Question 1

The phrase "generally accepted accounting principles" can be found in the opinion paragraph of a standard unqualified report.

Accepted Answer

A) True 
 B)False  True

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,...

Question 3

Changes of an accounting estimate requires the auditor to issue a modified unqualified audit report with a consistency paragraph is inserted after the opinion paragraph.

Accepted Answer

A) True 
 B)False  False

Question 4

When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

Accepted Answer

A)   an adverse opinion.
B)   a disclaimer of opinion.
C)   either a qualified opinion or an adverse opinion.
D)   either a qualified opinion or an unqualified opinion with modified wording.

Question 5

No reference is made in the auditor's report to other auditors who perform a portion of the audit when:
I. The other auditor audited an immaterial portion of the audit.
II. The other auditor is well known or closely supervised by the principle auditor.
III. The principle auditor has thoroughly reviewed the work of the other auditor.

Accepted Answer

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

Question 6

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.

Question 7

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:

Accepted Answer

A)   disclaimer of opinion in all cases.
B)   qualification of both scope and opinion in all cases.
C)   disclaimer of opinion whenever materiality is in question.
D)   qualification of both scope and opinion whenever materiality is in question.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:

Accepted Answer

A)   a disclaimer.
B)   an unqualified opinion.
C)   a qualified opinion.
D)   an adverse opinion.

Question 12

There are three conditions necessitating a departure from an unqualified audit report. Name, discuss and state the appropriate audit report for each of these three conditions.

Accepted Answer

The answer of There are three conditions necessitating a departure...

Question 13

When the auditor cannot perform procedures and the amounts are so material that a disclaimer of opinion is required, the:

Accepted Answer

A)   opinion paragraph will state "does not present fairly."
B)   opinion paragraph will state "presents fairly."
C)   scope paragraph will be unchanged from the standard unqualified opinion.
D)   scope paragraph will be deleted.

Question 14

Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)   
B)   
C)   
D)

Question 16

Audit reports issued for financial statements of a private company should refer to generally accepted auditing standards in the scope paragraph.

Accepted Answer

A) True 
 B)False

Question 17

If the balance sheet of a 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.

Question 18

After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the client's facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event. The auditor should:

Accepted Answer

A)   add a footnote to the financial statements
B)   disclaim an opinion due to the client imposed scope limitation.
C)   provide the information in the report and modify the opinion.
D)   issue an unqualified opinion but provide the information in the auditor report.

Question 19

The audit report date is the date the auditor completed audit procedures in the field.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 3: Audit Reports

The phrase "generally accepted accounting principles" can be found in the opinion paragraph of a standard unqualified report.

Changes of an accounting estimate requires the auditor to issue a modified unqualified audit report with a consistency paragraph is inserted after the opinion paragraph.

When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

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

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:

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

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

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

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:

There are three conditions necessitating a departure from an unqualified audit report. Name, discuss and state the appropriate audit report for each of these three conditions.

When the auditor cannot perform procedures and the amounts are so material that a disclaimer of opinion is required, the:

Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.

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

Audit reports issued for financial statements of a private company should refer to generally accepted auditing standards in the scope paragraph.

If the balance sheet of a 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:

The audit report date is the date the auditor completed audit procedures in the field.

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