Chapter 17-QUIZ-Auditors' Reports

Which statement is correct concerning a disclaimer of opinion and an adverse opinion? A) A disclaimer of opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements, while an adverse opinion indicates that the financial statements are materially misstated. B) A disclaimer of opinion indicates that the financial statements are materially misstated, while an adverse opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements. C) The opinions are generally equivalent, except an adverse opinion includes a going concern paragraph. D) Adverse opinions indicate that the financial statements are materially misstated, while a disclaimer indicates that the financial statements are "so wrong" that no opinion can be given.

A) A disclaimer of opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements, while an adverse opinion indicates that the financial statements are materially misstated.

Which of the following events that occurred after a client's calendar yearend, but before the audit report date, would require disclosure in the notes to the financial statements, but no adjust in the financial statements? A) New convertible bonds are issued to expand the company's product line. B) A loss is reported on uncollectible accounts of an acknowledged distressed customer C) A fixed asset used in operations is sold at a substantial profit D) Negotiations have resulted in compensation adjustments for union employees retroactive to the fourth quarter

A) New convertible bonds are issued to expand the company's product line.

CPA Firm A qualifies as the group auditor. However, since Firm A did not have the resources, it hired CPA Firm B to audit a subsidiary of the client located in Bolivia. If Firm A is willing to take responsibility for the work of Firm B, which type of audit report is Firm A most likely to issue? A) Unmodified—standard report. B) Unmodified with emphasis of a matter paragraph. C) Qualified with a basis for modification paragraph. D) Disclaimer of opinion.

A) Unmodified—standard report.

If a company's financial statements violate GAAP for an immaterial item which is expected to become material in the future, then the audit opinion the company will likely receive is: A) Unmodified—standard report. B) Unmodified with an emphasis of matter paragraph. C) Qualified. D) Adverse.

A) Unmodified—standard report.

In performing an audit, a client was found to have changed the estimated useful life of its assets. The auditors believe that the change in useful lives is realistic. The appropriate report is: A) Unmodified—standard report. B) Unmodified with an emphasis of matter paragraph. C) Qualified. D) Disclaimer.

A) Unmodified—standard report.

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.

An audit client has refused to allow the auditors to perform a generally accepted auditing procedure. The circumstance would normally result in the issuance of: A. A disclaimer of opinion. B. An adverse opinion. C. An "except for" qualification of the report. D. An unqualified report with explanatory language.

A. A disclaimer of opinion.

Doe, an independent auditor, was engaged to perform an audit of the financial statements of Ally Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Doe, and accounts receivable were not confirmed by direct communication with debtors, Doe was able to gain satisfaction by applying alternative auditing procedures. Doe's audit report will probably contain: A. A standard unqualified opinion. B. An unqualified opinion and an explanatory paragraph. C. Either a qualified opinion or a disclaimer of opinion. D. An "except for" qualification.

A. A standard unqualified opinion.

Which of the following is not explicitly included in an audit report for a nonpublic company? A. A statement that he auditor believes that his or her 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 in the report are the responsibility of management. D. A title with the word "independent."

A. A statement that he auditor believes that his or her 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.

Which of the following circumstances generally results in the issuance of a report that is other than unqualified? A. Circumstances have significantly limited the scope of the auditors' procedures. B. The principal auditors for the engagement are relying on the work of other auditors. C. The financial statements depart from a standard established by the FASB because the auditors have concluded that application of the standard would result in materially misleading financial statements. D. The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.

A. Circumstances have significantly limited the scope of the auditors' procedures.

The Rotter 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. The change (including its dollar effect) has been described in the notes to the 20X4 statements, which are being presented by themselves. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should: A. Express an adverse opinion with an explanatory paragraph disclosing the reason (the accounting change) for the opinion. B. Express an unqualified opinion with an explanatory paragraph and disclose the accounting change from 20X3 and its effect on the financial statements. C. Disclaim an opinion and explain all of the reasons therefore. D. Express an adverse opinion regarding the 20X4 financial statements, without an explanatory paragraph disclosing the reason therefore since it will be included in the notes to the statements.

A. Express an adverse opinion with an explanatory paragraph disclosing the reason (the accounting change) for the opinion.

Which of the following provides the most authoritative guidance for an audit of an issuer? A. General guidance provided by the Public Company Accounting Oversight Board Auditing Standards. B. Specific guidance provided by the Statement on Auditing Standards. C. An article in the AICPA CPA Letter addressing frequently asked questions on a new auditing standard. D. Audit disclosure from a continuing professional education class.

A. General guidance provided by the Public Company Accounting Oversight Board Auditing Standards.

The first paragraph of a standard unqualified audit report for a nonpublic client is referred to as the: A. Introductory paragraph. B. Scope paragraph. C. Opinion paragraph. D. Explanatory paragraph.

A. Introductory paragraph.

The auditors include explanatory language in an otherwise unqualified report in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this explanatory language: A. Is appropriate and would not negate the unqualified opinion. B. Is considered a qualification of the report. 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 unqualified opinion.

Which of the following best describes the reference to the expression "taken as a whole" in the fourth generally accepted auditing standard of reporting? A. It applies equally to a complete set of financial statements and to each individual financial statement. B. It applies only to a complete set of financial statements. C. It applies equally to each item in each financial statement. D. It applies equally to each material item in each financial statement.

A. It applies equally to a complete set of financial statements and to each individual financial statement.

If the principal auditor decides to make reference to the other auditor's audit, the introductory paragraph must specifically indicate the: A. Magnitude of the portion of the financial statements examined by the other auditor. B. Name of the other auditor. C. Name of the consolidated subsidiary examined by the other auditor. D. Type of opinion expressed by the other auditor.

A. Magnitude of the portion of the financial statements examined by the other auditor.

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 the FASB Statements 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 the FASB Statements regarding the capitalization of leases.

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: A. May accept the engagement because such engagements merely involve limited reporting objectives. B. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. C. Should refuse the engagement because there is a client-imposed scope limitation. D. Should refuse the engagement because of a departure from generally accepted auditing standards.

A. May accept the engagement because such engagements merely involve limited reporting objectives.

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

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

A client has changed the salvage values of a number of its fixed assets. The auditors believe that the salvage values are realistic. The appropriate report on the financial statements is: A. Standard unqualified. B. Unqualified with explanatory language as to consistency. C. Qualified for consistency. D. Disclaimer.

A. Standard unqualified.

The principal auditor is satisfied with the independence and professional reputation of the other auditor who has audited a subsidiary. To indicate the division of responsibility, the principal auditor should modify: A. The introductory, scope, and opinion paragraphs of the report. B. Only the scope paragraph of the report. C. Only the opinion paragraph of the report. D. Only the opinion paragraph of the report and include an explanatory paragraph.

A. The introductory, scope, and opinion paragraphs of the report.

Which of the following would be most likely to be an appropriate addressee for an audit report? A. The shareholders of the corporation whose financial statements were examined. B. A third party who requested that a copy of the audit report be sent to her. C. The president of the corporation whose financial statements were examined. D. The chief financial officer.

A. The shareholders of the corporation whose financial statements were examined.

Green, CPAw was engaged to audit statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor 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 auditor's report most likely contained a(n): A. Unmodified opinion. B. Qualified opinion because of a departure from auditing C. Unmodified opinion with an emphasis-of-matter paragraph D. Qualified opinion because of a scope limitation.

A. Unmodified opinion.

An independent auditor has concluded that a substantial doubt remains about a client's ability to continue as a going concern, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a(an): A. Unqualified opinion with an appropriate explanatory paragraph. B. "Except for" qualified opinion. C. Standard unqualified opinion. D. Adverse opinion.

A. Unqualified opinion with an appropriate explanatory paragraph.

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

A. a standard unmodified opinion.

A departure from GAAP with a material effect on the financial statements is most likely to result in a(n): A) Disclaimer of opinion. B) Qualified opinion. C) Standard unmodified opinion. D) Unmodified opinion with an emphasis of matter paragraph.

B) Qualified opinion.

Addition of an "emphasis of matter" paragraph to what remains an unmodified opinion is least likely for which of the following situations? A) Related party transactions. B) Scope limitation. C) A large subsequent event. D) An uncertainty.

B) Scope limitation.

Which of the following will result in explanatory language 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.

An auditor's report on comparative financial statements should be dated as of the date of the: A. Issuance of the report. B. Accumulation of sufficient appropriate audit evidence. C. Latest financial statements being reported on. D. Last related-party transaction disclosed in the statements.

B. Accumulation of sufficient appropriate audit evidence.

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 the auditor is unable to determine the amounts associated with the illegal acts of client personnel because of an inability to obtain adequate evidence, the auditor should issue a(an): A. "Subject to" qualified opinion. B. Disclaimer of opinion. C. Adverse opinion. D. Unqualified opinion with a separate explanatory paragraph.

B. Disclaimer of opinion.

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be: A. Referred to in the auditor's report for the current year. B. Disclosed in the notes to the financial statements of the current year. C. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. D. Treated as a subsequent event.

B. Disclosed in the notes to the financial statements of the current year.

Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public? A. Form 8-K. B. Form S-1. C. Form 10-Q. D. Form 10-K.

B. Form S-1.

CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the principal 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 unqualified opinion on the financial statements. C. In such circumstances, when appropriate requirements have been met, Firm A should issue an unqualified 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 unqualified 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 because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if A. The effects of the adverse financial conditions likely will cause a bankruptcy filing. B. Information about the entity's ability to continue as a going concern is not disclosed. 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.

When an auditor of financial statements does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: A. Issue an unqualified opinion, but disclose elsewhere in the report this departure from a customary procedure. B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action. C. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. D. Issue an adverse opinion.

B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action.

It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an): A. Change in accounting principle. B. Limitation in the scope of the audit. C. Uncertainty. D. Related party transaction.

B. Limitation in the scope of the audit.

The fourth reporting standard requires the auditor's report to contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent: A. The CPA from reporting on one basic financial statement and not the others. B. Misinterpretations regarding the degree of responsibility that the auditor is assuming. C. The CPA from expressing different opinions on each of the basic financial statements. D. Management from reducing its final responsibility for the basic financial statements.

B. Misinterpretations regarding the degree of responsibility that the auditor is assuming.

An explanatory paragraph relating to a scope limitation in the audit of the financial statements of a nonpublic company should be placed A. After the opinion paragraph. B. Prior to the opinion paragraph. C. Either before or after the opinion paragraph. D. An audit report modified for a scope limitation does not include an explanatory paragraph.

B. Prior to the opinion paragraph.

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 unqualified 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.

A limitation on the scope of the audit sufficient to preclude an unqualified opinion will always result when management: A. Asks the auditor to report on the balance sheet and not on the other basic financial statements. B. Refuses to permit its lawyer to respond to the letter of audit inquiry. C. Discloses material related party transactions in the notes to the financial statements. D. Knows that confirmation of accounts receivable is not feasible.

B. Refuses to permit its lawyer to respond to the letter of audit inquiry.

Which of the following is least likely to result in explanatory language being added to an unqualified auditor's report on the financial statements of a client that sells jewelry through a retail store? A. A decision by the auditor to emphasize that the client is a part of a larger organization. B. Reliance placed upon a specialist to evaluate the diamonds. C. A change from FIFO to specific identification accounting for inventory. D. A question as to whether the client will be able to remain a going concern.

B. Reliance placed upon a specialist to evaluate the diamonds.

Which of the following will not result in qualification of the auditors' report due to a scope limitation? A. Restrictions imposed by the client. B. Reliance placed upon the report of other auditors. C. Inability to obtain sufficient competent evidential matter. D. Inadequacy in the accounting records.

B. Reliance placed upon the report of other 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 unqualified 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 unqualified opinion. B. The auditors should issue an "except for" qualification for the departure from generally accepted accounting principles. C. The auditors should issue an opinion "subject to" the information that would have been contained in the statement of cash flows. D. The auditors should refuse to issue an opinion on only the two financial statements.

B. The auditors should issue an "except for" qualification for the departure from generally accepted accounting principles.

The management of Stanley Corporation has decided not to account for a material transaction in accordance with the provisions of a recent statement of the FASB. They have set forth their reasons in note "B" of the financial statements, which clearly demonstrates that due to unusual circumstances the financial statements would otherwise have been misleading. The auditors' report on the financial statements will probably contain a(an): A. Qualified opinion and an explanatory paragraph with a reference to note "B". B. Unqualified opinion and an explanatory paragraph. C. Adverse opinion and an explanatory paragraph. D. "Except for" opinion and an explanatory paragraph.

B. Unqualified opinion and an explanatory paragraph.

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

B. You should issue an unmodified opinion, but use an emphasis-of-matter paragraph to direct the reader's attention to the poor financial condition of the company as described in the financial statements and the notes.

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

B. management of the company.

Which of the following conditions is most likely to result in auditor consideration of issuing a going concern modification? A) A decrease in profitability as compared to the previous year. B) A loss contingency related to a lawsuit. C) Default on a loan agreement. D) A material related party transaction.

C) Default on a loan agreement.

Which of the following is true regarding the notes to financial statements prepared following GAAP? A) Notes are not required, but are typically included by all companies. B) Notes are not required, since they only give additional information contained in the financial statements. C) Notes are an integral part of the financial statements. D) Notes are not encompassed in the auditors' opinion of the financial statements since they are supplementary information.

C) Notes are an integral part of the financial statements.

When a company has a probable and material loss contingency, and the company has accrued the loss in the financial statements, the appropriate audit opinion is ordinarily which of the following? A) Adverse opinion. B) Qualified opinion. C) Standard unmodified opinion. D) Unmodified opinion with an emphasis of matter paragraph.

C) Standard unmodified opinion.

Issuance of a going concern modification relates most directly to which of the following terms? A) More likely than not. B) Probable. C) Reasonably possible. D) Substantial doubt.

D) Substantial doubt.

In which of the following conditions is an unmodified audit opinion least likely? A) The auditor believes that the client is unlikely to remain a going concern. B) The auditor believes that inventory is valued following a method that is not considered GAAP. C) The audit was conducted with no circumstance imposed scope limitations. D) GAAP were not consistently applied from year to year.

C) The audit was conducted with no circumstance imposed scope limitations.

An audit report is ordinarily dated on the date A) Of the client's year-end. B) Risk assessment procedures are completed. C) The auditors have obtained sufficient appropriate audit evidence. D) The audit report is issued.

C) The auditors have obtained sufficient appropriate audit evidence.

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

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

Which of the following accounting changes requires explanatory language regarding consistency in the auditors' report? A. A change in the estimated useful lives of a class of fixed assets. B. A write-off of a patent because future benefits do not appear to exist. C. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets. D. A change in calculating bad debt expense from one percent to two percent of credit sales.

C. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets.

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.

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 scope paragraph which discusses the basis for the opinion rendered. C. A separate paragraph which discusses the basis for the opinion rendered. D. The consistency in the application of generally accepted accounting principles.

C. A separate paragraph 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 unqualified opinion.

C. Adverse opinion.

If principal auditors make no reference to other auditors whose work they have relied on as a part of the basis for their report, the principal auditors: A. Are not required to investigate the professional reputation of the other auditors. B. Are issuing an inappropriate report. C. Are assuming full responsibility for the work of the other auditors. D. Are issuing a qualified opinion.

C. Are assuming full responsibility for the work of the other auditors.

Which of the following is most accurate with respect to a CPA's responsibility in considering a going concern question on financial statement audits? A. Perform analytical procedures aimed particularly at assessing whether bankruptcy is probable. B. Issue a report with a "going concern" modification when failure is at least reasonably probable. C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern. D. Determine that related uncertainties are properly disclosed and make no mention in the audit report.

C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern.

An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately: A. Adopt an attitude of acceptance unless evidence indicates otherwise. B. Authenticate documents used as audit evidence. C. Consider the reliability of information to be used as audit evidence. D. Assess the entity's document-retention controls before using documents as audit evidence

C. Consider the reliability of information to be used as audit evidence.

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 unqualified report with an explanatory 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.

An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to A. Repurchase the entity's stock at a price below its book value. B. Issue stock options to key executives. C. Lease rather than purchase operating facilities. D. Accelerate the due date of an existing mortgage.

C. Lease rather than purchase operating facilities.

Morgan, CPA, is the principal auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's audit. With respect to Morgan's report on the consolidated financial statements, taken as a whole, Morgan: A. Must not refer to the audit of the other CPA. B. Must refer to the audit of the other CPA. C. May refer to the audit of the other CPA. D. May refer to the audit of the other CPA, in which case Morgan must include in the audit report on the consolidated financial statements a qualified opinion with respect to the audit of the other CPA.

C. May refer to the audit of the other CPA.

Which of the following statements is correct with respect to explanatory paragraphs in reports on audits of the financial statements of nonpublic companies? A. They always precede the opinion paragraph. B. They always follow the opinion paragraph. C. Sometimes they precede and sometimes they follow the opinion paragraph. D. They always precede the scope paragraph.

C. Sometimes they precede and sometimes they follow the opinion paragraph.

Which of the following modifications of the auditors' report does not include an additional paragraph? A. The report is qualified because the financial statements contain a material departure from generally accepted accounting principles. B. The report includes an emphasis of a matter. C. The audit report indicates a division of responsibility between two CPA firms. D. The report is qualified because the scope of the auditors' work was restricted.

C. The audit report indicates a division of responsibility between two CPA firms.

Under which of the following circumstances would an auditor's expression of an unmodified opinion be inappropriate? A. There are significant deficiencies in the design and operation of the entity's internal control. B. The financial statements are prepared on the entity's income tax basis. C. The auditor is unable to obtain the audited financial statements of a significant subsidiary. D. Analytical procedures indicate that many year-end account balances are not comparable with the prior year's balances

C. The auditor is unable to obtain the audited financial statements of a significant subsidiary.

Which of the following is not a difference between the audit report of a nonpublic and public company? A. The nonpublic company report includes the word "Registered" in the title. B. The nonpublic company report refers to standards of the PCAOB. C. The nonpublic company report has an additional paragraph referring to the client's fraud prevention procedures. D. The nonpublic company report must include the city and state in which the report has been issued.

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

In which of the following circumstances would an adverse opinion be 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 because they omit a statement of changes in financial position. 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 complying with generally accepted auditing standards.

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

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

C. To give assurance that users will be informed of the lack of comparability of financial statements between periods due to changes in accounting principles.

The term "except for" in an audit report is: A. Used in an adverse opinion. B. No longer considered appropriate. C. Used in a qualified opinion D. Used for an unqualified opinion when an explanatory paragraph is added.

C. Used in a qualified opinion

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.

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

C. be unmodified as to the balance sheet and with a disclaimer of opinion as to the income statement and the statement of cash flows.

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

C. properly indicating a division of responsibility, and the report should further indicate in an appropriate quantitative form the proportionate responsibility being assumed by each set of auditors.

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

C. render an adverse opinion and give reasons.

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

C. should include an additional emphasis-of-matter paragraph highlighting the accounting change.

In a financial statement audit, an auditor would express an unmodified opinion with an emphasis of matter paragraph added to the audit report for: A) Either an unjustified accounting change or an unjustified departure from generally accepted accounting principles. B) An unjustified accounting change. C) An unjustified departure from generally accepted accounting principles. D) Neither an unjustified accounting change nor an unjustified departure from generally accepted accounting principles.

D) Neither an unjustified accounting change nor an unjustified departure from generally accepted accounting principles.

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.

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. Be appropriate in the circumstances for the particular entity. B. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. C. Present information in the financial statements that is classified and summarized in a reasonable manner. D. Be applied on a basis consistent with those followed in the prior year.

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

When an auditor has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the current financial statement date (9/30/X1), the auditor's responsibility includes: A. Preparing prospective financial information to verify whether management's plans can be effectively implemented. B. Projecting conditions and events from one year prior to this year's date (9/30/X0) to 9/30/X1. C. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements. D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to: A. Only the current year under audit. B. Either one or both years at the option of the auditors. C. Each of the two years plus the preceding year. D. Each of the years in the two-year period.

D. Each of the years in the two-year period.

Which of the following is not an acceptable financial reporting framework? A. Cash basis. B. Tax basis. C. International accounting standards basis. D. Generally accepted auditing standards basis.

D. Generally accepted auditing standards basis.

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.

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

D. It includes the term "PCAOB Compliant" in the title.

If the predecessor auditors fail to reissue their audit report on comparative financial statements the successor auditors should: A. Express a qualified opinion on the comparative financial statements audited by the predecessor auditors. B. Reproduce the predecessor auditors' report and include it with the new set of financial statements. C. Have the client omit the comparative financial statements. D. Refer to the report of the predecessor auditors.

D. Refer to the report of the predecessor auditors.

Which of the following best describes the earliest date for an auditor's report? A. The last day of audit field work. B. The date all audit procedures have been completed and the audit file has been assembled. C. The date audit documentation was completed. D. The date the auditor has obtained sufficient appropriate audit evidence to support the opinion.

D. The date the auditor has obtained sufficient appropriate audit evidence to support the opinion.

When reporting on comparative financial statements where the financial statements of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor should indicate in the report: A. The reasons why the predecessor auditor's report is not presented. B. The identity of the predecessor auditor who examined the financial statements of the prior year. C. Whether the predecessor auditor's review of the current year's financial statements revealed any matter that might have a material effect on the successor auditor's opinion. D. The type of opinion expressed by the predecessor auditor.

D. The type of opinion expressed by the predecessor auditor.

Under which of the following set of circumstances might the auditors disclaim an opinion? A. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material. B. The principal auditors decide to make reference to the report of another auditor who audited a subsidiary. C. There has been a material change between periods in the method of application of accounting principles. D. There are significant scope limitations on the audit.

D. There are significant scope limitations on the audit.

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for: A. Expressing dual dated opinions. B. Updating the report on the previous financial statements only if there has not been a change in the opinion. C. Updating the report on the previous financial statements only if the previous report was qualified and the reasons for the qualification no longer exist. D. Updating the report on the previous financial statements regardless of the opinion previously issued.

D. Updating the report on the previous financial statements regardless of the opinion previously issued.

After performing all necessary procedures the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditors should: A. Delete the date of the report. B. Dual-date the report. C. Use the reissue date. D. Use the date of the previous report.

D. Use the date of the previous report.

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

D. a separate paragraph that discusses the basis for the opinion expressed.

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

D. qualify their opinion or issue an adverse opinion.

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

D. the auditors' report.

Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on public company financial statements? Conformity with PCAOB Standards: Explicitly Implicitly Adequacy of Diclosure: Explicitly Implicitly

Explicitly Implicitly

A "very material" change from one generally accepted accounting principle to another generally accepted accounting principle usually results in an adverse opinion by the auditors. True False

FALSE

A public company's financial statements should be prepared following standards of the Public Company Accounting Oversight Board. True False

FALSE

Audit reports should be dated the date on which the financial statements are issued. True False

FALSE

If financial statements fail to disclose a material fact, the auditors may disclose the information in an explanatory paragraph and issue an unqualified opinion on the statements. True False

FALSE

When the auditors are unable to comply with generally accepted auditing standards, they should issue an opinion that is unqualified, but include an additional explanatory paragraph in the report. True False

FALSE

When an auditor issues an unqualified report on financial statements, but adds an emphasis of a matter paragraph to the report, which, if any, paragraphs to the report are modified? Introductory: YES NO Scope: YES NO Opinion: YES NO

NO NO NO

When the auditor of a nonpublic company issues an adverse opinion an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified? Introductory: YES NO Scope: YES NO Opinion: YES NO

NO NO YES

When an auditor issues a qualified report on financial statements due to a scope limitation an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified? Introductory: YES NO Scope: YES NO Opinion: YES NO

NO YES YES

A client imposed scope limitation will generally result in a disclaimer of opinion. True False

TRUE

If financial statements contain a material departure from generally accepted accounting principles, the auditors usually should not issue an unqualified opinion. True False

TRUE

Regulation S-X governs the form and content of financial statements filed with the SEC. True False

TRUE

When evaluating the results of audit tests, materiality depends upon both the dollar amount and the nature of the item. True False

TRUE

When there is a significant question about a company's ability to remain a going concern, the report issued is usually unqualified with an explanatory paragraph. True False

TRUE

Which of the following would cause an auditor of an entity's financial statements to issue either a qualified opinion or a disclaimer of opinion? a) scope limitation involving a recorded uncertainty b) Inadequate disclosure of an uncertainty c) The use of inappropriate accounting principles d) Unreasonable accounting estimates

a) scope limitation involving a recorded uncertainty

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate? a. Management does not provide reasonable justification for a change in accounting principles. b. Management refuses to allow the auditor to have access to the company's canceled checks and bank statements. c. The company failed to make a count of its physical inventory during the year and the auditor was unable to apply alternative procedures to verify inventory quantities. d. The auditor is unable to obtain the audited financial statements of a consolidated investee.

a. Management does not provide reasonable justification for a change in accounting principles.

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the deteriorating financial condition of the entity's principal customer that led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to: a. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements. b . Notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied on. c. Issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements. d . Issue revised financial statements and distribute them to each creditor known to be relying on the financial statements.

a. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.

A client decides not to make an auditor's proposed adjustments that collectively are not material, and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation? a. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements. b . The financial statements do not conform with generally accepted accounting principles (GAAP). c. The financial statements contain unadjusted misstatements that should result in a qualified opinion. d . The financial statements are free from material misstatement, but disclosure of the proposed adjustments is required in the notes to the financial statements.

a. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

Grant Company's financial statements adequately disclose uncertainties that concern future events, the outcome of which are not susceptible of reasonable estimation. The auditor's report should include a (an): a. Adverse opinion. b . Unmodified opinion. c. "Subject to" qualified opinion. d . "Except for" qualified opinion.

b . Unmodified opinion.

Which of the following terms used within standards indicates a presumptively mandatory requirement? a) must b) should c) may d) might

b) should

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

b. New information is discovered concerning undisclosed lease transactions of the audited period.

An auditor decides to issue a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to: a. Inadequate disclosure of necessary information. b. The possible effects on the financial statements. c. A departure from generally accepted auditing standards. d. A client-imposed scope limitation. Explanation

b. The possible effects on the financial statements.

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

c. Investigate changes in long-term debt occurring after year-end.

Which of the following items would most likely require an adjustment to the financial statements for the year ended December 31, Year 1?a.Settlement of litigation in Year 2 over an event that occurred in Year 2. b.Proceeds from a capital stock issuance in Year 2 which was being approved by the board of directors in Year 1. c. Loss on an uncollectible trade receivable recorded in Year 1 from a customer that declared bankruptcy in Year 2. d.Uninsured loss of inventories purchased in Year 1 as a result of a flood in Year 2.

c. Loss on an uncollectible trade receivable recorded in Year 1 from a customer that declared bankruptcy in Year 2

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may: a. Require adjustments to the financial statements as of the year end. b. Have been recorded based on preliminary accounting estimates. c. Require disclosure to keep the financial statements from being misleading. d. Have been recorded based on year-end tests for asset obsolescence

c. Require disclosure to keep the financial statements from being misleading.

Which of the following statements is not true regarding the auditor's responsibility for subsequent events? a. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date of the auditor's report. b. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date on which sufficient appropriate audit evidence has been obtained. c. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted. d. The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.

c. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted.

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

c. The financial statements fail to disclose information that is required by generally accepted accounting principles.

When an auditor expresses an adverse opinion, the opinion paragraph should include: a. The substantive reasons for the financial statements being misleading. b . A description of the uncertainty or scope limitation that prevents an unmodified opinion. c. The principal effects of the departure from generally accepted accounting principles. d . A direct reference to a separate paragraph disclosing the basis for the opinion

d . A direct reference to a separate paragraph disclosing the basis for the opinion

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless: a. Information about an event that occurred after the date of the auditor's report comes to the auditor's attention. b . Final determinations or resolutions are made of contingencies that had been disclosed in the financial statements. c. Management of the entity requests the auditor to reissue the auditor's report. d . Information, which existed at the report date and may affect the report, comes to the auditor's attention.

d . Information, which existed at the report date and may affect the report, comes to the auditor's attention.

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 auditor should: a. Refer to the change in an emphasis-of-matter paragraph. b . Explicitly state whether the change conforms with GAAP. c. Refer to the note in the financial statements that discusses the change. d . Not refer to the change in the auditor's report

d . Not refer to the change in the auditor's report

When a qualified opinion results from a limitation on the scope of the audit of a nonissuer, the situation should be described in a Basis fro Modification paragraph: a) Preceding the opinion paragraph and referred to only in the introductory paragraph of the auditor's report. b) Following the opinion paragraph and referred to in both the introductory and opinion paragraphs of the audit reports. c)Following the opinion paragraph and referred to only in the management's responsibility paragraph of the auditor's report. d) Preceding the opinion paragraph, should have the heading "Basis for Qualified Opinion" and should describe the reasons for inabilility to obtain sufficient appropriate audit evidence.

d) Preceding the opinion paragraph, should have the heading "Basis for Qualified Opinion" and should describe the reasons for inabilility to obtain sufficient appropriate audit evidence.

Which of the following statements correctly defines the term reasonable assurance? a. A substantial level of assurance to allow an auditor to detect a material misstatement. b. A significant level of assurance to allow an auditor to detect a material misstatement. c. An absolute level of assurance to allow an auditor to detect a material misstatement. d. A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

d. A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements? a. Qualified opinion. b. Unqualified opinion. c. Disclaimer opinion. d. Adverse opinion

d. Adverse opinion

When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an): a. Unaudited association report. b . Report on pro forma financial statements. c. Regulation S-X exemption. d. Disclaimer of opinion.

d. Disclaimer of opinion.

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events? a. Comparing the financial statements being reported on with those of the prior period. b. Investigating personnel changes in the accounting department occurring after year-end. c. Confirming a sample of material accounts receivable established after year-end. d. Inquiring as to whether any unusual adjustments were made after year-end

d. Inquiring as to whether any unusual adjustments were made after year-end

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was: a. Limited to include only events occurring up to the date of the last subsequent event referenced. b. Extended to include all events occurring since the original report date. c. Extended to subsequent events occurring through the later date. d. Limited to the specific event referenced.

d. Limited to the specific event referenced.

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor's report. This paragraph should identify the nature of the change and: a. Explain why the change is justified under generally accepted accounting principles. b. Describe the cumulative effect of the change on the audited financial statements. c. State the auditor's explicit concurrence with or opposition to the change. d. Refer to the financial statement note that discusses the change in detail.

d. Refer to the financial statement note that discusses the change in detail.

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate? a. The chief financial officer and the chief executive officer are unwilling to sign the management representation letter. b. Management refuses to produce documentation verifying the ownership of its equipment and production facilities. c. The auditor is unable to determine the extent of or the amounts associated with a pervasive employee fraud scheme. d. The company issues financial statements that purport to present financial position and results of operations, but refuses to include the related statement of cash flows

d. The company issues financial statements that purport to present financial position and results of operations, but refuses to include the related statement of cash flows

In which of the following circumstances would an auditor most likely add an emphasis-of-matter paragraph to the report while not affecting the auditor's unmodified opinion? a. Management's estimates of the effects of future events are unreasonable. b. Certain transactions cannot be tested because of management's records retention policy. c. The auditor is asked to report on the balance sheet, but not on the other basic financial statements. d. There is substantial doubt about the entity's ability to continue as a going concern

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