Chapter 1

An auditor may issue a qualified opinion under which of the following circumstances? Lack of Appr evidence, restrictions of the scope A. Yes Yes B. Yes No C. No Yes D. No No

A. Yes Yes

March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor's report would usually be addressed to: A. Monday Corp., the client that engaged March. B. Wall Corp., the entity audited by March. C. 1st Federal Bank. D. Both Monday Corp. and 1st Federal Bank.

A. Monday Corp., the client that engaged March.

In which case would an unmodified opinion not be appropriate? A. A material related party transaction has occurred and has been accounted for appropriately, but it has not been adequately disclosed in the financial statements. B. There is a justified departure from GAAP. C. There is a change in accounting principle that has a material effect on the current year financial statements. D. There is an unjustified departure from GAAP, but it does not have a material effect on the financial statements.

A. A material related party transaction has occurred and has been accounted for appropriately, but it has not been adequately disclosed in the financial statements. Choice "C" is incorrect. A material change in accounting principle would result in the addition of an emphasis-of-matter paragraph to the unmodified opinion. Choice "D" is incorrect. An immaterial unjustified departure from GAAP would not affect the unmodified opinion. Note that if the effect were material, a qualified or adverse opinion would be appropriate.

Which of the following items is explicitly included in an audit report expressing an unmodified opinion? A. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. B. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our review of the financial statements. C. We conducted our audit in accordance with generally accepted accounting principles. D. The procedures selected depend on management's approval, including the assessment of the risks of any errors resulting from fraud.

A. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

Which of the following statements is a basic element of the independent auditor's report? A. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. B. The procedures selected depend on management's judgment, including the assessment of the risk of material misstatement of the financial statements. C. The financial statements are consistent with those of a prior period. D. The financial statements disclose all information required by accounting principles generally accepted in the United States of America.

A. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

Which of the following terms identifies a requirement for audit evidence? A. Appropriate. B. Adequate. C. Reasonable. D. Disconfirming.

A. Appropriate.

In certain audit engagements, the auditor may be required to comply with auditing requirements in addition to GAAS. The auditor may conduct the audit in accordance with: A. Both GAAS and government auditing standards (GAGAS) B. Either GAAS as issued by the AICPA or PCAOB Standards, but not both. C. Only GAAS or PCAOB, but not auditing standards of another jurisdiction or country. D. International Standards on Auditing, but only if the audit is being conducted in another country outside the U.S.A.

A. Both GAAS and government auditing standards (GAGAS) Choice "A" is correct. While GAAS do not override laws or regulations that govern an audit of financial statements, an audit may be conducted in accordance with two sets of auditing standards in their entirety. In this case, the auditor should add additional language to the Auditor's Responsibility paragraph to state that the audit was conducted in accordance with both sets of auditing standards.

How are management's responsibility and the auditor's responsibility represented in the auditor's report of a nonissuer? A. Explicitly Explicitly B. Implicitly Implicitly C. Implicitly Explicitly D. Explicitly Implicitly

A. Explicitly Explicitly

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

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

An auditor of a nonissuer must conduct the audit in accordance with: I. ASB standards. II. PCAOB standards. A. I. B. Both I and II. C. Either I or II, but not both. D. II.

A. I.

How does an auditor of a nonissuer make the following representations when issuing the unmodified audit opinion on comparative financial statements? A. Implicitly Implicitly B. Explicitly Implicitly C. Implicitly Explicity D. Explicitly Explicitly

A. Implicitly Implicitly

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unmodified opinion most likely would be determined by the: A. Lack of sufficient evidence. B. Inability to estimate the amount of loss. C. Entity's lack of experience with such litigation. D. Lack of insurance coverage for possible losses from such litigation.

A. Lack of sufficient evidence.. Lack of sufficient evidence to support management's assertions would most likely cause an auditor to issue a qualified or disclaimer of opinion.

When financial statements contain a departure from U.S. GAAP because, due to unusual circumstances, the statements would otherwise be misleading, the auditor should express an opinion that is: A. Unmodified. B. Qualified. C. Adverse. D. Qualified or adverse, depending on pervasiveness.

A. Unmodified.

In order to express an opinion, the auditor obtains a level of assurance about whether the financial statements are free from material misstatement, whether due to error or fraud. Which of the following is required of the auditor in obtaining this level of assurance? A. Plan the work and properly supervise any assistants. B. Obtain absolute assurance that the financial statements are not misstated due to fraud on the part of management. C. Determine the applicable financial reporting framework and prepare an adequate description of the framework for inclusion in the financial statements. D. Exercise his or her specific legal powers and authority in investigating suspicious activities of the entity's employees, including management.

A. Plan the work and properly supervise any assistants.

To obtain reasonable assurance, an auditor should: A. Plan the work and properly supervise any assistants. B. Examine all available corroborating evidence supporting management's assertions. C. Design the audit to detect all instances of illegal acts. D. Ensure that management does not conceal any fraudulent activities on the part of employees.

A. Plan the work and properly supervise any assistants. Choice "B" is incorrect. An auditor examines some (but not all) available corroborating evidence supporting management's assertions. Examination of all evidence would not be feasible.

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

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

Under which of the following circumstances would a disclaimer of opinion not be appropriate? A. The financial statements fail to contain adequate disclosure of related party transactions. B. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry. C. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances. D. The auditor is unable to determine the amounts associated with illegal acts committed by the client's management.

A. The financial statements fail to contain adequate disclosure of related party transactions.

Digit Co., a nonissuer, uses the FIFO method of costing for its international subsidiary's inventory and LIFO for its domestic inventory. Under these circumstances, the auditor's report on Digit's financial statements should express an: A. Unmodified opinion. B. Opinion qualified because of a lack of consistency. C. Opinion qualified because of a departure from GAAP. D. Adverse opinion.

A. Unmodified opinion. Choice "A" is correct. GAAP allows a company to use different methods for costing different inventories as long as the methods are disclosed. Thus, the audit report would be unmodified; there is no departure from GAAP.

When forming an opinion on the financial statements, the auditor is least likely to evaluate whether: A. Accounting estimates made by management are reasonable. B. Financial statements provide adequate disclosures to enable intended users to understand the effect of material events and transactions. C. Earnings forecasts by investors are met. D. The terminology used in the financial statements is appropriate.

C. Earnings forecasts by investors are met.

Which of the following phrases would an auditor of a nonissuer most likely include in the auditor's report when expressing a qualified opinion due to inadequate disclosure? A. Subject to the departure from generally accepted accounting principles, as described above. B. With the foregoing explanation of these omitted disclosures. C. Except for the omission of the information described in the basis for qualified opinion paragraph. D. Do not present fairly.

C. Except for the omission of the information described in the basis for qualified opinion paragraph.

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

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

The responsibilities of an auditor include all of the following except which one? A. Appropriate competence and capabilities to perform the audit. B. A minimum amount of technical knowledge of and experience in the industry in which the audit client operates. C. Complying with relevant ethical requirements. D. Maintaining professional skepticism and exercising professional judgment throughout the planning and performance of the audit.

B. A minimum amount of technical knowledge of and experience in the industry in which the audit client operates.

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure? A. By comparing the PCAOB standard with related AICPA auditing standards. B. By exercising professional judgment in the circumstances. C. By soliciting input from the issuer's audit committee. D. By evaluating whether the audit is likely to be subject to inspection by the PCAOB.

B. By exercising professional judgment in the circumstances.

Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris should: A. Express an unmodified opinion with an other-matter paragraph. B. Disclaim an opinion on the financial statements. C. Express an adverse opinion on the financial statements. D. Issue a special report regarding the illegal bribes.

B. Disclaim an opinion on the financial statements. Choice "B" is correct. Since the CPA could not determine whether the suspected illegal bribes were material to the financial statements, or whether senior management was involved in the scheme, Morris should disclaim an opinion on the financial statements.

The phrase "U.S. generally accepted accounting principles" is an accounting term that: A. Includes broad guidelines of general application but not detailed practices and procedures. B. Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time. C. Provides a measure of conventions, rules, and procedures governed by the AICPA. D. Is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).

B. Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time.

An auditor's responsibility to express an opinion on the financial statements of a nonissuer under U.S. auditing standards is: A. Implicitly represented in the auditor's report. B. Explicitly represented in the Auditor's Responsibility paragraph. C. Explicitly represented in the Introductory paragraph of the auditor's report. D. Explicitly represented in an emphasis-of-matter paragraph of the auditor's report.

B. Explicitly represented in the Auditor's Responsibility paragraph.

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

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

When an auditor of a nonissuer qualifies an opinion because of the inability to confirm accounts receivable by direct communication with debtors, the wording of the qualified opinion paragraph of the auditor's report should indicate that the qualification pertains to the: A. Limitation on the auditor's scope. B. Possible effects on the financial statements. C. Lack of sufficient appropriate audit evidence. D. Departure from generally accepted auditing standards.

B. Possible effects on the financial statements.

An auditor of a nonissuer should disclose the substantive reasons for expressing an adverse opinion in a basis for modification paragraph: A. Preceding the introductory paragraph. B. Preceding the opinion paragraph. C. Following the opinion paragraph. D. Within the notes to the financial statements.

B. Preceding the opinion paragraph.

An auditor of a nonissuer concludes that a client's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the pervasiveness of the effect on the financial statements, the auditor should express either a (an): A. Adverse opinion or a disclaimer of opinion. B. Qualified opinion or an adverse opinion. C. Disclaimer of opinion or an unmodified opinion with an emphasis-of-matter paragraph. D. Unmodified opinion with an other-matter paragraph or a qualified opinion.

B. Qualified opinion or an adverse opinion.

If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(an): A. Disclaimer of opinion. B. Qualified opinion. C. Review report. D. Unmodified opinion with an emphasis-of-matter paragraph.

B. Qualified opinion.

Which of the following terms used within standards indicates a presumptively mandatory requirement? A. Must B. Should C. May D. Might

B. Should

Which of the following best describes when an auditor most likely would modify the audit opinion? A. The auditor identifies an immaterial misstatement in the financial statements. B. The auditor concludes that the financial statements as a whole are materially misstated. C. The entity selects IFRS as the applicable financial reporting framework. D. The auditor concludes that the financial statements are presented fairly.

B. The auditor concludes that the financial statements as a whole are materially misstated.

Which of the following situations best describes when an auditor should express an adverse opinion? A. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are material and but not pervasive to the financial statements. B. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are both material and pervasive to the financial statements. C. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive. D. The auditor obtains sufficient appropriate audit evidence and concludes that the financial statements are presented fairly.

B. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are both material and pervasive to the financial statements. Choice "C" is incorrect. An auditor should express a disclaimer of opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive.

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

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

Which of the following statements is a basic element of the auditor's report under U.S. auditing standards? A. The disclosures provide reasonable assurance that the financial statements are free of material misstatement. B. The auditor evaluated the overall internal control. C. An audit includes evaluating significant estimates made by management. D. The financial statements are consistent with those of the prior period.

C. An audit includes evaluating significant estimates made by management. ( This is actually stated in the report).

Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements? A. An auditor may not draft an entity's financial statements based on information from management's accounting system. B. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities. C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion. D. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.

C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.

Which paragraphs of a nonissuer auditor's report on financial statements under U.S. auditing standards should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP)? A. Auditor's Responsibility Introductory B. Introductory Auditor's Responsibility C. Auditor's Responsibility Opinion D. Introductory Introductory

C. Auditor's Responsibility Opinion

The auditor's report should include reference to the United States as the country of origin of: I. The accounting principles used to prepare the financial statements. II. The auditing standards the auditor followed in performing the audit. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

C. Both I and II.

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

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

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 audit its financial statements without the statement of cash flows although Brown's access to all of the information underlying the basic financial statements will not be limited. Under these circumstances, Brown most likely would: A. Add an emphasis-of-matter paragraph to the auditor's report that justifies the reason for the omission. B. Refuse to accept the engagement as proposed because of the client-imposed scope limitation. C. Explain to Zag that the omission requires a qualification of the auditor's opinion. D. Prepare the statement of cash flows as an accommodation to Zag and express an unmodified opinion.

C. Explain to Zag that the omission requires a qualification of the auditor's opinion.

Which of the following provides the most authoritative guidance for the auditor of a nonissuer? A. An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client's industry. B. A Journal of Accountancy article discussing implementation of a new standard. C. General guidance provided by a Statement on Auditing Standards. D. Specific guidance provided by an interpretation of a Statement on Auditing Standards.

C. General guidance provided by a Statement on Auditing Standards.

Which of the following is not an example of the application of professional skepticism? A. Designing additional auditing procedures to obtain more reliable evidence in support of a particular financial statement assertion. B. Obtaining corroboration of management's explanations through consultation with a specialist. C. Inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity. D. Using third-party confirmations to provide support for management's representations.

C. Inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity.

In which of the following paragraphs of an auditor's report for a nonissuer does an auditor communicate the nature of the engagement and the specific financial statements covered by the audit? A. Scope paragraph. B. Opinion paragraph. C. Introductory paragraph. D. Emphasis-of-matter paragraph.

C. Introductory paragraph.

Which of the following best describes what is meant by the term generally accepted auditing standards? A. Rules acknowledged by the accounting profession because of their universal application. B. Pronouncements issued by the Auditing Standards Board. C. Measures of the quality of the auditor's performance. D. Procedures to be used to gather evidence to support financial statements.

C. Measures of the quality of the auditor's performance.

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of: A. Objective judgment. B. Independent integrity. C. Professional skepticism. D. Impartial conservatism.

C. Professional skepticism.

The financial statements of Henley Co. contain a material departure from GAAP. Henley effectively argues that, due to unusual circumstances, the financial statements would have been misleading if they were prepared in conformity with GAAP. Based solely on this information, the auditor should: A. Render an unmodified opinion with no additional paragraphs of explanation. B. Render a qualified (except for) opinion with an added paragraph preceding the opinion paragraph explaining the reason for the qualification. The paragraph is titled "Basis for Qualified Opinion." C. Render an unmodified opinion with a separate paragraph explaining the unusual situation. D. Render a disclaimer of opinion based on lack of sufficient appropriate audit evidence.

C. Render an unmodified opinion with a separate paragraph explaining the unusual situation.

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

C. The financial statements are not in conformity with the GAAP rules regarding the capitalization of leases.

Which of the following is true regarding the audit report for an issuer? A. Reference should be made to both PCAOB standards and generally accepted auditing standards. B. PCAOB standards should not be mentioned at all, although their use is implied in the auditor's report. C. The report should include references to PCAOB standards and generally accepted accounting principles. D. Reference may be made to either PCAOB standards or generally accepted auditing standards.

C. The report should include references to PCAOB standards and generally accepted accounting principles.

Which of the following phrases should be included in the opinion paragraph when an auditor expresses a qualified opinion? A. Yes No B. No Yes C. Yes Yes D. No No

Choice "D" is correct. No − No. A qualified opinion phrase is, "in our opinion, except for [explanation of problem] as discussed in the preceding paragraph . . ."

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements? A. Qualified opinion. B. Unmodified opinion. C. Disclaimer opinion. D. Adverse opinion.

D. Adverse opinion.

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

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

A nonissuer auditor's report under U.S. auditing standards that refers to the use of an accounting principle at variance with generally accepted accounting principles contains the words, "In our opinion, with the foregoing explanation, the financial statements referred to above present fairly...." This is considered an: A. Adverse opinion. B. "Except for" qualified opinion. C. Unmodified opinion with an emphasis-of-matter paragraph. D. Example of inappropriate reporting.

D. Example of inappropriate reporting. Choice "D" is correct. "In our opinion, with the foregoing explanation, the FS referred to above present fairly" is an example of inappropriate reporting. When an auditor's report refers to the use of an accounting principle at variance with GAAP, the words, "in our opinion, except for the effects of the matters discussed in the preceding paragraph, the FS referred to above present fairly,..." should be used.

How does an auditor make the following representations when issuing the auditor's report on comparative financial statements under U.S. auditing standards? A. Explicitly Explicitly B. Implicitly Implicitly C. Implicitly Explicitly D. Explicitly Implicitly

D. Explicitly Implicitly

An auditor most likely would issue a disclaimer of opinion because of: A. Inadequate disclosure of material information. B. The omission of the statement of cash flows. C. A material departure from generally accepted accounting principles. D. Management's refusal to furnish written representations.

D. Management's refusal to furnish written representations.

When single-year financial statements are presented, an auditor ordinarily would express an unmodified opinion with no emphasis of matter or other matter paragraph if the: A. Auditor is unable to obtain audited financial statements supporting the entity's investment in a foreign affiliate. B. Entity declines to present a statement of cash flows with its balance sheet and related statements of income and retained earnings. C. Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of the prior year. D. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented.

D. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented.

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following opinions should the entity's auditor choose? A. Adverse and unmodified with an emphasis-of-matter paragraph added. B. Disclaimer and unmodified with an emphasis-of-matter paragraph added. C. Qualified and adverse. D. Qualified and disclaimer.

D. Qualified and disclaimer

A CPA's report on audited financial statements under U.S. auditing standards would be inappropriate if it referred to: A. Management's responsibility for the financial statements. B. Evaluating the appropriateness of accounting policies used. C. Significant estimates made by management. D. The CPA's assessment of sampling risk factors.

D. The CPA's assessment of sampling risk factors.

Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards? A. The auditor is required to follow the guidance provided by the Standards, without exception. B. The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware. C. The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective. D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

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

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

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

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

In order to form an opinion on the financial statements, the auditor should consider whether: A. Sufficient appropriate evidence was obtained as required by the Financial Accounting Standards Board (FASB). B. The financial statements are prepared, in all material respects, in accordance with the requirements of generally accepted auditing standards (GAAS). C. Management has correctly identified the appropriate auditing standards. D. The financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework.

D. The financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework.

When an auditor of a nonissuer qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate paragraph and modify the: A. No Yes B. Yes No C. No Yes D. Yes Yes

D. Yes Yes Choice "D" is correct. In a nonissuer report qualified for inadequate disclosure, the auditor would modify the auditor's responsibility paragraph to refer to the qualified audit opinion and modify the opinion paragraph by adding an "except for ... " statement.