Audit Exam 1 - Multiple Choice 2022 Questions and Answers. rated A

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Audit Exam 1 - Multiple Choice 2022 Questions and Answers Auditors accumulate evidence to A) defend themselves in the event of a lawsuit. B) determine if the financial statements are correct. C) ... satisfy the requirements of the Securities Acts of 1933 and 1934.D) reach a conclusion about the fairness of the financial statements. - Ans-D In the auditing process.... A) the types and amounts of evidence remain constant from audit to audit. B) the criteria for evaluating information will not vary depending on the information being audited. C) the audit report communicates the auditor's findings to users. D) records are gathered by the auditor to determine whether the audited information is stated in accordance with SEC standards. - Ans-C Which of the follow is considered audit evidence? A) Oral statements made by management, but not written communications or auditor observation B) Written communications and auditor observation, but not oral statements made by management C) Oral statements made by management, written communication, and auditor observation D) Auditor observation, but not oral statements or written communication - Ans-C Which of the following can be used as a criteria for evaluating information being audited? A) International Financial Reporting Standards (IFRS) B) Generally Accepted Accounting Principles (GAAP) C) Internal Revenue Code (IRC) D) all of the above - Ans-D Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called A) finance. B) auditing. C) accounting. D) economics - Ans-C An accountant A) must possess expertise in the accumulation of audit evidence. B) must decide the number and types of items to test. C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information.D) must be a CPA. - Ans-C When auditing accounting data, auditors focus on A) determining whether recorded information properly reflects the economic events that occurred during the accounting period. B) determining if fraud has occurred. C) determining if taxable income has been calculated correctly. D) analyzing the financial information to be sure that it complies with government requirements. - Ans-A The trait that distinguishes auditors from accountants is the A) auditor's ability to interpret accounting principles generally accepted in the United States. B) auditor's education beyond the bachelor's degree. C) auditor's ability to interpret FASB Statements. D) auditor's expertise in the accumulation and interpretation of audit evidence - Ans-D ________ risk reflects the possibility that the information upon which the business decision was made was inaccurate. A) Client acceptance B) Information C) Business D) Control - Ans-B The possibility that a business may not be able to repay a bank loan because of an economic downturn is referred to as A) materiality risk. B) information risk. C) interest rate risk. D) business risk - Ans-D True or false: Auditing can have a significant effect on both information risk and business risk - Ans-False A correct relationship among the auditor, the client, and the external users is A) management of a public company hires the independent auditor. B) the audit committee of a private company hires the independent auditor. C) the client provides capital to the external users. D) the external users can rely upon the auditor's report to reduce information risk. - AnsD The most common way for users to obtain reliable information is to A) have an internal audit. B) have an independent audit. C) verify all information individually. D) verify the information with management. - Ans-BExternal users of the financial statements A) value the auditor's report because of the auditor's independence from the client. B) look to the auditor's report as an indication of the statements' reliability. C) use the audited information on the assumption that it is reasonably complete, accurate, and unbiased. D) all of the above. - Ans-D In the audit of historical financial statements, management asserts that the financial statements are fairly stated in accordance with what standards? A) regulatory accounting principles B) applicable international accounting standards C) applicable U.S. accounting standards D) B and C - Ans-D Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n) A) accounting and bookkeeping service. B) attestation service. C) assurance service. D) tax service. - Ans-B Three common types of attestation services are A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting. B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls. C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls. D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information. - Ans-A Which of the following services provides the lowest level of assurance on a financial statement? A) review B) audit C) Neither service provides assurance on financial statements. D) Each service provides the same level of assurance on financial statements. - Ans-A Which of the following is an accurate statement regarding assurance services? A) Assurance services must be performed by a CPA. B) An attestation service is not a type of assurance service. C) Assurance services improve the quality of information for decision makers. D) Assurance services can only be performed on financial data. - Ans-C AuditsA) are an assurance service, but not an attestation service. B) are designed to provide absolute assurance that the financial statements are free of material misstatement. C) are required for publicly traded companies in the United States. D) do not require the auditor to express their opinion in a written report. - Ans-C A high, but not absolute, level of assurance is called A) probable assurance. B) reasonable assurance. C) limited assurance. D) incomplete assurance. - Ans-B Which of the following is an accurate statement regarding the various types of other assurance services? A) Assurance services must be about the reliability of another party's assertion about compliance with specified criteria. B) Other assurance services must meet the definition of an attestation service. C) The primary purpose of a management consulting engagement is to improve the quality of information. D) The market for other forms of assurance services is open to non-CPA competitors. - Ans-D One objective of an operational audit is to A) determine whether the financial statements fairly present the entity's operations. B) determine if the auditee is in compliance with GAAP. C) make recommendations for improving performance. D) report on the entity's relative success in attaining profit maximization. - Ans-C An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? A) operational audit B) compliance audit C) financial statement audit D) production audit - Ans-A An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n) A) audit of financial statements. B) compliance audit. C) operational audit. D) production audit. - Ans-B Which one of the following is more difficult to evaluate objectively? A) presentation of financial statements in accordance with generally accepted accounting principles B) compliance with government regulationsC) efficiency and effectiveness of operations D) All three of the above are equally difficult. - Ans-C Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examinations of taxpayer returns B) GAO auditor's evaluation of the computer operations of governmental units C) an internal auditor's review of a company's payroll authorization procedures D) a CPA firm's audit of a public company - Ans-A Which of the following are required to have a written report regarding the assertion of another party? A) Financial statement audit, operational audit, compliance audit, attestation engagement, assurance engagement B) Financial statement audit, operational audit, compliance audit, attestation engagement C) Financial statement audit, operational audit, compliance audit D) Attestation engagement, assurance engagement - Ans-B In a financial statement audit, the auditor A) gathers evidence to determine whether the statements contain material errors or other misstatements. B) must have a thorough understanding of the entity and its environment. C) determines whether the financial statements are stated in accordance with specified criteria. D) all of the above. - Ans-D Internal auditors A) must be independent of the entity that employs them. B) generally report to the accounting department. C) are employed by all types of organizations. D) must be CPAs. - Ans-C Which type of auditor audits the financial information prepared by various federal government agencies before it is submitted to Congress? A) internal auditor B) revenue agent C) independent auditor D) GAO auditor - Ans-D The three requirements for becoming a CPA include all but which of the following? A) uniform CPA examination requirement B) education requirements C) character requirements D) experience requirement - Ans-C The use of the Certified Public Accountant title is regulated byA) the federal government. B) state law through the licensing departments of each state. C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. D) the Securities and Exchange Commission. - Ans-B The legal right to perform audits is granted to a CPA firm by regulation of A) each state. B) the Financial Accounting Standards Board (FASB). C) the American Institute of Certified Public Accountants (AICPA). D) the Auditing Standards Board. - Ans-A Which of the following is not a characteristic of a small firm? A) Most small firms have fewer than 25 professionals. B) Small firms perform audits on small and not-for-profit businesses. C) Tax services are more important than auditing services to the small firm. D) Small firms are prohibited by the SEC from auditing publicly traded companies. - Ans-D Sarbanes-Oxley and the Securities and Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients. Which of the following is true for auditors of publicly traded companies? I. They are restricted from providing consulting services to privately held companies. II. There is no restriction on providing consulting services to non-audit clients. A) I only B) II only C) I and II D) Neither I nor II - Ans-B Which of the following does not describe a size category for a CPA firm? A) Big Four national firms B) Big Four international firms C) local firms D) national and regional firms - Ans-A In which type of service does the CPA assemble the financial statements but provide no assurance to third parties? A) audit B) compilation C) review D) bookkeeping - Ans-B Which of the following statements is true as it relates to limited liability partnerships? A) Only senior partners are liable for the partnerships debts. B) Partners have no liability in a limited liability partnership arrangement. C) Partners are personally liable for the acts of those under their supervision.D) All partners must be AICPA members. - Ans-C Which staff level in a CPA firm performs most of the detailed audit work? A) partner B) staff assistant C) senior auditor D) senior manager - Ans-B The organization that is responsible for providing oversight for auditors of public companies is called the A) Auditing Standards Board. B) American Institute of Certified Public Accountants. C) Public Oversight Board. D) Public Company Accounting Oversight Board. - Ans-D Members of the Public Company Accounting Oversight Board are appointed and overseen by the A) U.S. Congress. B) American Institute of Certified Public Accountants. C) Auditing Standards Board. D) Securities and Exchange Commission. - Ans-D The Public Company Accounting Oversight Board A) performs inspections of the quality controls of firms that audit public companies. B) establishes auditing standards that must be followed by CPAs on all audits. C) oversees auditors of private companies. D) performs all of the above functions. - Ans-A Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. The PCAOB I:can enforce disciplinary action against the accounting firm II:report the matter to the Securities and Exchange Commission III:suspend the license to practice of the CPA guilty of the violation A) I, II, III B) I, II C) I D) None - Ans-B The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q. - Ans-BThe form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q. - Ans-A Which of the following is a correct statement regarding the SEC? A) The Securities Act of 1934 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. B) All public companies must file monthly statements with the SEC. C) The Form 10-K must be filed within 30 days after the close of the fiscal year. D) The SEC has the power to establish rules for any CPA associated with audited financial statements submitted to the commission. - Ans-D With respect to the SEC, A) the attitude of the SEC is generally considered in any major change proposed by the FASB. B) the SEC is the sole agency responsible for setting generally accepted accounting principles. C) the SEC requirements of greatest interest to CPAs are set forth in the their enforcement regulations. D) the SEC has the power to establish rules for all CPAs - Ans-A Statements on Standards for Accounting and Review Services (SSARS) are issued by the A) Accounting and Review Services Committee. B) Professional Ethics Executive Committee. C) Securities and Exchange Commission. D) Financial Accounting Standards Board. - Ans-A The American Institute of Certified Public Accountants (AICPA) A) is responsible for issuing licenses to new CPAs. B) restricts its membership to CPAs who are independent auditors. C) sets auditing standards for both public and private companies. D) sets rules of conduct that CPAs are required to meet. - Ans-D Who is responsible for establishing auditing standards for privately held companies? A) Securities and Exchange Commission B) Public Company Accounting Oversight Board C) Auditing Standards Board D) National Association of Accounting - Ans-C Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit A) both private and public companies.B) public companies only. C) private companies, public companies, and nonprofit entities. D) private companies only. - Ans-B The International Standards on Auditing (ISA) A) are issued by the AICPA. B) override a country's regulations governing the audit of a company. C) has many of the same standards as the Auditing Standards Board (ASB). D) must be followed by companies whose stock is traded in the U.S. - Ans-C _______ are referred to as U.S. generally accepted auditing standards (GAAS). A) AICPA auditing standards B) SEC auditing standards C) PCAOB auditing standards D) Sarbanes-Oxley standards - Ans-A Which of the following is a true statement regarding auditing standards? A) Prior to the passage of Sarbanes-Oxley, the FASB established auditing principles for U.S. public companies. B) PCAOB auditing standards are applicable to entities outside the U.S. C) There are no similarities between PCAOB standards and International Standards on Auditing. D) The Auditing Standards Board has revised most of its standards to converge with the international standards - Ans-D Which of the following is true with regards to the various auditing standards? A) Statements on Auditing Standards (SASs) are issued by the PCAOB. B) The ASB Clarity Project was intended to make the U.S. auditing standards easier to read, understand, and apply. C) The ASB redrafted existing AICPA auditing standards to align them with respective ISAs. D) Both B and C are correct - Ans-D Historically, auditing standards have been organized into three categories, including A) standards of field work. B) purpose of an audit. C) responsibilities of the auditor. D) proper planning and supervision - Ans-A The "Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles" provides a framework to help auditors A) understand the ten GAAS standards. B) obtain complete assurance that the financial statements are free from any error. C) report on the financial statements. D) prevent fraud - Ans-CWhich of the following is not one of the responsibilities of an auditor under the principles underlying an audit? A) possess appropriate competence and capabilities B) comply with ethical requirements C) plan work and supervise assistants D) maintain professional skepticism and exercise professional judgment - Ans-C To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor must fulfill several performance responsibilities, including A) verifying that all audit work is performed by a CPA with a minimum of three years' experience. B) obtaining sufficient, appropriate audit evidence. C) exercising professional judgment. D) providing an opinion on the financial statements. - Ans-B The Statements on Auditing Standards issued by the Auditing Standards Board A) are regarded as authoritative literature. B) mandate the amount of evidence that must be obtained. C) must be followed in all situations. D) are optional guidelines which an auditor may choose to follow or not follow when conducting an audit - Ans-A An auditor need not abide by a particular auditing standard if the auditor believes that A) the issue in question is immaterial in amount. B) more expertise is needed to fulfill the requirement. C) the requirement of the standard has not been addressed by the PCAOB. D) fraud is involved. - Ans-A When assessing the risk of material misstatements in the financial statements, A) inadequate internal control procedures will mitigate client business risk. B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. C) company management is responsible for determining materiality levels. D) the auditor must have an understanding of the client's business and industry - Ans-D In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that A) the internal control policies and procedures are developed by the auditors. B) the purpose of an audit is to prevent fraud. C) management is responsible for the preparation of the financial statements. D) management can restrict the auditor's access to important information relevant to the financial statements - Ans-C The principles underlying an audit A) contain the procedures that must be followed during an audit.B) carry the same authority as AICPA auditing standards. C) only apply to the audits of public companies D) provide structure for the clarified Codification. - Ans-D The AICPA principles underlying an audit are organized around four principles. Which of the following is not one of those principles? A) fairness B) responsibilities C) reporting D) performance - Ans-A Which of the following statements about Generally Accepted Audit Standards are true? I. They serve as broad guidelines to auditors for conducting an audit engagement. II. They are sufficiently specific to provide any meaningful guide to practitioners. III. They represent a framework upon which the AICPA can provide interpretations. A) I and II B) I and III C) II and III D) I, II and III - Ans-B The AICPA principles and the auditing standards should be viewed by practitioners as A) ideals to work towards, but which are not achievable. B) maximum standards that denote excellent work. C) minimum standards of performance that must be achieved on each audit engagement. D) benchmarks to be used on all audits, reviews, and compilations. - Ans-C Which of the following is an accurate statement regarding principles and auditing standards? A) The principles underlying an audit give specific guidance to an auditor when a problem arises in an audit. B) The principles underlying an audit state that the only objective of an audit is to provide financial statement users with an opinion. C) All auditing standards issued by the PCAOB are given two classification numbers. D) The SAS number identifies the order in which it was issued in relation to other SASs - Ans-D ________ is an attitude that includes a questioning mind, being alert to conditions that might indicate possible misstatements due to fraud or error, and a critical assessment of audit evidence. A) Reasonableness B) Diligence C) Professional skepticism D) Competence - Ans-CTo obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor fulfills several performance responsibilities, including A) complying with the AICPA Code of Professional Conduct. B) issuing a written report on the financial statements. C) determining and applying materiality levels. D) having the appropriate competence to perform the audit. - Ans-C Quality control for a CPA firm A) includes the organizational structure of the firm and the procedures it establishes. B) is tailored to each specific audit engagement. C) is a guarantee that auditing standards are followed. D) is required only for firms auditing SEC companies. - Ans-A The methods used by a CPA firm to ensure that the firm meets is professional responsibilities to clients and others is A) continuing professional education. B) compliance with generally accepted reporting standards. C) quality control. D) peer review. - Ans-C Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with A) technical training that assures proficiency as a valuation expert. B) professional education that is required in order to perform with due professional care. C) knowledge required to fulfill assigned responsibilities. D) knowledge required to perform a peer review. - Ans-C The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to A) provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. B) monitor the risk factors concerning misstatements that arise from the misappropriation of assets. C) document objective criteria for the CPA firm's peer review. D) minimize the likelihood of associating with a client whose management may lack integrity - Ans-D Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures? A) considering audit risk and materiality B) using statistical sampling techniques C) assigning personnel to engagements D) complying with laws and regulations - Ans-C Which of the following is not an essential component of qualty control?A) policies and procedures to ensure that firm personnel are actively engaged in marketing strategies B) policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards C) policies to ensure that personnel maintain their independence in fact and in appearance D) policies that ensure that monitoring activities are effectively applied - Ans-A Which one of the following is not true regarding the American Institute of Certified Public Accountants peer review requirement? A) A CPA firm must develop and adhere to quality control standards. B) Peer reviews are mandatory. C) A CPA firm will lose AICPA eligibility if a peer review is not performed. D) Firms required to be registered with and inspected by the PCAOB are exempt. - AnsD Which of the following is a correct statement regarding the standard unmodified opinion audit report? A) The format of the audit report for public and nonpublic entities are identical. B) The auditor's responsibility paragraph includes a statement that the auditors are responsible for selecting the appropriate accounting principles. C) The audit report includes the name of the lead partner on the audit. D) The scope paragraph includes a statement that the auditor considers internal controls when designing the audit procedures performed. - Ans-D Auditing standards require that the audit report must be titled and that the title must A) include the word "independent." B) indicate if the auditor is a CPA. C) indicate if the auditor is a proprietorship, partnership, or corporation. D) indicate the type of audit opinion issued. - Ans-A To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be A) Shareholders, Board of Directors B) Board of Directors C) Company Controller, Shareholders D) Company Controller - Ans-A The auditor's responsibility section of the standard unmodified opinion audit report states that the audit is designed to A) discover all errors and/or irregularities. B) discover material errors and/or irregularities. C) conform to generally accepted accounting principles. D) obtain reasonable assurance whether the statements are free of material misstatement. - Ans-DThe audit report date on a standard unmodified opinion audit report indicates A) the last day of the fiscal period. B) the date on which the financial statements were filed with the Securities and Exchange Commission. C) the last date on which users may institute a lawsuit against either the client or the auditor. D) the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial statements. - Ans-D The standard audit report for nonpublic entities refers to GAAS and GAAP in which sections? A) GAAS - Auditors Responsibility; GAAP - Auditors Responsibility B) GAAS - Auditors Responsibility; GAAP - Introductory Paragraphy C) GAAS - Managements responsibility and opinion paragraph; GAAP - Managements responsibility and opinion paragraph D) GAAS - Auditor's responsibility; GAAP - Managements responsibility and opinion paragraph - Ans-D Which of the following is not explicitly stated in the standard unmodified opinion audit report? A) The financial statements are the responsibility of management. B) The audit was conducted in accordance with generally accepted accounting principles. C) The auditors believe that the audit evidence provides a reasonable basis for their opinion. D) An audit includes assessing the accounting estimates used. - Ans-B The management's responsibility section of the standard unmodified opinion audit report for a nonpublic company states that the financial statements are A) the responsibility of the auditor. B) the responsibility of management. C) the joint responsibility of management and the auditor. D) none of the above. - Ans-B The introductory paragraph of the standard unmodified opinion audit report for a nonpublic company performs which functions? I. It states the CPA has performed an audit. II. It lists the financial statements being audited. III. It states the financial statements are the responsibility of the auditor. A) I and II B) I and III C) II and III D) I, II and III - Ans-A Which of the following statements are true for the standard unmodified opinion audit report of a nonpublic entity?I. The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II. The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. A) I only B) II only C) I and II D) Neither I nor II - Ans-B The auditor's responsibility section of the standard unmodified opinion audit report states that the auditor is A) responsible for the financial statements and the opinion on them. B) responsible for the financial statements. C) responsible for the opinion on the financial statements. D) jointly responsible for the financial statements with management - Ans-C If the balance sheet of a private company is dated December 31, 2016, the audit report is dated February 8, 2017, and both are released on February 15, 2017, this indicates that the auditor has searched for subsequent events that occurred up to A) December 31, 2016. B) January 1, 2017. C) February 8, 2017. D) February 15, 2017. - Ans-C The appropriate audit report date for a standard unmodified opinion audit report for a nonpublic entity should be A) the date the financial statements are given to the Board of Directors. B) the date of the financial statements. C) the date the auditor completed the auditing procedures in the field. D) 60 days after the date of the financial statements as required by the SEC. - Ans-C What category of audit report will be issued if the auditor concludes that the financial statements are not fairly presented? A) disclaimer B) qualified C) standard unmodified opinion D) adverse - Ans-D The standard unmodified audit report A) is sometimes called a clean opinion. B) can be issued only with an explanatory paragraph. C) can be issued if only a balance sheet and income statement are included in the financial statements. D) is sometimes called a disclaimer report. - Ans-AAn audit of historical financial statements most commonly includes the A) balance sheet, statement of retained earnings, and the statement of cash flows. B) income statement, the statement of cash flows, and the statement of net working capital. C) statement of cash flows, balance sheet, and the statement of retained earnings. D) balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity. - Ans-D When analyzing the various types of audit reports, A) the unmodified opinion with an emphasis-of-matter paragraph is the most common type of report. B) companies will generally make the appropriate changes to their accounting records to avoid a qualification by the auditor. C) management is more concerned about a qualified report than a disclaimer report. D) an adverse report is issued when the auditor is unable to form an opinion on the financial statements. - Ans-B Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms? I. A combined report on financial statements and internal control over financial reporting II. Separate reports on financial statements and internal control over financial reporting A) I only B) II only C) either I or II D) neither I nor II - Ans-C Auditing standards for public companies are established by the A) SEC. B) FASB. C) PCAOB. D) IRS. - Ans-C A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is A) included in the scope paragraph. B) included in the opinion paragraph. C) included in a separate paragraph in the report. D) included in the introductory paragraph. - Ans-C The term "explanatory paragraph" was replaced in the AICPA auditing standards with A) going concern paragraph. B) emphasis-of-matter paragraph. C) departure from principles paragraph. D) consistency paragraph. - Ans-BWhich of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern? A) The entity is suing a competitor for a minor patent infringement. B) The entity has lost a major customer. C) The entity has significant recurring operating losses. D) The entity has working capital deficiencies. - Ans-A 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. - Ans-B When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be I. an unmodified opinion audit report with an explanatory paragraph. II. a disclaimer of opinion. A) I only B) II only C) I or II D) Neither I nor II - Ans-C 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 introductory paragraph. C) the opinion paragraph. D) a separate paragraph. - Ans-D William Gregory, CPA, is the principal auditor for an international 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) must refer to the examination of the other auditors along with the percentage of consolidated assets and revenue that they audited. - Ans-CA 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. - Ans-D Which of the following modifications of the auditor's report does not include an explanatory paragraph? A) A qualified report is due to a GAAP departure. B) The report includes an emphasis of a matter. C) There is a very material scope limitation. D) A principal auditor accepts the work of an other auditor - Ans-D No reference is made in the auditor's report to other auditors who perform a portion of the audit when I. The other auditor audited an immaterial portion of the audit. II. The other auditor is well known or closely supervised by the principle auditor. III. The principle auditor has thoroughly reviewed the work of the other auditor. A) I and II B) I and III C) II and III D) I, II and III - Ans-D Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit? A) Issue a joint report signed by both CPA firms. B) Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion. C) Make reference to the other auditor in the report by using modified wording (a shared opinion or report). D) A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor. - AnsA Indicate which changes would require an explanatory paragraph in the audit report. A) Change in the estimated life of an asset - Yes; Variation in the format of the financial statements - Yes B) Change in the estimated life of an asset - No; Variation in the format of the financial statements - No C) Change in the estimated life of an asset - Yes; Variation in the format of the financial statements - No D) Change in the estimated life of an asset - No; Variation in the format of the financial statements - Yes - Ans-BIf the CPA concludes there is substantial doubt about the entity's ability to continue as a going concern, does this require an explanatory paragraph in the audit report? Yes or No? - Ans-Yes If there is a change from LIFO to FIFO, does this require an explanatory paragraph in the audit report? Yes or no? - Ans-Yes When there is a lack of consistent application in accounting principles A) the nature and impact of the change should be adequately disclosed. B) the auditor should discuss the nature of the change and point the reader to the footnote that discusses the change. C) the materiality of the change is evaluated based on the current year effect of the change. D) all of the above. - Ans-D As a result of management's refusal to permit the auditor to physically examine inventory, the auditor must depart from the unmodified opinion audit report because A) the financial statements have not been prepared in accordance with GAAP. B) the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. C) the financial statements have not been audited in accordance with GAAS. D) the scope of the audit has been restricted. - Ans-D An adverse opinion is issued when the auditor believes A) some parts of the financial statements are materially misstated or misleading. B) the financial statements would be found to be materially misstated if an investigation were performed. C) the auditor is not independent. D) the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. - Ans-D An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued? A) Disclaimer B) Qualified C) Disclaimer, Adverse D) Qualified, Adverse - Ans-D A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred II. When the auditor lacks independence III. When generally accepted accounting principles have not been used A) I and II B) I and IIIC) II and III D) I, II and III - Ans-B In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion? A) The auditor lacks independence. B) A client-imposed scope limitation C) A circumstance-imposed scope limitation D) Lack of full disclosure within the footnotes - Ans-D When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue A) an adverse opinion. B) a disclaimer of opinion. C) either a qualified opinion or an adverse opinion. D) either a qualified opinion or an unqualified opinion with modified wording. - Ans-B 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 pervasive. D) in all cases. - Ans-D If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n) A) adverse opinion. B) disclaimer of opinion. C) unqualified opinion. D) qualified opinion. - Ans-D 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. - Ans-C Which of the following scenarios does not result in a qualified opinion? A) A scope limitation prevents the auditor from completing an important audit procedure. B) Circumstances exist that prevent the auditor from conducting a complete audit. C) The auditor lacks independence with respect to the audited entity. D) An accounting principle at variance with GAAP is used. - Ans-CWhenever 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) qualification of both scope and opinion whenever materiality is in question - Ans-C In which of the following circumstances would an auditor most likely express an adverse opinion? A) The CEO refuses to let the auditor have access to the board of director meeting minutes. B) The financial statements are not in conformity with the FASB statement on loss contingencies. C) Information comes to the auditor's attention that raises substantial doubt about the ability for the client to continue as a going concern. D) Tests of controls show that the internal control structure is so poor that the auditor has to assess control risk at the maximum. - Ans-B Which of the following statements is true? I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem. A) I only B) II only C) I and II D) Neither I nor II - Ans-D The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the A) auditor is not appointed until after the client's year-end. B) client won't allow the auditor to confirm receivables for fear of offending its customers. C) auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries. D) client is going through Chapter 11 bankruptcy - Ans-A When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to A) inform the reader that disclosure is not adequate, and to issue an adverse opinion. B) inform the reader that disclosure is not adequate, and to issue a qualified opinion. C) present the information in the audit report and issue an unqualified or qualified opinion. D) present the information in the audit report and to issue a qualified or an adverse opinion. - Ans-DA misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of A) the PCAOB. B) a reasonable user of the financial statements. C) an accountant. D) the SEC. - Ans-B 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. - Ans-D When a client fails to follow GAAP, the audit report can be unmodified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider? A) the dollar amount in comparison to a base B) if the misstatement can be measured C) the nature of the item D) All the above are factors an auditor should consider regarding materiality. - Ans-D Which of the following is a correct statement regarding materiality? A) There are well-defined guidelines that enable auditors to determine if something is material. B) Misstatements must be compared with some benchmark before a decision can be made about the materiality level of the failure of a company to follow GAAP. C) Pervasiveness is not considered when comparing potential misstatements with a base or benchmark. D) To evaluate overall materiality, the auditor does not combine all unadjusted misstatements. - Ans-B Management has recorded prepaid insurance as an asset in the previous year. This year, to reduce record-keeping costs, it expenses insurance. If the amount is immaterial to the financial statements, A) a disclaimer opinion is issued. B) a a qualified opinion is issued. C) a standard unmodified opinion audit report is issued. D) no audit report can be issued. - Ans-C The highest level of materiality exists when A) users are likely to make incorrect decisions if they rely on the overall financial statements. B) there has been a departure from GAAP. C) amounts are material but do not overshadow the financial statements as a whole.D) a scope limitation has been imposed. - Ans-A When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n) A) standard unmodified opinion. B) unmodified opinion with an explanatory paragraph. C) adverse opinion. D) disclaimer opinion. - Ans-A In most audits, the auditor issues a(n) A) modified opinion audit report. B) standard unmodified opinion audit report. C) scope limited audit report. D) adverse audit report. - Ans-B When there is a justified departure from GAAP which is considered material, the auditor should issue a(n) A) standard unmodified opinion. B) disclaimer of opinion. C) unmodified opinion with an explanatory paragraph. D) adverse opinion. - Ans-C For departures from GAAP or scope restrictions, the auditor must decide if the potential effect on the financial statements is A) immaterial. B) material. C) highly material. D) any of the above. - Ans-D If the scope restriction imposed by the client is so material that the overall fairness of the financial statements is in question, the auditor should issue a(n) A) standard unmodified opinion. B) disclaimer of opinion. C) adverse opinion. D) unmodified opinion with revised wording in the scope paragraph. - Ans-B The objective of an audit of the financial statements is an expression of an opinion on A) the fairness of the financial statements in all material respects. B) the accuracy of the financial statements. C) the accuracy of the annual report. D) the accuracy of the balance sheet and income statement. - Ans-A If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor A) should withdraw from the engagement [Show More]

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