questions

Which of the following changes would require the auditor to issue a qualified or adverse opinion?

A change in accounting principle from a GAAP to a non-GAAP principle

Which is NOT an account related to equity: Dividends Stock accounts Gains (losses) of sale of equipment Retained earnings

Gains (losses) of sale of equipment

Which of the following provisions of the Foreign Corrupt Practices Act is known as the anti-bribery provision?

No U.S. person or company that has securities listed on U.S. markets may make a payment to a foreign official to obtain or retain business.

In its Observations Related to the Implementation of the Auditing Standard on Engagement Quality Review report, the PCAOB noted significant defects in detecting audit deficiencies by the engagement quality review.

True

T/F: An auditor examines the reasonableness of the client's estimate of its pension obligation by reviewing such factors as the nature of the plan, the nature of the coverage, the estimated life of retirees, the current interest rate, and the rate of return on invested assets.

True

T/F: Review analytical procedures are performed to provide evidence on whether certain relationships make sense in light of the knowledge obtained and documented during the audit.

True

T/F: The auditor does not need to perform tests of controls throughout the year when he or she will perform a substantive audit on debt and equity accounts

True

T/F: The auditor's primary objective when auditing debt is to determine whether the client has recorded and properly classified all obligations and made the necessary disclosures.

True

T/F: The documentation of an engagement quality review should contain sufficient information to enable an experienced auditor, having no previous connection with the engagement, to understand the procedures performed by the engagement quality reviewer to comply with the PCAOB's AS 1220 Engagement Quality Review standard.

True

Authorization of debt is one inherent risk auditors face. Which of the following is an example of this inherent risk.

Unapproved debt extinguishments.

assume a US nonpublic company made changes which had a material effect on the financial statements that were properly justified, accounted for, and disclosed. this is NOT a change for which the auditor should add a paragraph:

a change in an accounting estimate not affected by a change in accounting principle

assume a US nonpublic company made changes which had a material effect on the financial statements that were properly justified, accounted for, and disclosed. these are changes for which the auditor should add a paragraph:

a correction of material misstatement in previously issued financial statements; a change from non-GAAP to GAAP; a cange from one GAAP to another GAAP

the following is not a change in the audit report as a result of the new reporting standard

a statement that the financial statements are the responsibility of the client's management

Assume a client is using commercial accounting software to keep its books. Which type of entry to the retained earnings account would most likely cause an auditor to determine if the entry was made in accordance with relevant accounting standards?

an entry related to a correction of a prior period error

the following is NOT a matter that auditors would choose to emphasize when issuing an unqualified opinion

an inability to gather sufficient appropriate evidence during the engagement period

what is the primary reason that an auditor must add a paragraph to the audit report when the client has changed an accounting principle or method of application?

because the change may affect the comparability of this year's financial statements with those of previous years

Which type of fraud would be suspected if an expense is charged directly to retained earnings rather than to the appropriate expense account? Equity Revenue and expense Tax Debt

equity fraud

T/F: the primary role of the auditor is altered when the auditor is conducting an audit of a foreign company in conformity with IFRS and filed with the SEC

false

The following are matters that an auditor would choose to emphasize when issuing an unqualified opinion

signigicant transactions with related entities; a change in the fiscal year end; important subsequent events, such as a board of directors' decisions to divest a segment of the business

the following is a change in the audit report as a resukt of the new reporting standard

specific mention of comprehensive income and notes to the financial statements; a disclosure of the year the auditor began serving consecutively as the company's auditor; an affirmative statements with PCAOB

Which of the following is not a basic principle described by the AICPA related to audit reporting?

the auditor must state if the financial statements are in full compliance with GAAP

T/F: the audit report is important to the audit opinion formulation process since it communicated relevant information to the financial statement users, both internal and external, resulting from the audit

true

T/F: when a client has a justified departure from GAAP, the audit report should include a paragraph describing the departure, its approximate effects (if they can be practicably determined), and the reasons for which compliance with GAAP would result in misleading statements.

true

What kind of opinion will an auditor issue when there are no material violations of GAAP, disclosures are adequate, the auditor is independent and was able to perform the necessary procedures, there was no change in accounting principles that had a material effect on the statement, and the auditor deems that the client remains a going concern?

unqualified opinion

In which of the following situations will an auditor evaluate the likelihood of a client being a going concern?

Each audit will include an assessment of the client being a going concern.

T/F: A fraud risk related to debt is that stock sales or issuances violate debt covenants.

False

T/F: After the auditor completes auditing all other account balances on the balance sheet, retained earnings will be proved because it is a balancing figure.

False

T/F: An adversarial audit firm culture helps ensure audit quality by creating an atmosphere in which individual auditors will not give into pressure from clients to overlook detected misstatements.

False

T/F: For privately held companies, the purpose of the engagement quality review is to help assure that the audit and audit documentation are complete and support the audit opinion on the client's financial statements and internal controls.

False

T/F: Strict adherence to a disclosure checklist will reliably result in complete and full disclosures.

False

Assume that an audit client declared a 5% stock dividend. Which of the following is not evidence that the auditor would use to determine that the dividend was properly accounted for?

The Wall Street Journal or other financial reporting service to determine the fair market value at the date the dividend was paid.

Which of the following statements is true about an auditor's responsibility for subsequent events (events that occur after the balance sheet date)?

The auditor must adjust the books for subsequent events for which evidence about the conditions existed on the balance sheet date.

Which of the following is the best description of a management representation letter?

The letter is signed by both the CEO and CFO, dated as of the audit report date, and prepared by the auditor.