assessing control risk during a financial statement audit. 
B)  Increase the reliability of the financial statements that have already been audited. 
C)  Be more extensive in scope than the assessment of control risk made during a financial statement audit. 
D)  Be more limited in scope than the assessment of control risk made during a financial statement audit.

Question 14

When comparative financial statements are presented,the fourth standard of reporting,which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the

Accepted Answer

A)  Periods presented plus the one preceding period. 
B)  Current period only. 
C)  Current period and those of the other periods presented. 
D)  Current and immediately preceding period only.

Question 15

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented for a public company and the auditor concurs with the change,the auditor should $\begin{array} { l l l } 
\text { Concur Explicitly } & \text { Issue an "Except for" } & \text { Refer to the Change in } \
\underline{\text { In the Change }} &\underline{ \text { Qualified Opinion }} & \underline{\text { an Explanatory Paragraph} } \\end{array}$
A.$\begin{array} { l l l }  \text { No } &\quad\quad\quad\quad\quad\quad\quad\quad \text { No } &\quad\quad\quad\quad\quad\quad\quad \text { Yes } \\end{array}$
B.$\begin{array} { l l l } \text {  Yes } & \quad\quad\quad\quad\quad\quad\quad\quad \text { No } &\quad\quad\quad\quad\quad\quad\quad  \text { Yes } \\end{array}$
C.$\begin{array} { l l l } \text {  Yes } &\quad\quad\quad\quad\quad\quad\quad\quad  \text { Yes } &\quad\quad\quad\quad\quad\quad\quad \text { No } \\end{array}$
D.$\begin{array} { l l l } \text {  No } &\quad\quad\quad\quad\quad\quad\quad\quad  \text { Yes } &\quad\quad\quad\quad\quad\quad\quad  \text { No }\end{array}$

Accepted Answer

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

Question 16

Which of the following situations will not result in modification of the auditor's report because of a scope limitation?

Accepted Answer

A)  Restriction imposed by the client. 
B)  Reliance placed on the report of another auditor. 
C)  Inability to obtain sufficient appropriate evidential matter. 
D)  Inadequacy in the accounting records.

Question 17

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)  Both a and c.

Question 18

When expressing an opinion on a specified account or item in the financial statements,the auditor need only consider that account or item.However,the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's

Accepted Answer

A)  Net income. 
B)  Retained earnings. 
C)  Assets. 
D)  Working capital.

Question 19

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties.The inclusion of this separate paragraph

Accepted Answer

A)  Is considered an "except for" qualification of the opinion. 
B)  Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. 
C)  Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." 
D)  Is appropriate and would not negate the unqualified/unmodified opinion.

Question 20

When a question arises about an entity's continued existence,the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow.An example of such a factor is the

Accepted Answer

A)  Possibility of purchasing certain assets rather than leasing them. 
B)  Capability of extending the due dates of existing debt. 
C)  Appropriateness of changing depreciation methods from double declining balance to straight line. 
D)  Marketability of property and equipment that management plans to keep.

Exam 18: Reports on Audited Financial Statements

The following four situations require a modification to the standard unqualified/unmodified audit report.Identify the modification required for each. a.Opinion based in part on the report of another auditor. b.Going concern. c.Lack of consistency. d.Additional emphasis.