Final

The performance of an attestation engagement on prospective financial information does not require which of the following? Management must disclose the probability of obtaining the results included in the prospective financial information. If the basis of the prospective financial information is different than the financial statements, a reconciliation of the two must be provided. Management must disclose significant accounting policies and procedures used in generating the prospective financial information. Management must disclose all significant assumptions used in generating the prospective financial information.

A

The scope paragraph of the standard report on the entity's financial statements does not include the statement A. "In conformity with generally accepted accounting principles." B. "Audit provides a reasonable basis for an opinion." C. "An audit includes assessing the accounting principles used." D. "Perform the audit to obtain reasonable assurance."

A. "In conformity with generally accepted accounting principles."

Which of the following statements is not included in the scope paragraph of the standard report on the entity's financial statements? A. "Our responsibility is to express an opinion." B. "Standards require that we plan and perform the audit." C. "Our audit provides a reasonable basis for our opinion." D. "An audit includes examining, on a test basis, evidence of the amounts and disclosures."

A. "Our responsibility is to express an opinion."

Which of the following is not included in the scope paragraph of the standard report on the entity's financial statements? A. A conclusion that the financial statements are in conformity with U.S. GAAP. B. A statement that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). C. The fact that an audit includes assessing the accounting principles used. D. The fact that the auditors planned and performed the audit to obtain reasonable assurance that the financial statements are free of material misstatement.

A. A conclusion that the financial statements are in conformity with U.S. GAAP.

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a (an) A. Disclaimer of opinion. B. "Except for" qualified opinion regarding a departure from generally accepted accounting principles. C. Unqualified opinion with a separate explanatory paragraph. D. Adverse opinion.

A. Disclaimer of opinion.

Auditors who are reporting on financial statements that contain a material departure from generally accepted accounting principles should include a separate explanatory paragraph and A. Express a qualified or adverse opinion. B. Not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote. C. Disclaim an opinion on the financial statements. D. Express a qualified opinion or disclaimer of opinion.

A. Express a qualified or adverse opinion.

The use of a disclaimer of opinion generally indicates A. The auditors are very uncertain with respect to an item and cannot form an opinion on the fairness of presentation of the financial statements as a whole. B. The auditors are uncertain with respect to an isolated item that is material but not so material that the auditors cannot form an opinion on the fairness of presentation of the financial statements as a whole. C. The auditors have observed a departure from generally accepted accounting principles that has a material effect upon the fairness of presentation of financial statements but the departure is not material enough to justify a qualified opinion. D. The auditors have observed a departure from generally accepted accounting principles that is so material that a qualified opinion is not justified.

A. The auditors are very uncertain with respect to an item and cannot form an opinion on the fairness of presentation of the financial statements as a whole.

When auditors lack independence, which of the following is true about the report on the entity's financial statements that should be issued? A. The auditors should disclaim an opinion and should state specifically that they are not independent. B. The auditors should disclaim an opinion but not mention that they are not independent. C. The auditors should issue an unqualified opinion with an explanatory paragraph stating that they are not independent. D. The auditors should issue a qualified opinion with an explanatory paragraph stating that they are not independent.

A. The auditors should disclaim an opinion and should state specifically that they are not independent.

In an agreed-upon procedures engagement, an accountant: follows all of the fundamental principles of GAAS. restricts the report to specified users. includes negative assurance in the report. gives a qualified audit report.

B

Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Inspecting title documents to verify whether any assets are pledged as collateral. B. Confirming with third parties the details of arrangements to maintain financial support. C. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation. D. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.

B. Confirming with third parties the details of arrangements to maintain financial support.

Wolfe became the new auditor for Royal Corporation, succeeding Mason, who audited the financial statements last year. Wolfe needs to report on Royal's comparative financial statements and should disclose in his report an explanation about other auditors having audited the prior year A. Only if Mason's opinion last year was qualified. B. Describing the prior audit and the opinion but not naming Mason as the predecessor auditor. C. Describing the audit but not revealing the type of opinion Mason gave. D. Describing the audit and the opinion and naming Mason as the predecessor auditor.

B. Describing the prior audit and the opinion but not naming Mason as the predecessor auditor.

An explanation of reliance on the reports of other auditors is an illustration of report departures referred to as A. Qualifications. B. Divisions of responsibility. C. Expansions of scope. D. Scope limitations.

B. Divisions of responsibility.

Which of the following would cause the auditors to issue a report on the entity's financial statements other than a standard report? A. The financial statements present fairly the financial condition of the entity. B. The entity omitted a necessary footnote from the financial statements. C. There were no unusual issues related to the conduct of the audit. D. The auditors do not need to highlight any entity transactions or events.

B. The entity omitted a necessary footnote from the financial statements.

In which of the following situations would auditors ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion on the entity's financial statements? A. The auditors did not observe the entity's physical inventory and are unable to become satisfied as to its balance by other auditing procedures. B. The financial statements fail to disclose information that is required by GAAP. C. The auditors are asked to report only on the entity's balance sheet and not on the other basic financial statements. D. Events disclosed in the financial statements cause the auditors to have substantial doubt about the entity's ability to continue as a going concern.

B. The financial statements fail to disclose information that is required by GAAP.

In which of the following circumstances would auditors most likely add an explanatory paragraph to the standard report without affecting the unqualified opinion on the entity's financial statements? A. The auditors are asked to report on the balance sheet, but not on the other basic financial statements. B. There is substantial doubt about the entity's ability to continue as a going concern. C. Management's estimates of the effects of future events are unreasonable. D. Certain transactions cannot be tested because of management's records retention policy.

B. There is substantial doubt about the entity's ability to continue as a going concern.

Company A hired Samson & Delilah, CPAs, to audit the financial statements of Company B and deliver the report to Megabank. Who is the client? A. Megabank. B. Samson & Delilah. C. Company A. D. Company B.

C. Company A.

An entity accomplished an early extinguishment of debt and the auditors believe that literal application of GAAP would cause recognition of a loss that would materially distort the financial statements and cause them to be misleading. Given these facts, the auditors would probably choose which reporting option? A. Explain the situation and issue an adverse opinion. B. Explain the situation and issue a disclaimer of opinion. C. Explain the situation and issue an unqualified opinion, relying on Rule 203 of the AICPA Code of Professional Conduct. D. Issue the standard report.

C. Explain the situation and issue an unqualified opinion, relying on Rule 203 of the AICPA Code of Professional Conduct.

The opinion paragraph of the auditors' report on the entity's financial statements either implicitly or explicitly incorporates all of the following standards, except that the A. Financial statements are presented in conformity with U.S. GAAP. B. Informative disclosures are adequate unless otherwise stated. C. Financial statements are management's responsibility. D. Report identifies circumstances in which principles have not been consistently observed.

C. Financial statements are management's responsibility.

When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion, the report would not A. Explain any departures from GAAP. B. Refer to any scope limitation. C. Include the standard scope paragraph. D. Discuss the fact that they were engaged to audit the financial statements.

C. Include the standard scope paragraph.

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditors should A. Refer to the change in an explanatory paragraph. B. Explicitly concur that the change is preferred. C. Not refer to consistency in the report. D. Refer to the change in the opinion paragraph.

C. Not refer to consistency in the report.

A lack of reasonable care that may be characterized by the failure of auditors to follow GAAS in the conduct of the audit is known as Constructive fraud. Gross negligence. Fraud. Ordinary negligence.

D

If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow: PCAOB AS 2201, "An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements." FASB Concepts Statement No. 1, "Objectives of Financial Reporting by Business Enterprises." AICPA AU 315, "Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement." AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

D

Auditors are required to make consistency references in the auditors' report when there are changes in A. Accounting estimates. B. The format of the statement of cash flows. C. The classification of financial statement amounts. D. Accounting principles.

D. Accounting principles.

Which of the following is not included in the standard report on the financial statements? A. An identification of the financial statements that were audited. B. A general description of an audit. C. An opinion that the financial statements present financial position in conformity with GAAP. D. An emphasis paragraph commenting on the effect of economic conditions on the entity.

D. An emphasis paragraph commenting on the effect of economic conditions on the entity.

Which of the following report modifications would not be necessary if principal auditors are indicating a division of responsibility? A. A reference to other auditors' work in the introductory paragraph. B. A reference to the report of other auditors providing a basis for the opinion in the scope paragraph. C. A reference to the report of other auditors in the opinion paragraph. D. An explanatory paragraph summarizing the components (and dollar and percentage magnitudes of the components) examined by other auditors.

D. An explanatory paragraph summarizing the components (and dollar and percentage magnitudes of the components) examined by other auditors.

If the auditors encounter a material scope limitation in the examination of the entity's financial statements, which of the following types of opinions could be issued? A. Adverse opinion or disclaimer of opinion. B. Adverse opinion or qualified opinion. C. Unqualified opinion with explanatory language or qualified opinion. D. Disclaimer of opinion or qualified opinion.

D. Disclaimer of opinion or qualified opinion.

When auditors qualify their opinion on the entity's financial statements because of inadequate disclosure, the auditors should describe the nature of the omission in a separate explanatory paragraph and modify the A. Introductory Paragraph: Yes; Scope Paragraph: Yes B. Introductory Paragraph: Yes; Scope Paragraph: No C. Introductory Paragraph: No; Scope Paragraph: Yes D. Introductory Paragraph: No; Scope Paragraph: No

D. Introductory Paragraph: No; Scope Paragraph: No

The auditors include a separate paragraph in an otherwise unmodified report on the entity's financial statements to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph A. Is considered an "except for" qualification of the opinion. B. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. C. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." D. Is appropriate and would not otherwise affect the unqualified opinion.

D. Is appropriate and would not otherwise affect the unqualified opinion.

Which of the following is not included in the introductory paragraph of the standard report on the entity's financial statements? A. The names of the financial statements audited. B. The auditors' responsibility to express an opinion on the entity's financial statements. C. Management's responsibility for the financial statements. D. The fact that an audit provides a reasonable basis for an opinion.

D. The fact that an audit provides a reasonable basis for an opinion.

A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on A. the fair presentation of the financial statements in conformity with GAAP. B. irregularities involving the client's management and its employees. C. the materiality of the adjusting entries proposed by the audit staff. D. the communication of internal control deficiencies to the client's audit committee (or those charged with governance).

a

Analytical procedures performed near the end of an audit generally include A. considering unusual or unexpected account balances that were not previously identified. B. performing tests of transactions to corroborate management's financial statement assertions. C. gathering evidence concerning account balances that have not changed from the prior year. D. retesting control activities that appeared to be ineffective during the assessment of control risk.

a

Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the A. client's management. B. audit manager. C. engagement partner. D. engagement quality review partner.

a

Following the audit report release date, auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts. What is the most appropriate initial course of action that auditors should take? A. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. B. Request that management disclose the newly-discovered information by issuing revised financial statements. C. Issue revised pro forma financial statements taking into consideration the newly discovered information. D. Give public notice that auditors are no longer associated with financial statements.

a

For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit? A. Obtaining evidence about assertions related to account balances or classes of transactions B. Evaluating the adequacy of evidence gathered in response to unexpected account balances C. Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit D. Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances

a

To perform an attestation engagement on prospective information or pro forma information, accountants must do all of the following except a. Understand the internal controls used in the processes that generated the information. b. Obtain knowledge about the entity's business and accounting principles. c. Evaluate the assumptions used to prepare the information. d. Obtain an understanding of the process through which the information was developed.

a. Understand the internal controls used in the processes that generated the information.

The phrase "Trust services" refers to: a. WebTrust and SysTrust Services. b. XBRL and SysTrust Services. c. WebTrust and XBRL Services. d. all AICPA designated assurance services.

a. WebTrust and SysTrust Services.

What is the appropriate name for an assurance service provided by a CPA regarding a client's commercial Internet site with reference to the principles of privacy, security, processing integrity, availability, and confidentiality? a. WebTrust. b. SysTrust. c. XBRL. d. WebSecure

a. WebTrust.

When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements: a. might influence users' conclusions about the business, if the disclosures were included. b. are prepared in conformity with a comprehensive basis of accounting other than GAAP. c. are not compiled in accordance with Statements on Standards for Accounting and Review Services. d. are special-purpose financial statements that are not comparable to those of prior periods.

a. might influence users' conclusions about the business, if the disclosures were included.

Individuals who believe they relied on misstated financial statements to make a decision and have suffered losses as a result will issue an action known as a Breach of contract. Tort. Constructive fraud. Securities litigation.

b A tort is a lawsuit filed by the plaintiff who believes that they have suffered damage due to another party's failure to exercise the appropriate level of professional care.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? A. Accounts receivable B. Interest expense C. Accounts payable D. Travel and entertainment expense

b

Which of the following statements regarding auditors' liability under the Securities Act of 1933 is not true? The act relates to the initial issuance of securities to the public, normally through an initial public offering. Third parties must demonstrate that they relied on misstated financial statements that were examined by auditors. Auditors may be liable if they are found to have engaged in ordinary negligence. Auditors' liability arises because of audited financial information filed with the SEC.

b Third parties are only required to demonstrate that the financial statements are materially misstated; they are not required to demonstrate reliance on these financial statements.

An accountant need not assess compliance with independence rules during a. An examination of prospective financial information. b. A preparation of financial statement engagement. c. A compilation engagement. d. A review engagement

b. A preparation of financial statement engagement.

An assurance service is defined as a service that a. Reviews unaudited financial information. b. Improves the quality of information for decision makers. c. Reduces the risk in management decision making. d. Provides auditing services to nonfinancial information.

b. Improves the quality of information for decision makers

A group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoid liability under the common law, AOW must demonstrate which of the following? The investors relied on the financial statements audited by AOW. The investors actually suffered a loss. The audit was conducted in accordance with generally accepted auditing standards and with due professional care. The investors' loss was a direct result of their reliance on the audited financial statements.

c

An accountant's report includes the phrase "We are not aware". This phrase indicates: an attestation was not performed. management had not established sufficient criteria for an opinion to be issued. the auditor is providing negative assurance. a disclaimer of opinion is presented.

c

Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be: a. an assurance service engagement. b. an attestation engagement. c. a review engagement. d. a compilation engagement.

c. Obtain an attorney's letter regarding litigation and unasserted claims.

Which of the following would be considered a preparation of financial statements engagement? a. Drafting financial statement notes. b. Preparing financial statements in conjunction with business valuation services. c. Preparation of personal financial statements for presentation alongside a financial plan. d. Preparation of financial statements with a tax return solely for submission to taxing authorities

c. Preparation of personal financial statements for presentation alongside a financial plan

Which of the following procedures is not used in auditors' examination of litigation, claims, and assessments? A. Obtaining a description and evaluation of litigation, claims, and assessments from management B. Examining documentary evidence regarding litigation, claims, and assessments C. Reading minutes of meetings of stockholders, directors, and appropriate committees D. Performing analytical procedures

d

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events? A. Determine that changes in employee pay rates after year end were properly authorized. B. Recompute depreciation charges for plant assets sold after year end. C. Inquire about payroll checks that were recorded before year end but cashed after year end. D. Investigate changes in long-term debt occurring after year end.

d

A public entity subject to the periodic reporting requirements of the Securities Exchange Act of 1934 must file an annual report with the SEC known as the Regulation S-X. Form 8-K. Form 10-Q. Form 10-K.

d

An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the: A. "to-do lists" are reviewed and cleared. B. audit plan procedures are "signed off." C. tick-mark notations are cleared. D. audit work meets the quality standards of the firm.

d

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. Auditors most likely could have detected this irregularity by A. tracing a sample of journal entries to the general ledger. B. evaluating the effectiveness of the internal control policies and procedures. C. investigating the reconciliations between controlling accounts and subsidiary records. D. performing analytical procedures designed to disclose differences from expectations.

d

An investor seeking to recover stock market losses from a CPA firm associated with an initial offering of securities based on an unmodified opinion on financial statements that accompanied a registration statement, must establish that The investor relied on the financial statements. The CPA firm would have discovered the false statement or omission if it had exercised due care in its examination. The CPA firm did not act in good faith. The audited financial statements contain a false statement or omission of material fact.

d

If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow: a. AICPA AU 315, "Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement." b. PCAOB AS 2201, "An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements." c. FASB Concepts Statement No. 1, "Objectives of Financial Reporting by Business Enterprises." d. AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

d. AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

When accountants are not independent, which of the following reports can they nevertheless issue? a. Examination report on a forecast. b. Standard unmodified audit report. c. Examination of internal control over financial reporting. d. Compilation report.

d. Compilation report.

When accountants are not independent, which of the following reports can they nevertheless issue? a. Standard unmodified audit report. b. Examination of internal control over financial reporting. c. Examination report on a forecast. d. Compilation report.

d. Compilation report.

The performance of an attestation engagement on prospective financial information does not require which of the following? a. If the basis of the prospective financial information is different than the financial statements, a reconciliation of the two must be provided. b. Management must disclose all significant assumptions used in generating the prospective financial information. c. Management must disclose significant accounting policies and procedures used in generating the prospective financial information. d. Management must disclose the probability of obtaining the results included in the prospective financial information.

d. Management must disclose the probability of obtaining the results included in the prospective financial information.

When interim financial information is presented in a footnote to annual financial statements, the standard audit report on the annual financial statements should a. Contain an extra paragraph if the interim information note is labeled "Unaudited." b. Contain an extra paragraph that gives negative assurance on the interim information if it has been reviewed. c. Contain an audit opinion paragraph that specifically mentions the interim financial information if it is not in conformity with GAAP. d. Not mention the interim information unless there is an exception that the auditors need to include in the report.

d. Not mention the interim information unless there is an exception that the auditors need to include in the report

The phrase "Trust services" refers to: WebTrust and SysTrust Services. XBRL and SysTrust Services. WebTrust and XBRL Services. all AICPA designated assurance services.

A

To perform an attestation engagement on prospective information or pro forma information, accountants must do all of the following except Understand the internal controls used in the processes that generated the information. Evaluate the assumptions used to prepare the information. Obtain an understanding of the process through which the information was developed. Obtain knowledge about the entity's business and accounting principles.

A

When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements: might influence users' conclusions about the business, if the disclosures were included. are prepared in conformity with a comprehensive basis of accounting other than GAAP. are not compiled in accordance with Statements on Standards for Accounting and Review Services. are special-purpose financial statements that are not comparable to those of prior periods.

A

The Securities Act of 1933 and Securities Exchange Act of 1934 contain Both civil liability provisions applicable to auditors and criminal liability provisions applicable to auditors. Criminal liability provisions applicable to auditors. Neither civil liability provisions applicable to auditors nor criminal liability provisions applicable to auditors. Civil liability provisions applicable to auditors.

A Both laws contain both civil and criminal liability sections

If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditors should A. Add an explanatory paragraph and express a qualified or an adverse opinion on the entity's financial statements for lack of conformity with generally accepted accounting principles. B. Disclaim an opinion on the entity's financial statements because of uncertainty. C. Disclose the matter in a separate explanatory paragraph but not modify the opinion paragraph on the entity's financial statements. D. Neither modify the opinion on the entity's financial statements nor disclose the matter because both principles are generally accepted accounting principles.

A. Add an explanatory paragraph and express a qualified or an adverse opinion on the entity's financial statements for lack of conformity with generally accepted accounting principles.

Reference in a principal auditors' report to the fact that part of the audit was performed by other auditors most likely would be an indication of A. Division of responsibility between the auditors who conducted the audits of the components of the overall financial statements. B. The portion of the financial statements audited by the other auditors not being considered material. C. Principal auditors' recognition of the other auditors' competence, reputation, and professional certification. D. Different opinions the auditors are expressing on the components of the financial statements that each audited.

A. Division of responsibility between the auditors who conducted the audits of the components of the overall financial statements.

Suppose that the comparative financial statements include the financial statements of the prior year that were audited by predecessor auditors whose report on those financial statements is not presented. If the predecessor's report was qualified, the successor should A. Indicate in the auditors' report the substantive reasons for the qualification issued by the predecessor auditors. B. Request the entity to reissue the predecessor's report on the prior-years' statements. C. Issue an updated comparative auditors' report on the entity's financial statements, indicating the division of responsibility. D. Express an opinion only on the current-year's financial statements and make no reference to the prior-years' financial statements or opinion.

A. Indicate in the auditors' report the substantive reasons for the qualification issued by the predecessor auditors.

When auditors render an adverse opinion on the entity's financial statements, the A. Introductory and scope paragraph should not be modified. B. Auditors do not possess all necessary evidence. C. Explanatory paragraph is not necessary. D. Auditors require less evidence to support the opinion.

A. Introductory and scope paragraph should not be modified.

When other independent auditors are involved in the current audit of parts of the entity's business, the principal auditors may issue a report that (two answers) A. Mentions the other auditors, describes the extent of the other auditors' work, and expresses an unqualified opinion. B. Does not mention the other auditors and expresses an unqualified opinion in a standard report. C. Places primary responsibility for the reporting on the other auditors. D. Names the other auditors, describes their work, and presents only the principal auditors' report.

A. Mentions the other auditors, describes the extent of the other auditors' work, and expresses an unqualified opinion.

If the auditors decide to present separate reports on the entity's financial statements and internal control over financial reporting, which of the following reports should be modified to reference the other report? (view file for image # 57) A. Option A B. Option B C. Option C D. Option D

A. Option A

When reporting under GAAS, certain statements are required in all auditors' reports ("explicit") and others are required only under certain conditions ("implicit"). Which combination that follows correctly describes the auditors' responsibilities for reporting? A. Option A B. Option B C. Option C D. Option D

A. Option A

When reporting on comparative financial statements, auditors ordinarily should modify the previous opinion on the prior-year's financial statements if the A. Prior-year's financial statements are restated to conform with generally accepted accounting principles. B. Auditors were predecessors who have been requested by a former client to reissue the previous report. C. Prior-year's opinion was unqualified and the opinion on the current-year's financial statements is modified due to a lack of consistency. D. Prior-year's financial statements are restated following an acquisition in the current year.

A. Prior-year's financial statements are restated to conform with generally accepted accounting principles.

If financial statements contain a material but "compartmentalized" departure from FASB pronouncements, the auditors should render a(n) A. Qualified "except for" opinion with reference to departure. B. Adverse opinion with scope limitation reference. C. Adverse opinion with reference to departure. D. Disclaimer of opinion.

A. Qualified "except for" opinion with reference to departure.

How is the auditors' own responsibility for expressing the opinion on financial statements disclosed in the report? A. Stated explicitly in the introductory paragraph of the standard report. B. Unstated but understood in the introductory paragraph of the standard report. C. Stated explicitly in the opinion paragraph of the standard report. D. Stated explicitly in the scope paragraph of the standard report.

A. Stated explicitly in the introductory paragraph of the standard report.

In which of the following circumstances may auditors issue the standard report on the entity's financial statements? A. The entity changed accounting principles with an immaterial effect on financial position and results of operations. B. The auditors wish to emphasize a matter regarding the financial statements. C. The financial statements are affected by a departure from a generally accepted accounting principle explained and justified by Rule 203 of the AICPA code of professional conduct. D. The auditors have not been able to audit a substantial portion of the balance sheet because of a circumstance-imposed scope limitation.

A. The entity changed accounting principles with an immaterial effect on financial position and results of operations.

Under which of the following circumstances would a disclaimer of opinion on the entity's financial statements not be appropriate? A. The financial statements fail to contain adequate disclosure of related-party transactions. B. The entity refuses to permit its attorney to furnish information requested in an attorney letter. C. The auditors are engaged after fiscal year end and are unable to observe physical inventories or apply alternative procedures to verify their balances. D. The auditors are unable to determine the amounts associated with illegal acts committed by the entity's management.

A. The financial statements fail to contain adequate disclosure of related-party transactions.

The auditors determined that the entity is suffering financial difficulty and the going-concern status is seriously in doubt. Assuming the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors' report alternatives? A. Unqualified opinion with a going-concern explanatory paragraph or disclaimer of opinion. B. Standard report or a disclaimer of opinion. C. Qualified opinion or adverse opinion. D. Standard report or adverse opinion.

A. Unqualified opinion with a going-concern explanatory paragraph or disclaimer of opinion.

An "emphasis-of-a-matter" paragraph inserted in a standard report is normally associated with which type of opinion? A. Unqualified opinion. B. Qualified opinion. C. Adverse opinion. D. Disclaimer of opinion.

A. Unqualified opinion.

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditors and the start of field work made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditors' report most likely contained a(n) A. Unqualified opinion. B. Unqualified opinion with an explanatory paragraph. C. Qualified opinion due to a scope limitation. D. Qualified opinion due to a departure from generally accepted auditing standards.

A. Unqualified opinion.

When financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is A. Unqualified. B. Qualified. C. Adverse. D. Qualified or adverse, depending on the overall materiality of the GAAP departure.

A. Unqualified.

Restrictions imposed by an entity prohibited the observation of physical inventories, which accounted for 35% of all assets. Alternative auditing procedures were not feasible, although the auditors were able to examine satisfactory evidence for all other items in the financial statements. The auditors should express A. An "except for" qualified opinion on the entity's financial statements, referring to a departure from generally accepted accounting principles. B. A disclaimer of opinion on the entity's financial statements. C. An unqualified opinion on the entity's financial statements with a separate explanatory paragraph. D. An unqualified opinion on the entity's financial statements with an explanation in the scope paragraph.

B. A disclaimer of opinion on the entity's financial statements.

Auditors will issue an adverse opinion when A. A severe scope limitation has been imposed by the entity. B. A violation of GAAP is sufficiently material that a qualified opinion is not justified. C. A qualified opinion cannot be rendered because the auditors lack independence. D. The entity's ability to continue as a going concern is subject to substantial doubt.

B. A violation of GAAP is sufficiently material that a qualified opinion is not justified.

If a going-concern problem exists, auditors may not issue which of the following reports on the entity's financial statements? A. An unqualified opinion with an additional paragraph explaining the going-concern problem. B. An adverse opinion because of a pervasive departure from GAAP. C. A disclaimer of opinion resulting from an uncertainty about the ability of the entity to continue in existence. D. An opinion qualified for a GAAP departure if the auditors believe the disclosures about going-concern problems are inadequate.

B. An adverse opinion because of a pervasive departure from GAAP.

"We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)" would generally not refer to which of the following? A. Competence and capabilities. B. Expression of opinion. C. Exercise of due care. D. Independence in mental attitude.

B. Expression of opinion.

Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in an explanatory paragraph. A. Preceding the scope paragraph. B. Preceding the opinion paragraph. C. Following the opinion paragraph. D. Within the footnotes to the financial statements.

B. Preceding the opinion paragraph.

The auditors' report on the entity's financial statements included an additional paragraph disclosing a difference of opinion between the auditors and the entity for which the auditors believed an adjustment to the financial statements should be made. The opinion paragraph of the auditors' report should express a(n) A. Unqualified opinion. B. Qualified opinion citing a departure from generally accepted accounting principles. C. Qualified opinion citing a scope limitation and lack of specific evidence. D. Disclaimer of opinion.

B. Qualified opinion citing a departure from generally accepted accounting principles.

The auditors conclude that an entity's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the overall materiality of the effect on the financial statements, the auditors 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.

B. Qualified opinion or an adverse opinion.

Auditors' reporting decisions on financial statements depend primarily on the A. Reporting principle. B. Sufficiency and appropriateness of evidence. C. Application of GAAP. D. Integrity of management.

B. Sufficiency and appropriateness of evidence.

Auditors would not normally issue a qualified opinion on the entity's financial statements when A. An accounting principle at variance with GAAP is used. B. The auditors lack independence with respect to the audited entity. C. A scope limitation prevents the auditors from completing an important auditing procedure. D. The auditors' report refers to the work of a specialist.

B. The auditors lack independence with respect to the audited entity.

Which of the following is an example of a material accounting change that requires recognition in an unqualified opinion on the entity's financial statements? A. A new accounting principle was adopted for a new class of assets acquired in the current year. B. The entity has changed its form of reporting entity. C. Management has changed from one generally accepted accounting principle to another but has not provided reasonable justification. D. An accounting change made in the current year is expected to have a material effect only in the subsequent year.

B. The entity has changed its form of reporting entity.

Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure? A. "Subject to the departure from generally accepted accounting principles, as described above". B. "With the foregoing explanation of these omitted disclosures". C. "Except for the omission of the information discussed in the preceding paragraph". D. "Does not present fairly in all material respects".

C. "Except for the omission of the information discussed in the preceding paragraph".

If the auditor obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unqualified and could be expected to A. Disclose the fact that alternative procedures were used due to client-imposed scope limitation. B. Disclose in the opinion paragraph that confirmation of accounts receivable was impracticable. C. Not mention the alternative procedures. D. Include an explanatory paragraph that discloses the performance of alternative procedures.

C. Not mention the alternative procedures.

If the auditors present a combined report on the entity's financial statements and internal control over financial reporting, in which paragraph of the report is the opinion on the entity's financial statements shown? A. Introductory paragraph. B. Scope paragraph. C. Opinion paragraph. D. Explanatory paragraph.

C. Opinion paragraph.

How would the auditors' opinion on the entity's financial statements be affected if a material weakness in internal control over financial reporting is identified? A. The auditors would need to disclaim an opinion on the entity's financial statements. B. The auditors would need to issue either a qualified or adverse opinion on the entity's financial statements, depending on the significance of the material weakness. C. The auditors' opinion on the entity's financial statements would not be affected by the material weakness, assuming sufficient appropriate evidence has been obtained for the financial statement balances. D. The auditors would need to withdraw from the engagement and would not issue an opinion or other form of assurance on the financial statements.

C. The auditors' opinion on the entity's financial statements would not be affected by the material weakness, assuming sufficient appropriate evidence has been obtained for the financial statement balances.

In which of the following circumstances would auditors be most likely to express an adverse opinion? A. The chief executive officer refuses the auditors access to minutes of board of directors' meetings. B. Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon. C. The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases. D. Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern.

C. The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases.

If financial statements contain an immaterial departure from accounting principles, the auditors can render a(n) A. Qualified "except for departure from GAAP" opinion. B. "Subject to" opinion. C. Unqualified opinion. D. Unqualified opinion with explanatory paragraph.

C. Unqualified opinion.

Auditors would not express a qualified opinion on the entity's financial statements when A. A scope limitation prevents the auditors from completing an important auditing procedure. B. The auditors' report refers to the work of a specialist. C. An accounting principle at variance with generally accepted accounting principles is used. D. The auditors lack independence with respect to the audited entity.

D. The auditors lack independence with respect to the audited entity.

When accountants are not independent, which of the following reports can they nevertheless issue? Examination report on a forecast. Standard unmodified audit report. Examination of internal control over financial reporting. Compilation report.

D

report on sustainability, as defined by the AICPA, might include all of the following except economic viability. social responsibility. environmental responsibility. internal control over financial reporting.

D

Which of these situations would require auditors to append an explanatory paragraph about consistency to an otherwise unqualified opinion? A. Entity changed its estimated allowance for uncollectible accounts receivable. B. Entity corrected a prior mistake in accounting for interest capitalization. C. Entity sold one of its subsidiaries and consolidated six subsidiaries this year compared to seven last year. D. Entity changed its inventory costing method from FIFO to LIFO.

D. Entity changed its inventory costing method from FIFO to LIFO.

Independent auditors must consider whether the entity has the ability to continue as a going concern. If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, the auditors would normally A. Disclaim an opinion. B. Express an adverse opinion. C. Qualify the opinion. D. Express an unqualified opinion with another paragraph describing the going-concern uncertainty.

D. Express an unqualified opinion with another paragraph describing the going-concern uncertainty.

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of A. Inadequate disclosure of material information. B. The omission of the statement of cash flows. C. A material departure from generally accepted accounting principles. D. Management's refusal to furnish written representations.

D. Management's refusal to furnish written representations.

Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considering the overall materiality of this departure from GAAP, the auditors would choose between which reporting options? A. Unqualified opinion or disclaimer of opinion. B. Unqualified opinion or qualified opinion. C. Emphasis paragraph with unqualified opinion or an adverse opinion. D. Qualified opinion or adverse opinion.

D. Qualified opinion or adverse opinion.

When audited financial statements are presented in a document containing other information, the auditors should A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable. B. Add an explanatory paragraph to the auditors' report without modifying the opinion on the financial statements. C. Perform the appropriate substantive procedures to corroborate the other information. D. Read the other information to determine that it is consistent with the audited financial statements.

D. Read the other information to determine that it is consistent with the audited financial statements.

"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 2010." is an illustration of a A. Consistency change requiring a qualified opinion. B. Scope limitation. C. Departure from GAAP. D. Report with a consistency modification.

D. Report with a consistency modification.

The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements. If the auditors conclude that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditors may A. Issue an "except for" qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. B. Consider the matter closed since the other information is not in the audited financial statements. C. Issue an adverse opinion on the entity's financial statements due to inadequate disclosure. D. Revise the report on the entity's financial statements to include a separate explanatory paragraph describing the material inconsistency.

D. Revise the report on the entity's financial statements to include a separate explanatory paragraph describing the material inconsistency.

When disclaiming an opinion due to a client-imposed scope limitation, auditors should indicate in a separate paragraph why the audit did not comply with the standards of the PCAOB. The auditors should also omit the A. Scope Paragraph: No; Opinion Paragraph: Yes B. Scope Paragraph: Yes; Opinion Paragraph: Yes C. Scope Paragraph: No; Opinion Paragraph: No D. Scope Paragraph: Yes; Opinion Paragraph: No

D. Scope Paragraph: Yes; Opinion Paragraph: No

Under which of the following conditions can a disclaimer of opinion never be issued? A. Going-concern problems are highly material and significant. B. The entity does not allow the auditors to have access to evidence about important accounts. C. The auditors own stock in the entity. D. The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method.

D. The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method.

If the date of an entity's financial statements is December 31, the date of the auditor's report is February 20, and the audit report release date is February 22, which of the following is considered a subsequent event? A. A significant acquisition that was announced on February 1 and will be finalized on October 1. B. A court settlement on March 3 related to a case that was pending on December 31. C. Losses from the devaluation of a foreign currency that became finalized on February 21. D. The entity's announcement of a major restructuring plan on December 30 that will be implemented during the upcoming year.

a

In an audit of contingent liabilities, which of the following procedures would be least effective? A. Examining customer confirmation replies B. Reviewing a bank confirmation letter C. Examining invoices for professional services D. Reading the minutes of the board of directors meetings

a

Locke, CPA, was engaged by Hall Inc. to audit Willow Company. Hall purchased Willow after receiving Willow's audited financial statements, which included Locke's unmodified auditors' opinion. Locke was negligent in the performance of the Willow audit engagement; this negligence was caused by failure to perform the engagement in accordance with terms of the engagement letter. As a result of Locke's negligence, Hall suffered damages of $75,000. Hall appears to have grounds to sue Locke for Breach of Contract Negligence a. Yes Yes b. Yes No c. No Yes d. No No

a

Subsequent events occur between the ____ and the ____. A. date of the financial statements; date of the auditors' report B. date of the auditors' report; audit report release date C. date of the financial statements; audit report release date D. audit report release date; beginning of subsequent year's audit

a

To whom should written representations be addressed? A. Auditors B. Board of directors C. Client D. Stockholders

a

When a client sues an accountant for failure to perform consulting work properly, the accountants' best defense is probably based on the doctrine of Contributory negligence on the part of the client. Lack of privity of contract. No negligence on the part of the consultant. Lack of any measurable dollar amount of damages.

a

Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company? Multiple Choice An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure. An audit engagement to render an opinion on the entity's internal control structure. A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure. A consulting engagement to provide constructive advice to the entity on its internal control structure.

a

Which of the following is typically not included in the inquiry letter sent to the client's attorneys? A. A disclaimer regarding the likelihood of settlement of pending litigation B. A listing of pending or threatened litigation, claims, or assessments C. An evaluation of the likelihood of an unfavorable outcome D. An estimate of the range of potential loss

a

Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts? A. Current-year recorded (unaudited) balances B. Expected balances using a statistical analysis or relationships among accounts C. Internal budgets and reports D. Prior-year balances

a

Which of the following third parties is known by name to auditors as the audit is conducted? Primary beneficiary. General third party. Foreseen third party. Foreseeable third party.

a Primary beneficiaries are known by name to auditors and, in some cases, are specifically identified in the contract (engagement letter).

Which of the following statements should be included in a practitioner's report on the application of agreed-upon procedures? a. A statement referring to standards established by the AICPA. b. A statement of negative assurance based on procedures performed. c. A statement of scope limitation that will qualify the practitioner's opinion. d. A statement that the practitioner performed an examination of prospective financial statements.

a. A statement referring to standards established by the AICPA

Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company? a. An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure. b. An audit engagement to render an opinion on the entity's internal control structure. c. A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure. d. A consulting engagement to provide constructive advice to the entity on its internal control structure.

a. An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure.

If the auditor expresses an adverse or disclaimer of opinion on the complete set of financial statements, she or he is not permitted to: a. Express an unmodified opinion on a single financial statement. b. Express an unmodified opinion on an element of the financial statements. c. Express a similar opinion on a single financial statement. d. Perform any of the choices.

a. Express an unmodified opinion on a single financial statement.

For a compliance engagement, three conditions must be met. Which of the following is not one of the three conditions? a. Management provides a report attesting to satisfactory compliance. b. Management's evaluation of compliance is capable of evaluation and is measured against reasonable criteria. c. Sufficient evidence is available to support management's evaluation. d. Management accepts responsibility for compliance.

a. Management provides a report attesting to satisfactory compliance.

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity? a. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles. b. Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit. c. Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors. d. Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components.

a. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles.

Accountants are permitted to express "negative assurance" in which of the following reports? a. Review report on unaudited financial statements. b. Standard unmodified audit report on financial statements. c. Compilation report on unaudited financial statements. d. Adverse opinion report on financial statements.

a. Review report on unaudited financial statements.

The official Statements on Standards for Accounting and Review Services are applicable to practice with a. Unaudited financial statements of nonissuers. b. Unaudited financial statements of public companies. c. Audited financial statements of public companies. d. Audited financial statements of nonissuers.

a. Unaudited financial statements of nonissuers.

Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2014. On January 11, 2015, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in their warehouse on January 8, 2015. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to A. record the loss on uncollectible accounts as a routine transaction in the year 2015. B. treat the loss as a subsequent event and provide a footnote about the loss in the 2014 financial statements. C. treat the loss as a subsequent event and adjust the 2014 financial statements to record the loss on uncollectible accounts. D. file a lawsuit against the customer in hopes of collecting some of the money owed to the client.

b

On March 15, 2015, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, 2014. On May 4, 2015, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first A. advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on. B. undertake to apply alternative procedures that would provide a satisfactory basis for the opinion. C. reissue the auditors' reports and add an explanatory paragraph describing the departure from generally accepted auditing standards. D. compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.

b

Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be: an assurance service engagement. an attestation engagement. a review engagement. a compilation engagement.

b

The Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports? A. December 31 and January 25 B. January 25 and February 1 C. January 25 and February 15 D. February I and February 15

b

What is the primary purpose of obtaining written representations? A. To provide auditors with substantive evidence of important assertions B. To impress upon management its primary responsibility for the financial statements C. To allow auditors to communicate important internal control deficiencies to management D. To allow auditors to communicate important suggestions for improvement to management

b

When a company uses a service organization to prepare its payroll, the company's auditors: have no obligation concerning the internal controls at the service organization. need to understand the internal controls over the transaction regardless of the location of the control. must audit the internal controls at the service organization. should include the audit report of the service company's auditors with their auditors' report.

b

When accountants agree to perform a compilation or review of unaudited financial statements, the best way to avoid client's misunderstanding the nature of the work is to describe it completely in A report to the clients' board of directors at the close of the engagement. An engagement letter. The auditors' opinion. A management letter to the board of directors' audit committee.

b

When investors sue auditors for damages under section 11 of the Securities Act of 1933, they must allege and prove They relied on the materially misstated financial statements. The audited financial statements contained a material misstatement. Their reliance on the materially misstated financial statements was the direct cause of their loss. Scienter on the part of auditors.

b

Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Inspecting title documents to verify whether any assets are pledged as collateral B. Confirming with third parties the details of arrangements to maintain financial support C. Reconciling the client's cash balance with the cut-off bank statement and the bank confirmation D. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry

b

Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern? A. Violation of debt covenants B. Failure to meet forecasted earnings per share C. Legal proceedings that may have a significant negative impact on the entity D. Negative cash flow from operations for each of the last three years

b

Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events? A. Reviewing the latest interim financial statements B. Performing cut-off testing near year end C. Inquiring of officers and other client executives D. Obtaining written representations

b

Why is it the client's decision to record adjustments to the financial statements? A. Having auditors adjust the financial statements would impair independence with respect to the client. B. The financial statements are the responsibility of the client's management. C. Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements. D. The client will ultimately suffer any losses related to misstated financial statements.

b

Which of the following would be the auditors' most likely defense in an action brought under the Securities Exchange Act of 1934? The investor did not suffer a loss based on the materially misstated financial statements. The auditors acted in good faith and were not aware of the materially misstated financial statements. The investor did not have privity with auditors. The financial statements were not filed with the Securities and Exchange Commission.

b These are appropriate defenses under the Securities Exchange Act of 1934 and demonstrate lack of scienter.

Under the Securities Exchange Act of 1934, entities are required to report to the public about changing auditors on Form 10-Q. Form 8-K. Form 10-K. Form S-1.

b Information related to auditor changes is one of the "special events" entities must report on Form 8-K.

During a review of a nonissuer's financial statements, accountants are required to make certain inquiries of management. Which of the following inquiries is not required by the SSARS? a. Material subsequent events. b. Internal control deficiencies. c. Significant transactions occurring near the end of the reporting period. d. The basis for the preparation of financial statements.

b. Internal control deficiencies.

Which of the following conditions must be met before an accountant can conduct an examination of an entity's internal control? a. The accountant must have designed a significant portion of the internal controls. b. Management must present its assertion about the effectiveness of its internal control in a written report. c. Management must represent that there are no internal control deficiencies. d. The accountant must represent that he or she has not conducted an audit of the financial statements.

b. Management must present its assertion about the effectiveness of its internal control in a written report.

B. Harper is surfing the Internet and finds a great pair of rollerblades at a really low price, but he has never heard of the company and is concerned that the product he ordered may not be the product he receives. Harper may be more willing to place an order with this company if a. The company provides a money-back guarantee. b. The website displays the WebTrust seal. c. Only a partial payment is required prior to receiving the product. d. The company provides its annual report and the report of the independent auditors on its website.

b. The website displays the WebTrust seal.

To perform an attestation engagement on prospective information or pro forma information, accountants must do all of the following except a. Evaluate the assumptions used to prepare the information. b. Understand the internal controls used in the processes that generated the information. c. Obtain knowledge about the entity's business and accounting principles. d. Obtain an understanding of the process through which the information was developed.

b. Understand the internal controls used in the processes that generated the information.

Assurance services are defined as independent professional services that: a. establish criteria for effective measurement of business activity. b. improve the quality of information, or its context, for decision makers. c. attest to the adequacy of controls over business operations. d. develop efficient and effective accounting systems to ensure compliance with accounting standards and policy.

b. improve the quality of information, or its context, for decision makers

When a company uses a service organization to prepare its payroll, the company's auditors: a. have no obligation concerning the internal controls at the service organization. b. need to understand the internal controls over the transaction regardless of the location of the control. c. must audit the internal controls at the service organization. d. should include the audit report of the service company's auditors with their auditors' report.

b. need to understand the internal controls over the transaction regardless of the location of the control.

In an agreed-upon procedures engagement, an accountant: a. follows all of the fundamental principles of GAAS. b. restricts the report to specified users. c. includes negative assurance in the report. d. gives a qualified audit report.

b. restricts the report to specified users.

An important method used by auditors to learn of material contingencies is A. examining documents in the client's possession concerning contingencies. B. inquiring and discussing them with management. C. obtaining responses to an attorney letter. D. confirming accounts receivable with the client's customers.

c

Auditors can gain sufficient understanding of the internal controls at a service organization by: reviewing the contract with the service organization. inquiry with management of the service organization. reviewing a report on internal controls provided by the service organization's auditors. sending a confirmation concerning internal controls to the service organization's auditors.

c

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the A. date of the financial statements. B. date of the auditors' report. C. audit report release date. D. subsequent year's date of the financial statements.

c

Auditors must complete various phases of an audit after the date of the financial statements. The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the A. date of the auditors' report. B. final review of the audit documentation. C. audit report release date. D. delivery of the auditors' reports to the client.

c

Compiled financial statements of a nonpublic entity should be accompanied by a report stating that: the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management. the accountant assessed the accounting principles used and significant estimates made by management. the accountant does not express an opinion or any other form of assurance on the financial statements. a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.

c

Hamell Corporation is making a presentation to a prospective investor. The presentation includes a projection showing that the company's sales will be between $25,000,000 and $27,000,000 within the next three years. Hamell believes the information will be better received if its CPA provides an attestation report on the projection. In order to provide such a report the CPA must do all of the following EXCEPT: obtain knowledge about the client's business. evaluate the assumptions used in preparing the projection. confirm expected sales with customers. identify key factors affecting the information.

c

If auditors are appointed on January 3, 2014, the date of the financial statements is December 31, 2014, the date of the auditors' report is February 7, 2015 and the audit report release date is March 3, 2015, what is the appropriate date of the written representations? A. January 3, 2014 B. December 31, 2014 C. February 7, 2015 D. March 3, 2015

c

Interim testing normally occurs between the ____ and the ____. A. beginning of the year under audit; audit report release date B. date of the financial statements; audit report release date C. beginning of the year under audit; date of the financial statements D. end of the year under audit; date of the auditors' report

c

Item 19 Item 19 0.6 points An accountant may allow general distribution of reports based on An agreed-upon-procedures engagement. An examination of prospective financial information. An examination of forecasted financial information. None of the choices are correct.

c

Item 2 Item 2 0.6 points Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for each individual item of data. The advantages of XBRL include all of the following except: increases the speed of handling of financial data. reduces the chance of error. improves the full disclosure of financial information. permits automatic checking of information.

c

Management letters are not a means of A. reporting recommendations to the client. B. assisting the client in improving its operations. C. satisfying professional requirements to communicate matters related to the client's internal control. D. developing rapport with the client.

c

The accountant's standard report for a compilation service would not include a statement that: a compilation service has been performed in accordance with standards established by the AICPA. financial statement information is the representation of the owners of the business. compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial statements have not been audited or reviewed and the accountant does not express an opinion or any other form of assurance.

c

The primary objective of analytical procedures used near the end of an audit is to A. obtain evidence from details tested to corroborate management assertions. B. obtain evidence on the validity of the assessment of control risk. C. assist auditors in evaluating the overall financial statement presentation. D. identify areas that represent specific risks relevant to the audit.

c

The primary source of information auditors use to obtain information about litigation, claims, and assessments is the A. client's attorney. B. court records. C. client's management. D. independent auditors.

c

When an entity registers a security offering under the Securities Act of 1933, the law provides an investor An SEC guarantee that the information in the registration statement is true. Inside information about the entity's trade secrets. Financial information examined by independent auditors Insurance against loss from the investment.

c

When providing limited assurance that the reviewed financial statements of a nonpublic entity require no material modifications to be in accordance with generally accepted accounting principles, the accountant should: Multiple Choice assess the risk that a material misstatement could occur in a financial statement assertion. confirm with the entity's lawyer that material loss contingencies are disclosed. understand the accounting principles of the industry in which the entity operates. develop audit plans to determine whether the entity's financial statements are fairly presented.

c

Which of the following best describes the auditors' responsibility with respect to management's estimates? A. Verifying the mathematical accuracy of management estimates B. Assessing the likelihood that actual results will be consistent with management's estimates C. Evaluating the reasonableness of management's estimates D. Identifying how the failure of the entity to achieve management's estimates will influence users' decisions

c

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements? A. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. B. A contingency is resolved that had been disclosed in the audited financial statements. C. New information is discovered concerning undisclosed lease transactions during the period under audit. D. A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

c

Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments? A. Request the client's attorney to evaluate whether the client's pending litigation claims, and assessments indicate a going concern problem. B. Examine the legal documents in the client's attorney's possession concerning litigation, claims, and assessments to which the attorney has devoted substantive attention. C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments. D. Confirm directly with the client's attorney that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.

c

Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events? A. Confirming a sample of material accounts receivable established after year-end B. Comparing the financial statements being reported on with those of the prior period C. Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements D. Inquiring as to whether any unusual adjustments were made just before year-end

c

Which of the following procedures would not be performed in a review of financial statements of a nonpublic company? Inquire about the accounting system and bookkeeping procedures. Perform analytical procedures to identify relationships and individual items that appear to be unusual. Obtain an attorney's letter regarding litigation and unasserted claims. Study the financial statements for indications that they conform to generally accepted accounting principles.

c

Which of the following reporting options is available if the client refuses to provide auditors with written representations? A. Unmodified or qualified opinion B. Qualified or adverse opinion C. Qualified opinion or disclaimer of opinion D. Disclaimer of opinion or adverse opinion

c

Which of the following subsequent events would represent an event that provides information about conditions that arose following the date of the financial statements? A. Settlement of long outstanding litigation B. Collection of a past due accounts receivable C. Loss of inventory as a result of a flood D. An additional tax assessment on prior income

c

Which party should request a letter regarding litigation, claims, and assessments from the client's attorney? A. Attorney B. Auditors C. Client D. Securities and Exchange Commission or other regulatory body

c

Why should auditors be particularly concerned with "miscellaneous", "other", and "clearing" accounts classified as revenues or expenses? A. These accounts are likely to relate to going-concern matters. B. These accounts are often more difficult to audit using normal substantive procedures. C. These accounts may represent attempts of earnings management. D. These accounts are likely to require the assistance of a specialist.

c

If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow: a. AICPA AU 315, "Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement." b. PCAOB AS 2201, "An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements." c. AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements." d. FASB Concepts Statement No. 1, "Objectives of Financial Reporting by Business Enterprises."

c. AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

Which of the following is a generally accepted attestation standard but is not a fundamental auditing principle? a. Independence. b. Appropriate competence and capability. c. Adequate knowledge of the subject matter. d. Due care.

c. Adequate knowledge of the subject matter.

Which of the following activities is an accountant not responsible for in review engagements performed in accordance with Statements on Standards for Accounting and Review Services? a. Performing basic analytical procedures. b. Remaining independent. c. Developing an understanding of internal control. d. Providing a form of limited assurance.

c. Developing an understanding of internal control.

The standard report issued by a CPA after reviewing the financial statements of a nonissue in accordance with Statements on Standards for Accounting and Review Services (SSARS) should state that the CPA: a. Assessed the accounting principles used and significant estimates made by management. b. Has no responsibility to update the CPA's report for events and circumstances occurring after the report's date. c. Is not aware of any material modifications that should be made to the financial statements. d. Believes that there will usually be differences between the projected and actual results.

c. Is not aware of any material modifications that should be made to the financial statements.

A review service engagement involving unaudited financial statements involves a. Less work than a compilation but more work than an audit. b. More work than a compilation and an audit. c. Less work than an audit but more work than a compilation. d. More work than an audit but less work than a compilation.

c. Less work than an audit but more work than a compilation

Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer's review engagement? a. Confirming the year-end outstanding notes payable balance with the lender. b. Examining records indicating proper authorization of the notes payable. c. Making inquiries of management regarding maturities, interest rate, and collateral. d. Documenting control procedures for payment calculations of the notes' principal and interest.

c. Making inquiries of management regarding maturities, interest rate, and collateral.

In providing assurance services to clients, CPAs are building on their reputations for a. Knowledge and integrity. b. Independence and due professional care. c. Objectivity and integrity. d. Professionalism and trust.

c. Objectivity and integrity.

Which of the following is correct regarding a compilation of financial statements engagement in accordance with Statement on Standards for Accounting and Review Services? a. If the accountant's independence is impaired, a qualified opinion must be issued. b. The accountant may not base the report on information obtained from prior engagements with the same client. c. The accountant is not required to make inquiries nor perform procedures to corroborate the information provided by the client. d. The accountant should perform analytical procedures to financial data.

c. The accountant is not required to make inquiries nor perform procedures to corroborate the information provided by the client.

The procedures used in a review engagement are: a. physical examination, reperformance, and obtaining a management representation letter. b. analytical procedures, reperformance, and obtaining a management representation letter. c. analytical procedures, inquiry, and obtaining a management representation letter. d. physical examination, inquiry, and obtaining a management representation letter.

c. analytical procedures, inquiry, and obtaining a management representation letter.

Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for each individual item of data. The advantages of XBRL include all of the following except: a. increases the speed of handling of financial data. b. reduces the chance of error. c. improves the full disclosure of financial information. d. permits automatic checking of information.

c. improves the full disclosure of financial information.

Assume that Rory is auditing the financial statements of Augusta Inc. Rory completes his fieldwork on February 25 and his report (along with Augusta's financial statements) is issued on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount of uninsured inventory. Which of the following best describes Rory's responsibility with respect to the effects of this hurricane on Augusta's financial statements? A. Because the inventory was included in the financial statements audited by Rory, he is required to perform additional procedures and reissue his report on the revised financial statements. B. Because the hurricane occurred after the date of Rory's report, he has no responsibility to perform additional procedures or reissue his report. C. Because the hurricane occurred prior to the next fiscal quarter, Rory is required to perform additional procedures and reissue his report on the revised financial statements. D. Because the hurricane occurred after the release of the financial statements and Rory's report, he has no responsibility to perform additional procedures or reissue his report.

d

Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion. Auditors need not try to perform the omitted procedure if A. the risk of adverse publicity or litigation is low. B. some financial statement users are currently relying on the auditors' reports. C. the auditors' opinion was qualified because of a departure from generally accepted accounting principles. D. the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

d

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(n) A. omitted procedure. B. prior period adjustment. C. subsequent event. D. subsequently discovered fact.

d

Near the end of an audit, the application of analytical procedures is A. recommended by auditing standards. B. not mentioned by auditing standards. C. not useful, since detailed substantive procedures have already been performed. D. required by auditing standards.

d

Roll-forward work normally occurs between the ____ and the ____. A. beginning of the year under audit; audit report release date B. date of the financial statements; audit report release date C. beginning of the year under audit; date of the financial statements D. date of interim work; date of the auditors' report

d

Small and Tall, CPAs completed the December 31, 2014 audit of Big Company on February 10, 2015. After the audit report release date, an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31, 2014 financial statements. The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed. Based on this new information, Small and Tall, CPAs should A. determine whether persons are currently relying on the auditors' reports. B. advise the client to make appropriate changes in the financial statements and reissue them. C. notify each member of the board of directors of Big Company. D. take no action since the event took place after the audit report release date.

d

What course of action should auditors take if, after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, they believe that substantial doubt about going concern does not exist? A. Modify their report on the financial statements to describe management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist. B. Prepare a separate report that describes management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist. C. Require financial statement disclosure of management's plan to mitigate going-concern uncertainties with no modification to the auditors' report on the financial statements or no separate report on going concern. D. Conclude that substantial doubt about going concern does not exist and not require financial statement disclosure or modification of the auditors' report.

d

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity? A. Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern. B. Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. C. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern. D. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

d

Which of the following events or activities may occur following the audit report release date? A. Interim testing B. Roll-forward work C. Subsequent events D. Subsequently discovered facts

d

Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork? A. To ensure that all appropriate steps in the audit plan were performed B. To ensure that referencing among audit documentation is clear C. To ensure that the explanations included in the audit documentation are understandable D. To ensure that the overall scope of the audit was appropriate

d

Which of the following is the most effective method of identifying potential earnings management attempts? A. Analytical procedures B. Detailed substantive procedures C. Inquiry of client management and key financial personnel D. Scanning accounts for unusual items

d

Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity? A. Statements related to management's responsibility for the entity's financial statements B. Statements related to management's responsibility for designing internal control to prevent and detect fraud C. An indication that all subsequent events have been disclosed to the auditors D. Management's opinion as to the effectiveness of its internal control over financial reporting

d

General Retailing, a nonissuer, has asked Ford, CPA, to compile its financial statements that omit substantially all disclosures required by GAAP. Ford may comply with General's request provided the omission is clearly indicated in Ford's report and the: a. Distribution of the financial statements and Ford's report is restricted to internal use only. b. Reason for omitting the disclosures is acknowledged in the notes to the financial statements. c. Omitted disclosures would not influence any potential creditor's conclusions about General's financial position. d. Omission is not undertaken with the intention of misleading the users of General's financial statements.

d. Omission is not undertaken with the intention of misleading the users of General's financial statements.