AudTheory ~ Test Bank
Auditing Theory Test Bank...
Test Bank b 1. To become a Certified Public Accountant (CPA), an individual must pass the Uniform CPA Examination and a. Demonstrate his or her independence. b. Comply with state education and experience requirements. c. Obtain employment with a public accounting firm. d. Become a member of the AICPA. b 2. Which of the following statements is an example of an assertion made by management in an entity's financial statements? a. The financial statements were prepared in an unbiased manner. b. Reported inventory balances reflect all related transactions for the period. c. Reported accounts receivable do not include any uncollectible accounts. d. The scope of the auditors' investigation was not limited in any way by management. d 3. Statements on Auditing Standards a. Relate to the filing requirements and enforcement activities of the SEC. b. Describe procedures to be applied in specific areas of audit activity to eliminate inconsistencies in audit practice. c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function. d. Interpret standards that provide guidelines or measures of quality for an independent audit. d 4. The primary purpose of an independent financial statement audit is to a. Provide a basis for assessing management's performance. b. Comply with state and federal regulatory requirements. c. Assure management that the financial statements are unbiased and free from material error. d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements. (AICPA ADAPTED) b 5. Independent auditing can best be described as a a. Branch of accounting. b. Discipline that attests to the results of accounting and other operations and data. c. Professional activity that measures and communicates financial and business data. d. Regulatory function that prevents the issuance of improper financial information. b 6. An independent audit aids in the communication of economic data because the audit a. Confirms the accuracy of management's financial representations. b. Lends credibility to the financial statements. c. Guarantees that financial data are fairly presented. d. Assures the readers of financial statements that any
fraudulent activity has been corrected. (AICPA ADAPTED) c 7. Which of the following types of audits are most similar? a. Operational audits and compliance audits. b. Independent financial statements audits and operational audits. c. Compliance audits and independent financial statements audits. d. Internal audits and independent financial statements audits. c 8. The Auditing Standards Board a. Sets rules and regulations that govern public accounting firms. b. Is an arm of the Financial Accounting Standards Board. c. Is a senior technical body of the AICPA designated to issue authoritative auditing pronouncements. d. Reports directly to the Securities and Exchange Commission. c 9. The essence of the attest functions is to a. Detect fraud. b. Examine individual transactions so that the auditor can certify as to their validity. c. Determine whether the client's financial statements are fairly stated. d. Ensure the consistent application of correct accounting procedures. d 10. Which of the following criteria is unique tot he independent auditor's attest function? a. General competence. b. Familiarity with the particular industry of each client. c. Due professional care. d. Independence. c 11. The definition of auditing contained within A Statement of Basic Auditing concepts recognizes that auditing includes both a(n) a. Documentation process and an evaluation process. b. Evaluation process and a reporting process. c. Investigative process and a reporting process. d. Documentation process and a reporting process. a 12. An operational audit is designed to a. Assess the efficiency and effectiveness of management's operating procedures. b. Assess the presentation of management's financial statements in accordance with generally accepted accounting principles. c. Determine whether management has complied with applicable laws and regulations. d. Determine whether the audit committee of the board of
directors is effectively discharging its responsibility to oversee management's operations. b 13. The market for auditing services is driven by a. The regulatory authority of the Securities and Exchange Commission. b. A demand by external users of financial statements. c. Pronouncements issued by the Auditing Standards Board. d. Congress at the federal level and elected legislative bodies at the state level. c 14. The first contemporary audit related legislation was the a. Securities Act of 1933. b. Securities Exchange Act of 1934. c. British Joint Stock Companies Act of 1844. d. Companies Act of 1942. c 15. The first authoritative auditing pronouncement in the U.S. was a. Statement on Auditing Procedures No 1. "Extensions of Auditing Procedures." b. Statement on Auditing Standards No 1. "Codification of SaSS." c. "Uniform Accounting: A Tentative Proposal Submitted by the Federal Reserve Board (1917)" d. "Examination of Financial Statements by Independent PublicAccounts (1936)." c 16. The first authoritative audit standards setting body empowered to issue auditing pronouncements in the U.S. was the a. Committee on Auditing Procedure. b. Auditing Standards Executive committee. c. Auditing Standards Board. d. Accounting and Review Services Committee. c 17. Which of the following incorrectly matches the authoritative body with its authoritative pronouncements? a. Accounting and Review Services Committee: "Statements on Standards for Accounting and Review Services" b. Auditing Standards Board: "Statements on Auditing Standards." c. Auditing Standards Executive Committee: "Statements on Auditing Procedure." d. Securities and Exchange Commission: "Financial Reporting Releases." c 18. A license to practice as a certified public accountant is granted by a. The board of accountancy b. PICPA c. PRC d. SEC b 19. The purpose of a compliance audit for a governmental entity is to determine whether a. Financial statements comply with GAAP and whether the entity is operating efficiently. b. Financial statements comply with GAAP and the entity has complied with applicable laws and regulations. c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP. a 20. The audit process is a. A special application of the scientific method of inquiry. b. Regulated by the AICPA. c. The only service a CPA is allowed to perform by law. d. Performed only CPAs. d 21. Which of the following has historically had the least influence on the practice of public accounting? a. The Governmental Accounting Standards Board. b. The Institute of Internal Auditors. c. The Securities and Exchange Commission. d. The U.S. Congress. b 22. Independent auditing can best be described as a a. Subset of accounting. b. Professional activity that attests to the fair presentation of financial statements. c. Professional activity that measures and communicates financial accounting data. d. Regulatory activity that prevents the issuance of improper financial information. (AICPA ADAPTED) c 23. An independent audit is important to readers of financial statements because it a. Provides a measure of management's stewardship function. b. Measures and communicates the financial data included in financial statements. c. Objectively examines and reports on management's financial statements. d. Reports on the accuracy of information in the financial statements. (AICPA ADAPTED) a 24. The reason an independent auditor gathers evidence is to a. Form an opinion on the financial statements. b. Detect fraud. c. Evaluate management. d. Evaluate internal controls. a 1. The professional care requires a. A critical review of the work done at every level of supervision. b. The examination of all corroborating evidence available. c. The exercise of error-free judgment. d. A consideration of internal control structure that includes tests of controls. (AICPA ADAPTED) c 2. The first general standard requires that the audit of financial statements be performed by a person or persons having adequate technical training and
a. Independence with respect to the financial statements and supplementary disclosures. b. Exercising professional care as judged by peer reviewers. c. Proficiency as an auditor which likely has been acquired from previous experience. d. Objectivity as an auditor as verified by proper supervision.(AICPA ADAPTED) d 3. An auditor while performing an audit, strives to achieve the appearance of independence in order to a. Reduce risk and liability. b. Comply with the generally accepted standards of field work. c. Become independent in fact. d. Maintain public confidence in the profession. (AICPA ADAPTED) d 4. Adequate technical training and proficiency as an auditor encompasses an ability to understand a computer system sufficiently to identify and evaluate a. The processing and imparting of information. b. Essential accounting control features. c. All control procedures. d. The degree to which programming conforms to the application of generally accepted accounting principles. (AICPA ADAPTED) c 5. Competence as a certified public accountant includes all of the following except a. Having the technical qualifications to perform an engagement. b. Possessing the ability to supervise and evaluate the quality of staff work. c. Warranting the infallibility of the work performed. d. Consulting others if additional technical information is needed.(AICPA ADAPTED) a 6. Ultimately, the decision about whether or not an auditor is independent must be made by the a. Auditor c. Client. b. Audit committee. d. Public c 7. Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a great number of small accounts receivable that also total $1,000,000. The importance of an error in any one account is, therefore, greater for Madison than for Nassau. This is an example of the auditor's concept of a. Account bias c. Materiality. b. Audit risk. d. Reasonable accuracy. b 8. Which of the following best describes what is meant by generally accepted auditing standards? a. Acts to be performed by the auditor. b. Measures of the quality of an auditor's performance. c. Procedures used to gather evidence to support financial statements. d. Audit objectives generally determined on audit engagements.(AICPA ADAPTED) b 9. There is an inverse relationship between the effectiveness of an entity's internal control structure and the a. Reliability of financial statements. b. Extent of detailed audit tests required. c. Degree of staff supervision required in the
performance of an audit. d. Fairness of management assertions in the financial statements. a 10. Which of the following best describes the character of the three generally accepted auditing standards classified as general standards? a. Criteria for competence, independence, and professional care of individuals performing the audit. b. Criteria for the content of the financial statements and related footnote disclosures. c. Criteria for the content of the auditor's report. d. The requirements for planning and supervision. (AICPA ADAPTED) c 11. the generally accepted standards of filed work relate to a. The competence, independence, and professional care of persons performing the audit. b. Criteria for the content of the auditor's report on financial statements. c. Audit planning and evidence gathering. d. The need to maintain independence in mental attitude. (AICPA ADAPTED) d 12. Which of the following statements is correct concerning the concept of materiality? a. Materiality is determined by reference to AICPA guidelines. b. Materiality depends only on the dollar amount involved. c. Materiality depends on the nature of an item rather than on the dollar amount. d. Materiality is a matter of professional judgment. (AICPA ADAPTED) a 13. The generally accepted standards of reporting encompass all of the following except a. Consideration of an entity's internal control structure. b. Consistent application of accounting principles. c. Informative disclosures. d. Conformity of financial statements with GAAP. c 14. An objective of the fourth generally accepted standard of reporting, relating to the expression of an opinion, is to a. Prohibit the auditor from issuing a report that does not include an opinion on the financial statements taken as a whole. b. Inform users that the financial statements and related notes are the joint responsibility of the auditor and management. c. Prevent users of financial statements from misinterpreting the degree of responsibility assumed by the auditor. d. Ensure adequate informative disclosures in the financial statements. d 15. The least important evidence of a public accounting firm's evaluation of its system of quality controls would concern the firm's policies and procedures with respect to a. Employment (hiring). b. Confidentiality of audit engagement. c. Assigning personnel to audit engagement. d. Determination of audit fee. a 16. Which of the following is not an element of quality control? a. Documentation c. Supervision
b. Inspection. d. Consultation. d 17. Williams & Co., a large international public accounting firm, is due to have a peer review. The peer review will most likely be performed by a. Employees and partners of Williams & Co. who are not associated with the particular audits being reviewed. b. Audit review staff of the Securities and Exchange Commission. c. Audit review staff of the AICPA. d. Employees and partners of another firm. (AICPA ADAPTED) b 18. In a financial statement audit, audit risk represents the probability that a. Internal control fails and the failure is not detected by the auditor's procedures. b. The auditor unknowingly fails to modify an opinion on materially misstated financial statements. c. Inherent and control risk cause errors that could be material to the financial statements. d. The auditor is not retained to conduct a financial statement audit in the succeeding year. a 19. In a financial statement audit, inherent risk represents the a. Susceptibility of an account balance to error that could be material. b. Risk that error could occur and not be prevented c. Risk that error could occur and not be detected by the auditor's procedures. d. Risk that the auditor fails to modify materially misstated financial statements. d 20. What is the magnitude of audit risk if inherent risk is .50, control risk is .40, and detection risk is .10? a. .20. b. .10. c. .40. d. .04. c 21. The "hallmark" of auditing is a. Available audit technology. b. Generally accepted auditing standards. c. Professional judgment. d. Materiality and audit risk. d 22. An auditor is most likely to refer to one or more of the three general auditing standards in determining a. The nature of a report qualification. b. The scope of auditing procedures. c. Requirements for the consideration of internal control. d. Whether the auditor should undertake an audit engagement.(AICPA ADAPTED) a 23. Which of the following is mandatory if the auditor is to comply with the general standards of the AICPA's generally accepted auditing standards? a. Adequate technical training. b. Use analytical procedures. c. Use statistical sampling when feasible on an audit engagement. d. Confirmation of material accounts receivable balances. b 24. The first general standard requires that a person or persons have adequate technical training and proficiency as an auditor. This standard is met by
a. Understanding business and finance. b. Education and experience in auditing. c. Continuing professional education. d. Knowledge of the Statements of Auditing Standards. (AICPA ADAPTED) a 25. What is the meaning of the generally accepted auditing standard that requires that the auditor be independent? a. The auditor must be without bias with respect to the client audited. b. The auditor must adopt a critical attitude during the audit. c. The auditor's sole obligation is to third parties. d. The auditor may have a direct ownership interest in the client's business if it is not material. (AICPA ADAPTED) d 26. The third general standard states that due care is to be exercised in the performance of an audit, and should be interpreted to mean that an auditor who undertakes an engagement assumes a duty to perform a. With reasonable diligence and without fault or error. b. As a professional who will assume responsibility for losses consequent upon error of judgment. c. To the satisfaction of the client and third parties. d. As a professional possessing the degree of skill commonly possessed by others in the field. (AICPA ADAPTED) a 27. The first standard of field work, which states that the work is to be adequately planned and assistants, if any, are to be properly supervised, recognizes that a. Early appointment of the auditor is advantageous both to the auditor and to the client. b. Acceptance of an audit engagement after the case of the client's fiscal year is generally not permissible. c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion. d. Performance of substantial parts of the engagement is necessary at interim dates. (AICPA ADAPTED) b 28. In connection with the third generally accepted auditing standard of field work, an auditor examines corroborating evidential matter that includes all of the following except a. Client accounting manuals. b. Written client representations. c. Vendor invoice. d. Minutes of board meetings. a 29. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting? a. The elements of materiality and risk. b. The element of internal control. c. The element of corroborating evidence. d. The element of reasonable assurance. (AICPA ADAPTED)
c 30. The fourth generally accepted auditing standard of reporting requires an auditor to render a report whenever an auditor's name is associated with financial statements. The overall purpose of the fourth standard of reporting is to require that reports a. Assure that the auditor is independent with respect to the financial statements audited. b. State that the audit has been conducted in accordance with generally accepted auditing standards. c. Indicate the character of the engagement and the degree of responsibility assumed by the auditor. d. Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period audited. (AICPA ADAPTED) d 31. The auditor's judgment concerning the overall fairness of the presentation of financial positions, results of operations and cash flows is applied within the framework of a. Quality control. b. Generally accepted auditing standards that include the concept of materiality. c. The auditor's evaluation of the audited company's internal controls. d. Generally accepted accounting principles. d 32. The concept of materiality would be least important to an auditor in determining a. Transactions that should be reviewed. b. The need for disclosing a particular transaction or event. c. The extent of audit work planned for particular accounts. d. The effects of an auditor's direct financial interest in a client. b 33. The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development that provide reasonable assurance that all entry-level personnel a. Prepare working papers that are standardized in form and content. b. Have the knowledge required to enable them to fulfill responsibilities assigned. c. Will advance within the organization. d. Develop specialties in specific areas of public accounting. b 34. In pursuing its quality control objectives with respect to assigning personnel to engagements, a public accounting firm may use policies and procedures such as a. Rotating employees from assignment to assignment on a random basis to aid in the staff training effort. b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available. c. Allowing staff to select the assignments of their choice to promote better client relationships. d. Assigning a number of employees to each engagement in excess of the number required so as not to overburden the staff and interfere with the quality of the audit work performed. (AICPA ADAPTED)
d 35. A public accounting firm studies its personnel advancement experience to determine whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to a. Generally accepted auditing standards. b. Attestation standards. c. Supervision and review. d. Quality control standards. d 36. Which of the following statements best describes the primary purpose of Statements on Auditing Standards? a. Guides intended to set forth auditing procedures that are applicable to a variety of situations. b. Outlines intended to narrow the areas of inconsistency and divergence of auditor opinion. c. Authoritative statements, enforced through the code of professional conduct, and intended to limit the degree of auditor judgment. d. Interpretations intended to clarify the meaning of generally accepted auditing standards. (AICPA ADAPTED) c 1. An auditor's report contains the following: We did not audit the financial statements of B Company, a consolidated subsidiary, which statements reflect total assets and revenues constituting 20 percent and 22 percent, respectively, of the related consolidated totals. These statements were audited by other auditors, whose report has been furnished to us, and our opinion insofar as it relates to the amounts included for B Company, is based solely upon the report of the other auditors. These sentences a. Disclaim an opinion. b. Qualify the opinion. c. Divide responsibility. d. Should not be part of the audit report. (AICPA ADAPTED) c 2. In which of the following situations would the auditor appropriately issue a standard unqualified report with no explanatory paragraph concerning consistency? a. A change in the method of accounting for specific subsidiaries that comprise the group of companies for which consolidated statements are presented. b. A change from an accounting principle that is not generally accepted to one that is generally accepted. c. A change in the percentage used to calculate the provision for warranty expense. d. Correction of mistake in the application of a generally accepted accounting principle. (AICPA ADAPTED) b 3. When financial statements are presented that are not in conformity with generally accepted accounting principles, an auditor may issue a(n) Qualified Opinion Adverse Opinion a. Yes No
b. Yes Yes c. No Yes d. No No
a 4. The management of a client company believes that the statement of cash flow is not a useful document and refuses to include one in the annual report to stockholders. As a result, the auditor's opinion should be a. Qualified due to inadequate disclosure. b. Qualified due to a scope limitation. c. Adverse d. Unqualified. d 5. An auditor would issue an adverse opinion if a. The audit was begun by other independent auditors who withdrew from the engagement. b. A qualified opinion cannot be given because the auditor lacks independence. c. The restriction on the scope of the audit was significant. d. The statements taken as a whole do not fairly present the financial position, results of operations, and cash flows of the company.(AICPA ADAPTED) d 6. The fourth reporting standard requires that the auditor's report contain either an expression of opinion regarding the financial statements taken as a whole or an assertion that an opinion cannot be expressed. The objective of the fourth standard is to prevent a. An auditor from reporting on one basic financial statement and not the others. b. An auditor from expressing different opinions on each of the basic financial statements. c. Management from reducing its responsibility for the basic financial statements. d. Misinterpretations about the degree of responsibility the auditor assumes. (AICPA ADAPTED) d 7. An auditor's opinion read as follows: "In our opinion, except for the above-mentioned limitation on the scope of our audit.." This is an example of a(n) a. Review opinion. b. Emphasis on matter. c. Qualified opinion. d. Unacceptable reporting practice. (AICPA ADAPTED)
c 8. An auditor's report includes a statement that "the financial statements do not present fairly the financial position in conformity with generally accepted accounting principles." This auditor's report was probably issued in conection with financial statements that were a. Prepared on a comprehensive basis for accounting other than GAAP. b. Restricted for use by management. c. Misleading. d. Condensed. (AICPA ADAPTED)
c 9. If the auditor believes there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n) a. Qualified opinion. b. Adverse opinion. c. Unqualified opinion. d. Disclaimer of opinion. b 10. If an accounting change has no material effect on the financial statements in the current year but the change is reasonably certain to have a material effect in laer years, the change should be a. Treated as a consistency modification in the auditor's report for the current year. b. Disclosed in the notes to the financial statements of the current year. c. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. d. Treated as a subsequent event. (AICPA ADAPTED) c 11. When comparative financial statements are presented, the fourth reporting standard, which refers to financial statements "taken as a whole", should be considered to apply to the financial statements of the a. Periods presented plus one preceding period. b. Current period only. c. Current period and those of the other periods presented. d. Current and immediately preceding period only. b 12. An auditor's standard report expressed an unqualified opinion and includes an explanatory paragraph that emphasizes a matter included in the notes to the financial statements. The auditor's report would be deficient if the explanatory paragraph states that the entity a. Is a component at a larger business enterprise. b. Has changed from the completed contract method to the percentage of completion method to account for long term construction contracts. c. Has had a significant subsequent event. d. Has accounting reclassifications that enhance the comparability between years. (AICPA ADAPTED) d 13. Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in, first-out method to value the other half. Assuming the auditor is satisfied in all other respects, under these circumstances the auditor will issue a(n) a. Opinion modified due to inconsistency. b. Unqualified opinion with an explanatory middle paragraph. c. Qualified or adverse opinion, depending on materiality. d. Unqualified opinion. (AICPA ADAPTED) d 14. Under which of the following sets of circumstances might an auditor disclaim an opinion? a. The financial statements contain a departure from GAAP, the effect of which is material. b. The principal auditor decides to make reference to the report of another auditor who audited a subsidiary. c. There has been a material change between periods in the method of the application of accounting principles. d. There were significant limitations on the scope of the audit.
a 15. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that the entity being reported on is a subsidiary of another business enterprise. The inclusion of this paragraph a. Is appropriate and would not negate the unqualified opinion. b. Is a qualification. c. Is a violation of generally accepted reporting standards if this information is disclosed in footnotes to the financial statements. d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." c 16. In which of the following circumstances would an adverse opinion be appropriate? a. The auditor is not independent with respect to the enterprise being audited. b. An uncertainty prevents the issuance of an unqualified report. c. The statements are not in conformity with authoritative statements regarding accounting for pension plans. d. A client imposed scope limitation prevents the auditor from complying with generally accepted auditing standards. b 17. An audit report should be dated as of the a. Date the report is delivered to the entity audited. b. Date of the last day of fieldwork. c. Balance sheet date of the latest period reported on. d. Date a letter of audit inquiry is received from the entity's attorney of record. d 18. An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end client. A significant subsequent event occurred on February 22, 2002. In this case, which of the following report dates would not be appropriate? a. February 10, 2002. b. February 10, except Note 1, February 22, 2002. c. February 22, 2002. d. December 31, 2001. d 19. Which of the following statements indicates a qualified opinion? a. The financial statements do not present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP. b. The auditor does not express an opinion on the financial statements. c. The financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP. d. Except for the effects of a matter, the financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP. b 20. Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's Ability to continue as a Going Concern," an independent auditor is responsible for a. Predicting whether the entity will be in business one year from the balance sheet date. b. Evaluating whether there is substantial doubt about the entity's ability to continue as a going concern. c. Weighing mitigating factors against contrary information about the entity's ability to continue as a going concern.
d. Reporting the entity's ability to continue as a going concern to senior management and to the board of directors. c 21. Does an auditor make the following representations explicitly or implicitly in a standard audit report on comparative financial statements? Accounting Application of Examination of Evidence Accounting Principles on a Test Basis ------------------------- ----------------------a. Explicitly Explicitly b. Implicitly Implicitly c. Implicitly Explicitly d. Explicitly Implicitly a 22. an auditor is unable to determine the amounts associated with illegal acts committed by a client. The auditor would most likely issue a. Either a qualified opinion or a disclaimer of opinion. b. An adverse opinion. c. Either a qualified opinion or an adverse opinion. d. A disclaimer of opinion. (AICPA ADAPTED) b 23. A principal auditor is satisfied both with the independence and professional reputation of another auditor who audited a subsidiary, but wants to share responsibility with the other auditor in the audit report. The principal auditor should a. Modify the scope and opinion paragraphs of the report. b. Modify the introductory and opinion paragraph of the report. c. Not modify the report except for including in explanatory paragraph. d. Modify the opinion paragraph of the report. (AICPA ADAPTED) a 24. An auditor may issue a qualified opinion for Inadequate Scope Disclosure Limitation ---------- ---------a. Yes Yes b. Yes No c. No Yes d. No No a 25. An explanatory paragraph following an opinion paragraph describes an uncertainty as follows: As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements. What type of opinion should the auditor express in this circumstance? a. Unqualified c. Disclaimer b. Qualified d. Adverse (AICPA ADAPTED)
d 26. An auditor's report that refers to a departure form generally accepted accounting principles includes the language. "In our opinion, with the foregoing explanation, the financial statements referred to above present fairly...." This is a(n) a. Adverse opinion. b. Qualified opinion. c. Unqualified opinion with an explanatory paragraph d. Example of inappropriate reporting. (AICPA ADAPTED) b 27. When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n) a. Qualified opinion. b. Unqualified opinion with an explanatory paragraph. c. Disclaimer of opinion. d. Adverse opinion. (AICPA ADAPTED) b 28. An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern. If the entity's disclosures about continued existence are adequate, the audit report may include A Disclaimer of Opinion A qualifed Opinion ----------------------- -----------------a. Yes Yes b. No No c. No Yes d. Yes No a 29. Keller, CPA, was about to issue an unqualified opinion on the financial statements of Lupton Television Broadcasting company when a letter was received from Lupton's independent counsel. The letter stated that the Federal Communications Commission has notified Lupton that its broadcasting license will not be renewed because of alleged irregularities in its broadcasting practices. Lupton cannot continue to operate without the license. Keller has also learned that Lupton and its independent counsel plan to take all necessary legal action to retain the license. The letter from independent counsel, however, states that a favorable outcome of any legal action is highly uncertain. On the basis of this information, what action should Keller take? a. Issue an unqualified opinion, with an explanatory paragraph that describes the matter giving rise to the uncertainty. b. Issue an unqualified opinion if full disclosure is made of the matter in a note to the financial statements. c. Issue an adverse opinion and disclose all reasons why. d. Issue a piecemeal opinion with full disclosure made of the license dispute in a note to the financial statements. (AICPA ADAPTED) d 30. If the auditor believes that required disclosures are omitted from the financial statements, the auditor should decide between issuing a(n) a. Qualified opinion or an adverse opinion. b. Disclaimer of opinion or a qualified opinion. c. Adverse opinion or a disclaimer of opinion. d. Unqualified opinion or a qualified opinion.
b 31. An auditor's report on comparative financial statements should be dated as of the date the a. Report is issued. b. Auditor's field work is completed. c. Fiscal year ends. d. Last subsequent event occurred. (AICPA ADAPTED) b 32. An auditor is confronted with an exception sufficiently material to warrant departing from the standard wording of an unqualified report. If the exception relates to a departure from generally accepted accounting principles, the auditor must decide between a(n) a. Adverse opinion and an unqualified opinion. b. Adverse opinion and a qualified opinion. c. Adverse opinion and a disclaimer of opinion. d. Disclaimer of opinion and a qualified opinion. (AICPA ADAPTED) a 33. An auditor had expressed a qualified opinion on the financial statements of a prior period because of the client's financial statements departed from generally accepted accounting principles. The prior-period statements are restated in the current period to conform with generally accepted accounting principles. The auditor's updated report on the prio-period statements should a. Express an unqualified opinion about the restated financial statements. b. Be accompanied by the auditor's original report on the prior period. c. Bear the same date as the auditor's original report on the prior period. d. Qualify the opinion concerning the restated financial statements because of a change in accounting principles. (AICPA ADAPTED)