30.
medium d 31.
medium d 32.
medium a 33.
medium b 34.
medium d 35.
medium a 36.
medium d 37. d. either a qualified opinion or an unqualified opinion with modified wording.
If the auditor lacks independence, a disclaimer of opinion must be issued: a. if the client requests it. b. only if it is highly material. c. only if it is material but not highly material. d. in all cases.
Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes: a. net income. b. total assets. c. working capital. d. all of the above.
When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n): a. understatement of inventory. b. understatement of retained earnings caused by a miscalculation of dividends payable. c. misclassification of notes payable as a long-term liability when it should be current. d. misclassification of salary expense as a selling expense when it should be allocated
equally to both selling and administrative expense.
The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing lawsuit, the auditor must estimate the likely effect on:
a. net income.
b. users of the financial statements. c. the auditor’s exposure to lawsuits. d. management’s future decisions.
Whenever there is a scope restriction, the appropriate response is to issue a(n): a. disclaimer of opinion. b. adverse opinion. c. qualified opinion.
d. unqualified report, a qualification of scope and opinion, or a disclaimer, depending on
materiality.
Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?
a. A client’s lawsuit against another company which claims the other company has infringed on its patent.
b. Loss of major customers.
c. Significant recurring operating losses. d. Working capital deficiencies.
The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:
a. may issue either an unqualified or a qualified opinion.
b. must issue an adverse opinion with “except for” in the opinion paragraph. c. may issue an unqualified opinion.
d. must issue a qualified opinion with “except for” in the opinion paragraph.
When a disclaimer is issued because the auditor lacks independence:
D:\\iknow\\docshare\\data\\cur_work\\139975897.doc
medium d 38.
medium d 39.
medium c 40.
medium c 41.
medium c 42.
medium b 43.
medium d 44.
medium c a. no report title is included on the report. b. a one-paragraph audit report is issued.
c. the only reason cited for issuing the disclaimer is the lack of independence. d. all of the above are correct.
When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n): a. disclaimer.
b. adverse opinion. c. unqualified opinion. d. qualified opinion.
Which of the following is not a change that affects consistency and, therefore, does not require an explanatory paragraph?
a. Change in accounting principle, such as a change from LIFO to FIFO.
b. Change in reporting entity, such as the inclusion of an additional company in combined
financial statements.
c. Change in an estimate, such as a decrease in the life of an asset for depreciation purposes. d. Correction of errors by changing from non-GAAP to GAAP.
Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue: a. a disclaimer. b. an unqualified opinion. c. a qualified opinion. d. an adverse opinion.
Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial statements are issued. These matters are referred to as: a. inestimable matters. b. non sequiturs. c. uncertainties.
d. in-suspense matters.
When there is uncertainty about a company’s ability to continue as a going concern, the auditor’s concern is the possibility that the client may not be able to continue its operations or meet its obligations for a “reasonable period of time.” For this purpose, a reasonable period of time is considered not to exceed:
a. six months from the date of the financial statements. b. one year from the date of the financial statements. c. six months from the date of the audit report. d. one year from the date of the audit report.
When the auditor concludes that there is substantial doubt about the entity’s ability to continue as a going concern, the appropriate audit report would be: a. an unqualified opinion with an explanatory paragraph. b. a disclaimer of opinion. c. neither a nor b. d. either a or b.
An auditor may not issue a qualified opinion when:
a. a scope limitation prevents the auditor from completing an important audit procedure. b. the auditor’s report refers to the work of a specialist.
c. the auditor lacks independence with respect to the audited entity.
D:\\iknow\\docshare\\data\\cur_work\\139975897.doc
45.
medium b 46.
medium b 47.
medium c 48.
medium d
49. (Public) medium a 50.
medium c d. an accounting principle at variance with GAAP is used.
When a company’s financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in: a. the scope paragraph.
b. an explanatory paragraph that appears before the opinion paragraph. c. the opinion paragraph.
d. an explanatory paragraph after the opinion paragraph.
Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion?
Conformity Adequacy of with GAAP disclosure a. Explicitly Explicitly b. Explicitly Implicitly c. Implicitly Explicitly d. Implicitly Implicitly
William Gregory, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Gregory is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor’s examination. With respect to his report on the consolidated financial statements, taken as a whole, Gregory: a. must not refer to the examination of the other auditor. b. must refer to the examination of the other auditor. c. may refer to the examination of the other auditor.
d. may refer to the examination of the other auditor, in which case Gregory must include in
the auditor’s report on the consolidated financial statements a qualified opinion with respect to the examination of the other auditor.
A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor’s report on the financial statements of the year of the change should include: a. no reference to consistency.
b. a reference to a prior period adjustment in the opinion paragraph.
c. an explanatory paragraph that justifies the change and explains the impact of the change
on reported net income.
d. an explanatory paragraph explaining the change.
Sarbanes-Oxley requires auditors of a public company to audit a company’s financial statements and attest to management’s report on the effectiveness of internal control over financial reporting. What type of assurance does the auditor provide in this report?
a. Positive assurance on the financial statements and on the effectiveness of internal control over financial reporting.
b. Positive assurance on the financial statements and negative assurance on the effectiveness
of internal control over financial reporting.
c. Limited assurance on the financial statements and on the effectiveness of internal control
over financial reporting.
d. There is no guidance on what level of assurance to provide.
Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:
a. disclaimer of opinion in all cases.
b. qualification of both scope and opinion in all cases.
c. disclaimer of opinion whenever materiality is in question.
D:\\iknow\\docshare\\data\\cur_work\\139975897.doc
51.
medium b
52.
medium b 53.
challenging c 54.
challenging a 55.
challenging b 56.
challenging d
57.
challenging d 58.
medium a d. qualification of both scope and opinion whenever materiality is in question.
CPAs issue several types of “special audit reports.” Which of the following circumstances would not require the issuance of a special audit report?
a. The client’s financial statements are prepared using the cash basis. b. The client’s financial statements are prepared using the accrual basis. c. The CPA has been retained to audit only the current assets.
d. The CPA has been retained to review the internal control system, not the financial
statements.
When a qualified or adverse opinion is issued, the qualifying paragraph is inserted: a. between the introductory and scope paragraphs. b. between the scope and opinion paragraphs.
c. after the opinion paragraph, as a fourth paragraph. d. immediately after the address, as the first paragraph.
For the report containing a disclaimer for lack of independence, the disclaimer is in the: a. third or opinion paragraph. b. second or scope paragraph. c. first and only paragraph.
d. fourth or explanatory paragraph.
Which of the following is not a primary category of attestation report? a. Compilation report. b. Review report. c. Audit report.
d. Special audit report based on a basis of accounting other than GAAP.
Most auditors believe that financial statements are “presented fairly” when the statements are in accordance with GAAP, and that it is also necessary to:
a. determine that they are not in violation of FASB statements.
b. examine the substance of transactions and balances for possible misinformation. c. review the statements using the accounting principles promulgated by the SEC. d. assure investors that net income reported this year will be exceeded in the future.
In which of the following situations would the auditor most likely issue an unqualified report? a. The client valued ending inventory by using the replacement cost method. b. The client valued ending inventory by using the Next-In-First-Out (NIFO) method. c. The client valued ending inventory at selling price rather than historical cost. d. The client valued ending inventory by using the First-In-First-Out (FIFO) method, but
showed the replacement cost of inventory in the Notes to the Financial Statements.
Which of the following statements is true? a. The auditor is required to issue a disclaimer of opinion in the event of a material
uncertainty. b. The auditor is required to issue a disclaimer of opinion in the event of a going concern
problem. c. The auditor is required to issue a disclaimer of opinion for a material uncertainty and for
a going concern problem. d. The auditor has the option, but is not required, to issue a disclaimer of opinion for a
material uncertainty or for a going concern problem.
The most common case in which conditions beyond the client’s and auditor’s control cause a scope restriction is an engagement: a. agreed upon after the client’s balance sheet date. b. where the client won’t allow the auditor to confirm receivables for fear of offending its
D:\\iknow\\docshare\\data\\cur_work\\139975897.doc
