Chapter 17 MC questions

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? Qualified Adverse Yes Yes Yes No No Yes No No

No Yes

An emphasis-of-matter paragraph ordinarily: a. Relates to a report with a modified opinion. b. Follows the opinion paragraph. c. May either precede or follow the opinion paragraph. d. Is only included in an audit report with an adverse opinion.

b. Follows the opinion paragraph.

A client has changed the salvage values of a number of its fixed assets. The auditors believe that the revised salvage values are realistic. The appropriate report on the financial statements is: a. Standard unmodified. b. Unmodified with explanatory language as to consistency. c. Qualified for consistency. d. Disclaimer.

a. Standard unmodified.

Which of the following is least likely to result in inclusion of an emphasis-of-matter paragraph in an audit report? a. The company is a component of a larger business enterprise. b. An unusually important significant event. c. A decision not to confirm accounts receivable. d. A risk or uncertainty.

c. A decision not to confirm accounts receivable.

A change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified Yes Yes Yes No No Yes No No

Yes No

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

a. A consistency modification.

Which of the following is not explicitly included in an audit report for a nonpublic company? a. A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance. b. A statement that the auditor's responsibility is to express an opinion on the financial statements. c. A statement that the financial statements are the responsibility of management. d. A title with the word "independent."

a. A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance.

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

a. An emphasis-of-matter paragraph to the auditors' report.

The auditors include an emphasis-of-matter paragraph in an audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph: a. Is appropriate and would not negate the unmodified opinion. b. Is considered a qualification of the opinion. c. Is a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements. d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."

a. Is appropriate and would not negate the unmodified opinion.

A basis for a modification paragraph in the audit of the financial statements of a nonpublic company: a. Is only included with qualified, adverse, or disclaimers of opinion. b. Is presented after the opinion paragraph. c. Has a section title: Emphasis-of-Matter. d. Must be included in all nonpublic company audit reports.

a. Is only included with qualified, adverse, or disclaimers of opinion.

In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? a. The statements are not in conformity with FASB requirements regarding the capitalization of leases. b. Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. c. The chief executive officer refuses the auditor access to minutes of board of directors' meetings. d. Tests of controls show that the entity's internal control is so poor that it can not be relied upon.

a. The statements are not in conformity with FASB requirements regarding the capitalization of leases.

Which of the following will result in emphasis-of-matter as to consistency in the auditor's report, regardless of whether the item is fully disclosed in the financial statements? a. A change in accounting estimate. b. A change from an unacceptable accounting principle to a generally accepted one. c. Correction of an error not involving a change in accounting principle. d. A change in classification.

b. A change from an unacceptable accounting principle to a generally accepted one.

The auditors' report should be dated as of the date the: a. Report is delivered to the client. b. Auditors have accumulated sufficient evidence. c. Fiscal period under audit ends. d. Peer review of the working papers is completed.

b. Auditors have accumulated sufficient evidence.

CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct? a. Such assumption of responsibility violates the profession's standards. b. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements. c.In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report. d. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.

b. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if: a. The effects of the adverse financial conditions are likely to be negative. b. Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. c. Management has no plans to reduce or delay future expenditures. d. Negative trends and recurring operating losses appear to be irreversible.

b. Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.

When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: a. Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. b. Issue an unmodified opinion with no reference to this omission. c. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. d. Issue an adverse opinion.

b. Issue an unmodified opinion with no reference to this omission.

When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: a. Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. b. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP. c. Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. d. Issue an unmodified opinion, but inform the reader by including the omitted information in the audit report.

b. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.

Which of the following is least likely to result in a qualification of the auditors' opinion due to a scope limitation? a. Scope limitations imposed by the client. b. Reliance placed upon the report of component auditors. c. Inability to obtain sufficient appropriate audit evidence. d. Inadequate accounting records.

b. Reliance placed upon the report of component auditors.

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

b. Standards of the Public Company Accounting Oversight Board (United States).

The unmodified standard audit report of a nonpublic company does not explicitly state that: a. The financial statements are the responsibility of the company's management. b. The audit was conducted in accordance with accounting principles generally accepted in the United States of America. c. The auditors believe that the audit provides a reasonable basis for their opinion. d. An audit includes assessing the accounting principles used.

b. The audit was conducted in accordance with accounting principles generally accepted in the United States of America.

If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows: a. The auditors may still issue an unmodified opinion. b. The auditors should issue a qualified report for the departure from generally accepted accounting principles. c. The auditors should issue a qualified report indicating a scope limitation in that no statement of cash flows is presented. d. The auditors should disclaim an opinion on the overall financial statements.

b. The auditors should issue a qualified report for the departure from generally accepted accounting principles.

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to: a. A note to the financial statements which discusses the basis for the opinion. b. The Auditor's Responsibility section of the audit report which discusses the basis for the opinion rendered. c. A separate paragraph (section) which discusses the basis for the opinion rendered. d. the consistency in the application of generally accepted accounting principles.

c. A separate paragraph (section) which discusses the basis for the opinion rendered.

A scope restriction is least likely to result in a(an): a. Qualified opinion. b. Disclaimer of opinion. c. Adverse opinion. d. Standard unmodified opinion.

c. Adverse opinion.

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

c. Generally accepted accounting principles (United States).

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to: a. Increase current dividend distributions. b. Reduce existing lines of credit. c. Increase ownership equity. d. Purchase assets formerly leased.

c. Increase ownership equity.

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: a. Issue an unmodified opinion with a basis for modification paragraph. b. Withdraw from the engagement. c. Issue an "except for" qualification or an adverse opinion. d. Issue an "except for" qualification or a disclaimer of opinion.

c. Issue an "except for" qualification or an adverse opinion.

Which of the following is not a difference between the audit report of a nonpublic and public company? a. the public company report includes the word "Registered" in the title. b. The public company report refers to standards of the PCAOB. c. The public company report has an additional paragraph referring to the client's fraud prevention procedures. d. The public company report is shorter.

c. The public company report has an additional paragraph referring to the client's fraud prevention procedures.

In which of the following circumstances will it be most likely that an adverse opinion is considered appropriate? a. the auditor is not independent with respect to the enterprise being audited. b. The statements are not in conformity with generally accepted accounting principles due to a departure from GAAP with an immaterial effect on the financial statements. c. The statements are not in conformity with generally accepted accounting principles regarding pension plans. d. A client-imposed scope limitation prevents the auditor from obtaining sufficient appropriate audit evidence.

c. The statements are not in conformity with generally accepted accounting principles regarding pension plans.

A material departure from generally accepted accounting principles will result in auditor consideration of: a. Whether to issue an adverse opinion rather than a disclaimer of opinion. b. Whether to issue a disclaimer of opinion rather than a qualified opinion. c. Whether to issue an adverse opinion rather than a qualified opinion. d. Nothing, because none of these opinions is applicable to this type of exception.

c. Whether to issue an adverse opinion rather than a qualified opinion.

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

d. An improper type of reporting.

Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? a. Performing cutoff tests of sales transactions with customers with long-standing receivable balances. b. Evaluating the entity's procedures for identifying and recording related party transactions. c. Inspecting title documents to verify whether any real property is pledged as collateral. d. Inquiring of the entity's legal counsel about litigation, claims, and assessments.

d. Inquiring of the entity's legal counsel about litigation, claims, and assessments.