Chapters 1-3

question

The Sarbanes-Oxley Act applies to which of the following companies?
answer

Public companies
question

Which of the following is considered audit evidence?
answer

Oral statements – Y Written Communication – Y Auditor Observation – Y
question

The criteria by which an auditor evaluates the information under audit may vary with the information being audited.
answer

true
question

The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.
answer

false
question

The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies.
answer

false
question

The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.
answer

true
question

An auditor must be competent and have an independent mental attitude.
answer

true
question

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:
answer

accounting.
question

An accountant:
answer

must have an understanding of the principles and rules that provide the basis for preparing the accounting information.
question

In “auditing” financial accounting data, the primary concern is with:
answer

determining whether recorded information properly reflects the economic events that occurred during the accounting period.
question

The trait that distinguishes auditors from accountants is the:
answer

auditor’s accumulation and interpretation of evidence related to a company’s financial statements.
question

_______ risk reflects the possibility that the information upon which the business decision was made was inaccurate.
answer

Information
question

A correct relationship among the auditor, the client, and the external users is:
answer

the external users can rely upon the auditor’s report to reduce information risk.
question

The most common way for users to obtain reliable information is to:
answer

have an independent audit.
question

In the audit of historical financial statements, what accounting criteria is most common?
answer

B and C [Applicable international accounting standards & Applicable U.S. accounting standards]
question

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):
answer

attestation service
question

Three common types of attestation services are:
answer

audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.
question

Which of the following services provides the lowest level of assurance on a financial statement?
answer

A review
question

Which of the following is not a SysTrust Services principle as defined by the AICPA?
answer

Operational integrity
question

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?
answer

Most consulting services
question

Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services?
answer

SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.
question

CPA firms are never allowed to provide bookkeeping services for clients.
answer

false
question

Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.
answer

true
question

Most public companies’ audited financial statements are available on the SEC’s EDGAR database.
answer

true
question

One objective of an operational audit is to:
answer

make recommendations for improving performance.
question

An examination of part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
answer

Operational audit
question

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):
answer

compliance audit.
question

Which one of the following is more difficult to evaluate objectively?
answer

Efficiency and effectiveness of operations
question

Which of the following audits can be regarded as generally being a compliance audit?
answer

IRS agents’ examinations of taxpayer returns
question

Which of the following are required to have a written report regarding the assertion of another party?
answer

F/S Audit – Y Operational Audit – Y Compliance Audit – Y Attestation Engagement – Y Assurance Engagement – Y
question

The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.
answer

false
question

Results of compliance audits are typically reported to the company’s management rather than to a broad spectrum of outside users.
answer

true
question

Match the engagement described to the (A) type of audit and (B) auditor that would perform the engagement. Each engagement will have an answer from List-A and List-B. An answer can be used once, more than once, or not at all. 1. Evaluate a company’s payroll processing for economy. 2. Evaluate/determine if bank covenants are being met. 3. Evaluate financial statements that are to be submitted to a bank. 4. Evaluate the promptness of materials inspection in a manufacturer’s receiving department. 5. Determine if Medicare reimbursements are in accordance with the Healthcare Financing Administration (HCFA). 6. Determine if the tax return of a multinational corporation is in accordance with the tax code. 7. Determine if a public school is properly applying their reimbursement for the payment-in-kind program. 8. Determine the effectiveness of a Department of Defense project.
answer

1. c, d 2. b, d 3. a, e 4. c, d 5. b, f 6. b, g 7. b, e 8. c, f Website to see chart: http://retype.wenku.bdimg.com/retype/zoom/f7ab402f14791711cc7917f6?pn=15&x=0&y=0&raww=435&rawh=108&o=jpg_6_0_______&type=pic&aimh=108&md5sum=d5db97d8a0263a0766b43d5ec8bd0a97&sign=454b171b49&zoom=&png=726-945&jpg=72108-83191
question

The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.
answer

false
question

The three requirements for becoming a CPA include all but which of the following?
answer

Character requirements
question

The use of the Certified Public Accountant title is regulated by:
answer

state law through a licensing department or agency of each state.
question

The legal right to perform audits is granted to a CPA firm by regulation of:
answer

each state.
question

The four categories for describing the size of audit firms include: the Big Four international firms; national firms; regional and local firms; and small firms. Which of the following is not a characteristic of a small firm?
answer

They do not audit publicly traded companies.
question

Sarbanes-Oxley and the Securities 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.
answer

II only
question

Which of the following statements is true as it relates to limited liability partnerships?
answer

Partners are personally liable for the acts of those under their supervision.
question

Many small, local accounting firms do not perform audits as their primary services to their clients include accounting and tax.
answer

true
question

All of the Big Four accounting firms and many of the smaller CPA firms now operate as Limited Liability Partnerships.
answer

true
question

Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients.
answer

true
question

Limited liability companies are structured and taxed like a general partnership, but their owners have limited personal liability similar to that of a general corporation.
answer

true
question

The organization that is responsible for providing oversight for auditors of public companies is called the ________.
answer

Public Company Accounting Oversight Board
question

Members of the Public Company Accounting Oversight Board are appointed and overseen by:
answer

the Securities and Exchange Commission.
question

The Public Company Accounting Oversight Board:
answer

performs inspections of the quality controls of audit firms that audit public companies.
question

Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. The PCAOB:
answer

can enforce – Y report the matter – Y suspend the licens – N Website: http://retype.wenku.bdimg.com/retype/zoom/33318710647d27284b7351f0?pn=6&x=0&y=108&raww=489&rawh=108&o=jpg_6_0_______&type=pic&aimh=106.0122699386503&md5sum=8b5b404a2c728c1ae44f82568f912964&sign=4fbef2ec74&zoom=&png=0-392&jpg=0-58362
question

The Public Company Accounting Oversight Board (PCAOB) provides oversight to auditors of publicly traded and private companies.
answer

false
question

All CPA firms registered with the PCAOB are required to undergo a peer review annually.
answer

false
question

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:
answer

Form 8-K
question

The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the:
answer

Form S-1
question

The AICPA has authority to establish standards and rules in all but which of the following areas?
answer

Auditing standards applicable to financial statements of private and public companies
question

The difference between the Securities Act of 1933 and the Securities Act of 1934 is that only the 1934 act requires audited financial statements.
answer

false
question

Form 10-K must be filed with the SEC whenever a public company experiences a significant event.
answer

false
question

The overall purpose of the Securities and Exchange Commission is to assist in providing investors with reliable information upon which to make investment decisions.
answer

true
question

Statements on Standards for Accounting and Review Services are issued by the:
answer

Accounting and Review Services Committee.
question

Membership in the AICPA is restricted to CPAs who are currently practicing as independent auditors.
answer

false
question

Membership in the AICPA is mandatory for all licensed practicing CPAs.
answer

false
question

Any public accounting firm can be a member of the AICPA if the firm meets the membership requirements.
answer

true
question

Which of the following are audit standards used in professional practice by audit firms?
answer

Intn’nl Standt – Y US – Y PCAOB – Y Website: http://retype.wenku.bdimg.com/retype/zoom/33318710647d27284b7351f0?pn=11&x=0&y=176&raww=489&rawh=87&o=jpg_6_0_______&type=pic&aimh=85.39877300613496&md5sum=8b5b404a2c728c1ae44f82568f912964&sign=4fbef2ec74&zoom=&png=393-745&jpg=58363-98104
question

For privately held companies who is responsible for establishing auditing standards?
answer

Auditing Standards Board
question

Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit:
answer

public companies only.
question

The International Standards on Auditing (ISAs):
answer

has many of the same standards as the Auditing Standards Board (ASB)
question

If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources?
answer

Statements on Auditing Standards
question

Which of the following is a true statement regarding auditing standards?
answer

The Auditing Standards Board has revised most of its standards to converge with the international standards.
question

The PCAOB considers International Standards on Auditing (ISAs) when developing its standards.
answer

true
question

International Standards on Auditing are issued by the International Auditing and Assurance Standards Board.
answer

true
question

Historically auditing standards have been organized into three categories, including:
answer

Standards of field work.
question

The “Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles” provides a framework to help auditors:
answer

report on the financial statements.
question

Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit?
answer

Plan work and supervise assistants
question

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:
answer

obtaining sufficient, appropriate audit evidence.
question

The Statements on Auditing Standards issued by the Auditing Standards Board:
answer

are regarded as authoritative literature.
question

An auditor need not abide by a particular auditing standard if the auditor believes that:
answer

the issue in question is immaterial in amount.
question

When assessing the risk of material misstatements in the financial statements,
answer

the auditor must have an understanding of the client’s business and industry.
question

In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that:
answer

management is responsible for the preparation of the financial statements.
question

Which of the following statements best describes the primary purpose of Statements on Auditing Standards?
answer

They are interpretations that are intended to clarify the meaning of “generally accepted auditing standards.”
question

Hansen Corporation’s stock is listed on a national stock exchange and registered with the Securities and Exchange Commission. Hansen’s management hires a CPA to perform an independent audit of Hansen’s financial statements. The primary objective of this audit is to provide assurance to the:
answer

investors in Hansen Corporation’s stock.
question

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..
answer

I and III
question

Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as:
answer

minimum standards of performance that must be achieved on each audit engagement.
question

Statements on Auditing Standards issued by the AICPA’s Auditing Standards Board are:
answer

interpretations of generally accepted auditing standards and departures from such statements must be justified.
question

interpretations of generally accepted auditing standards and departures from such statements must be justified.
answer

false
question

Statements on Auditing Standards (SASs) are issued by the Public Company Accounting Oversight Board.
answer

false
question

The SAS number identifies the order in which it was issued in relation to all other SASs.
answer

true
question

Which of the following is not true for audit firms who audit publicly traded companies?
answer

They must have an AICPA peer review on all audit clients.
question

The methods used by a CPA firm to ensure that the firm meets is professional responsibilities to clients and others is:
answer

quality control.
question

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:
answer

knowledge required to fulfill assigned responsibilities.
question

The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to:
answer

minimize the likelihood of associating with a client whose management may lack integrity.
question

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?
answer

Assigning personnel to engagements
question

Which of the following is not an essential component of quality control?
answer

Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies
question

Which one of the following is not true regarding the American Institute of Certified Public Accountants peer review requirement?
answer

Firms required to be registered with and inspected by the PCAOB are exempt.
question

Listed below are policies or procedures that the Crystal Cove audit firm has in place. For each identified policy or procedure state if it is a Generally Accepted Audit Standard (GAAS) or Website: http://retype.wenku.bdimg.com/retype/zoom/33318710647d27284b7351f0?pn=23&x=0&y=0&raww=651&rawh=293&o=jpg_6_0_______&type=pic&aimh=216.036866359447&md5sum=8b5b404a2c728c1ae44f82568f912964&sign=4fbef2ec74&zoom=&png=746-1122&jpg=98105-130744
answer

1. a 2. b 3. b 4. a 5. b 6. a 7. b 8. a
question

The following are definitions of terms that are listed on the right. Match the definition with its associated term. Each term can be used once, more than once or not at all. 1. An organizational structure where professional services are provided by one or more shareholders. 2. The grantor of the right to practice public accounting. 3. A report filed to indicate a significant event. 5. Oversees accounting firms who audit public companies. 6. An organizational structure where the owners are taxed like a partnership and have limited personal liability. 7. A report that is filed when a company wishes to issue new securities. 8. The methods used to ensure the firm meets its professional responsibilities to clients and others. 9. Assists in providing investors with reliable information. auditing > 100 issuers. 11. Practice monitoring by a CPA firm for another CPA firm. 12. Fulfilling duties diligently and carefully. 13. Requires a registration statement.
answer

1. i ICPA 2. o PCAOB 3. n Securities Exchange Commission 4. a Form S-1 5. b Form 8-K 6. j Due professional care 7. f Professional Corporation 8. q Limited Liability Company 9. c Peer review 10. b 1933 Securities Act 11. k State Regulation 12. g Quality Control Standards 13. l
question

Quality controls are established for the entire CPA firm whereas GAAS are applicable to the individual engagement.
answer

true
question

An audit of historical financial statements most commonly includes the:
answer

balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders’ equity.
question

Auditing standards require that the audit report must be titled and that the title must:
answer

include the word “independent.”
question

To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be:
answer

CC – N S – Y BoD – Y Website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=2&x=0&y=0&raww=489&rawh=46&o=jpg_6_0_______&type=pic&aimh=45.15337423312883&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=0-267&jpg=0-23137
question

The auditor’s responsibility section of the standard unqualified audit report states that the audit is designed to:
answer

obtain reasonable assurance whether the statements are free of material misstatement.
question

obtain reasonable assurance whether the statements are free of material misstatement.
answer

the last day of the auditor’s responsibility for the review of significant events that occurred after the date of the financial statements.
question

The standard audit report for non-public entities refers to GAAS and GAAP in which sections?
answer

GAAS – Auditor’s Respon. GAAP – Mgmnt Respon and Opinion Paragraph
question

Which of the following is not explicitly stated in the standard unqualified audit report?
answer

The audit was conducted in accordance with generally accepted accounting principles.
question

The standard unqualified audit report for a non-public entity must:
answer

be dated.
question

The management’s responsibility section of the standard audit report for a non-public company states that the financial statements are:
answer

the responsibility of management.
question

The introductory paragraph of the standard audit report for a non-public 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.
answer

I and II
question

Which of the following statements are true for the audit report of a non-public 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.
answer

II only
question

The auditor’s responsibility section of the standard audit report states that the auditor is:
answer

responsible for the opinion on the financial statements.
question

If the balance sheet of a private company is dated December 31, 2011, the audit report is dated February 8, 2012, and both are released on February 15, 2012, this indicates that the auditor has searched for subsequent events that occurred up to:
answer

February 8, 2012.
question

The appropriate audit report date for a standard nonqualified audit report for a non-public entity should be the:
answer

date the auditor completed the auditing procedures in the field.
question

Most auditors believe that financial statements are “presented fairly” when the statements are in accordance with GAAP, and that it is also necessary to:
answer

examine the substance of transactions and balances for possible misinformation.
question

An audit provides a high level of assurance, but is not a guarantee that a material misstatement will exist in the financial statements.
answer

true
question

AICPA auditing standards provide uniform wording for the auditor’s report to enable users of the financial statements to understand the audit report.
answer

true
question

Users of the financial statements rely on the auditor’s report because of the absolute assurance the report provides.
answer

false
question

The introductory paragraph of the auditor’s report states that the auditor is responsible for the preparation, presentation and opinion on financial statements.
answer

false
question

The audit report date is the date the auditor completed audit procedures in the field.
answer

true
question

The scope paragraph of the auditor’s responsibility section of the audit report issued for financial statements of a non-public company should refer to generally accepted auditing standards
answer

true
question

In the scope paragraph of the audit report issued for financial statements of a non-public company, the auditor expresses an opinion about the internal controls of the company.
answer

false
question

The audit report is normally addressed to the company’s president or chief executive officer.
answer

false
question

The phrase “generally accepted accounting principles” can be found in the opinion paragraph of a standard unqualified report.
answer

true
question

The date of the auditor’s report is indicative of the last day of the auditor’s responsibility for the review of significant events occurring after the balance sheet date.
answer

true
question

The phrase “auditing standards generally accepted in the United States of America” can be found in the opinion paragraph of a standard, unqualified audit report for a non-public company
answer

false
question

The phrase “Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material error” is included in the auditor’s opinion section of an audit report.
answer

false
question

In which of the following situations would the auditor most likely issue an unqualified report?
answer

The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement cost of inventory in the Notes to the Financial Statements.
question

The standard unqualified audit report:
answer

is sometimes called a clean opinion.
question

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
answer

Either I or II.
question

The standard unqualified audit report for public entities includes the following three paragraphs:
answer

introductory, scope and opinion.
question

Auditing standards for public companies are established by the:
answer

PCAOB.
question

Section 404(b) of the Sarbanes Oxley Act requires that the auditor of a public company attest to management’s report on the efficiency of internal controls over financial reporting.
answer

false
question

Auditors of public company financial statements must issue separate reports on internal control over financial reporting.
answer

false
question

Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:
answer

the use of other auditors.
question

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
answer

included in a separate paragraph in the report.
question

All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for:
answer

reports involving other auditors.
question

The term “explanatory paragraph” was replaced in the AICPA auditing standards with:
answer

emphasis-of-matter paragraph.
question

Which of the following are changes that affect the comparability of financial statements but not the consistency and therefore, do not have to be included in the auditor’s report?
answer

All of the above
question

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?
answer

The entity is suing a competitor for a minor patent infringement.
question

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:
answer

one year from the date of the financial statements.
question

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 unqualified opinion with an explanatory paragraph. II. a disclaimer of opinion.
answer

I or II
question

When a company’s financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:
answer

an explanatory paragraph after the opinion paragraph.
question

William Gregory, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Gregory is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor’s examination. With respect to his report on the consolidated financial statements, taken as a whole, Gregory:
answer

may refer to the examination of the other auditor.
question

A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor’s report on the financial statements of the year of the change should include:
answer

an explanatory paragraph explaining the change.
question

Which of the following modifications of the auditor’s report does not include an explanatory paragraph?
answer

A principal auditor accepts the work of an other auditor
question

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.
answer

I, II and III
question

When an auditor is trying to determine how changes can affect consistency and and/or comparability, he should keep in mind that:
answer

changes that affect consistency require an explanatory paragraph if they are material.
question

All of the following would require an emphasis of matter paragraph except for:
answer

the lack of auditor independence.
question

Under AICPA auditing standards, the primary auditor issuing the opinion on the financial statements is called the:
answer

group engagement partner.
question

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?
answer

Issue a joint report signed by both CPA firms.
question

Which of the following requires recognition in the auditor’s opinion as to consistency?
answer

The change from the cost method to the equity method of accounting for investments in common stock.
question

Indicate which changes would require an explanatory paragraph in the audit report.
answer

Correction of error – Y Change from LIFO to FIFO – Y website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=24&x=0&y=0&raww=609&rawh=108&o=jpg_6_0_______&type=pic&aimh=85.1231527093596&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=562-1032&jpg=51075-101831
question

Indicate which changes would require an explanatory paragraph in the audit report.
answer

change in est. life – N Variation in format – N Website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=25&x=0&y=67&raww=435&rawh=67&o=jpg_6_0_______&type=pic&aimh=67&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=1033-1331&jpg=101832-132647
question

Indicate which changes would require an explanatory paragraph in the audit report.
answer

CPA concludes – Y Change from FIFO to LIFO – Y Website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=26&x=0&y=0&raww=435&rawh=108&o=jpg_6_0_______&type=pic&aimh=108&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=1332-1711&jpg=132648-173700
question

Indicate which changes would require an explanatory paragraph in the audit report.
answer

depart from GAAP – Y CPA makes ref – N Website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=27&x=0&y=258&raww=435&rawh=129&o=jpg_6_0_______&type=pic&aimh=129&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=1712-2105&jpg=173701-237792
question

A modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.
answer

true
question

Changes in accounting estimates requires the auditor to issue a modified unqualified audit report with a consistency paragraph inserted after the opinion paragraph
answer

false
question

The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved. In this case only the introductory paragraph is modified.
answer

false
question

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.
answer

true
question

Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report.
answer

false
question

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.
answer

false
question

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor’s responsibility paragraph should be modified.
answer

false
question

When other auditors are involved in the audit and they qualify their portion of the audit, the principal auditor must decide if the amount in question is material to the financial statements as a whole.
answer

true
question

As a result of management’s refusal to permit the auditor to physically examine inventory, the auditor must depart from the unqualified audit report because:
answer

the scope of the audit has been restricted.
question

An adverse opinion is issued when the auditor believes:
answer

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
question

An auditor can express a qualified opinion due to a:
answer

Depart from GAAP – Y Lack for Consistency – N Lack Suff of Evid – Y Website: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=31&x=0&y=134&raww=489&rawh=67&o=jpg_6_0_______&type=pic&aimh=65.76687116564418&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=2106-2433&jpg=237793-266839
question

An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued?
answer

Disclaimer – N Qualified – Y Adverse – Y
question

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
answer

I and III
question

In which situation would the auditor be choosing between “except for” qualified opinion and an adverse opinion?
answer

Lack of full disclosure within the footnotes
question

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:
answer

a disclaimer of opinion.
question

If the auditor lacks independence, a disclaimer of opinion must be issued:
answer

in all cases.
question

If the phrase “except for” is present in the opinion paragraph of the audit report, the auditor has issued a(n):
answer

qualified opinion.
question

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n):
answer

qualified opinion.
question

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:
answer

a qualified opinion.
question

Which of the following scenarios does not result in a qualified opinion?
answer

The auditor lacks independence with respect to the audited entity.
question

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:
answer

disclaimer of opinion whenever materiality is in question.
question

In which of the following circumstances would an auditor most likely express an adverse opinion?
answer

The financial statements are not in conformity with the FASB statement on loss contingencies.
question

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.
answer

Neither I nor II
question

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:
answer

auditor is not appointed until after the client’s year-end.
question

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:
answer

present the information in the audit report and to issue a qualified or an adverse opinion.
question

A qualified audit report is issued when all auditing conditions have been met, no significant misstatements have been discovered, and it is the auditor’s opinion that the financial statements are fairly stated in accordance with GAAP.
answer

false
question

Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction.
answer

true
question

Whenever an auditor issues a qualified report, he or she must use the term “except for ” in the opinion paragraph.
answer

true
question

A qualified report can take the form of a qualification of both the scope and the opinion or of the opinion alone.
answer

true
question

When an auditor discovers a highly material GAAP violation in the financial statements and the client refuses to correct it, the auditor should issue a disclaimer of opinion.
answer

false
question

Client imposed restrictions on the audit always require a disclaimer of opinion.
answer

false
question

An auditor should issue a qualified opinion with an explanatory paragraph whenever there is a material uncertainty affecting the financial statements.
answer

false
question

A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of:
answer

a reasonable user of the financial statements.
question

Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes:
answer

all of the above.
question

When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n):
answer

understatement of inventory.
question

The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing lawsuit, the auditor must estimate the likely effect on:
answer

users of the financial statements.
question

If most or all users’ decisions that are based on the financial statements are likely to be significantly affected, the materiality level is:
answer

pervasive
question

When a client fails to follow GAAP, the audit report can be unqualified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider?
answer

All the above are factors an auditor should consider regarding materiality.
question

Which of the following is a correct statement regarding materiality?
answer

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.
question

Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.
answer

true
question

A pervasive exception is one that affects different parts of the financial statements.
answer

true
question

An item with a “psychic” effect (e.g., where the item maintains an increasing earnings trend) is a qualitative factor that may affect the auditors decision regarding materiality.
answer

true
question

The explanatory paragraph for a qualified opinion would:
answer

follow the scope paragraph.
question

An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph. The auditor should also modify the:
answer

Scope paragraph – Y Opinion paragraph – Y Notes to F/S – N
question

When an auditor issues a qualified report due to a scope limitation an explanatory paragraph is normally added. Which, if any, of the following paragraphs are also modified?
answer

Introductory – N Scope – Y Opinion – Y
question

When a qualified or adverse opinion is issued, the qualifying paragraph is inserted:
answer

between the scope and opinion paragraphs.
question

The independent auditor must issue a qualified opinion when which of the financial(s) are missing? I. Balance Sheet II. Income Statement III. Statement of Cash Flows
answer

III only
question

If the financial statements include an income statement and a balance sheet but exclude the statement of cash flows, the auditors:
answer

should issue a qualified opinion due to the departure from GAAP.
question

Which of the following is incorrect concerning scope limitations?
answer

The most common circumstance imposed scope restriction is due to the client changing their auditors.
question

When dealing with materiality and scope limitation conditions:
answer

a unqualified opinion may still be issued depending on the materiality of the scope limitation.
question

When a pervasive scope limitation exists:
answer

all of the above.
question

When there is a scope restriction, what type of audit report can be issued?
answer

Any of the above
question

Subsequent to the close of Spacely Sprockets fiscal year ending October 31, 2012, a major debtor has declared bankruptcy due to a series of events. The receivable is significantly material in relation to the financial statements, and recovery is doubtful. The debtor had confirmed the full amount due to Spacely Sprocket at the balance sheet date. Because the account was confirmed at the balance sheet date, Spacely refuses to disclose any information in relation to this subsequent event. The CPA believes that all other accounts were stated fairly at the balance sheet date. In addition, Spacely changed their method of inventory valuation from FIFO to LIFO. This change was disclosed in Note X to the financial statements. Accordingly, what type of opinion should be expressed?
answer

Qualified due to a GAAP departure.
question

For the report containing a disclaimer for lack of independence, the disclaimer is in the:
answer

first and only paragraph.
question

When an adverse opinion is issued, a scope paragraph would be:
answer

unchanged
question

After the balance sheet date but prior to issuance of the auditor’s report the auditor learns that the client’s facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event. The auditor should:
answer

provide the information in the report and modify the opinion.
question

Assume you are the partner in charge of the 2012 audit of Becker Corporation, a private company. The audit report has not yet been prepared. In each independent situation following (1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows: a. Issue a standard unqualified report. b. Qualify both the scope and opinion paragraphs. c. Qualify the opinion paragraph. d. Issue an unqualified opinion with an explanatory paragraph. e. Issue an unqualified opinion with modified wording (no explanatory paragraph). f. Issue an adverse opinion. g. Disclaim an opinion. The situations are as follows: ________ 1. Becker Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. ________ 2. Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. ________ 3. You were unable to confirm accounts receivable with Becker’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. ________ 4. One week before the end of fieldwork, you discover that the audit manager on the Becker engagement owns a material amount of Becker’s common stock. ________ 5. You relied upon another CPA firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report. ________ 6. You have substantial doubt about Becker’s ability to continue as a going concern. ________ 7. Becker Corporation changed its method of computing depreciation in 2012. You concur with the change and the change is properly disclosed in the financial statement footnotes. ________ 8. Ten days after the balance sheet date, one of Becker’s buildings was destroyed by a fire. Becker refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material.
answer

1. f 2. g 3. a 4. g 5. e 6. d or g 7. d 8. c
question

The explanatory paragraph following the opinion paragraph includes an inappropriate statement that “the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.” This statement is misleading and should be omitted.
answer

1. B 2. S 3. S 4. B 5. S 6. M
question

LONG ASS CHART I’M NOT GOING TO TYPE OUT. LOOK HERE TO SEE THE THING:
answer

http://wk.baidu.com/view/f7bd5713cfc789eb172dc8f2?pn=55&pu=
question

ANOTHER LONG ASS CHART: http://retype.wenku.bdimg.com/retype/zoom/f7bd5713cfc789eb172dc8f2?pn=57&x=0&y=0&raww=609&rawh=884&o=jpg_6_0_______&type=pic&aimh=696.7487684729064&md5sum=967c53f3ccd743786c27a32b5e5fa907&sign=05e9e7c262&zoom=&png=3875-4606&jpg=392324-497765
answer

1. B, R 2. A, L 3. B, I 4. B, Q 5. A, J 6. B, I 7. B, R 8. E, J 9. B, H 10. B, R
question

Financial statement users are typically more concerned with an unqualified report with explanatory paragraphs than they are with a disclaimer of opinion.
answer

false
question

A lack of independence will override any other scope limitations and requires a disclaimer of opinion.
answer

true
question

When a qualified opinion is issued, an explanatory paragraph is added immediately after the opinion paragraph to explain the nature of the qualification that affects the opinion.
answer

false
question

In the case of a disclaimer due to lack of independence, the entire scope paragraph is excluded from the report.
answer

true
question

When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n):
answer

unqualified opinion.
question

The first step to be followed when deciding the appropriate audit report in a given set of circumstances is to:
answer

determine whether any conditions exists requiring a departure from a standard unqualified report.
question

In most audits, the auditor issues a:
answer

unqualified audit report.
question

More than one modification should be included in the audit report when:
answer

all of the above.
question

When there is a justified departure from GAAP which is considered material, the auditor should issue a(n):
answer

unqualified audit report with an explanatory paragraph.
question

If there is a deviation in the statements’ preparation in accordance with GAAP and another accounting principle was applied on a basis that was not consistent with that of the preceding year:
answer

more than one modification should be included in the report.
question

After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:
answer

decide the materiality for each condition.
question

The final step in the auditor’s decision process for audit reports is to write the audit report.
answer

true
question

Academic research is underway to study the effectiveness of communications provided by auditors in the audit report.
answer

true
question

Auditing standards in the United States allow an auditor to perform an audit of a U.S. entity in accordance with both generally accepted auditing standards in the U.S. and the ISAs.
answer

true

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