ACCY 131 Ch17 Multiple Choice

A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No Option 1 Option 2 Option 3 Option 4

Option 2

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? Qualified Adverse (1) Yes Yes (2) Yes No (3) No Yes (4) No No Option 1 Option 2 Option 3 Option 4

Option 3

When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified Unmodified with an Additional Paragraph -1 Yes Yes -2 Yes No -3 No Yes -4 No No

Option 3

Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on a public company's financial statements? Conformity with PCAOB Standards Going Concern Status A. Explicitly Explicitly B. Implicitly Implicitly C. Implicitly Explicitly D. Explicitly Implicitly Option A Option B Option C Option D

Option D

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.

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

a. Adverse opinion.

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.

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.

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.

When an auditor of a nonpublic company has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility includes: a. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements. b. Considering the adequacy of disclosure in the financial statement about the entity's possible inability to continue as a going concern. c. Projecting all conditions and events from one year prior to the date of the audit report. d. Preparing prospective financial information to verify whether management's plans can be effectively implemented.

b. Considering the adequacy of disclosure in the financial statement about the entity's possible inability to continue as a going concern.

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.

Critical audit matters are most likely to include those matters that: a. Are communicated to the Public Company Accounting Oversight Board. b. Involve challenging, subjective or complex auditor judgment. c. Are material weaknesses in internal control. d. Involve significant risks.

b. Involve challenging, subjective or complex auditor judgment.

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).

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 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.

For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected: a. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. b. Be appropriate in the circumstances for the particular entity. c. Be applied on a basis consistent with those followed in the prior year. d. Present information in the financial statements that is classified and summarized in a reasonable manner.

c. Be applied on a basis consistent with those followed in the prior year.

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).

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

d. An audit includes determining that all major accounting policies are preferred.

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.

The Rotter Company, a nonpublic company, changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should: a. Disclaim an opinion and explain all of the reasons therefore. b. Express an adverse opinion regarding the 20X4 financial statements, without a Basis for Adverse Opinion section since the reason will be included in the notes to the statements. c. Express an unmodified opinion with an Emphasis of Matter section and disclose the accounting change from 20X3 and its effect on the financial statements. d. Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion.

d. Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion.

In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditors is: a. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. b. Not in accordance with generally accepted auditing standards. c. A qualification that lessens the collective responsibility of both CPA firms. d. An example of a dual opinion requiring the signatures of both auditors.

a. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.

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.

Which of the following is correct concerning a public company audit report with a disclaimer of opinion? a. The title of the Opinion section will be changed to Basis for Disclaimer of Opinion. b. It must include in a section on critical audit matters the circumstances that led to the disclaimer. c. It will ordinarily be issued in situations in which financial statements are materially and pervasively misstated. d. The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title.

d. The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title.

The auditors include an Emphasis of Matter section (paragraph) in a nonpublic company 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 a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements. b. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." c. Is appropriate and would not negate the unmodified opinion. d. Is considered a qualification of the opinion.

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