Question 1

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should:

Accepted Answer

A)  Issue an unmodified opinion with a basis for modification paragraph. 
B)  Withdraw from the engagement. 
C)  Issue an "except for" qualification or an adverse opinion. 
D)  Issue an "except for" qualification or a disclaimer of opinion.

Question 2

When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:

Accepted Answer

A)  Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. 
B)  Issue an unmodified opinion with no reference to this omission. 
C)  Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. 
D)  Issue an adverse opinion.

Question 3

If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows:

Accepted Answer

A)  The auditors may still issue an unmodified opinion. 
B)  The auditors should issue a qualified report for the departure from generally accepted accounting principles. 
C)  The auditors should issue a qualified report indicating a scope limitation in that no statement of cash flows is presented. 
D)  The auditors should disclaim an opinion on the overall financial statements.

Question 4

Which of the following circumstances generally results in the issuance of a report that includes an opinion that is other than unmodified?

Accepted Answer

A)  The auditor is unable to obtain sufficient appropriate audit evidence. 
B)  The group auditors for the engagement are relying on the work of component auditors. 
C)  The financial statements are affected by a change in accounting principle due to a new FASB pronouncement. 
D)  The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.

Question 5

An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to:

Accepted Answer

A)  Repurchase the entity's stock at a price below its book value. 
B)  Issue stock options to key executives. 
C)  Lease rather than purchase operating facilities. 
D)  Accelerate the due date of an existing mortgage.

Question 6

Which of the following is least likely to result in a qualification of the auditors' opinion due to a scope limitation?

Accepted Answer

A)  Scope limitations imposed by the client. 
B)  Reliance placed upon the report of component auditors. 
C)  Inability to obtain sufficient appropriate audit evidence. 
D)  Inadequate accounting records.

Question 7

Which of the following is not a difference between the audit report of a nonpublic and public company?

Accepted Answer

A)  The public company report includes the word "Registered" in the title. 
B)  The public company report refers to standards of the PCAOB. 
C)  The public company report has an additional paragraph referring to the client's fraud prevention procedures. 
D)  The public company report is shorter.

Question 8

In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion?

Accepted Answer

A)  The statements are not in conformity with FASB requirements regarding the capitalization of leases. 
B)  Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. 
C)  The chief executive officer refuses the auditor access to minutes of board of directors' meetings. 
D)  Tests of controls show that the entity's internal control is so poor that it can not be relied upon.

Question 9

Which of the following is least likely to result in an emphasis-of-matter paragraph being added to an unmodified auditor's report on the financial statements of a client that sells jewelry through a retail store?

Accepted Answer

A)  A decision by the auditor to emphasize that the client is a part of a larger organization. 
B)  Reliance placed upon a specialist to evaluate the diamonds. 
C)  A change from FIFO to specific identification accounting for inventory. 
D)  A question as to whether the client will be able to remain a going concern.

Question 10

Under which of the following set of circumstances might the auditors disclaim an opinion?

Accepted Answer

A)  The financial statements contain a departure from generally accepted accounting principles, the effect of which is material. 
B)  The group auditors decide to make reference to the report of component auditor who audited a subsidiary. 
C)  There has been a material change between periods in the method of application of accounting principles. 
D)  There are significant scope limitations on the audit.

Question 11

For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to:

Accepted Answer

A)  Only the current year under audit. 
B)  Either one or both years at the option of the auditors. 
C)  Each of the two years plus the preceding year. 
D)  Each of the years in the two-year period.

Question 12

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to:

Accepted Answer

A)  A note to the financial statements which discusses the basis for the opinion. 
B)  The Auditor's Responsibility section of the audit report which discusses the basis for the opinion rendered. 
C)  A separate paragraph (section) which discusses the basis for the opinion rendered. 
D)  The consistency in the application of generally accepted accounting principles.

Question 13

Which of the following modifications of the auditors' report does not include an additional paragraph?

Accepted Answer

A)  The report is qualified because the financial statements contain a material departure from generally accepted accounting principles. 
B)  The report includes an emphasis of a matter. 
C)  The audit report indicates a division of responsibility between two CPA firms. 
D)  The report is qualified because the scope of the auditors' work was limited.

Question 14

A basis for a modification paragraph in the audit of the financial statements of a nonpublic company:

Accepted Answer

A)  Is only included with qualified, adverse, or disclaimers of opinion. 
B)  Is presented after the opinion paragraph. 
C)  Has a section title: Emphasis-of-Matter. 
D)  Must be included in all nonpublic company audit reports.

Question 15

The auditors include an emphasis-of-matter paragraph in an audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph:

Accepted Answer

A)  Is appropriate and would not negate the unmodified opinion. 
B)  Is considered a qualification of the opinion. 
C)  Is a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements. 
D)  Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."

Question 16

For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected:

Accepted Answer

A)  Be appropriate in the circumstances for the particular entity. 
B)  Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. 
C)  Present information in the financial statements that is classified and summarized in a reasonable manner. 
D)  Be applied on a basis consistent with those followed in the prior year.

Question 17

An emphasis-of-matter paragraph ordinarily:

Accepted Answer

A)  Relates to a report with a modified opinion. 
B)  Follows the opinion paragraph. 
C)  May either precede or follow the opinion paragraph. 
D)  Is only included in an audit report with an adverse opinion.

Question 18

A scope restriction is least likely to result in a(an):

Accepted Answer

A)  Qualified opinion. 
B)  Disclaimer of opinion. 
C)  Adverse opinion. 
D)  Standard unmodified opinion.

Question 19

Which of the following is a general purpose financial reporting framework?

Accepted Answer

A)  Generally accepted auditing standards. 
B)  Auditing Standards of the Public Company Accounting Oversight Board. 
C)  International Standards of Auditing. 
D)  International Financial Reporting Standards.

Question 20

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for:

Accepted Answer

A)  Expressing dual dated opinions. 
B)  Updating the report on the previous financial statements only if there has not been a change in the opinion. 
C)  Updating the report on the previous financial statements only if the previous report was qualified and the reasons for the qualification no longer exist. 
D)  Updating the report on the previous financial statements regardless of the opinion previously issued.

Exam 17: Auditors Report