Find study materials for any course. Check these out:
Browse by school
Make your own
To login with Google, please enable popups
To login with Google, please enable popups
Don’t have an account?
To signup with Google, please enable popups
To signup with Google, please enable popups
Sign up withor
11. Which of the following parties is responsible for the fairness of the representations made in financial statements?
A. Client's management.
B. Independent auditor.
C. Audit committee.
13. When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover
A. Both years.
B. Only the current year.
C. Only the current year, but the prior year's report should be presented.
D. Only the current year, but the prior year's report should be referred to.
15. For which of the following events would an auditor issue a report that does not include any reference to consistency?
A. A change in the method of accounting for inventories.
B. A change from an accounting principle that is not generally accepted to one that is generally accepted.
C. A change in the service life used to calculate depreciation expense.
D. A change in accounting principle without reasonable justification from management.
17. When comparative financial statements are presented, the fourth standard of reporting, which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the
A. Periods presented plus the one preceding period.
B. Current period only.
C. Current period and those of the other periods presented.
D. Current and immediately preceding period only.
19. In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose
A. The name of the other CPA and the type of report issued by the other CPA.
B. The portion of the financial statements examined by the other CPA.
C. The nature of Frazier's review of the other CPA's work.
D. In a footnote the portions of the financial statements that were covered by the examinations of both auditors.
21. When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the
A. Possibility of purchasing certain assets rather than leasing them.
B. Capability of extending the due dates of existing debt.
C. Appropriateness of changing depreciation methods from double declining balance to straight line.
D. Marketability of property and equipment that management plans to keep.
23. Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A. Inspecting title documents to verify whether any assets are pledged as collateral.
B. Confirming with third parties the details of arrangements to maintain financial support.
C. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
D. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.
25. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
A. Cash flows from operating activities are negative.
B. Research and development projects are postponed.
C. Significant related party transactions are pervasive.
D. Stock dividends replace annual cash dividends.
26. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
A. Significant related party transactions are pervasive.
B. Usual trade credit from suppliers is denied.
C. Arrearages in preferred stock dividends are paid.
D. Restrictions on the disposal of principal assets are present.
28. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph
A. Is considered an "except for" qualification of the opinion.
B. Violates generally accepted auditing standards if this information is already disclosed in footnotes 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 unqualified/unmodified opinion.
29. When the auditor is unable to determine the amounts associated with the illegal acts of client personnel because of an inability to obtain adequate evidence, the auditor should issue a(n)
A. "Subject to" qualified opinion.
B. Disclaimer of opinion
30. Which of the following circumstances normally does not affect the consistency phrase in the auditor's standard report?
A. A change in accounting estimate.
B. A change in accounting principle.
C. A change in the companies included in combined financial statements.
D. A correction of an error in principle.
32. When the client fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the information, if practicable, in the auditor's report and express a(n)
A. Qualified opinion or a disclaimer of opinion.
B. Qualified opinion or an adverse opinion.
C. Adverse opinion or a disclaimer of opinion.
D. Qualified opinion or an unqualified opinion.
33. When an auditor expresses an adverse opinion, the opinion paragraph should include
A. The principal effects of the departure from generally accepted accounting principles.
B. A direct reference to a separate paragraph disclosing the basis for the opinion.
C. The substantive reasons for the financial statements being misleading.
D. A description of the uncertainty or scope limitation that prevents an unqualified opinion.
34. An auditor would issue an adverse opinion if
A. The audit was begun by other independent auditors who withdrew from the engagement.
B. A qualified opinion cannot be given because the auditor lacks independence.
C. A restriction on the scope of the audit was significant.
D. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.
36. An auditor is reporting on cash basis financial statements. These statements are best referred to in his or her report by which one of the following descriptions?
A. Financial position and results of operations arising from cash transactions.
B. Assets and liabilities arising from cash transactions and revenue collected and expenses paid.
C. Balance sheet and income statement resulting from cash transactions.
D. Cash balance sheet and the source and application of funds.
38. Which of the following would be considered a change that does not affect consistency?
A. Change expected to have a material future effect.
B. Change in accounting principle.
C. Correction of an error in principle.
D. None of the above are considered changes that do not affect consistency.
40. The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make
A. No reference to the report or the work of the successor auditor.
B. Reference to the work of the successor auditor in the scope paragraph.
C. Reference to both the work and the report of the successor auditor in the opinion paragraph.
D. Reference to the report of the successor auditor in the scope paragraph.
42. An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s)
A. "Reasonable period of time, not to exceed one year" and "going concern."
B. "Reasonable period of time, not to exceed one year" but not "going concern."
C. "Going concern" but not "reasonable period of time, not to exceed one year."
D. Neither "going concern" nor "reasonable period of time, not to exceed one year."
44. When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to
A. Prepare prospective financial information to verify whether management's plans can be effectively implemented.
B. Project future conditions and events for a period of time not to exceed one year following the date of the financial statements.
C. Issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements.
D. Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.
46. Auditing standards define special purpose financial statements as including those prepared under the following base(s)
A. Regulatory basis.
B. Tax basis.
C. Contractual basis.
D. All of the above.
48. Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?
A. Additional emphasis.
B. Lack of consistency in the financial statements due to accounting changes.
C. Going concern.
D. Opinion based in part on the report of another auditor.
49. When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the client's financial statement?
A. When the auditor believes the financial statements are misleading.
B. When the auditor was unable to observe the taking of the physical inventory.
C. When the auditor is uncertain about the outcome of a material uncertainty.
D. When the auditor has performed insufficient auditing procedures to express an opinion.
50. A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should
A. Clearly state the specific reasons for lack of independence.
B. Not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards.
C. Not describe the reason for lack of independence but should state specifically that the CPA is not independent.
D. Include a middle paragraph clearly describing the CPA's association with the client and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.
52. The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to
A. Indicate in the auditor's report that the "other financial information" is unaudited.
B. Consider whether the "other financial information" is accurate by performing a limited review.
C. Obtain written representations from management as to the material accuracy of the "other financial information."
D. Read and consider the manner of presentation of the "other financial information."
54. When audited financial statements are presented in a client's document containing other information, the auditor should
A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B. Add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements.
C. Perform the appropriate substantive auditing procedures to corroborate the other information.
D. Read the other information to determine that it is consistent with the audited financial statements.
56. All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in a client's annual report except:
A. The auditor is under no obligation to perform audit procedures on this other information.
B. The auditor must consider whether the other information is consistent with the information contained in the audited financial statements.
C. The auditor must request that material inconsistencies be corrected.
D. The auditor must perform audit procedures on this other information.
58. An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except:
A. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
B. An opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting.
C. Reference to the note to the financial statements that describes the basis of presentation.
D. A statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles.
60. An engagement to express an opinion on a system of internal control will generally
A. Only require those procedures already applied in assessing control risk during a financial statement audit.
B. Increase the reliability of the financial statements that have already been audited.
C. Be more extensive in scope than the assessment of control risk made during a financial statement audit.
D. Be more limited in scope than the assessment of control risk made during a financial statement audit.
62. A special report related to compliance with contractual provisions provides
A. Positive assurance.
B. Negative assurance.
C. No assurance.
D. None of the above.
Sign up for free and study better.
Get started today!