Audit Final

Which of the following audit procedures would be least likely to lead the auditors to find unrecorded fixed asset disposals? a.) Review of repairs and maintenance expense. b.) Review of property tax files. c.) Examination of insurance policies. d.) Scanning of invoices for fixed-asset additions.

a

Which of the following is the best evidence of real estate ownership at the balance sheet date? a.) Paid real estate tax bills. b.) Original deed held in the client's safe. c.) Title insurance policy. d.) Closing statement.

a

Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an audit report? a.) A consistency modification. b.) An adverse opinion. c.) A qualified opinion. d.) Part of the audit has been performed by component auditors.

a

Which of the following policies is an internal control weakness related to the acquisition of factory equipment? a.) Acquisitions are to be made through and approved by the department in need of the equipment. b.) Depreciation policies are reviewed only once a year. c.) Variances between authorized equipment expenditures and actual costs are to be immediately reported to management. d.) Advance executive approvals are required for equipment acquisitions.

a

Treetop Corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related: a.) Interest expense. b.) Deed. c.) Canceled checks. d.) Closing statement.

b

An important consideration to the auditor in the audit of equipment is to determine: a.) when the client should replace the equipment. b.) that theft of the equipment is impossible. c.) that the equipment is properly maintained. d.) whether a large recorded gain on a trade of equipment is appropriate.

d

Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? a.) Property, plant, and equipment. b.) Insurance expense. c.) Accumulated depreciation. d.) Purchase returns and allowances.

d

The auditors should generally issue a qualified opinion if circumstances involved make it impossible for them to observe the physical inventory or to confirm accounts receivable, even when sufficient appropriate audit evidence has been gathered using alternate procedures. -True -False

f

A standard unmodified audit report does not mention consistency of application of accounting principles. -True -False

t

A typical audit procedure in examining plant and equipment is an analysis of the Miscellaneous Revenue account. -True -False

t

An adverse opinion is an opinion that the financial statements are not presented fairly in accordance with generally accepted accounting principles. -True -False

t

An important control for plant and equipment is the plant and equipment budget. -True -False

t

Goodwill should only be recorded if it was acquired as a part of a business combination. -True -False

t

If property, plant, and equipment represent 40% of the total assets of a continuing audit client, the budget for property, plant and equipment will ordinarily be less than 40% of the total audit effort devoted to assets. -True -False

t

Making payroll expenditures from an imprest payroll bank account ordinarily is a strength relating to internal control, rather than a weakness. -True -False

t

Physical inventories of plant and equipment assets frequently reveal misstated assets. -True -False

t

Subsequent events, which provide additional evidence regarding conditions existing at the balance sheet date, may result in adjustment of the financial statements. -True -False

t

The auditors generally perform an analysis of the miscellaneous revenue account to determine the nature of the items recorded to the account. -True -False

t

The financial statements should not be adjusted for subsequent events that provide important evidence about conditions that did not exist at the balance sheet date but arose subsequent to that date. -True -False

t

Unrecorded retirements of plant and equipment are more likely a type of error than unrecorded acquisitions. -True -False

t

When a second partner review of an audit engagement is to be performed, it should occur prior to issuance of the audit report. -True -False

t

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? a.) Capitalization. b.) Financing. c.) Investing. d.) Operations.

a

A USA nonpublic company audit report indicates that the audit was performed in accordance with "generally accepted accounting principles." -True -False

f

All information included in a financial report prepared and submitted by the auditors should be audited. -True -False

f

An error in the year-end cutoff of plant and equipment transactions affects the company's income for the year in the same manner as an error in the year-end cutoff of sales or inventory transactions. -True -False

f

An essential step in the auditors' verification of the legal ownership of land and buildings listed on a client's balance sheet is examination of turnover rates. -True -False

f

Audit reports for group audit engagements are considered to be qualified reports. -True -False

f

Dual-dating of an audit report occurs when the auditors are not able to complete an audit engagement as of a particular date and should return to complete the audit work on a later date. -True -False

f

For effective internal control over payroll, the personnel department should prepare the payroll records and checks. -True -False

f

If a company is faced with any uncertainty such as the prospect of a strike or the possible imposition of wage and price controls, the auditors should issue a qualified or adverse opinion. -True -False

f

In an initial audit engagement, the auditors must always perform a historical analysis of the property accounts for one year prior to the year under audit. -True -False

f

Property, plant, and equipment ordinarily should be recorded at the lower of cost or market. -True -False

f

The auditors are not allowed to change their opinion on financial statements that were reported on in prior years. -True -False

f

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: a.) An emphasis-of-matter paragraph to the auditors' report. b.) A footnote to the financial statements. c.) The body of the financial statements. d.) The "summary of significant accounting policies" section of the financial statements.

a

The date of the management representation letter should coincide with the: a.) date of the auditor's report. b.) balance sheet date. c.) date of the engagement agreement. d.) date of the latest subsequent event referred to in the notes to the financial statements.

a

A client has a calendar year-end. Listed below are four events that occurred after December 31. Which one of these subsequent events is most likely to result in adjustment of the December 31 financial statements? a.) A substantial portion of the company's inventory was written off as obsolete on January 31. b.) The client decided to change depreciation methods in the coming year. c.) A major subsidiary was sold on February 7. d.) The factory building was damaged by a fire on January 19.

a

A note to the financial statements of the First Security Bank indicates that the company self insures itself for the first $100,000 of liability to employees, with liability insurance for the remainder. Based upon this, one would expect the auditors' report to express: a.) a standard unmodified opinion. b.) an adverse opinion. c.) a disclaimer of opinion. d.) a qualified opinion.

a

An example of an internal control weakness is to assign to a supervisor the responsibility for: a.) distributing payroll checks to subordinate employees. b.) initiating requests for salary adjustments for subordinate employees. c.) authorizing payroll checks for terminated employees. d.) reviewing and approving time reports for subordinate employees.

a

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? a.) Accumulated depreciation. b.) Cost of goods sold. c.) Purchase returns and allowances. d.) Purchase discounts.

a

For which of the following ledger accounts would the auditor be most likely to analyze the details? a.) Miscellaneous expense. b.) Postage expense. c.) Supplies expense. d.) Sales salaries expense.

a

If the auditors indicate in the report that the opinion is based, in part, on the report of component auditors who were responsible for the audit of part of the total financial statement data, the auditors are: a.) properly indicating a division of responsibility, and the report should further indicate in an appropriate quantitative form the proportionate responsibility being assumed by each set of auditors. b.) abrogating responsibility to those users who rely on the CPA firm's reputation as a basis for relying on the reported financial statements. c.) in effect qualifying the opinion. d.) taking complete responsible for the work of the other auditors.

a

In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component 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.

a

In connection with the annual audit, which of the following is not a "subsequent events" procedure? a.) Make inquiries with respect to the financial statements covered by the auditors' previously issued report if new information has become available during the current examination that might affect that report. b.) Review available interim financial statements. c.) Discuss with officers the current status of items in the financial statements that were accounted for on the basis of tentative, preliminary, or inconclusive data. d.) Read available minutes of meetings of stockholders, directors, and committees. With regard to meetings for which minutes are not available, inquire about matters dealt with at such meetings.

a

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to? a.) Existence. b.) Valuation. c.) Completeness. d.) Rights.

a

In the examination of property, plant, and equipment, the auditors try to determine all of the following except the: a.) adequacy of replacement funds. b.) reasonableness of the depreciation. c.) extent of property abandoned during the year. d.)adequacy of internal control.

a

The aggregated misstatement in the financial statements is made up of: Known Mis. Projected Mis. Other Mis. a.) Yes Yes Yes b.) Yes Yes No c.) No Yes No d.) No Yes Yes

a

The audit of intangible assets typically involves Vouching Cost of Assets Testing Allocation Methods a.) Yes Yes b.) Yes No c.) No Yes d.) No No

a

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? a.) A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. b.) Relatively few transactions occur in property, plant, and equipment during the year. c.) The assets involved with property, plant, and equipment ordinarily have relatively longer lives. d.) Property, plant, and equipment accounts typically have a higher dollar value.

a

A change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified with Emphasis of Matter a.) Yes Yes b.) Yes No c.) No Yes d.) No No

b

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): a.) Analytical process. b.) Loss contingency. c.) Probable loss. d.) Unasserted claim.

b

A surprise observation by an auditor of a client's regular distribution of paychecks is primarily designed to satisfy the auditor that: a.) the paymaster is not involved in the distribution of payroll checks. b.) names on the company payroll are those of bona fide employees presently on the job. c.) all employees have in their possession proper employee identification. d.) all unclaimed payroll checks are properly returned to the cashier.

b

An audit report for a public client indicates that the audit was performed in accordance with: a.) Generally accepted auditing standards (United States). b.) Standards of the Public Company Accounting Oversight Board (United States). c.) Generally accepted accounting principles (United States). d.) Generally accepted accounting principles (Public Company Accounting Oversight Board).

b

If the auditors believe that related party transactions are not adequately described in the notes to the financial statements, they should: a.) add an emphasis-of-matter paragraph to their unmodified opinion. b.) qualify their opinion or issue an adverse opinion. c.) consider more thoroughly the client's going concern status. d.) disclaim an opinion.

b

Overall analysis of income statement accounts may bring to light errors, omissions, and inconsistencies not disclosed in the overall analysis of balance sheet accounts. The income statement analysis can best be accomplished by comparing monthly: a.) revenue and expense account balances to the monthly reported net income. b.) revenue and expense account totals to the corresponding figures of the preceding years. c.) income statement ratios to published industry averages. d.) income statement ratios to balance sheet ratios.

b

Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: a.) Notify the board of directors that the auditor's report must no longer be associated with the financial statements. b.) Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. c.) Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. d.) Issue revised pro forma financial statements taking into consideration the newly discovered information.

b

Tennessee Company violated company policy by erroneously capitalizing the cost of painting its warehouse. The auditors examining Tennessee's financial statements would most likely learn of this error by: a.) examining in detail a sample of construction requests. b.) reviewing the titles and descriptions for all construction work orders issued during the year. c.) observing, during the physical inventory observation that the warehouse has been painted. d.) discussing Tennessee's capitalization policies with its controller.

b

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.) Peer review of the working papers is completed.

b

To achieve effective internal control over fixed-asset additions, a company should establish procedures that require: a.) capitalization of the cost of fixed-asset additions in excess of a specific dollar amount. b.) authorization and approval of major fixed-asset additions. c.) performance of recurring fixed-asset maintenance work solely by maintenance department employees. d.) classification as investments of those fixed-asset additions that are not used in the business.

b

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: a.) Increase in insurance coverage. b.) Inspection of equipment and reconciliation with accounting records. c.) Verification of liens, pledges, and collateralizations. d.) Accounting for work orders.

b

When examining a client's statement of cash flows, for audit evidence, an auditor will rely primarily upon: a.) determination of the amount of working capital at year-end. b.) cross-referencing to balances and transactions audited in connection with the examination of the other financial statements. c.) the guidance provided by the FASB Statement on the statement of cash flows. d.) analysis of significant ratios of prior years as compared to the current year.

b

Which of the following is an internal control weakness related to factory equipment? a.) Checks issued in payment of purchases of equipment are not signed by the controller. b.) All purchases of factory equipment are required to be made by the department in need of the equipment. c.) Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. d.) Proceeds from sales of fully depreciated equipment are credited to other income.

b

Which of the following is not an acceptable financial reporting framework? a.) Cash basis. b.) Generally accepted auditing standards basis. c.) International accounting standards basis. d.) Tax basis.

b

Which of the following is not correct relating to an audit report for a public company? a.) It refers to standards of the Public Company Accounting Oversight Board. b.) It includes the term "PCAOB Compliant" in the title. c.) It must include the city and state in which it was issued. d.) It includes an additional paragraph indicating that the auditors have also issued a report on the client's internal control over financial reporting.

b

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 a qualified opinion. c.) Whether to issue an adverse opinion rather than a qualified opinion. d.) Nothing, because none of these opinions is applicable to this type of exception.

c

An audit report for a public client indicates that the financial statements were prepared in conformity with: a.) Generally accepted auditing standards (United States). b.) Standards of the Public Company Accounting Oversight Board (United States). c.) Generally accepted accounting principles (United States). d.) Generally accepted accounting principles (Public Company Accounting Oversight Board).

c

An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: a.) December 31, 20X8. b.) January 17, 20X9. c.) February 10, 20X9. d.) February 16, 20X9.

c

An effective procedure for identifying unrecorded retirements of equipment is to: a.) Foot related property records. b.) Recalculate depreciation on the related equipment. c.) Select items of equipment in the accounting records and then locate them in the plant. d.) Select items of equipment and then locate them in the accounting records.

c

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: a.) All transactions resulting in the ending balance. b.) Tests of controls over disposals. c.) Transactions that occurred during the year. d.) Performing analytical procedures on beginning balances of the accounts.

c

Jones, CPA, accepts a new client late in Year 5 and therefore had no opportunity to observe the physical inventory taken at December 31, Year 4. Jones found it impossible to obtain evidence by other auditing procedures as to the beginning inventories for Year 5. Jones observed the physical inventory at December 31, Year 5 and completed the audit satisfactorily. The report to be issued should: a.) be a disclaimer of opinion. b.) be unmodified. c.) be unmodified as to the balance sheet and with a disclaimer of opinion as to the income statement and the statement of cash flows. d.) be qualified as to all of the statements.

c

Patentex developed a new secret formula that is of great value because it resulted in a virtual monopoly. Patentex has capitalized all of its research and development costs associated with this formula. Greene, CPA, who is examining this account will probably: a.) confer with management regarding a change in the title of the account to "goodwill". b.) confer with management relating to controls maintained over formula confidentiality. c.) confer with management regarding transfer of the amount from the balance sheet to the income statement. d.) confirm that the secret formula is registered and on file with the county clerk's office.

c

The auditors are most likely to seek information from the plant manager with respect to the a.) Adequacy of the provision for uncollectible accounts. b.) Appropriateness of physical inventory observation procedures. c.) Existence of obsolete machinery. d.) Deferral of procurement of certain necessary insurance coverage.

c

The primary difference between an audit of the balance sheet and an audit of the income statement lies in the fact that the audit of the income statement deals almost completely with the verification of: a.) authorizations. b.) costs. c.) transactions. d.) cutoffs.

c

The search for unrecorded liabilities for a public company includes procedures usually performed through the: a.) Day the audit report is issued. b.) End of the client's year. c.) Date of the auditors' report. d.) Date the report is filed with the SEC.

c

To assure accountability for fixed asset retirements, management should implement an internal control that includes: a.) Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets. b.) Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. c.) Utilization of serially numbered retirement work orders. d.) Periodic observation of plant assets by the internal auditors.

c

Upon the advice of its auditors, Smith Company changed the method of computing depreciation from the straight-line method to an accelerated method with a material effect upon the financial statements. The auditors' report: a.) should contain modification of the opinion paragraph. b.) must be qualified for the accounting change. c.) should include an additional emphasis-of-matter paragraph highlighting the accounting change. d.) should be a standard unmodified report.

c

What is the objective of auditor reporting responsibilities with respect to consistency? a.) To give assurance that the comparability of financial statements between periods has not been materially affected by any type of change. b.) To give assurance only that the same accounting principles have been applied to all similar transactions within each period presented. c.) To give assurance that users will be informed of the lack of comparability of financial statements between periods due to changes in accounting principles. d.) To give assurance that adequate disclosure will be made so that there will be comparability of financial statements between companies in the same industry.

c

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? Qualified Adverse a.) Yes Yes b.) Yes No c.) No Yes d.) No No

c

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to: a.) the consistency or lack of consistency in the application of generally accepted accounting principles. b.) a note to the financial statements which discusses the basis for the opinion. c.) a separate paragraph that discusses the basis for the opinion expressed. d.) the paragraph that describes management's responsibilities.

c

When the matter is properly disclosed in the financial statements, 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 opinions? Qualified Unmodified with Emphasis of Matter a.) Yes Yes b.) Yes No c.) No Yes d.) No No

c

Which of the following best describes proper internal control over payroll? a.) The preparation of the payroll must be under the control of the personnel department. b.) The payment of cash to employees should be replaced with payment by checks. c.) The duties of hiring, payroll computation, and payment to employees should be segregated. d.) The confidentiality of employee payroll data should be carefully protected to prevent fraud.

c

Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? a.) A business combination. b.) Early retirement of bonds payable. c.) Settlement of litigation. d.) Plant closure due to a strike.

c

Which of the following is least likely to result in inclusion of an emphasis-of-matter paragraph in an 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.

c

Which of the following is most likely to be considered a Type 1 subsequent event? a.) A business combination completed after year-end, but for which negotiations began prior to year-end. b.) A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago. c.) Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. d.) Introduction of a new line of products after year-end for which major research had been completed prior to year-end.

c

Which of the following is not an overall test of the annual provision for depreciation expense? a.) Compare rates used in the current year with those used in prior years. b.) Test computation of depreciation provisions for a representative number of units. c.) Test deductions from accumulated depreciation for assets purchased during the year. d.) Perform analytical procedures.

c

Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job? a.) Examine human resources records for accuracy and completeness. b.) Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. c.) Make a surprise observation of the company's regular distribution of paychecks on a test basis. d.) Visit the working areas and verify that employees exist by examining their badge or identification numbers.

c

A client company has changed its accounting practices during the year, materially affecting its financial statements so as to make them seriously misleading and not in conformity with generally accepted accounting principles. The CPAs examining these financial statements should: a.) modify the opinion with respect to consistency, referring to explanatory notes of the financial statements to fulfill disclosure requirements. b.) modify the opinion with respect to consistency and, in an emphasis-of-matter paragraph, explain the changes and their effects on the net income of the period. c.) disclaim an opinion and give reasons. d.) render an adverse opinion and give reasons.

d

A normal audit procedure is to analyze the current year repairs and maintenance accounts to provide evidence in support of the audit proposition that: a.) expenditures for fixed assets have been recorded in the proper period. b.) non capitalizable expenditures have been properly expensed. c.) capital expenditures have been properly authorized. d.) expenditures for fixed assets have been capitalized.

d

A search for overstated property, plant, and equipment purchases would most likely include: a.) Repairs and maintenance expense. b.) Purchase discounts. c.) Accounts receivable. d.) Property, plant, and equipment.

d

An auditors' opinion exception arising from a limitation on the scope of the audit should be explained in: a.) the mandatory adjusting entry whenever such a scope limitation occurs. b.) both a note to the financial statements and the auditors' report. c.) a note to the financial statements. d.) the auditors' report.

d

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: a.) Express an opinion that is qualified due to the inability of the client company to continue as a going concern. b.) Evaluate management's performance in causing this decline. c.) Require note disclosure. d.) Consider the possibility of a misstatement in the financial statements.

d

Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly. . ." This is: a.) An unmodified opinion. b.) A disclaimer of opinion. c.) An "except for" opinion. d.) An improper type of reporting.

d

Auditors perform interim work at various times throughout the year. The auditors' subsequent events work should be extended to the date of: a.) the final billing for audit services rendered. b.) the next scheduled interim visit. c.) a postdated footnote. d.) the auditors' report.

d

The auditors may conclude that depreciation charges are insufficient by noting: a.) Insured values greatly in excess of book values. b.) Large amounts of fully depreciated assets. c.) Continuous trade-ins of relatively new assets. d.) Excessive recurring losses on assets retired.

d

The auditors may conclude that depreciation charges are insufficient by noting: a.) insured values greatly in excess of book values. b.) continuous trade-ins of relatively new assets. c.) large amounts of fully depreciated assets. d.) excessive recurring losses on assets retired.

d

The primary responsibility for the adequacy of disclosure in the financial statements of a publicly-held company rests with the: a.) partner assigned to the audit engagement. b.) Securities and Exchange Commission. c.) auditor in charge of the field work. d.) management of the company.

d

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? a.) Depreciation. b.) Accounts Payable. c.) Cash. d.) Repairs and Maintenance.

d

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? a.) The estimated remaining useful lives of plant assets were revised upward. b.) The prior year's depreciation expense was erroneously understated. c.) Overhead allocations were revised at year-end. d.) Plant assets were retired during the year.

d

Which of the following is least likely to be considered a substantive procedure relating to payroll? Investigate fluctuations in salaries, wages, and commissions. a.) Test computations of compensation under profit sharing for bonus plans. b.) Test commission earnings. c.) Test whether employee time reports are approved by supervisors. d.) Testing whether employee time reports are approved by supervisors is an example of a test of a control, not a substantive procedure.

d

Which of the following procedures is most likely to be included near completion of an audit? a.) Obtain an understanding of internal control. b.) Confirmation of receivables. c.) Observation of inventory. d.) Perform analytical procedures.

d

Which of the following situations has the best chance of being detected when a CPA compares 200X revenues and expenses with the prior year and investigates all changes exceeding a fixed percentage? a.) An increase in property tax rates has not been recognized in the company's 200X accrual. b.) The cashier began lapping accounts receivable in 200X. c.) Because of worsening economic conditions, the 200X provision for uncollectible accounts was inadequate. d.) The company changed its capitalization policy for small tools in 200X.

d

Your audit of the Abbox Co. reveals that the firm's poor financial condition creates substantial doubt about its ability to continue as a going concern. Assuming that the financial statements have otherwise been prepared in accordance with generally accepted accounting principles and do include proper presentation of the matter, what disclosure should you make of the company's precarious financial position? a.) You should provide adequate disclosure and appropriately qualify your opinion because of the uncertainty. b.) You should issue an adverse opinion on the financial statements. c.) You need not insist on any particular disclosure, since the company's poor financial condition is clearly indicated by the financial statements themselves. d.) You should issue an unmodified opinion, but use an emphasis-of-matter paragraph to direct the reader's attention to the poor financial condition of the company as described in the financial statements and the notes.

d