Ch 12 Audit
A report that acknowledges reliance on the reports of component auditors is a type of report modification known as a(n) Multiple Choice division of responsibility. qualification. scope limitations. expansion of scope.
a
After considering management's plans, an auditor concludes that there is substantial doubt about a client's ability to continue as a going concern for a reasonable period of time. The auditor's responsibility includes Multiple Choice considering the adequacy of disclosure about the client's possible inability to continue as a going concern. issuing a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements. indicating to the client's audit committee whether management's plans for dealing with the adverse effects of the financial difficulties can be effectively implemented. disclaiming an opinion on the financial statements due to the indications of possible financial difficulties.
a
An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. The entity's financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s). "Except for the effects "Possible discontinuance of of such adjustments" the entity's operations" A. Yes Yes B. Yes No C. No Yes D. No No Multiple Choice Option D Option B Option C Option A
a
An auditor may report on summary financial statements that are derived from a complete set of audited financial statements only if the auditor Multiple Choice indicates whether the information is fairly stated in all material respects in relation to the complete financial statements. presents the summary financial statements in comparative form with the prior years' summary financial statements. expresses an unmodified opinion on the audited financial statements from which the summary financial statements are derived.
a
Auditors are required to reference consistency in their report when there are changes in Multiple Choice accounting principles. the format of the Statement of Cash Flows. the classification of financial statement amounts. accounting estimates.
a
Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of Multiple Choice management's refusal to furnish written representations. a material departure from generally accepted accounting principles. inadequate disclosure of material information. the omission of the Statement of Cash Flows
a
Auditors who are reporting on financial statements that contain a material departure from generally accepted accounting principles should include an additional paragraph and Multiple Choice express a qualified or adverse opinion. disclaim an opinion on the financial statements. express a qualified opinion or disclaimer of opinion. not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote.
a
Charlie Company's comparative financial statements include the financial statements of the prior year that were audited by predecessor auditors whose report on those financial statements is not presented. If the predecessor's report was qualified, the successor auditors should Multiple Choice indicate in their report the substantive reasons for the qualification issued by the predecessor auditors. request the entity to reissue the predecessor's report on the prior-years' statements. express an opinion only on the current-year's financial statements and make no reference to the prior-years' financial statements or opinion. issue an updated comparative report on the entity's financial statements, indicating the involvement of component auditors.
a
How do auditors make the following representations when issuing the standard (unmodified) auditors' report? Consistent application Use of judgment in of accounting principles selecting audit procedures A. Implicitly Explicitly B. Explicitly Implicitly C. Implicitly Explicitly D. Explicitly Explicitly Multiple Choice Option B Option D Option C Option A
a
How is the auditors' responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonpublic company? Multiple Choice Stated explicitly in the Auditor's Responsibility section. Stated explicitly in the introductory paragraph. Unstated but understood in the Auditor's Responsibility section. Stated explicitly in the opinion paragraph.
a
If financial statements contain an immaterial departure from accounting principles, the auditors can render a(n) Multiple Choice Unmodified opinion. Qualified opinion. "Subject to" opinion. Unmodified opinion with an additional paragraph.
a
In a standard (unmodified) report, which of the following paragraphs or sections would indicate that auditors conducted their audits in accordance with generally accepted auditing standards? Multiple Choice Auditor's Responsibility section. Introductory paragraph. Emphasis-of-matter paragraph. Opinion paragraph.
a
In which of the following circumstances would auditors be most likely to express an adverse opinion? Multiple Choice The financial statements are not in accordance with generally accepted accounting principles regarding the capitalization of leases. Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon. The chief executive officer refuses to provide the auditors access to minutes of board of directors' meetings. Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern.
a
Independent auditors must consider whether the entity has the ability to continue as a going concern. If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, the auditors would normally Multiple Choice express an unmodified opinion with an emphasis-of-matter paragraph describing the going-concern uncertainty. qualify the opinion. express an adverse opinion. disclaim an opinion.
a
Management determined it was probable that a pending litigation claim would result in a material loss. The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement. If the auditors believe an accrual should be made, what type of report should be issued? Multiple Choice Qualified or adverse opinion based on a departure from GAAP. Qualified opinion based on a circumstance-imposed scope limitation. Standard (unmodified) report. Unmodified opinion with an emphasis-of-matter paragraph.
a
Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of Multiple Choice involvement of component auditors in the audit of the group financial statements. the portion of the group statements audited by the component auditors not being considered material. different opinions the auditors are expressing on the components of the financial statements that each audited. group auditors' recognition of the component auditors' competence, reputation, and professional certification.
a
Restrictions imposed by an entity prohibited the observation of physical inventories, which accounted for 35 percent of total assets. Alternative auditing procedures were not feasible, although the auditors were able to examine satisfactory evidence for all other items in the financial statements. The auditors would most likely express Multiple Choice a disclaimer of opinion on the entity's financial statements. an unmodified opinion on the entity's financial statements with a modification of the Auditor's Responsibility section. an unmodified opinion on the entity's financial statements with an additional paragraph. a qualified opinion on the entity's financial statements, referring to a departure from generally accepted accounting principles.
a
The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors' report alternatives? Multiple Choice Unmodified opinion with a reference to going-concern or disclaimer of opinion. Qualified opinion or adverse opinion. Standard (unmodified) report or a disclaimer of opinion. Standard (unmodified) report or adverse opinion.
a
The auditors have determined that there is substantial doubt about an entity's ability to continue as a going concern. When considering the appropriateness of management's disclosures and severity of the uncertainty, all of the following reports could be issued, except Multiple Choice qualified opinion based on a material and pervasive uncertainty. unmodified opinion with an emphasis-of-matter paragraph describing the uncertainty. adverse opinion based on inadequate disclosure of the uncertainty. disclaimer of opinion based on a material and pervasive uncertainty.
a
The auditors' report on the entity's financial statements included an additional paragraph disclosing a difference of opinion between the auditors and the entity for which the auditors believed an adjustment to the financial statements should be made. The opinion paragraph of the auditors' report should express a(n) Multiple Choice qualified opinion citing a departure from generally accepted accounting principles. unmodified opinion. disclaimer of opinion. qualified opinion citing a scope limitation and lack of specific evidence.
a
Watt, CPA, concludes that, while ABC Co. has properly accounted for and disclosed certain significant related party transactions, an emphasis-of-matter paragraph calling attention to these transactions should be added after Watt's opinion paragraph in the audit report. What should be included in the emphasis-of-matter paragraph? Multiple Choice A clear reference to the transactions and an indication that Watt's audit opinion is not modified in light of these transactions. A detailed description of the transactions and a clear reference to the transactions. A detailed description of the transactions, a clear reference to the transactions, and an indication that Watt's audit opinion is not modified in light of these transactions. A detailed description of the transactions.
a
When auditors conclude that a material and pervasive departure from GAAP exists in an entity's financial statements, which of the following phrases would most likely be included in their report? Multiple Choice "Do not present fairly in all material respects." "As a result of the departures discussed in the following paragraph." "Except for the effects of the departure from generally accepted accounting principles, as discussed in the preceding paragraph." "We were engaged to audit the accompanying financial statements."
a
When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following? Multiple Choice An emphasis-of-matter paragraph. The introductory paragraph. An other-matter paragraph. The opinion paragraph.
a
When other information is presented in a document with audited financial statements, the auditors' report should Multiple Choice reference the other information only if inconsistencies or material misstatements are identified between this information and the financial statements. state that the auditor read the other information for inconsistencies and misstatements with the financial statements and identified no discrepancies. be expanded to express an opinion that the other information is consistent with the financial statements and not materially misstated. provide limited assurance as to whether the other information is presented in accordance with generally accepted accounting principles.
a
When reporting under GAAS, certain statements are required in all auditors' reports ("explicit") and others are required only under certain conditions ("implicit"). Which combination that follows correctly describes the auditors' responsibilities for reporting? (a) (b) (c) (d) 1. GAAP Explicit Explicit Implicit Implicit 2. Consistency Implicit Explicit Explicit Implicit 3. Going concern Implicit Implicit Explicit Explicit 4. Opinion Explicit Explicit Implicit Implicit Multiple Choice Option A Option B Option C Option D
a
When updating the report on prior-years' financial statements presented in comparative form, the auditors' responsibility for the prior-years' financial statements is Multiple Choice extended to the date of the updated audit report. extended to the updated report date only if information comes to the auditors' attention requiring modification of the previously expressed opinion. limited to 30 days after the date of the prior years' financial statements. limited to the previously issued report date.
a
Which of the following best describes the auditors' responsibility when financial statements are presented in comparative format? Multiple Choice The auditors' report must refer to all financial statements presented in comparative form, regardless of whether they have been audited by the current auditors or predecessor auditors. The auditors' report must only refer to the prior years' financial statements if they were audited by either the current auditors or predecessor auditors. The auditors' report must only refer to the prior years' financial statements if they were audited by the current auditor. The auditors' report must only refer to the current year's financial statements.
a
Which of the following best reflects the auditors' reporting responsibility under generally accepted auditing standards? Other Information Required Accompanying the Supplementary Financial Statements Information A. Exception Required B. Exception Exception C. Required Required D. Required Exception Multiple Choice Option A Option D Option C Option B
a
Which of the following guidelines should be followed when a disclaimer of opinion is issued? Multiple Choice The report should identify the financial statements accompanying the disclaimer of opinion. If the disclaimer is due to a lack of independence, the report should indicate the specific reasons for the auditors not being independent. The report should be addressed to the client and specific users who originally retained the auditors. The report should include a reference to any auditing procedures performed prior to issuing the disclaimer.
a
Which of the following is included in the introductory paragraph of the standard (unmodified) report on the entity's financial statements? Multiple Choice The names of the financial statements audited. The auditors' responsibility to express an opinion on the entity's financial statements. Management's responsibility for the financial statements. The fact that an audit provides a reasonable basis for an opinion.
a
Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure? Multiple Choice "Except for the omission of the information discussed in the preceding paragraph." "With the foregoing explanation of these omitted disclosures." "Does not present fairly in all material respects." "Subject to the departure from generally accepted accounting principles, as described above."
a
Which of the following reporting options would auditors use if the entity changed the estimated lives of its property, plant and equipment and accounted for the change correctly? Multiple Choice Unmodified opinion. Unmodified opinion with an emphasis-of-matter paragraph. Qualified opinion. Disclaimer of opinion.
a
Which of the following situations would not result in auditors adding an additional paragraph to their report without modifying the introductory, scope, or opinion paragraphs of that report? Multiple Choice Reference to a departure from GAAP that is material, but not pervasive, to the financial statements. Reference to a going-concern uncertainty facing the entity. Reference to a change in the method of accounting mandated by the issuance of a new accounting standard. Reference to an acquisition made by the entity during the most recent fiscal year.
a
Which of the following would cause the auditors to issue a report on the entity's financial statements other than a standard (unmodified) report? Multiple Choice The entity omitted necessary information from its footnote disclosures that were material to the financial statements. The group auditors assumed responsibility for the work of component auditors in the audit of group financial statements. As the result of a scope limitation, auditors performed alternative procedures to satisfy themselves as to the fairness of the account balance. The financial statements present fairly the financial condition, results of operations, and cash flows of the entity.
a
An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's Multiple Choice statement of cash flows only. balance sheet only. statement of changes in shareholders' equity only. income statement only.
b
Auditors will issue an adverse opinion when Multiple Choice a qualified opinion cannot be rendered because the auditors lack independence. a violation of generally accepted accounting principles is sufficiently material and pervasive that a qualified opinion is not justified. a severe scope limitation has been imposed by the entity. the entity's ability to continue as a going concern is subject to substantial doubt.
b
Carson, LLP, audited Best Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, Carson gave Best permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for Carson's responsibility on the reissued report? Multiple Choice February 15, Year 3. March 1, Year 2. December 31, Year 1. December 31, Year 2.
b
Company A hired Samson & Delilah, CPAs, to audit the financial statements of Company B and deliver the report to Megabank. Who is the client? Multiple Choice Company B. Company A. Megabank. Samson & Delilah.
b
Harris & Thompson were engaged to audit Smart Corp's comparative financial statements for the years ended December 31, Year 1 and Year 2. The Year 1 financial statements were presented in accordance with generally accepted accounting principles, but the Year 2 financial statements were determined to be materially misstated. As a result, Harris & Thompson should Multiple Choice reissue the previous opinion on the Year 1 financial statements and withdraw from the engagement. issue an unmodified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements. issue an unmodified opinion on the Year 1 financial statements and disclaim an opinion on the Year 2 financial statements. issue a qualified opinion on the comparative financial statements as a whole.
b
Harris is auditing the financial statements of Cole Corp., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Harris issue? Multiple Choice Qualified opinion on the financial statements and mineral reserve information due to the misstatement. Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information. Unmodified opinion on the financial statements with an other-matter paragraph expressing an adverse opinion on the mineral reserve information. Adverse opinion on the financial statements and mineral reserve information due to the misstatement.
b
Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report? Multiple Choice The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty. A disclaimer of opinion should be issued because the auditors' independence is impaired. A qualified or adverse opinion should be issued depending on the severity of the lawsuit. The report should be modified to include an emphasis-of-matter paragraph describing the pending litigation.
b
Holmes, CPA, assisted Williams Corporation in preparing its financial statements and gave Williams permission to use Holmes's name in communications containing these financial statements. If Holmes did not audit the financial statements, what type of opinion should be expressed? Multiple Choice Qualified opinion with an additional paragraph indicating a circumstance-imposed scope limitation. Disclaimer of opinion because Holmes did not audit the financial statements. Unmodified opinion with an other-matter paragraph limiting the level of assurance provided by Holmes. Homes is not required to issue a report or opinion in this situation.
b
If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditors should Multiple Choice disclaim an opinion on the entity's financial statements because of uncertainty. add an additional paragraph and express a qualified or an adverse opinion on the entity's financial statements for lack of conformity with generally accepted accounting principles. disclose the matter in an additional paragraph but not modify the opinion paragraph on the entity's financial statements. neither modify the opinion on the entity's financial statements nor disclose the matter because both principles are generally accepted accounting principles.
b
If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would Multiple Choice include an other-matter paragraph that discloses the performance of alternative procedures. not mention the alternative procedures. disclose in the opinion paragraph that confirmation of accounts receivable was impracticable. disclose the fact that alternative procedures were used due to client-imposed scope limitation.
b
If the opinion issued on prior years' financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors' current report should Multiple Choice Express the revised opinion on the prior years' financial statements without referencing the previously-issued opinion. Reference the type of opinion issued on the prior years' financial statements and indicate that the current opinion on these financial statements differs from that expressed in the prior years. Indicate that the opinion on the prior years' financial statements cannot be relied upon. Not reference the prior years' financial statements.
b
Situations in which auditors provide additional copies of a previous issued report or grant entities permission to use a previously issued report in a document containing financial statements after its original date are known as Multiple Choice updated reports. reissued reports. subsequent use reports. additional use reports.
b
The auditors conclude that an entity's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the overall materiality and pervasiveness of the effect of this illegal act on the financial statements, the auditors should express either a(n) Multiple Choice disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph. qualified opinion or an adverse opinion. adverse opinion or a disclaimer of opinion. unmodified opinion with a separate emphasis-of-matter paragraph or a qualified opinion.
b
The issuance of a disclaimer of opinion generally indicates Multiple Choice the auditors have observed a departure from generally accepted accounting principles that is so material and pervasive that a qualified opinion is not justified. the auditors cannot form an opinion on the fairness of presentation of the financial statements as a whole. the auditors have some uncertainties, but these uncertainties are not so material that they cannot form an opinion on the fairness of presentation of the financial statements as a whole. the auditors have observed a departure from generally accepted accounting principles but the departure is not of sufficient materiality to justify a qualified opinion.
b
Under which of the following circumstances would a disclaimer of opinion be appropriate? Multiple Choice Management does not provide reasonable justification for a change in accounting principles. The chief executive officer is unwilling to sign the management representation letter. The auditor believes management's estimates of the useful lives of key assets are unreasonable, but management refuses to change the estimates. The auditor believes, with evidence, that the chief executive officer has committed material fraud.
b
Under which of the following circumstances would a disclaimer of opinion on the entity's financial statements not be appropriate? Multiple Choice The entity refuses to permit its attorney to furnish information requested in an attorney letter. The financial statements fail to contain adequate disclosure of related-party transactions. The auditors are unable to determine the amounts associated with illegal acts committed by the entity's management. The auditors are engaged after the date of the financial statements and are unable to observe physical inventories or apply alternative procedures to verify their balances.
b
When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n) Multiple Choice qualified opinion referencing a departure from generally accepted accounting principles. disclaimer of opinion. adverse opinion. unmodified opinion with an additional paragraph.
b
When auditors render an adverse opinion on the entity's financial statements, the Multiple Choice Auditors require less evidence to support the opinion compared to that for an unmodified opinion. Introductory paragraph, Management's Responsibility section, and Auditor's Responsibility section should not be modified. Auditors do not possess sufficient appropriate evidence. Departures do not need to be explained in the auditors' report.
b
When component auditors are involved in the audit of group financial statements, the group auditors may issue a report that Multiple Choice Names the component auditors, describes their work, and presents only the group auditors' report. Refers to the component auditors, describes the extent of the component auditors' work, and expresses an unmodified opinion. Does not consider or evaluate the component auditors' work but expresses an unmodified opinion in a standard report. Places primary responsibility for the reporting on the component auditors.
b
When financial statements are presented in comparative form and another firm audited the prior years' financial statements (but the other firm's report is not presented with the financial statements), the auditors' report on the current-year financial statements should Multiple Choice Disclaim an opinion on the prior years' financial statements. Refer to the report and type of opinion issued by the other firm on the prior years' financial statements. Not refer to the prior years' financial statements. Refer to any procedures performed by the current auditor to verify the opinion on the prior years' financial statements.
b
When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is Multiple Choice qualified or adverse, depending on the overall materiality and pervasiveness of the GAAP departure. unmodified. adverse. qualified.
b
Which of the following circumstances requires the auditor to include an other-matter paragraph in the audit report? Multiple Choice When there is a matter appropriately disclosed in the financial statements but which the auditor believes is of such importance as to be fundamental to users' understanding of the financial statements. When the financial statements are accompanied by required supplementary information. When the report of a component auditor is being relied upon in an audit of consolidated financial statements. When a scope limitation prevents the auditor from obtaining sufficient appropriate audit evidence regarding the results of operations.
b
Which of the following is not included in the Auditor's Responsibility section of the standard (unmodified) report on the entity's financial statements? Multiple Choice The fact that an audit includes assessing the accounting policies used by the entity. A conclusion that the financial statements are in accordance with GAAP. The fact that the auditors performed the audit to obtain audit evidence about the amounts and disclosures in the financial statements. A statement that the audit was conducted in accordance with generally accepted auditing standards.
b
Which of the following scope limitations would ordinarily be of most concern to the auditors? Multiple Choice The inability to observe inventories because auditors were appointed following the date of the financial statements. Management's refusal to provide auditors with written representations. The use of the work of component auditors in the audit of group financial statements. The inability to obtain confirmation of year-end balances from customers because of different billing dates.
b
Which of the following statements is not included in the Auditor's responsibility section of the standard (unmodified) report on the entity's financial statements? Multiple Choice "An audit involves performing procedures to obtain audit evidence about the amounts and disclosures..." "We have audited the accompanying financial statements..." "Those standards require that we plan and perform the audit..." "The procedures selected depend upon the auditor's judgment..."
b
Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose between which reporting options? Multiple Choice Unmodified opinion or disclaimer of opinion. Unmodified opinion or qualified opinion. Qualified opinion or adverse opinion. Unmodified opinion with an emphasis-of-matter paragraph or an adverse opinion.
c
Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in an additional paragraph Multiple Choice within the footnotes to the financial statements. following the opinion paragraph. preceding the opinion paragraph. preceding the Auditor's Responsibility section.
c
Auditors would not normally issue a qualified opinion on the entity's financial statements when Multiple Choice the entity has undertaken a change in accounting principle with which the auditor does not agree. a scope limitation prevents the auditors from completing an important auditing procedure. the auditors lack independence with respect to the audited entity. an accounting principle at variance with generally accepted accounting principles is used.
c
If a going-concern uncertainty exists, auditors may not issue which of the following reports on the entity's financial statements? Multiple Choice An unmodified opinion with an emphasis-of-matter paragraph explaining the going-concern problem. An opinion qualified for a GAAP departure if the auditors believe the disclosures about going-concern uncertainties are inadequate. An adverse opinion because of a pervasive departure from GAAP, assuming that the disclosures about going-concern uncertainties are adequate. A disclaimer of opinion resulting from an uncertainty about the ability of the entity to continue in existence.
c
If financial statements contain a material but non-pervasive departure from generally accepted accounting principles, the auditors should render a(n) Multiple Choice disclaimer of opinion. adverse opinion with scope limitation reference. Qualified opinion with reference to departure. adverse opinion with reference to departure.
c
If the auditors decide to present separate reports on the entity's financial statements and internal control over financial reporting, which of the following should be modified to refer to the other report? Report on Financial Statements Report on Internal Control over Financial Reporting a. Yes Yes b. Yes No c. No Yes d. No No Multiple Choice Option C Option D Option A Option B
c
In a situation where there is a justified departure from a promulgated accounting principle that is adequately disclosed, how will the auditor modify the standard report? Multiple Choice By modifying the Auditor's Responsibility paragraph. By modifying the Management's Responsibility paragraph. By adding an emphasis-of-matter paragraph after the opinion paragraph. By adding an other-matter paragraph after the opinion paragraph.
c
In which of the following circumstances may auditors issue the standard (unmodified) report on the entity's financial statements? Multiple Choice The auditors reference component auditors who examined a subsidiary of group financial statements. The auditors wish to emphasize a matter regarding the financial statements. The entity changed accounting principles having an immaterial effect on the entity's financial position, results of operations, and cash flows. The auditors have not been able to audit a substantial portion of the balance sheet because of a circumstance-imposed scope limitation.
c
In which of the following circumstances would auditors most likely add an emphasis-of-matter paragraph to the standard (unmodified) report without modifying the opinion on the entity's financial statements? Multiple Choice Management's estimates of the effects of future events on the entity's financial condition, results of operations, and cash flows are unreasonable. The auditors are asked to report on the balance sheet, but not on the other basic financial statements. There is substantial doubt about the entity's ability to continue as a going concern. Certain transactions cannot be tested because of management's records retention policy.
c
In which of the following should an auditors' report refer to the lack of consistency when there is a change in accounting principle that is significant? Multiple Choice An emphasis-of-matter paragraph before the opinion paragraph. The opinion paragraph. An emphasis-of-matter paragraph following the opinion paragraph. The Auditor's Responsibility section.
c
On which of the following matters would it not be appropriate for the auditors to report using an other-matter paragraph? Multiple Choice Procedures performed related to supplementary mineral reserve information required by the Financial Accounting Standards Board. The consistency of summary financial statements with the audited financial statements from which they were derived. A material inconsistency between other information and the financial statements. An updated opinion on comparative financial statements that differs from the opinion originally issued by the auditors.
c
The auditors include an emphasis-of-matter paragraph in an otherwise unmodified report on the entity's financial statements to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph Multiple Choice is considered a qualification of the opinion. necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." is appropriate and would not otherwise affect the unmodified opinion. violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
c
The group auditors decide not to refer to the audit of component auditors who audited a subsidiary of the group financial statements. After making inquiries about the component auditors' professional reputation and independence, the group auditor most likely would Multiple Choice document in the engagement letter that the group auditors assume no responsibility for the component auditors' work. obtain written permission from the component auditors to omit the reference in the group auditors' report. contact the component auditors' and review the audit programs and working papers pertaining to the subsidiary. add an additional paragraph to the group auditors' report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.
c
When a previously expressed opinion is updated from qualified to unmodified, the auditors' report on comparative financial statements should Multiple Choice not modify the previously expressed opinion or refer to factors affecting the opinion on the prior years' financial statements. update the opinion expressed on the prior years' financial statements but provide no explanation for the updated opinion. update the previously expressed opinion and explain the reasons for the change, including a reference to the footnote describing the change. not modify the previously expressed opinion but include a reference to the footnote describing the factors affecting the opinion on the prior years' financial statements.
c
When auditing group financial statements for a non-issuer where the group auditor decides to assume responsibility for the work of all component auditors, which of the following paragraphs are adjusted? Report on the Consolidated Financial Statements Paragraph (Intro) Auditor's Responsibility Paragraph Opinion Paragraph a. No No Yes b. Yes Yes Yes c. No No No d. No Yes No Multiple Choice Option A Option B Option C Option D
c
When auditors lack independence, which of the following is true about the report on the entity's financial statements that should be issued? Multiple Choice The auditors should issue an unmodified opinion with an other-matter paragraph stating that they are not independent. The auditors should issue a qualified opinion with an other-matter paragraph stating that they are not independent. The auditors should disclaim an opinion and should state specifically that they are not independent. The auditors should disclaim an opinion but not mention that they are not independent.
c
When component auditors are involved in the audit of group financial statements, the group auditors are required to Multiple Choice identify the extent of component auditors' involvement if they choose not to rely on the component auditors' work. disclaim an opinion on the portion of the financial statements examined by the component auditors. consider the independence and professional reputation of the component auditors in deciding how to utilize their work. identify the component auditors by name in their report to appropriate limit their liability for the component auditors' work.
c
When disclaiming an opinion due to a client-imposed scope limitation, auditors should describe the nature of the scope limitation in an additional paragraph and modify the Multiple Choice Auditor's Responsibility section and opinion paragraph. introductory paragraph and Auditor's Responsibility section. introductory paragraph, Auditor's Responsibility section, and opinion paragraph. introductory paragraph.
c
When other information accompanying audited financial statements contains a material inconsistency that management refuses to revise, the auditor may do which of the following? Multiple Choice Withhold the auditor's report and withdraw from the engagement. Include an other-matter paragraph in the report. Withdraw from the engagement. Withdraw from the engagement and Include an other-matter paragraph in the report.
c
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the Auditor's Responsibility Notes to the financial section statements A. Yes Yes B. Yes No C. No Yes D. No No Multiple Choice Option A Option C Option B Option D
c
When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements Multiple Choice is fairly stated, in all material respects, in accordance with generally accepted accounting principles. is complete with respect to disclosures required by the SEC. is fairly stated, in all material respects, in relation to the complete financial statements. is consistent, in all material respects, with the prior-years' summary financial statements.
c
Which of the following is an example of a material accounting change that requires recognition in an unmodified opinion on the entity's financial statements? Multiple Choice A change from an accounting principle that conforms with GAAP to one that does not. Management has changed from one generally accepted accounting principle to another but has not provided reasonable justification. A change in the entity's form of reporting entity. A change in the estimate of useful lives used to depreciate property, plant, and equipment.
c
Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors' work did not identify any issues affecting the group auditors' report? Multiple Choice Refer to the component auditors' work and disclose the extent of their work in the group auditors' report. Identify the component auditors by name and present their report along with the group auditors' report. Disclaim an opinion on the portion of the financial statements examined by the component auditors. Issue a standard (unmodified) report that does not reference any involvement by the component auditors.
c
Which of the following is true with respect to the auditors' report on summary financial statements? Multiple Choice The report will express negative assurance on whether the summary financial statements are prepared in accordance with AICPA presentation guidelines. The report will express an opinion on whether the summary financial statements present the financial condition, results of operations, and cash flows in accordance with generally accepted accounting principles. The report will indicate whether the summary financial statements are fairly stated in relation to the full financial statements. Auditors can only issue a report on summary financial statements if they have expressed an unmodified opinion on the full financial statements.
c
Which of the following situations would require auditors to add an other-matter paragraph to their report on comparative financial statements? Multiple Choice An unmodified opinion is issued in the current year while a qualified opinion was issued in prior years. A qualified opinion is issued in the current year because of a scope limitation; because this limitation was not encountered in prior years, the opinion issued in those years was unmodified. The updated opinion issued on prior-years' financial statements differs from the opinion originally issued on those financial statements. The auditors' unmodified opinion issued on prior-years' financial statements is still considered to be appropriate.
c
Which of the following would not be communicated to users in the auditors' report on an entity's financial statements and related disclosures? Multiple Choice Unusual aspects of the audit examination, such as the involvement of component auditors in the audit of group financial statements. Whether the financial statements are presented in accordance with GAAP, or another applicable financial reporting framework. Specific details regarding the audit examination, such as the materiality threshold used to identify material misstatements. Other matters affecting the client, such as substantial doubt about the entity's ability to continue as a going concern.
c
Zag Co. issues financial statements that present financial position and results of operations, but Zag omits the related statement of cash flows. Zag would like to engage Brown, CPA, to audits its financial statements without the statement of cash flows although Brown's access to all of the information underlying the basic financial statements would not be limited. Under the circumstances, Brown most likely would
c
"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 2017..." is an illustration of a Multiple Choice scope limitation. consistency change requiring a qualified opinion. departure from generally accepted accounting principles. report with a consistency modification.
d
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? Multiple Choice Unmodified opinion. Disclaimer of opinion. Qualified opinion. Adverse opinion
d
An auditor is unable to obtain sufficient appropriate audit evidence regarding a significant transaction that does not affect the ending balance of any balance sheet account. There were no additional significant matters identified by the auditor during the course of the engagement. In this situation, the auditor is most likely to Multiple Choice Withdraw from the engagement. Issue an unmodified opinion in regard to financial position and cash flows and disclaim an opinion in regard to the results of operations. Issue a disclaimer of opinion on all the financial statements. Issue an unmodified opinion in regard to financial position and disclaim an opinion in regard to the results of operations and cash flows.
d
An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should Multiple Choice issue an updated comparative report indicating the involvement of component auditors. express an opinion only on the current year's financial statements and make no reference to the prior years' statements. explain to the client that comparative financial statements may not be presented under these circumstances. indicate the substantive reasons for the qualification in the predecessor auditors' opinion.
d
During the year under audit, Forrest Corporation experienced significant losses due to a pervasive fraud scheme. Because of the lack of documentary evidence and inability to perform appropriate auditing procedures, the auditors were unable to determine the total amount of the loss. What type of report should the auditors issue? Multiple Choice Qualified or adverse opinion. Unmodified opinion with an other-matter paragraph. Disclaimer or adverse opinion. Disclaimer or qualified opinion.
d
Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment and the start of fieldwork made confirmation of accounts receivable by direct communication with the customers not feasible. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditors' report most likely contained a(n) Multiple Choice qualified opinion due to a departure from generally accepted auditing standards. unmodified opinion with an emphasis-of-matter paragraph. qualified opinion due to a scope limitation. unmodified opinion.
d
Hart, CPA, is auditing the year 2 financial statements of Kell Co. Previously, Hart audited Kell's year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include an other-matter paragraph in the year 2 report because comparative financial statements are being presented for year 2 and year 1. This paragraph should indicate the Multiple Choice restriction on the distribution of the report. consistency of application of accounting principles between year 2 and year 1. reason that Hart continued to provide audit services, despite the previous scope limitation. substantive reasons for the prior-year's qualification.
d
If the auditors encounter a material scope limitation in the examination of the entity's financial statements, which of the following types of opinions could be issued? Multiple Choice Adverse opinion or qualified opinion. Unmodified opinion with an emphasis-of-matter paragraph or qualified opinion. Adverse opinion or disclaimer of opinion. Disclaimer of opinion or qualified opinion.
d
In which of the following circumstances would a qualified opinion not be appropriate? Multiple Choice The entity has failed to properly disclose going-concern uncertainties. An accounting principle at variance with generally accepted accounting principles is used. The auditors lack independence with respect to the audited entity. A scope limitation prevents the auditors from completing an important auditing procedure.
d
In which of the following situations would auditors ordinarily choose between expressing a qualified opinion or an adverse opinion on the entity's financial statements? Multiple Choice The auditors are asked to report only on the entity's balance sheet and not on the other basic financial statements. The auditors did not observe the entity's physical inventory and are unable to become satisfied as to its balance by other auditing procedures. The financial statements fail to disclose information that is required by generally accepted accounting principles. Events disclosed in the financial statements cause the auditors to have substantial doubt about the entity's ability to continue as a going concern.
d
R. Wolfe became the new auditor for Royal Corporation, succeeding C. Mason, who audited the financial statements last year. Wolfe needs to report on Royal's comparative financial statements and should disclose in the report an explanation about other auditors having audited the prior year Multiple Choice To describe the audit and the opinion and name Mason as the predecessor auditor. Only if Mason's opinion last year was qualified. To describe the audit but not reveal the type of opinion issued by Mason. To describe the prior audit and the opinion but not name Mason as the predecessor auditor.
d
SEC registrants' financial statements should be accompanied by all of the following reports except the Multiple Choice auditors' report on internal control over financial reporting. management's report on internal control over financial reporting. auditors' report on financial statements and related disclosures. management's report on financial statements and related disclosures.
d
The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements. If the auditors conclude that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditors may Multiple Choice consider the matter closed since the other information is not included in the audited financial statements. issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles. issue an adverse opinion on the entity's financial statements due to inadequate disclosure. revise the report on the entity's financial statements to include an other-matter paragraph describing the material inconsistency.
d
The standard (unmodified) report issued in the audit of a nonpublic entity includes a(n) Multiple Choice introductory paragraph identifying the responsibility of management and auditors in the financial reporting process. internal control paragraph indicating the effectiveness of the entity's internal control over financial reporting. management's responsibility section providing a general description of an audit conducted in accordance with the applicable auditing standards. opinion paragraph providing the auditors' conclusion as to the fair presentation of the financial statements.
d
Under which of the following conditions can a disclaimer of opinion never be issued? Multiple Choice The auditors own stock in the entity. The entity's going-concern problems are highly material and pervasive. The entity does not allow the auditors access to evidence about important accounts. The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method.
d
What is the auditors' responsibility for reporting on other information accompanying financial statements? Multiple Choice Auditors are required to provide reasonable assurance with respect to whether the other information is presented in accordance with generally accepted accounting principles. Because this information is not a fundamental part of the financial statements, the auditors have no reporting responsibility with respect to this information. Auditors are required to express an opinion on whether the other information is presented in accordance with generally accepted accounting principles. Auditors are required to report on other information only if it is misstated or inconsistent with the financial statements.
d
What is the major difference between a reissued report and an updated report? Multiple Choice An updated report will express a different opinion on the prior years' financial statements that were originally expressed by the auditors, while a reissued report will express the same opinion. An updated report can be presented along with the entity's financial statements, but a reissued report cannot be presented along with the entity's financial statements. An updated report will not express an opinion other than an unmodified opinion, while a reissued report can express an unmodified opinion, qualified opinion, adverse opinion, or disclaimer of opinion. An updated report considers information that has come to their attention since the date of the original report, while a reissued report does not consider this information.
d
When a circumstance-imposed scope limitation has a material but not pervasive effect on the sufficiency of the auditors' evidence, the auditors' report will Multiple Choice modify the Auditor's Responsibility section and opinion paragraph. modify the introductory paragraph, Auditor's Responsibility section, and opinion paragraphs. modify the introductory and opinion paragraphs and omit the Auditor's Responsibility section. modify the opinion paragraph.
d
When a predecessor auditor has examined the prior-years' financial statements presented in comparative format, the current auditors' report should Multiple Choice make no reference to the predecessor auditors' report. reference the predecessor auditors' report in the introductory paragraph, Auditor's Responsibility section, and opinion paragraph. disclaim an opinion on the prior-years' financial statements. reference the predecessor auditors' report in an other-matter paragraph.
d
When audited financial statements are presented in a document containing other information, the auditors should Multiple Choice add an emphasis-of-matter paragraph to the auditors' report without modifying the opinion on the financial statements. perform the appropriate substantive procedures to corroborate the other information. perform inquiry and analytical procedures to ascertain whether the other information is reasonable. read the other information to determine that it is consistent with the audited financial statements.
d
When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not Multiple Choice identify management's responsibility for the financial statements. refer to any scope limitation in an additional paragraph. indicate that the auditors were engaged to audit the financial statements. modify the Auditor's Responsibility section to identify the basis for the disclaimer.
d
When auditors qualify their opinion on the entity's financial statements because of inadequate disclosure, the auditors should describe the nature of the omission in an additional paragraph and modify Multiple Choice the Auditor's Responsibility section only. the introductory paragraph and Auditor's Responsibility sections. the introductory paragraph only. neither the introductory paragraph nor Auditor's Responsibility section.
d
When reporting on comparative financial statements, auditors ordinarily should modify their previously expressed opinion on the prior-years' financial statements if the Multiple Choice prior-years' financial statements are restated to conform with generally accepted accounting principles. prior-years' opinions were unmodified and the opinion on the current-year's financial statements is modified due to a lack of consistency. auditors were predecessor auditors who have been requested by a former client to reissue the previous report. prior-years' financial statements are restated following an acquisition in the current year.
d
When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditors should Multiple Choice refer to the change in an emphasis-of-matter paragraph. refer to the change in the opinion paragraph. explicitly concur that the change is preferred. not refer to consistency in the report.
d
Which of the following is not included in the standard (unmodified) report on the financial statements? Multiple Choice An opinion that the financial statements present financial position in accordance with GAAP. An identification of the financial statements that were audited. A general description of an audit. An emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.
d
Which of the following paragraphs or sections of the group auditors' report is modified to identify the extent of component auditor involvement in the audit of group financial statements? Multiple Choice The Management's Responsibility section. The introductory paragraph. The opinion paragraph. The Auditor's Responsibility section.
d
Which of the following report modifications would be necessary if group auditors are indicating the involvement of component auditors in the audit of group financial statements? Multiple Choice A reference to the report of component auditors providing a basis for the opinion in the Management's Responsibility section. A reference to the report of component auditors in an other-matter paragraph. A reference to component auditors' work in the introductory paragraph. A reference to the components (and dollar and percentage magnitudes of the components) examined by component auditors in the Auditor's Responsibility section.
d
Which of the following statements is not included in the Auditor's Responsibility section of the standard (unmodified) report? Multiple Choice "Those standards require that we plan and perform the audit to obtain reasonable assurance..." "An audit also includes evaluating the appropriateness of accounting policies used..." "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion." "In accordance with accounting principles generally accepted in the United States of America."
d
Which of the following statements is not true with respect to the audit examinations and reports for public and nonpublic entities? Multiple Choice Management is responsible for the fairness of the financial statements for both public entities and nonpublic entities. The reports for both public and nonpublic entities express an opinion on the entity's financial statements. Audit examinations for nonpublic entities are based on user demand but based on legislative requirements for public entities.
d
Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion? Multiple Choice Entity corrected a prior mistake in accounting for interest capitalization. Entity sold one of its subsidiaries and consolidated six subsidiaries this year compared to seven last year. Entity changed its estimated allowance for uncollectible accounts receivable. Entity changed its inventory costing method from FIFO to LIFO.
d
