Audit Chapter 12 – Flashcards
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The objective of the audit of GAAP-based financial statements is to: A. Make suggestions as to the form or content of the financial statements or to draft the in whole or in part. B. Express an opinion on the fairness with which the statements present financial position, results from operations, and cash flow in accordance with generally accepted accounting principles. C. Ensure adoption of sound accounting policies and the establishment and maintenance of internal control. D. Express an opinion on the accuracy with which the statement present financial position, results of operation, and cash flows in accordance with generally accepted accounting principles.
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B. Express an opinion on the fairness with which the statements present financial position, results from operations, and cash flow in accordance with generally accepted accounting principles.
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Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities? A. Management has the responsibility for maintaining and adopting sound accounting policies, and the auditor has responsibility for internal control. B. Management has responsibility for the basic data underlying financial statements, and the auditor has the responsibility for drafting the financial statements. C. The auditor's responsibility is confined to the audited portion of the financial statements, and the management's responsibility is confined to the unaudited portions. D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
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D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
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The evaluation of fairness in determining the appropriate opinion to express should include consideration of the qualitative aspects of the entity's accounting practices, including whether A. Indicators of possible bias exist in management's judgment B. The accounting principles used are the most conservative available. C. Management and those charged with governance agree with all the standards used in the reporting process. D. The auditor and management agree with all the standards used in the reporting process.
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A. Indicators of possible bias exist in management's judgment
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Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? A. It is difficult to prepare financial statements that fairly present a company's financial position, results of operations, and cash flows without the expertise of an independent auditor. B. It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. C. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. D. It is a customary courtesy that all shareholders of a company receive an independent report on management's stewardship in managing the affairs of the business.
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C. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
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If a company's external auditor expresses an unmodified opinion as a result of the audit of a company's financial statements, readers of the audit report can assume that A. The external auditor found no fraud B. The company is financially sound and the financial statements are accurate C. Internal control is effective D. Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor.
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D. Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor.
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A major purpose of the auditor's report on financial statement's is to A. Assure investors of the complete accuracy of the financial statements B. Clarify for the public the nature of the auditor's responsibility and performance C. Deter creditors from extending loans in high-risk situations D. Describe the specific auditing procedures undertaken to gather evidence for the opinion.
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B. Clarify for the public the nature of the auditor's responsibility and performance
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The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The management of Donley engages a CPA to perform an independent audit of Donley's financial statements. The primary objective of this audit is to provide assurance to the A. Regional stock exchange B. Securities and Exchange Commission C. Board of directors of Donley. D. Investors in Donley securities
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D. Investors in Donley securities
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The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied wishing the framework of A. Quality control B. Generally accepted auditing standards, which include the concept of materiality C. The auditor's assessment of the risk of material misstatement D. Generally accepted accounting principles
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D. Generally accepted accounting principles
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Eagle Company's financial statements contain departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is A. Qualified and describe the departure in a separate paragraph B. Unmodified but not mention the departure in the auditor's report C. Qualified or adverse, depending on materiality, and describe the departure in an other-matter paragraph. D. Unmodified and describe the departure in an other-matter paragraph.
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D. Unmodified and describe the departure in an other-matter paragraph.
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If financial statements are to meet the requirement of adequate disclosure A. All information pertaining to the company must be disclosed in the statements or related notes, even though some of the disclosures are potentially detrimental to the company or its shareholders. B. All information believed by the auditor to be essential to the fair presentation of the financial statements must be disclosed, no matter how confidential management believes the data to be. C. Statement notes should be written in very technical language to avoid misinterpretation by the reader. D. A statement note must be clearly detail any deficiencies contained in the financial statements themselves.
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B. All information believed by the auditor to be essential to the fair presentation of the financial statements must be disclosed, no matter how confidential management believes the data to be.
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Adequate disclosure means that sufficient information is presented so that financial statements are not misleading. The decisions about adequate disclosure should reflect the needs of A. Users with a reasonable knowledge of business B. All readers of the financial statements C. Experts in accounting and finance D. Governmental regulatory agencies
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A. Users with a reasonable knowledge of business
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Which of the following statements is false regarding disclosure in a client's GAAP-based financial statements? A. Information essential for a fair presentation should be set forth in the financial statements B. Omission of a statement of cash flows is considering inadequate disclosure C. Inadequate disclosure normally results in the auditor including the required information in the report D. The auditor should never disclosure information in the report that the client has not shown in the financial statements.
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D. The auditor should never disclosure information in the report that the client has not shown in the financial statements.
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A client makes test counts on the basis of a statistical plan. The auditor observes such counts as are deemed necessary and is able to become satisfied as to the reliability of the client's procedures in reporting on the results of the audit, the auditor A. Can express an unmodified opinion B. Must comment in the auditor's responsibility C. Is required to disclaim an opinion if the inventories were material D. Must qualify the opinion if the inventories were material
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A. Can express an unmodified opinion
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A note to the financial statements of the First Security Bank indicates that all of the records relating to the bank's business operations are bored on magnetic disks and that no emergency backup systems or duplicate disks are stored because the bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, the auditor's report on the financial statements should express A. A "subject to" opinion B. A qualified opinion C. An unmodified opinion D. An adverse opinion
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C. An unmodified opinion
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If the auditor obtains satisfaction with respect to the accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the auditor's report should be unmodified and could be expected to A. Disclose that alternative procedures were used because of a management-imposed scope limitation B. Disclosure in the opinion paragraph that confirmation of accounts receivable was impracticable C. Not mention the alternative procedures D. Refer to a note that discloses the alternative procedures
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C. Not mention the alternative procedures
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An external auditor discovers that a payroll supervisor of the firm being audited has misappropriated $10,000. The firm's total assets and before-tax net income are $14 million and $3 million, respectively. Assuming no other issues affect the report, the external auditor's report will most likely contain a(n) A. Disclaimer of opinion B. Adverse opinion C. Scope qualification D. Unmodified opinion
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D. Unmodified opinion
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The auditor's report may be addressed to the company whose financial statements are being audited or to that company's A. Chief operating officer B. President C. Board of director's D. Chief financial officer
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C. Board of director's
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An auditor has been engaged by the State Bank to audit the XYZ Corporation in conjunction with a loan commitment. The report would most likely be addressed to A. The shareholders, XYZ Corporation B. The State Bank C. The board of directors, XYZ Corporation D. Whom it may concern
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B. The State Bank
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On February 13, Year 2, Fox, CPA, met with the audit committee of the Gem Corporation to review the draft of Fox's report on the company's financial statements as of and for the year ended December 31, Year 1. On February 16, Year 2, Fox completed all remaining field work and obtained sufficient appropriate evidence to support the opinion on the financial statements. On February 28, Year 2, the final report was mailed to Gem's audit committee. What date most likely would be used on Fox's report? A. December 31, Year 1 B. February 13, Year 2 C. February 16, Year 2 D. February 28, Year 2
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C. February 16, Year 2
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The date of the audit report is important because A. the auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained B. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect this date. C. Auditing standards require all audits to be performed on a timely basis D. It should coincide with the date of the financial statements
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A. the auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained
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An auditor's report on comparative financial statements should be dated as of the date of the A. Issuance of the report B. No earlier than competition of the auditor's most recent audit C. Latest financial statements being reported on D. Last subsequent event disclosed in the statements
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B. No earlier than competition of the auditor's most recent audit
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An auditor released an audit report that was dual-dated for a subsequently discover fact occurring after the date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was A. Limited to include only events occurring before the date of the last subsequent event referenced. B. Limited to the specific event referenced C. Extended to subsequent events occurring through the date of issuance of the related financial statements. D. Extended to include all events occurring since the original report date
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B. Limited to the specific event referenced
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In May Year 3, an auditor reissues the auditor's report on the Year 1 financial statements at a former client's request. The Year 1 financial statements are to be presented comparatively with subsequent audited statements. They re not restated, and the auditor does not revise the wording of the report. The auditor should A. Dual-date the reissued report B. Use the release date of the reissued report C. Use the original report date on the reissued report D. Use the current-prod auditor's report date on the reissued report
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C. Use the original report date on the reissued report
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An auditor's decision concerning whether to dual date the audit report is based upon the auditor's willingness to A. Extend auditing procedures B. Accept responsibilities for subsequent events C. Permit inclusion of a note captioned "event (unaudited) subsequent to the date of auditor's report" D. Assume responsibility for events subsequent to the issuance of the auditor's report
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A. Extend auditing procedures
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On September 30, Year 2, Miller was asked to reissue an auditor's report dated March 31, Year 2, on a client's financial statements for the year ended December 31, Year 1. Miller will submit the reissued report to the client in a document that contains information in addition to the client's basic financial statements. However, Miller discovered that the client suffered substantial losses on receivables resulting from conditions that occurred since March 31, Year 2. Miller should A. Request the client to disclosure the event in a separate, appropriately labeled note to the financial statements and reissue the original report with its original date B. Request the client to restate the financial statement and reissue the original report with a dual date C. Reissue the original report with its original date without regard to whether the event is disclosed in separate note to the financial statements. D. Not reissue the original report but expresses a subject to qualified opinion that discloses the event in a separate explanatory paragraph.
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A. Request the client to disclosure the event in a separate, appropriately labeled note to the financial statements and reissue the original report with its original date
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If a subsequently discovered fact becomes known to the auditor before the release of the audit report, the auditor should A. Modify the opinion and dual date the audit report. No additional audit procedures are required. B. Date the audit report as of the original date of the auditor's report and caption the note disclosing the subsequent event as being subsequent to the completion of the audit procedures. C. Not modify the audit opinion if the event is properly disclosed and date the audit report as of the original date of the auditor's report. D. Either dual date he audit report of date the audit report as of the time of the competition of the extended audit procedures.
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D. Either dual date he audit report of date the audit report as of the time of the competition of the extended audit procedures.
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When financial statements are materially but not pervasively misstated, an auditor may express a: qualified opinion, disclaimer of an opinion A. Yes, No B. Yes, Yes C. No, Yes D. No, No
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A. Yes, No
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A CPA engaged to audit financial statements observes that the accounting for a certain material but not pervasive item is not in conformity with the applicable financial reporting framework, although the matter is prominently disclosed in a note to the financial statements. The CPA should A. Express an unmodified opinion but insert a emphasis-of-matter paragraph with a reference to the note B. Disclaim an opinion C. Not allow the accounting treatment for this item to affect the type of opinion because the misstatement was disclosed. D. Qualifying the opinion because of the misstatement
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D. Qualifying the opinion because of the misstatement
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When the financial statement contain a misstatement, the effect of which is material but not pervasive, the auditor should A. Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification B. Qualify the opinion and describe the misstatement within the opinion paragraph C. Disclaim an opinion and explain the effect of the misstatement in a disclaimer of opinion paragraph D. Disclaim an opinion and describe the misstatement within the opinion paragraph
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A. Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification
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On January 2, Year 2, the Retail Auto Parts Co. received a notice from its primary suppliers that effectively immediately all wholesale prices would be increased 10%. On the basis of the notice, Retail Auto Parts Co. revalued its December 31, Year 1 inventory to reflect the higher costs. The inventory constituted a material proportion of total assets. However, the effect of the revaluation was material to current assets but not to total assets or net income. In reporting on the company's financial statements for the year ended December 31, Year 1, in which inventory is valued at the adjusted amounts, the auditor would most likely A. Express an unmodified opinion provided the nature of the adjustment and the amounts involved are disclosed in notes B. Express a qualified opinion C. Disclaim an opinion D. Express an adverse opinion
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C. Disclaim an opinion
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The client includes in the determination of net income certain material items property classifiable as other comprehensive income (OCI). In this situation, the auditor must express a(n) A. Unmodified opinion B. Qualified opinion C. Adverse opinion D. Qualified or adverse opinion
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D. Qualified or adverse opinion
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When an auditor qualifies an opinion because of the omission of information required to be disclosed, the auditor should describe the nature of the omission in the basis for qualified opinion paragraph and modify the: Introductory Paragraph Auditor's Responsibility Section Opinion Paragraph A. Yes, No, No B. Yes, Yes, No C. No, Yes, Yes D. No, No, Yes
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C. No, Yes, Yes
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An auditor may not express 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. An accounting principle at variance with the applicable financial reporting framework is used D. The auditor lack independence with respect to the audited entity
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D. The auditor lack independence with respect to the audited entity
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An auditor may express a qualified opinion for which of the following reasons? Circumstances Related to the Work Limitations Imposed by Management A. Yes, Yes B. Yes, No C. No, Yes D. No, No
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A. Yes, Yes
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When qualifying an opinion because of an insufficiency of appropriate audit evidence, an auditor should refer to the situation in the Auditor's Responsibility Section Notes to the Financial Statements A. Yes, Yes B. Yes, No C. No, Yes D. No, No
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B. Yes, No
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Tread Corp. accounts for the effect of a material change in an accounting principle prospectively when period-specific adjustments are required for prior periods presented in comparison with the current year. The auditor would choose between expressing a(n) A. Qualified opinion or disclaimer or opinion. B. Disclaimer or opinion and an unmodified opinion with an emphasis-of-matter paragraph C. Unmodified opinion with an emphasis-of-matter paragraph and an adverse opinion D. Adverse opinion and a qualified opinion
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D. Adverse opinion and a qualified opinion
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In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion and an adverse opinion? A. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures B. The financial statements fail to disclose information that is required by the applicable reporting framework C. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements. D. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.
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B. The financial statements fail to disclose information that is required by the applicable reporting framework
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An auditor expresses an adverse opinion if A. A severe scope limitation has been imposed by management B. A misstatement is material and pervasive C. A qualified opinion cannot be expressed because the auditor lacks independence D. The company's ability to continue as a going concern is subject to substantial doubt.
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B. A misstatement is material and pervasive
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When an auditor expresses an adverse opinion, the opinion paragraph should include A. The effects of the material misstatement B. A direct reference to a separate paragraph disclosing the basis for the opinion C. The financial effects of the misstatement D. A description of the uncertainty or scope limitation that prevents an unmodified opinion
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B. A direct reference to a separate paragraph disclosing the basis for the opinion
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When the auditor cannot obtain sufficient appropriate evidence to determine whether certain client acts are not in compliance with laws and regulations (s)he would most likely express A. An unmodified opinion with an emphasis-of-matter paragraph B. Either a qualified opinion or an adverse opinion C. Either a disclaimer of opinion or a qualified opinion D. Either an adverse opinion or a disclaimer or opinion
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C. Either a disclaimer of opinion or a qualified opinion
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A disclaimer of opinion on the financial statements that was issued because of a scope limitation on an audit differs from a compilation report on the unaudited statements of a nonissuer in that A. A compilation report offers some assurances. A disclaimer offered none. B. A compilation relates only to income statements and balance sheets. A disclaimer pertains to all financial statements presented. C. Any procedures applied in a compilation should be described in the report, but procedures applied when a disclaimer is issued should not be described. D. A compilation report states what service was performed. A disclaimer states what service was to be performed.
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D. A compilation report states what service was performed. A disclaimer states what service was to be performed.
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In which of the following circumstances would an auditor usually choose between expressing a qualified opinion disclaiming an opinion? A. Material misstatement B. Inadequate disclosure of accounting policies C. Inability to obtain sufficient appropriate audit evidence D. Unreasonable justification for a change in accounting principle
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C. Inability to obtain sufficient appropriate audit evidence
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Under which of the following circumstances might an auditor disclaim an opinion? A. The financial statements contain a material misstatement B. Material related party transactions are disclosed in the financial statements C. There has been a material change between periods in the method of application of accounting principles D. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions concerning an uncertainty
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D. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions concerning an uncertainty
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A CPA is concerned about a relationship between unaudited financial statements of an issuer because A. Users may be misled regarding the degree of responsibility the CPA is accepting B. A fee cannot be charged unless the CPA is associated with financial statements C. Association is necessary for compliance with the requirement of due professional care D. An audit must be performed if the CPA is in any way related to the financial statements
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A. Users may be misled regarding the degree of responsibility the CPA is accepting
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Under which of the following circumstances would a disclaimer of opinion not be appropriate? A. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances B. The auditor is unable to determine the amounts associated with fraud committed by the client's management C. The financial statements fail to contain adequate disclosures concerning related party transactions D. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry
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C. The financial statements fail to contain adequate disclosures concerning related party transactions
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If an accountant concludes that unaudited financial statements of an issuer on which the accountant is disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate revision. The client does not accept the accountant's suggestion, the accountant should A. Express an adverse opinion and describe the appropriate revision in the report B. Refer to the appropriate revision and issue a modified report expressing limited assurance C. Describe the appropriate revision to the financial statements in the accountant's disclaimer of opinion D. Accept the client's inaction because the statements are unaudited and the accountant has disclaimed an opinion
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C. Describe the appropriate revision to the financial statements in the accountant's disclaimer of opinion
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A CPA concludes that the unaudited financial statements of an issuer on which the CPA is disclaiming an opinion are not in confirming with generally accepted accounting principles (GAAP) because management has failed to capitalize leases. The GPA suggests appropriate revisions to the financial statements, but management refuses to accept the CPA's suggestions. Under these circumstances, the CPA ordinarily would A. Express limited assurance that no other material modifications should be made to the financial statements B. Restrict the distribution of the CPA's report to management and the entity's board of directors C. Issue a qualified opinion or adverse opinion depending on the materiality of the departure from GAAP D. Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable.
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D. Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable.
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A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result when management A. Engages the auditor after the year-end physical inventory count is completed B. Fails to correct a material internal control weakness that had been identified during the prior year's audit C. Refuses to furnish a management representation letter to auditor D. Prevents the auditor from reviewing the audit documentation from the predecessor auditor.
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C. Refuses to furnish a management representation letter to auditor
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Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export Inc. a new audit client. Morris notified the audit committee and Worldwide's legal counsel but neither would assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris most likely should A. Express an unmodified opinion with an other-matter paragraph B. Disclaim an opinion on the financial statements. C. Express a adverse opinion on the financial statements D. Issue a special report regarding the illegal bribes
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B. Disclaim an opinion on the financial statements.
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A limitation on the scope of an audit sufficient to preclude an unmodified opinion will usually result when management A. Presents financial statements that are prepared in accordance with the cash receipts and disbursements basis of accounting B. States that the financial statements are not intended to be presented in accordance with generally accepted accounting principles C. Does not make the minutes of the board of directors' meeting available to the auditor D. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
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C. Does not make the minutes of the board of directors' meeting available to the auditor
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The auditor is most likely to disclaim an opinion because of A. Management's failure to present supplementary information required by the FASB B. Inadequate disclosure of material information C. A management-imposed limitation D. A signification number of changes in accounting principles
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C. A management-imposed limitation
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Under the ISAs, an auditor would not normally accept an engagement if A. The year under consideration for the audit has already ended B. The client has many significant related party transactions C. A limitation of its scope exists that many necessitate a disclaimer D. The auditor already has a number of clients in the same industry
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C. A limitation of its scope exists that many necessitate a disclaimer
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A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result when management A. Asks the auditor to report on the balance sheet and not not he other basic financial statements B. Refuses to permit its lawyer to respond to the letter of audit inquiry C. Discloses material related party transactions in the notes to the financial statements D. Knows that confirmations of accounts receivable is not feasible
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B. Refuses to permit its lawyer to respond to the letter of audit inquiry
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A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result when management A. Is unable to obtain audited financial statements supported the entity's investment in a foreign subsidiary B. Refuses to disclose in the notes to the financial statements related party transactions authorized by the board of directors C. Does not attend discussions held amount the audit team about the susceptibility of the financial statements to material misstatements D. Fails to correct a significant deficiency in internal control communicated to the audit committee after the prior year's audit
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A. Is unable to obtain audited financial statements supported the entity's investment in a foreign subsidiary
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Green, GPA, is aware the Green's name is to be included in the interim report of National Company, a public held entity. National's quarterly financial statements are contained in there interim report. Green has not audited or reviewed these interim financial statements. Green should request: I. Green's name not be included in the communication II. The financial statements be marked as unaudited, with a notation that no opinion is expressed on them. A. I only B. II only C. Both I and II D. Either I or II
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D. Either I or II
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Green, GPA, concludes that there is a substantial doubt about JKL Co.'s ability to continue as a going concern. If JKL's financial statements adequately disclosure its financial difficulties, Green's auditor's report should Include a Paragraph Following the Opinion Paragraph Specifically Use the Words "Going Concern Specifically Use the Words "Substantial Doubt" A. Yes, Yes, Yes B. Yes, Yes, No C. Yes, No, Yes D. No, Yes, Yes
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A. Yes, Yes, Yes
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In which of the following circumstances would an auditor most likely add an emphasis-of-matter paragraph to the auditor's report while expressing an unmodified opinion? A. The auditor is asked to report on the balance sheet but no on the other basic financial statements B. There is substantial doubt about the entity's ability to continue as a going concern C. Management's estimates of the effects of future events are unreasonable. D. Certain material transactions cannot be tested because of management's records retention policy.
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B. There is substantial doubt about the entity's ability to continue as a going concern
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A separate paragraph of an auditor's report describes an uncertainty as follow: 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 process. What type of opinion should the auditor express under these circumstances? A. Unmodified B. "Subject to" qualified. C. "Except for" qualified D. Disclaimer
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A. Unmodified
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If an auditor is satisfied that sufficient appropriate evidence supports management assertions about an uncertainty, the auditor should A. Express an unmodified opinion. B. Express an unmodified opinion with a separate emphasis-of-matter paragraph C. Disclaim an opinion D. Express a qualified opinion or disclaim an opinion, depending upon the materiality of the loss
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A. Express an unmodified opinion.
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If an company is experiencing financial difficulty that raises substantial doubt about its ability to continue as a going concern, auditing standards require the auditor to A. Withdraw from the engagement B. Value the assets on a liquidation basis C. Plan to conduct a complete audit rather than perform procedures on a test basis D. Include in the report a paragraph describing the nature of the difficulties
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D. Include in the report a paragraph describing the nature of the difficulties
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A continuing auditor should update the report on prior financial statements by issuing a report modified for the A. Resolution of an uncertainty related to and discovered in the current period B. Removal in the current period of a double about the entity's ability to continue as a going concern. C. Determination in the current period that a substantial doubt exists about the entity's ability to continue as a going concern for a reasonable time D. Purchase and consolidation of a new company by the client
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B. Removal in the current period of a double about the entity's ability to continue as a going concern.
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An auditor judges that additional communication in the report is needed to draw users' attention to an important matter. If the matter is appropriately presented and disclosed in the statements, the matter is referred to as A. Only in the management's responsibility for the financial statements paragraph B. Only in the emphasis-of-matter paragraph C. In in the introductory paragraph and the opinion paragraph D. In the opinion paragraph and the basis for modification paragraph
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B. Only in the emphasis-of-matter paragraph
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An auditor's report expresses an unmodified opinion and includes an emphasis-of-matter paragraph. The auditor's report is deficient in the emphasis-of-matter paragraph that the entity A. Is significantly affected by a major catastrophe B. Has omitted a statement of cash flows C. Has had a usually important subsequent event D. Has significant related party transactions
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B. Has omitted a statement of cash flows
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In Which situation is the auditor most likely not to include an emphasis-of-matter paragraph in the auditor's report? A. An important audit procedure was performed. B. The client suffered a major catastrophe C. Significant transactions with related parties were recored D. Unusually important subsequent events occurred.
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A. An important audit procedure was performed.
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An auditor includes an emphasis-of-matter paragraph in a otherwise unmodified report when the entity reported on has significant transactions with related parties. The inclusion of this paragraph A. Is considered a qualification of the opinion B. Violates auditing standards if this information is already disclosed in notes to the financial statements C. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation" D. Is appropriate and would not negate the unmodified opinion
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D. Is appropriate and would not negate the unmodified opinion
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An emphasis-of-matter paragraph is used in the auditor's report to draw users' attention to A. A material misstatement B. A matter that is not presented or disclosed in the financial statements that is relevant to users' understanding of the audit C. A matter that management wishes to highlight D. A matter appropriately presented or disclosed in the financial statements
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D. A matter appropriately presented or disclosed in the financial statements
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An other-matter paragraph is included in the auditor's report except when A. The opinion on the prior-period statement has changed B. Required supplementary information is presented C. A predecessor auditor's report is not reissued D. The client has materially restated the prior year's comparative financial statements.
answer
D. The client has materially restated the prior year's comparative financial statements.
