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ACCT 460 Chapter 17
Auditing 460
90
Accounting
04/05/2010

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Term
1) Financial Statements are presented in accordance with GAAP
2) There are no scope limitations preventing audit from being performed in accordance with GAAS
Definition
A Standard Report for Audit of a Non-Public Company is issued only when two conditions are met. What are these two conditions?
Term
1) When part of the audit was performed by other auditors
2) When there is question about going concern
3) When the application of GAAP is inconsistent
4) When the auditor wants to emphasize a matter
5) To justify departures from GAAP
Definition
Under what circumstances does an auditor include Explanatory Language in an Unqualified Opinions Report
Term
c. Whether to issue an adverse opinion rather than an "except for" opinion
Definition
A material departure from generally accepted accounting principles will result in auditor consideration of:
a. Whether to issue an adverse opinion rather than a disclaimer of opinion
b. Whether to issue a disclaimer of opinion rather than an "except for" opinion
c. Whether to issue an adverse opinion rather than an "except for" opinion
d. Nothing, because none of these opinions is applicable to this type of exception
Term
b. Auditors have accumulated sufficient evidence
Definition
The auditors’ report should be dated as of the date the:
a. Report is delivered to the client
b. Auditors have accumulated sufficient evidence
c. Fiscal period under audit ends
d. Review of the working papers is completed
Term
a. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms
Definition
In the report of the principal auditor, reference to the fact that a portion of the audit was made by another auditor is:
a. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms
b. Not in accordance with generally accepted auditing standards
c. A qualification that lessens the collective responsibility of both CPA firms
d. An example of a dual opinion requiring the signatures of both auditors
Term
d. An improper type of reporting
Definition
Assume that the opinion paragraph of an auditors’ report begins as follows: with the explanation given in mote 6, the financial statements referred to above present fairly… This is:
a. An unqualified opinion
b. A disclaimer of opinion
c. An "except for" opinion
d. An improper type of reporting
Term
a. An explanatory paragraph to the auditors' report
Definition
The auditor who wishes to indicate that the entity has significant transactions with related parties should disclose this fact in:
a. An explanatory paragraph to the auditors' report
b. An explanatory note to the financial statements
c. The body of the financial statements
d. The "summary of significant accounting policies" section of the financial statements
Term
b. Disclaimer
Definition
When restrictions that significantly limit the scope of the audits are imposed by the client, the auditor should generally issue which of the following opinions?
a. Qualified
b. Disclaimer
c. Adverse
d. Unqualified
Term
c. Part of the audit has been performed by other auditors
Definition
Which of the following does not ordinarily involve the addition of an explanatory paragraph to an audit report?
a. A consistency modification
b. A qualified opinion
c. Part of the audit has been performed by other auditors
d. An adverse opinion
Term
b. Standards of the Public Company Accounting Oversight Board
Definition
An audit report for a public client indicates that the audit was performed in accordance with
a. Generally accepted auditing standards (U.S.)
b. Standards of the Public Company Accounting Oversight Board
c. Generally accepted accounting principles (U.S.)
d. Generally accepted accounting principles (Public Company Accounting Oversight Board)
Term
c. Generally accepted accounting principles (U.S)
Definition
An audit report for a public client indicates that the financial statements were prepared in conformity with
a. Generally accepted auditing standards (U.S.)
b. Standards of the Public Company Accounting Oversight Board
c. Generally accepted accounting principles (U.S.)
d. Generally accepted accounting principles (Public Company Accounting Oversight Board)
Term
c. Unqualified with Explanatory Language only
Definition
The likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit reports
a. Qualified and Unqualified with Explanatory Language
b. Qualified only
c. Unqualified with Explanatory Language only
d. Neither Qualified nor an Unqualified with Explanatory Language
Term
b. Adverse only
Definition
A change in acct principles that the auditors believes is not justified is likely to result in which of the following audit reports?
a. Adverse and Disclaimer
b. Adverse only
c. Disclaimer only
d. Neither Adverse nor Disclaimer
Term
c. A decision not to confirm accounts receivable
Definition
Which of the following is least likely to be considered as an ‘emphasis of a matter’ in what remains an unqualified audit report?
a. The company is a component of a larger business enterprise
b. An unusually important significant event
c. A decision not to confirm accounts receivable
d. A risk or uncertainty
Term
a. The company is a component of a larger business enterprise
b. An unusually important significant event
d. A risk or uncertainty
Definition
Which of the following is considered as an ‘emphasis of a matter’ in what remains an unqualified audit report?
a. The company is a component of a larger business enterprise
b. An unusually important significant event
c. A decision not to confirm accounts receivable
d. A risk or uncertainty
Term
A. Unqualified opinion
Definition
If an auditor is satisfied that sufficient audit evidence supports management's assertions about the nature of a matter involving an uncertainty, the auditor should express a(n):
A. Unqualified opinion
B. Unqualified opinion with a separate explanatory paragraph
C. Qualified opinion or disclaimer of opinion, depending up the materiality of the matter
D. Qualified opinion or disclaimer of opinion, depending on whether the uncertainty is adequately disclosed.
Term
C. Unqualified opinion
Definition
King, CPA, was engaged to audit the financial statements of Newton Company after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors, but was satisfied concerning both after applying alternative procedures. King's auditor's report most likely contained a(n)
A. Qualified opinion
B. Disclaimer of opinion
C. Unqualified opinion
D. Unqualified opinion with a separate explanatory paragraph
Term
B. Not refer to consistency in the auditor's report
Definition
In the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. Under these circumstances, the auditor should:
A. Not report on the client's income statement
B. Not refer to consistency in the auditor's report
C. State that the consistency standard does not apply
D. State that the accounting principles have been applied consistently
Term
B. The auditor lacks independence with respect to the audited entity
Definition
An auditor may not issue a qualified opinion when:
A. An accounting principle at variance with GAAP is used
B. The auditor lacks independence with respect to the audited entity
C. A scope limitation prevents the auditor from completing an important audit procedure
D. The auditor's report refers to the work of a specialist
Term
A. Is unable to obtain audited financial statements supporting the entity's investment in a foreign subsidiary
Definition
A limitation on the scope of an audit sufficient to preclude an unqualified opinion will usually result when management:
A. Is unable to obtain audited financial statements supporting the entity's investment in a foreign subsidiary
B. Refuses to disclose in the notes to the financial statement related party transactions authorized by the board of directors
C. Does not sign an engagement letter specifying the responsibilities of both the entity and the auditor
D. Fails to correct a significant deficiency communicated to the audit committee after the prior year's audit
Term
C. The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases
Definition
In which of the following circumstances would an auditor be most likely to express an adverse opinion:
A. The CEO refuses the auditor access to minutes of the board of directors' meetings
B. Tests of controls show that the entity's internal controls are so poor that they cannot be relied upon
C. The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases
D. The auditor has substantial doubt about the entity's ability to continue as a going concern
Term
D. Management's refusal to furnish written representations
Definition
An auditor most likely would issue a disclaimer of opinion because of:
A. Inadequate disclosure of material information
B. The omission of the statement of cash flows
C. A material departure from GAAP
D. Management's refusal to furnish written representations
Term
B. Qualified opinion
Definition
If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows the auditor ordinarily will express a(n):
A. Disclaimer of opinion
B. Qualified opinion
C. Review report
D. Unqualified opinion with a separate explanatory paragraph
Term
D. Unqualified
Definition
An explanatory paragraph following the opinion paragraph of an auditor's report describes an uncertainty as follows:
“As discussed in Note X to the financial statements the Company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements.”
What type of opinion should the auditor express under these circumstances?
A. Adverse
B. Qualified due to a scope limitation
C. Qualified due to a GAAP violation
D. Unqualified
Term
B. Estimate of the total likely misstatement is less than a material amount.
Definition
When issuing an unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the:
A. Amount of known misstatement is documented in the management representation letter.
B. Estimate of the total likely misstatement is less than a material amount.
C. Amount of known misstatement is acknowledged and recorded by the client.
D. Estimate of the total likely misstatement includes the adjusting entries already recorded by the client.
Term
C. Unqualified opinion
Definition
An entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n):
A. "Except for" qualified opinion
B. Explanatory paragraph
C. Unqualified opinion
D. Consistency modification
Term
C. May express an unqualified opinion with an explanatory paragraph
Definition
Management believes and the auditor is satisfied that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If management does not make an accrual in the financial states, the auditor:
A. May express a qualified opinion due to a scope limitation
B. Must express a qualified opinion due to a scope limitation
C. May express an unqualified opinion with an explanatory paragraph
D. Must express an unqualified opinion with an explanatory paragraph
Term
C. Except for qualified opinion or an adverse opinion
Definition
If the financial statements, including accompanying notes, fail to disclose information that is required by GAAP, the auditor should express either a(n):
A. Subject to qualified opinion or an unqualified opinion with a separate explanatory paragraph
B. Adverse opinion or a subject to qualified opinion
C. Except for qualified opinion or an adverse opinion
D. Unqualified opinion with a separate explanatory paragraph or an except for qualified opinion
Term
B. Qualified opinion or an adverse opinion
Definition
An auditor concludes that a client's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements, the auditor should express either a(n):
A. Adverse opinion or a disclaimer of opinion
B. Qualified opinion or an adverse opinion
C. Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph
D. Unqualified opinion with a separate explanatory paragraph or a qualified opinion
Term
B. explicitly represented in the opening paragraph of the auditor’s standard report
Definition
An auditor’s responsibility to express an opinion on the financial statements is
A. explicitly represented in the opinion paragraph of the auditor’s standard report
B. explicitly represented in the opening paragraph of the auditor’s standard report
C. explicitly represented in the scope paragraph of the auditor’s standard report
D. implicitly represented in the auditor’s standard report
Term
A. A statement that the auditor believes that his or her audit provides a reasonable basis for expressing negative assurance.
Definition
Which of the following is not explicitly included in an audit report for a nonpublic company?
A. A statement that the auditor believes that his or her audit provides a reasonable basis for expressing negative assurance.
B. A statement that the auditor's responsibility is to express an opinion on the financial statements.
C. A statement that the financial statements in the report are the responsibility of management.
D. A title with the word "independent."
Term
D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.
Definition
When an auditor has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the current financial statement date (9/30/X1), the auditor's responsibility includes:
A. Preparing prospective financial information to verify whether management's plans can be effectively implemented.
B. Projecting conditions and events from one year prior to this year's date (9/30/X0) to 9/30/X1.
C. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements.
D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.
Term
c. Opinion only
Definition
When the auditor of a nonpublic company issues an adverse opinion an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified?
a. Introductory and Opinion
b. Scope and Opinion
c. Opinion only
d. The introductory, scope, and opinion paragraphs are unchanged
Term
c. Scope and opinion
Definition
When an auditor issues a qualified report on financial statements due to a scope limitation an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified?
a. Introductory, scope, and opinion
b. Introductory and opinion
c. Scope and opinion
d. Scope only
Term
d. Introductory, Scope, and Opinion paragraphs stay the same
Definition
When an auditor issues an unqualified report on financial statements, but adds an emphasis of a matter paragraph to the report, which, if any, paragraphs to the report are modified?
a. Introductory, Scope, and Opinion
b. Scope and Opinion
c. Opinion only
d. Introductory, Scope, and Opinion paragraphs stay the same
Term
B. Prior to the opinion paragraph.
Definition
An explanatory paragraph relating to a scope limitation in the audit of the financial statements of a nonpublic company should be placed
A. After the opinion paragraph.
B. Prior to the opinion paragraph.
C. Either before or after the opinion paragraph.
D. An audit report modified for a scope limitation does not include an explanatory paragraph.
Term
C. Increase ownership equity.
Definition
After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to:
A. Increase current dividend distributions.
B. Reduce existing lines of credit.
C. Increase ownership equity.
D. Purchase assets formerly leased.
Term
B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action.
Definition
When an auditor of financial statements does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:
A. Issue an unqualified opinion, but disclose elsewhere in the report this departure from a customary procedure.
B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action.
C. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables.
D. Issue an adverse opinion.
Term
B. Information about the entity's ability to continue as a going concern is not disclosed
Definition
When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if
A. The effects of the adverse financial conditions likely will cause a bankruptcy filing
B. Information about the entity's ability to continue as a going concern is not disclosed
C. Management has no plans to reduce or delay future expenditures.
D. Negative trends and recurring operating losses appear to be irreversible.
Term
C. Lease rather than purchase operating facilities.
Definition
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
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.
Term
D. Inquiring of the entity's legal counsel about litigation, claims, and assessments.
Definition
Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A. Performing cutoff tests of sales transactions with customers with long-standing receivable balances.
B. Evaluating the entity's procedures for identifying and recording related party transactions.
C. Inspecting title documents to verify whether any real property is pledged as collateral.
D. Inquiring of the entity's legal counsel about litigation, claims, and assessments.
Term
B. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.
Definition
When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should:
A. Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit.
B. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.
C. Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure.
D. Issue an unqualified opinion, but inform the reader by including the omitted information in the audit report.
Term
B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements.
Definition
CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the principal auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct?
A. Such assumption of responsibility violates the profession's standards.
B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements.
C. In such circumstances, when appropriate requirements have been met, Firm A should issue an unqualified opinion on the financial statements but should make appropriate reference to Firm B in the audit report.
D. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.
Term
C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern.
Definition
Which of the following is most accurate with respect to a CPA's responsibility in considering a going concern question on financial statement audits?
A. Perform analytical procedures aimed particularly at assessing whether bankruptcy is probable.
B. Issue a report with a "going concern" modification when failure is at least reasonably probable.
C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern.
D. Determine that related uncertainties are properly disclosed and make no mention in the audit report.
Term
A. Express an adverse opinion with an explanatory paragraph disclosing the reason (the accounting change) for the opinion.
Definition
30. The Rotter Company changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading. The change (including its dollar effect) has been described in the notes to the 20X4 statements, which are being presented by themselves. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should:
A. Express an adverse opinion with an explanatory paragraph disclosing the reason (the accounting change) for the opinion.
B. Express an unqualified opinion with an explanatory paragraph and disclose the accounting change from 20X3 and its effect on the financial statements.
C. Disclaim an opinion and explain all of the reasons therefore.
D. Express an adverse opinion regarding the 20X4 financial statements, without an explanatory paragraph disclosing the reason therefore since it will be included in the notes to the statements.
Term
C. Issue an "except for" qualification or an adverse opinion.
Definition
When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should:
A. Issue an unqualified report with an explanatory 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.
Term
C. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets.
Definition
Which of the following accounting changes requires explanatory language regarding consistency in the auditors' report?
A. A change in the estimated useful lives of a class of fixed assets.
B. A write-off of a patent because future benefits do not appear to exist.
C. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets.
D. A change in calculating bad debt expense from one percent to two percent of credit sales.
Term
A. Introductory paragraph.
Definition
The first paragraph of a standard unqualified audit report for a nonpublic client is referred to as the:
A. Introductory paragraph.
B. Scope paragraph.
C. Opinion paragraph.
D. Explanatory paragraph.
Term
C. Adverse opinion.
Definition
A scope restriction is least likely to result in a(an):
A. Qualified opinion.
B. Disclaimer of opinion.
C. Adverse opinion.
D. Standard unqualified opinion.
Term
B. Reliance placed upon a specialist to evaluate the diamonds.
Definition
Which of the following is least likely to result in explanatory language being added to an unqualified auditor's report on the financial statements of a client that sells jewelry through a retail store?
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.
Term
C. Sometimes they precede and sometimes they follow the opinion paragraph.
Definition
Which of the following statements is correct with respect to explanatory paragraphs in reports on audits of the financial statements of nonpublic companies?
A. They always precede the opinion paragraph.
B. They always follow the opinion paragraph.
C. Sometimes they precede and sometimes they follow the opinion paragraph.
D. They always precede the scope paragraph.
Term
A. Standard unqualified.
Definition
A client has changed the salvage values of a number of its fixed assets. The auditors believe that the salvage values are realistic. The appropriate report on the financial statements is:
A. Standard unqualified.
B. Unqualified with explanatory language as to consistency.
C. Qualified for consistency.
D. Disclaimer.
Term
A. The shareholders of the corporation whose financial statements were examined.
Definition
Which of the following would be most likely to be an appropriate addressee for an audit report?
A. The shareholders of the corporation whose financial statements were examined.
B. A third party who requested that a copy of the audit report be sent to her.
C. The president of the corporation whose financial statements were examined.
D. The chief financial officer.
Term
C. Used in a qualified opinion
Definition
The term "except for" in an audit report is:
A. Used in an adverse opinion.
B. No longer considered appropriate.
C. Used in a qualified opinion
D. Used for an unqualified opinion when an explanatory paragraph is added.
Term
B. The audit was conducted in accordance with accounting principles generally accepted in the United States of America.
Definition
The unqualified standard audit report of a nonpublic company does not explicitly state that:
A. The financial statements are the responsibility of the company's management.
B. The audit was conducted in accordance with accounting principles generally accepted in the United States of America.
C. The auditors believe that the audit provides a reasonable basis for their opinion.
D. An audit includes assessing the accounting principles used.
Term
C. The nonpublic company report has an additional paragraph referring to the client's fraud prevention procedures.
Definition
Which of the following is not a difference between the audit report of a nonpublic and public company?
A. The nonpublic company report includes the word "Registered" in the title.
B. The nonpublic company report refers to standards of the PCAOB.
C. The nonpublic company report has an additional paragraph referring to the client's fraud prevention procedures.
D. The nonpublic company report must include the city and state in which the report has been issued.
Term
B. The auditors should issue an "except for" qualification for the departure from generally accepted accounting principles.
Definition
If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows:
A. The auditors may still issue an unqualified opinion.
B. The auditors should issue an "except for" qualification for the departure from generally accepted accounting principles.
C. The auditors should issue an opinion "subject to" the information that would have been contained in the statement of cash flows.
D. The auditors should refuse to issue an opinion on only the two financial statements.
Term
A. Circumstances have significantly limited the scope of the auditors' procedures.
Definition
Which of the following circumstances generally results in the issuance of a report that is other than unqualified?
A. Circumstances have significantly limited the scope of the auditors' procedures.
B. The principal auditors for the engagement are relying on the work of other auditors.
C. The financial statements depart from a standard established by the FASB because the auditors have concluded that application of the standard would result in materially misleading financial statements.
D. The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.
Term
C. The audit report indicates a division of responsibility between two CPA firms.
Definition
Which of the following modifications of the auditors' report does not include an additional paragraph?
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 restricted.
Term
D. Refer to the report of the predecessor auditors.
Definition
If the predecessor auditors fail to reissue their audit report on comparative financial statements the successor auditors should:
A. Express a qualified opinion on the comparative financial statements audited by the predecessor auditors.
B. Reproduce the predecessor auditors' report and include it with the new set of financial statements.
C. Have the client omit the comparative financial statements.
D. Refer to the report of the predecessor auditors.
Term
A. A disclaimer of opinion.
Definition
An audit client has refused to allow the auditors to perform a generally accepted auditing procedure. The circumstance would normally result in the issuance of:
A. A disclaimer of opinion.
B. An adverse opinion.
C. An "except for" qualification of the report.
D. An unqualified report with explanatory language.
Term
B. Form S-1.
Definition
Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public?
A. Form 8-K.
B. Form S-1.
C. Form 10-Q.
D. Form 10-K.
Term
C. Are assuming full responsibility for the work of the other auditors.
Definition
If principal auditors make no reference to other auditors whose work they have relied on as a part of the basis for their report, the principal auditors:
A. Are not required to investigate the professional reputation of the other auditors.
B. Are issuing an inappropriate report.
C. Are assuming full responsibility for the work of the other auditors.
D. Are issuing a qualified opinion.
Term
D. Use the date of the previous report.
Definition
49. After performing all necessary procedures the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditors should:
A. Delete the date of the report.
B. Dual-date the report.
C. Use the reissue date.
D. Use the date of the previous report.
Term
C. A separate paragraph which discusses the basis for the opinion rendered.
Definition
When an adverse opinion is expressed, the opinion paragraph should include a direct reference to:
A. A note to the financial statements which discusses the basis for the opinion.
B. The scope paragraph which discusses the basis for the opinion rendered.
C. A separate paragraph which discusses the basis for the opinion rendered.
D. The consistency in the application of generally accepted accounting principles.
Term
D. There are significant scope limitations on the audit.
Definition
Under which of the following set of circumstances might the auditors disclaim an opinion?
A. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material.
B. The principal auditors decide to make reference to the report of another 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.
Term
B. Unqualified opinion and an explanatory paragraph.
Definition
The management of Stanley Corporation has decided not to account for a material transaction in accordance with the provisions of a recent statement of the FASB. They have set forth their reasons in note "B" of the financial statements, which clearly demonstrates that due to unusual circumstances the financial statements would otherwise have been misleading. The auditors' report on the financial statements will probably contain a(an):
A. Qualified opinion and an explanatory paragraph with a reference to note "B".
B. Unqualified opinion and an explanatory paragraph.
C. Adverse opinion and an explanatory paragraph.
D. "Except for" opinion and an explanatory paragraph.
Term
A. Is appropriate and would not negate the unqualified opinion.
Definition
The auditors include explanatory language in an otherwise unqualified report in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this explanatory language:
A. Is appropriate and would not negate the unqualified opinion.
B. Is considered a qualification of the report.
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."
Term
B. Limitation in the scope of the audit.
Definition
It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an):
A. Change in accounting principle.
B. Limitation in the scope of the audit.
C. Uncertainty.
D. Related party transaction.
Term
A. It applies equally to a complete set of financial statements and to each individual financial statement.
Definition
Which of the following best describes the reference to the expression "taken as a whole" in the fourth generally accepted auditing standard of reporting?
A. It applies equally to a complete set of financial statements and to each individual financial statement.
B. It applies only to a complete set of financial statements.
C. It applies equally to each item in each financial statement.
D. It applies equally to each material item in each financial statement.
Term
B. Reliance placed upon the report of other auditors.
Definition
Which of the following will not result in qualification of the auditors' report due to a scope limitation?
A. Restrictions imposed by the client.
B. Reliance placed upon the report of other auditors.
C. Inability to obtain sufficient competent evidential matter.
D. Inadequacy in the accounting records.
Term
D. Each of the years in the two-year period.
Definition
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:
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.
Term
d. Conformity with PCAOB standards: explicitly; Adequacy of disclosure: implicitly
Definition
Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on public company financial statements?
a. Conformity with PCAOB standards: explicitly; Adequacy of disclosure: explicitly
b. Conformity with PCAOB standards: implicitly; Adequacy of disclosure: implicitly
c. Conformity with PCAOB standards: implicitly; Adequacy of disclosure: explicitly
d. Conformity with PCAOB standards: explicitly; Adequacy of disclosure: implicitly
Term
D. Be applied on a basis consistent with those followed in the prior year.
Definition
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:
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.
Term
C. The statements are not in conformity with generally accepted accounting principles regarding pension plans.
Definition
In which of the following circumstances would an adverse opinion be appropriate?
A. The auditor is not independent with respect to the enterprise being audited.
B. The statements are not in conformity with generally accepted accounting principles because they omit a statement of changes in financial position.
C. The statements are not in conformity with generally accepted accounting principles regarding pension plans.
D. A client-imposed scope limitation prevents the auditor from complying with generally accepted auditing standards.
Term
A. Unqualified opinion with an appropriate explanatory paragraph.
Definition
An independent auditor has concluded that a substantial doubt remains about a client's ability to continue as a going concern, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a(an):
A. Unqualified opinion with an appropriate explanatory paragraph.
B. "Except for" qualified opinion.
C. Standard unqualified opinion.
D. Adverse opinion.
Term
B. Refuses to permit its lawyer to respond to the letter of audit inquiry.
Definition
62. A limitation on the scope of the audit sufficient to preclude an unqualified opinion will always result when management:
A. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
B. Refuses to permit its lawyer to respond to the letter of audit inquiry.
C. Discloses material related party transactions in the notes to the financial statements.
D. Knows that confirmation of accounts receivable is not feasible.
Term
A. A standard unqualified opinion.
Definition
Doe, an independent auditor, was engaged to perform an audit of the financial statements of Ally Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Doe, and accounts receivable were not confirmed by direct communication with debtors, Doe was able to gain satisfaction by applying alternative auditing procedures. Doe's audit report will probably contain:
A. A standard unqualified opinion.
B. An unqualified opinion and an explanatory paragraph.
C. Either a qualified opinion or a disclaimer of opinion.
D. An "except for" qualification.
Term
B. Misinterpretations regarding the degree of responsibility that the auditor is assuming.
Definition
The fourth reporting standard requires the auditor's report to contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent:
A. The CPA from reporting on one basic financial statement and not the others.
B. Misinterpretations regarding the degree of responsibility that the auditor is assuming.
C. The CPA from expressing different opinions on each of the basic financial statements.
D. Management from reducing its final responsibility for the basic financial statements.
Term
A. The introductory, scope, and opinion paragraphs of the report.
Definition
The principal auditor is satisfied with the independence and professional reputation of the other auditor who has audited a subsidiary. To indicate the division of responsibility, the principal auditor should modify:
A. The introductory, scope, and opinion paragraphs of the report.
B. Only the scope paragraph of the report.
C. Only the opinion paragraph of the report.
D. Only the opinion paragraph of the report and include an explanatory paragraph.
Term
C. May refer to the audit of the other CPA.
Definition
Morgan, CPA, is the principal auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's audit. With respect to Morgan's report on the consolidated financial statements, taken as a whole, Morgan:
A. Must not refer to the audit of the other CPA.
B. Must refer to the audit of the other CPA.
C. May refer to the audit of the other CPA.
D. May refer to the audit of the other CPA, in which case Morgan must include in the audit report on the consolidated financial statements a qualified opinion with respect to the audit of the other CPA.
Term
D. The type of opinion expressed by the predecessor auditor.
Definition
67. When reporting on comparative financial statements where the financial statements of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor should indicate in the report:
A. The reasons why the predecessor auditor's report is not presented.
B. The identity of the predecessor auditor who examined the financial statements of the prior year.
C. Whether the predecessor auditor's review of the current year's financial statements revealed any matter that might have a material effect on the successor auditor's opinion.
D. The type of opinion expressed by the predecessor auditor.
Term
B. Disclosed in the notes to the financial statements of the current year.
Definition
If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be:
A. Referred to in the auditor's report for the current year.
B. Disclosed in the notes to the financial statements of the current year.
C. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year.
D. Treated as a subsequent event.
Term
D. Updating the report on the previous financial statements regardless of the opinion previously issued.
Definition
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:
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.
Term
A. May accept the engagement because such engagements merely involve limited reporting objectives.
Definition
An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor:
A. May accept the engagement because such engagements merely involve limited reporting objectives.
B. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary.
C. Should refuse the engagement because there is a client-imposed scope limitation.
D. Should refuse the engagement because of a departure from generally accepted auditing standards.
Term
B. Disclaimer of opinion.
Definition
When the auditor is unable to determine the amounts associated with the illegal acts of client personnel because of an inability to obtain adequate evidence, the auditor should issue a(an):
A. "Subject to" qualified opinion.
B. Disclaimer of opinion.
C. Adverse opinion.
D. Unqualified opinion with a separate explanatory paragraph.
Term
A. Magnitude of the portion of the financial statements examined by the other auditor.
Definition
If the principal auditor decides to make reference to the other auditor's audit, the introductory paragraph must specifically indicate the:
A. Magnitude of the portion of the financial statements examined by the other auditor.
B. Name of the other auditor.
C. Name of the consolidated subsidiary examined by the other auditor.
D. Type of opinion expressed by the other auditor.
Term
B. A change from an unacceptable accounting principle to a generally accepted one.
Definition
Which of the following will result in explanatory language as to consistency in the auditor's report, regardless of whether the item is fully disclosed in the financial statements?
A. A change in accounting estimate.
B. A change from an unacceptable accounting principle to a generally accepted one.
C. Correction of an error not involving a change in accounting principle.
D. A change in classification.
Term
B. Accumulation of sufficient appropriate audit evidence.
Definition
An auditor's report on comparative financial statements should be dated as of the date of the:
A. Issuance of the report.
B. Accumulation of sufficient appropriate audit evidence.
C. Latest financial statements being reported on.
D. Last related-party transaction disclosed in the statements.
Term
A. The statements are not in conformity with the FASB Statements regarding the capitalization of leases.
Definition
In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion?
A. The statements are not in conformity with the FASB Statements 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.