Audit - Chapter 17

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

C. Qualified: No, Unmodified with Emphasis-of-Matter: Yes

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.

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.

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.

A change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified with Emphasis-of-Matter A. Yes Yes B. Yes No C. No Yes D. No No

B. Qualified: Yes, Unmodified with Emphasis-of-Matter No

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.

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 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).

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).

When the matter is properly disclosed in the financial statements, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified Unmodified with Emphasis-of-Matter A. Yes Yes B. Yes No C. No Yes D. No No

C. Qualified: No, Unmodified with Emphasis-of-Matter Yes

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

C. qualify their opinion or issue an adverse opinion.

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 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. D. 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.

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.

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

D. 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.