ch 17 323 hw
An audit client has refused to allow the auditors to perform an auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of: A) A disclaimer of opinion. B) An adverse opinion. C) A standard unmodified opinion with a Qualified Scope section. D) An unmodified report with an Emphasis of Matter section.
A) A disclaimer of opinion.
Which of the following is not explicitly included in an audit report for a nonpublic company? A) A statement that the auditor believes that all key audit matters have been properly disclosed in the audit report. B) A statement that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. C) A statement that the auditors maintained professional skepticism. D) A title with the word "independent."
A) A statement that the auditor believes that all key audit matters have been properly disclosed in the audit report.
The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: A) An emphasis-of-matter paragraph to the auditors' report. B) A footnote to the financial statements. C) The body of the financial statements. D) The "summary of significant accounting policies" section of the financial statements.
A) An emphasis-of-matter paragraph to the auditors' report. The auditor communicates through the auditors' report. Note that the client will include a discussion of the related party transactions in a note to the financial statements.
Ray, an independent auditor, was engaged to perform an audit of the financial statements of Zena Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Ray, the auditors were able to obtain sufficient appropriate audit evidence by applying alternative auditing procedures. Rays audit report will probably contain: A) An unmodified opinion. B) An unmodified opinion and an Emphasis of Matter section. C) Either a qualified opinion or a disclaimer of opinion. D) An "except for" qualification.
A) An unmodified opinion.
A nonpublic company audit report is least likely to include a section on: A) Critical audit matters. B) Key audit matters C) Auditor responsibilities. D) Basis for opinion.
A) Critical audit matters. NP
The Rotter Company, a nonpublic company, changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should: A) Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion. B) Express an unmodified opinion with an Emphasis of Matter section 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 a Basis for Adverse Opinion section since the reason will be included in the notes to the statements.
A) Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion.
The auditors include an Emphasis of Matter section (paragraph) in a nonpublic company audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph: A) Is appropriate and would not negate the unmodified opinion. B) Is considered a qualification of the opinion. C) Is a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements. D) Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
A) Is appropriate and would not negate the unmodified opinion.
An audit report on a public company is least likely to include a section titled: A) Key Audit Matters B) Basis for Opinion. C) Critical Audit Matters. D) Opinion on the Financial Statements.
A) Key Audit Matters NP
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. B) May accept the engagement but must 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.
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. does nnot lessen the responsibility, just divides it between the CPA firms
A client has changed the salvage values of a number of its fixed assets. The auditors of the public company believe that the revised 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.
Which of the following circumstances generally results in the issuance of a report that includes an opinion that is modified? A) The auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client. B) The group auditors for the engagement are relying on the work of component auditors. C) The financial statements are affected by a change in accounting principle due to a new FASB pronouncement. D) The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.
A) The auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client.
PCAOB Form AP involves disclosure of: A) The engagement partner for the audit. B) Audit firm's liability for accounts payable to the audit client. C) Names of all staff members on the audit. D) Audit client executives.
A) The engagement partner for the audit.
Which of the following would most likely 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.
In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? A) The statements are not in conformity with FASB requirements regarding goodwill impairment. 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 cannot be relied upon.
A) The statements are not in conformity with FASB requirements regarding goodwill impairment.
An independent auditor has concluded that substantial doubt remains about a nonpublic 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) Unmodified opinion with an appropriate "Going Concern" section. B) "Except for" qualified opinion. C) Unmodified opinion with no additional section. D) Adverse opinion.
A) Unmodified opinion with an appropriate "Going Concern" section.
Which of the following is limited to matters communicated or required to be communicated to those charged with governance (e.g., the audit committee)? Key Audit Matters, Critical Audit Matters A) Yes, Yes B) Yes, No C) No, Yes D) No, No
A) Yes, Yes
Ordinarily, a public company must be addressed to: Shareholders, Board of Directors A) Yes, Yes B) Yes, No C) No, Yes D) No, No
A) Yes, Yes PBS
Which of the following will result in an Emphasis of Matter section (paragraph) as to consistency in a nonpublic company 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 immaterial 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 appropriate evidence. C) Fiscal period under audit ends. D) Peer review of the working papers is completed.
B) Auditors have accumulated sufficient appropriate evidence. The audit report should be dated no earlier than when the auditors have accumulated sufficient appropriate evidence. This date is often the last day of fieldwork.
When the auditor is unable to determine the amounts associated with noncompliance with a law by client personnel due to a scope limitation, the auditor should issue a(an): A) Standard unmodified opinion. B) Disclaimer of opinion. C) Adverse opinion. D) Unmodified opinion with a separate Emphasis of Matter section (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 term used in public company audit reports? A) Disclaimer of qualification. B) Explanatory paragraph. C) Other matter paragraph. D) Unmodified opinion.
B) Explanatory paragraph. PE
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 group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct? A) Such assumption of responsibility violates the profession's standards. B) In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements. C) In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report. D) CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.
B) In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.
When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified or adverse opinion if: A) The effects of the adverse financial conditions are likely to be negative. B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. C) Management has no plans to reduce or delay future expenditures. D) Negative trends and recurring operating losses appear to be irreversible.
B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.
Critical audit matters are most likely to include those matters that: A) Are communicated to the Public Company Accounting Oversight Board. B) Involve challenging, subjective or complex auditor judgment. C)Are material weaknesses in internal control. D) Involve significant risks.
B) Involve challenging, subjective or complex auditor judgment. By definition critical audit matters involve challenging, subjective or complex auditor judgment. While material weaknesses (Are material weaknesses in internal control) and significant risks (Involve significant risks) will often be considered critical audit matters, not all are, and the answers are less complete than answer (Involve challenging, subjective or complex auditor judgment).
When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: A) Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. B) Issue an unmodified opinion with no reference to this omission. C) Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. D)Issue an adverse opinion.
B) Issue an unmodified opinion with no reference to this omission.
Which of the following is least likely to result in an adverse opinion? A) Change in accounting principle. B) Limitation in the scope of the audit. C) Departure from GAAP. D) Related party transaction.
B) Limitation in the scope of the audit.
When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: A) Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. B) Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP. C) Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. D) Issue an unmodified opinion, but inform the reader by including the omitted information in the audit report.
B) Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.
Which of the following is least likely to result in a qualification of the auditors' opinion due to a scope limitation? A) Scope limitations imposed by the client. B) Reliance placed upon the report of component auditors. C) Inability to obtain sufficient appropriate audit evidence. D) Inadequate accounting records.
B) Reliance placed upon the report of component auditors.
An audit report for a public client indicates that the audit was performed in accordance with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board).
B) Standards of the Public Company Accounting Oversight Board (United States).
If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows: A) The auditors may still issue an unmodified opinion. B) The auditors should issue a qualified report for the departure from generally accepted accounting principles. C) The auditors should issue a qualified report indicating a scope limitation in that no statement of cash flows is presented. D) The auditors should disclaim an opinion on the overall financial statements.
B) The auditors should issue a qualified report for the departure from generally accepted accounting principles.
Which of the following is least likely to be included in a nonpublic company audit report with an unmodified opinion? A) A section on management's responsibilities. B) The name of the engagement partner. C) A title with the word "Independent." D) A Basis for Opinion section.
B) The name of the engagement partner.
Which of the following summarizes auditor reporting responsibility with respect to consistency? A) To give assurance that adequate disclosure will be made so that there will be comparability of financial statements between companies in the same industry. B) To give assurance that users will be informed of the lack of comparability of financial statements between periods due to changes in accounting principles. C) To give assurance that the comparability of financial statements between periods has not been materially affected by any type of change. D) 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 users will be informed of the lack of comparability of financial statements between periods due to changes in accounting principles.
Which of the following is least likely to result in an Emphasis of Matter section being added to an unmodified auditor's report on the financial statements of a nonpublic 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) Use of an unacceptable method to value inventory with results that differ materially from GAAP. 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) Use of an unacceptable method to value inventory with results that differ materially from GAAP.
A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified, Unmodified with emphasis-of-matter A) Yes, Yes B) Yes, No C) No, Yes D) No, No
B) Yes, No When an unjustified change in accounting principles occurs, either a qualified or adverse opinion is appropriate as this represents a departure from generally accepted accounting principles. An adverse opinion is appropriate, but not a disclaimer of 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 unmodified. B) be unmodified as to the balance sheet and with a disclaimer of opinion as to the income statement and the statement of cash flows. C) be qualified as to all of the statements. D) be a disclaimer of opinion.
B) 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 believe that related party transactions are not adequately described in the notes to the financial statements, they should: A) disclaim an opinion. B) qualify their opinion or issue an adverse opinion. C) add an emphasis-of-matter paragraph to their unmodified opinion. D) consider more thoroughly the client's going concern status.
B) qualify their opinion or issue an adverse opinion.
Which of the following accounting changes requires an Emphasis of Matter section regarding consistency in a nonpublic company auditors' report? A) A change in the estimated salvage values of a class of fixed assets. B) A write-off of a piece of equipment because future benefits do not appear to exist. C) A change from LIFO to FIFO for inventory valuation purposes. D) A change in calculating bad debt expense from one percent of total sales to two percent of credit sales.
C) A change from LIFO to FIFO for inventory valuation purposes.
Which of the following is least likely to result in an additional paragraph being added to 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. An emphasis-of-matter paragraph is appropriate when an auditor wishes to emphasize a matter concerning the financial statements, but not a matter concerning the scope of the audit engagement. An emphasis-of-matter paragraph is not appropriate since confirming accounts receivable relates to the scope of the audit.
When an adverse opinion is expressed on the financial statements of a nonpublic company, the Adverse Opinion section should include a direct reference to: A) A note to the financial statements which discusses the basis for the opinion. B) The Auditor's Responsibility section of the audit report which discusses the basis for the opinion rendered. C) A separate Basis for Adverse Opinion section (paragraph). D) The consistency in the application of generally accepted accounting principles.
C) A separate Basis for Adverse Opinion section (paragraph).
A scope restriction is least likely to result in a(an): A) Qualified opinion. B) Disclaimer of opinion. C) Adverse opinion. D) Standard unmodified opinion.
C) Adverse opinion.
Which of the following is least likely to be a critical audit matter in a public company audit report? A) A significant risk identified by the auditor. B) A related party transaction. C) An audit team member lacking experience in the client's industry. D) Matters relating to the company's accounting policies.
C) An audit team member lacking experience in the client's industry.
If group auditors make no reference to component auditors whose work they have relied on as a part of the basis for their report, the group auditors: A) Are not required to investigate the professional reputation of the component auditors. B) Are issuing an inappropriate report. C) Are assuming responsibility for the work of the component auditors. D) Are issuing a qualified opinion.
C) Are assuming responsibility for the work of the component auditors.
In determining key audit matters, the auditors are least likely to consider: A) Areas of higher assessed risk of material misstatement. B) Areas involving significant auditor judgments. C) Areas in which most transactions are considered routine. D) The effect on the audit of significant events that occurred during the audit.
C) Areas in which most transactions are considered routine. common sense
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 of a nonpublic company are affected by a material departure from generally accepted accounting principles, the auditors should: A) Issue an unmodified opinion with an Emphasis of Matter section. 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. adverse only if it is pervasive
Morgan, CPA, is the group 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 component auditor, as well as the quality of the component 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 component auditor. B) Must refer to the audit of the component auditor. C) May refer to the audit of the component auditor. D) May refer to the audit of the component auditor, 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 component auditor.
C) May refer to the audit of the component auditor. they dont have to, but they can
When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified, Unmodified with an additional paragraph A) Yes, Yes B) Yes, No C) No, Yes D) No, No
C) No, Yes Substantial doubt about a client's ability to continue as a going concern results in either an unqualified report with an additional paragraph (or, less frequently, a disclaimer of opinion). A qualified report is not appropriate.
The standard audit report explicitly indicates that the risk of not detecting material fraud is higher than for one resulting from error. Public Company Audit Report, Nonpublic Company Audit Report A) Yes, Yes B) Yes, No C) No, Yes D) No, No
C) No, Yes this is ONLY for Non pub
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) No, Yes when a misstatement is pervasive, ONLY adverse is appropriate
The first section of a nonpublic company audit report is the: A) Basis for opinion section. B) Critical audit matters section. C) Opinion section. D) Introductory paragraph.
C) Opinion section.
The first section of a public company audit report is the: A) Basis for Opinion section. B) Critical Audit Matters section. C) Opinion section. D) Introductory section.
C) Opinion section.
An auditor has concluded 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 client's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the client's plans to: A) Repurchase the entity's stock at a price well above its book value. B) Issue loans to key executives. C) Reduce expenditures. D) Accelerate the due date of an existing mortgage.
C) Reduce expenditures.
Which of the following modifications of the auditors' report does not include an additional section or 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 of a nonpublic company indicates a division of responsibility between two CPA firms. D) The report is qualified because the scope of the auditors' work was limited.
C) The audit report of a nonpublic company indicates a division of responsibility between two CPA firms.
Which of the following is not a difference between the audit report of a public and nonpublic company? A) The public company report includes the word "Registered" in the title. B) The public company report refers to standards of the PCAOB. C) The public company report has an additional paragraph referring to the client's fraud prevention procedures. D) The public company report is more likely to refer to a critical audit matter.
C) The public company report has an additional paragraph referring to the client's fraud prevention procedures. this is for nonpub
In which of the following circumstances will it be most likely that an adverse opinion is considered appropriate? A) The auditor is not independent with respect to the enterprise being audited. B) The statements are not in conformity with generally accepted accounting principles due to a departure from GAAP with an immaterial effect on the financial statements, but an effect expected to become material in the following year. C) The statements are not in conformity with generally accepted accounting principles regarding leases. D) A client-imposed scope limitation prevents the auditor from obtaining sufficient appropriate audit evidence.
C) The statements are not in conformity with generally accepted accounting principles regarding leases.
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 unmodified opinion when an Emphasis of Matter section is added.
C) Used in a qualified opinion.
A material departure from GAAP 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.
The unmodified standard audit report of a nonpublic company does not explicitly state that: A) The financial statements are the responsibility of the company's management. B) The audit was conducted in accordance with auditing standards 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 determining that all major accounting policies are preferred.
D) An audit includes determining that all major accounting policies are preferred.
Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly . . ." This is: A)An unmodified opinion. B) A disclaimer of opinion. C) An "except for" opinion. D) An improper type of reporting.
D) An improper type of reporting. this phrase modifies the opinion paragraph, but does not constitute qualifying language
Which of the following is not included in PCAOB Form AP? A) The engagement partner for audits. B) Name of each accounting firm whose work constituted at least 5% of total audit hours. C) Aggregate participation of accounting firms whose individual work was less than 5% of total audit hours. D) Audit staff investments in each particular client.
D) Audit staff investments in each particular client.
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 of a nonpublic company has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility includes: A) Preparing prospective financial information to verify whether management's plans can be effectively implemented. B) Projecting all conditions and events from one year prior to the date of the audit report. 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 in the financial statement about the entity's possible inability to continue as a going concern.
D) Considering the adequacy of disclosure in the financial statement 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 representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on a public company's financial statements? Conformity with PCAOB standards, Going concern status A) Explicity, Explicitly B) Implicitly, Implicitly C) Implicitly, Explicitly D) Explicity, Implicity
D) Explicitly, Implicitly
Upon the advice of its auditors, Smith Company changed the life of certain sets from 10 years to 8 years; the change had a material effect upon the financial statements. The nonpublic company auditors' report: A) must be qualified for the accounting change. B) must include an additional paragraph highlighting the accounting change. C) should contain modification of the opinion section. D) needs no modification of the opinion section.
D) needs no modification of the opinion section.
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. gives corroborate evidence
Which of the following is a general purpose financial reporting framework? A) Generally accepted auditing standards. B) Auditing Standards of the Public Company Accounting Oversight Board. C) International Standards of Auditing. D) International Financial Reporting Standards.
D) International Financial Reporting Standards.
A Basis for Opinion section in the audit of the financial statements of a public company: A) Is only included with qualified, adverse, or disclaimers of opinion. B) Is presented only in audit reports with unmodified opinions. C) Has a section title: Emphasis of Matter. D) Is included in all public company audit reports.
D) Is included in all public company audit reports.
Which of the following is correct regarding a Basis for Opinion section in a standard unqualified public company audit report? A) It is omitted. B) It precedes the opinion section. C) It is included within the Opinion on the Financial Statements section. D) It follows the Opinion on the Financial Statements section.
D) It follows the Opinion on the Financial Statements section.
Critical audit matters are included in a public company audit report with a(n): Adverse opinion, disclaimer of opinion A) Yes, Yes B) Yes, No C) No, Yes D) No, No
D) No, No
Key audit matters may be included in a nonpublic company audit report with a(n): Adverse opinion, Disclaimer of opinion A) Yes, Yes B) Yes, No C) No, Yes D) No, No
D) No, No
Key audit matters are required in all nonpublic company audit reports with a(n): Unmodified Opinion, Qualified Opinion A) Yes, Yes B) Yes, No C) No, Yes D) No, No
D) No, No not req'd, just at discretion of auditor
If the predecessor auditors do not 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.
Of the following, a public company audit report is most likely to be addressed to the: A) Internal audit team. B) Company itself. C) Management. D) Shareholders.
D) Shareholders.
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 group auditors decide to make reference to the report of component auditor who audited a subsidiary. C) There has been a material change between periods in the method of application of accounting principles. D) The auditors cannot observe ending inventory nor confirm accounts receivable and cannot obtain sufficient evidence using alternative procedures.
D) The auditors cannot observe ending inventory nor confirm accounts receivable and cannot obtain sufficient evidence using alternative procedures.
Which of the following is correct concerning a public company audit report with a disclaimer of opinion? A) It must include in a section on critical audit matters the circumstances that led to the disclaimer. B) The title of the Opinion section will be changed to Basis for Disclaimer of Opinion. C) It will ordinarily be issued in situations in which financial statements are materially and pervasively misstated. D) The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title.
D) The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title. public disclaimer no title DPN
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.
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.
The term "we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion" in an audit report is: A) Used in an adverse opinion. B) No longer considered appropriate. C) Used in a qualified opinion. D) Used in a disclaimer of opinion.
D) Used in a disclaimer of opinion.
