Module 5 - Reporting [WILEY]

The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor

a. Obtains reasonable assurance about whether the financial statements are free of material misstatement

b. Assesses the accounting principles used and also evaluates the overall financial statement presentation.

c. Realizes some matters, either individually or in the aggregate, are important while other-matters are not important

d. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management.

a. Obtains reasonable assurance about whether the financial statements are free of material misstatement

When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a nonissuer (nonpublic) entity, the accountant generally should issue the report that is appropriate for

a. The lowest level of service rendered

b. The highest level of service rendered

c. A compilation engagement

d. A review engagement

b. The highest level of service rendered

March, CPA, is engaged by Monday Corp to audit the financial statements of Wall Corp, a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st federal bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditors report would usually be addressed to

a. Monday corp, the client that engaged March

b. Wall Corp, the entity audited by March

c. 1st Federal Bank

d. Both Monday Corp. and 1st Federal Bank

a. Monday corp, the client that engaged March

Which of the following statements is a basic element of the auditors standard report on financial statements?

a. The disclosures provide reasonable assurance that the financial statements are free of material misstatement.

b. The auditor evaluated the overall internal control and provides limited assurance on it.

c. An audit includes assessing significant estimates made by management.

d. The financial statements are consistent with those of the prior period.

c. An audit includes assessing significant estimates made by management.

For a nonpublic company, which section (paragraph) of the audit report includes a statement that the auditor believes that the evidence obtained is sufficient?

a. Introductory

b. Opinion

c. Auditor's Responsibility

d. Management's Responsibility

c. Auditor's Responsibility

For a nonpublic company audit report, a statement that the auditor has audited the financial statements followed by the titles of the financial statements is included in the

a. Managements responsibility section of the audit report

b. The opening paragraph of the auditors standard report

c. the auditors responsibility section of the audit report

d. The opinion paragraph of the auditors standard report

b. The opening paragraph of the auditors standard report

How does an auditor make the following representations when issuing the standards public company auditors report on comparative financial statements?

Examination of Evidence on a Test Basis Consistent application of acct. principles

a. Explicitly Explicitly

b. Implicitly Implicitly

c. Implicitly Explicitly

d. Explicitly Implicitly

d. Explicitly Implicitly

Which of the following best describes the reference to the expression "taken as a whole" in the PCAOB's audit reporting standards?

a. They apply equally to a complete set of financial statements and to each individual financial statement

b. They apply only to a complete set of financial statements

c. They apply equally to each item in each financial statement

d. They apply equally to each material item in each financial statement

a. They apply equally to a complete set of financial statements and to each individual financial statement

A financial statement audit report issued for the audit of an issuer (public) company concludes that the financial statements follow

a. GAAP

b. PCAOB standards

c. GAAS

d. IAS

a. GAAP

Which of the following is not correct concerning information included in an audit report of the financial statements issued under the requirements of the PCAOB?

a. The report should include the title "Report of Independent Registered Public Accounting Firm."

b. The report should refer to the standards of the PCAOB

c. The report should include a paragraph referring to the auditor's report on compliance with laws and regulations

d. The report should contain the city and state or country of the office that issued the report.

c. The report should include a paragraph referring to the auditor's report on compliance with laws and regulations

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 emphasis of matter paragraph that specifically uses the phrase(s)

"reasonable period of time, not to exceed 1 year" "Going Concern"

a. Yes Yes

b. Yes No

c. No yes

d. No No

c. No yes

Mead, CPA, had substantial doubt about Tech Co's ability to continue as a going concern when reporting on Tech's audited financial statements for the year ended June 30, 20XI. That doubt has been removed in 20X2. What is Mead's reporting responsibility if Tech is presenting its financial statements for the year ended June 30, 20X2, on a comparative basis with those of 20X1?

a. The emphasis of matter paragraph included in the 20XI auditors report should not be repeated

b. The emphasis- of matter paragraph included in the 20XI auditors report should be repeated in its entirety

c. A different emphasis of matter paragraph describing Mead's reasons for removal of doubt should be included.

d. A different emphasis of matter paragraph describing Techs plans for financial recovery should be included.

a. The emphasis of matter paragraph included in the 20XI auditors report should not be repeated

When an auditor concludes there is substantial doubt about a continuing audit clients ability to continue as a going concern for a reasonable period of time the auditors responsibility is to

a. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.

b. Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.

c. Report to the client's audit committee that managements accounting estimates may need to be adjusted.

d. Reissue the prior years auditors report and add an emphasis of matter paragraph that specifically refers to substantial doubt and going concern

b. Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.

Green, CPA, concludes that there is substantial doubt about JKL's ability to continue as a going concern. If JKL's financial statements adequately disclose its financial difficulties, Green's auditors report should

a. Yes Yes Yes

b. Yes Yes NO

c. Yes No Yes

d. No Yes Yes

a. Yes Yes Yes

In which of the following circumstances would an auditor most likely add an emphasis of matter paragraph to the audit report while not affecting the auditor's unmodified opinion?

a. The auditor is asked to report on the balance sheet, but not on the other basic financial statements.

b. There is substantial doubt about the entity's ability to continue as a going concern

c. Managements estimates of the effects of future events are unreasonable.

d. Certain transactions cannot be tested because of managements records retention policy.

b. There is substantial doubt about the entity's ability to continue as a going concern

After considering an entity's negative trends and financial difficulties an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditors considerations relating to managements plans for dealing with the adverse effects of these conditions most likely would include managements plans to

a. Increase current dividend distributions.

b. reduce existing lines of credit.

c. Increase ownership equity.

d. Purchase assets formerly leased.

c. Increase ownership equity.

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 denied.

c. Arrearages in preferred stock dividends are paid.

d. Restrictions on the disposal of principal assets are present.

b. Usual trade credit from suppliers denied.

Cooper, CPA, believes there is substantial doubt about the ability of Zero Corp. to continue as a going concern for a reasonable period of time. In evaluating Zero's plans for dealing with the adverse effects of future conditions and events, Cooper most likely would consider, as a mitigating factor, Zero's plans to

a. Discuss with lenders the terms of all debt and loan agreements

b. Strengthen controls over cash disbursements.

c. Purchase production facilities currently being leased from a related party.

d. Postpone expenditures for research and development.

d. Postpone expenditures for research and development.

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 postponed.

c. Significant related-party transactions are pervasive.

d. Stock dividends replace annual cash dividends.

a. Cash flows from operating activities are negative.

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 3rd 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

b. Confirming with 3rd parties the details of arrangements to maintain financial support

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

a. review compliance with the terms of debt agreements

b. confirmation of accounts receivable from principal customers

c. Reconciliation of interest expense with debt outstanding

d. confirmation of bank balances.

a. review compliance with the terms of debt agreements

Davis, CPA, believes there is substantial doubt about the ability of Hill Co. to continue as a going concern for a reasonable period of time. In evaluating Hill's plans for dealing with the adverse effects of future conditions and events, Davis most likely would consider, as a mitigating factor, Hill's plans to

a. Accelerate research and development projects related to future products

b. accumulate treasury stock at prices favorable to Hill's historic price range.

c. Purchase equipment and production facilities currently being leased.

d. Negotiate reductions in required dividends being paid on preferred stock.

d. Negotiate reductions in required dividends being paid on preferred stock.

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the

a. ability to expand operations into new product lines in the future.

b. Feasibility of plans to purchase leased equipment at less than market value

c. Marketability of assets that management plans to sell.

d. Committed arrangements to convert preferred stock to long-term debt.

c. Marketability of assets that management plans to sell.

For which of the following events would an auditor issue a report that omits 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 useful life used to calculate the provision for depreciation expense.

d. Managements lack of reasonable justification for a change in accounting principle.

c. A change in the useful life used to calculate the provision for depreciation expense.

An auditor would express an unmodified opinion and add an emphasis of matter paragraph for

I. An unjustified accounting change

II. A material weakness in the internal control

a. Yes Yes

b. Yes No

c. No Yes

d. No No

d. No No

Under which of the following circumstances would a disclaimer of opinion not be appropriate?

a. The auditor is unable to determine the amounts associated with an employee fraud scheme

b. Management does not provide reasonable justification for a change in accounting principles

c. The client refuses to permit the auditor to confirm certain accounts receivable or apply alternative procedures to verify their balance.

d. The CEO is unwilling to sign the management representation letter.

b. Management does not provide reasonable justification for a change in accounting principles

Digit Co. uses the FIFO method of costing for its international subsidiary's inventory and LIFO for its domestic inventory. Under these circumstances, the auditor's report on Digit's financial statements should express an

a. Unmodified opinion.

b. Opinion qualified because of lack of consistency.

c. Opinion qualified because of a departure from GAAP

d. Adverse Opinion

a. Unmodified opinion.

In the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. Under these circumstances, the auditor should

a. Not report on the clients income statement.

b. Not refer to consistency in the auditor's report.

c. State that the consistency standard does not apply.

d. State that the accounting principles have been applied consistently.

b. Not refer to consistency in the auditor's report.

When management does not provide reasonable justification that a change in accounting. Principle is preferable and it presents comparative financial statements, the auditor should express a qualified opinion

a. Only in the year of the accounting principle change

b. Each year that the financial statements initially reflecting the change are presented.

c. Each year until management changes back to the accounting principle formerly used.

d. Only if the change is to an accounting principle that is not generally accepted.

b. Each year that the financial statements initially reflecting the change are presented.

When an entity changes its method of accting. For income taxes, which has a material effect on comparability the auditor should refer to the change in an emphasis of matter paragraph added to the auditors report. This paragraph should identify the nature of the change and

a. Explain why the change is justified under generally accepted accounting principles.

b. Describe the cumulative effect of the change on the audited financial statements

c. State the auditors explicit concurrence with or opposition to the change.

d. Refer to the financial statement note that discusses the change in detail.

d. Refer to the financial statement note that discusses the change in detail.

An entity changed from the straight line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current years financial statements, but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)

a. "Except for" qualified opinion

b. Emphasis-of-matter paragraph

c. Unmodified opinion

d. Consistency modification

c. Unmodified opinion

An uncertainty facing the firm relating to the possible future results of litigation filed against is most likely to result in which of the following types of audit report?

a. adverse with a basis for adverse opinion paragraph.

b. qualified due to a scope limitation

c. Qualified with a basis for qualification paragraph

d. Unqualified with emphasis of matter paragraph

d. Unqualified with emphasis of matter paragraph

Wilson, CPA, completed gathering sufficient appropriate audit evidence for the audit of Abco's December 31, 20X8 financial statements on March 6, 20X9. A subsequent event requiring adjustment to the 20X8 financial statements occurred on April 10, 20X9 and came to Wilson's attention on April 24, 20X9. If the adjustment is made without disclosure of the event, Wilson's report ordinarily should be dated

a. March 6, 20X9

b. April 10, 20X9

c. April 24, 20X9

d. Using dual dating.

a. March 6, 20X9

An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was

a. Extended to subsequent events occurring through the date of issuance of the report

b. Extended to include all events occurring since the completion of fieldwork.

c. Limited to the specific event referenced.

d. Limited to include only events occurring up to the date of eh last subsequent event referenced

c. Limited to the specific event referenced.

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 unmodified opinion

d. Is appropriate and would not negate the unmodified opinion

Which of the following phrases should be included in the opinion paragraph when an auditor expresses a qualified opinion?

I. When read in conjunction with Note X

II. With the foregoing explanation

a. yes no

b. no yes

c. Yes Yes

d. No No

d. No No

An auditor may not issue a qualified opinion when

a. an accounting principle at variance with GAAP is used

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

c. A scope limitation prevents the auditor from completing an important audit procedure

d. The auditors report refers to the work of a specialist.

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

When an auditor expresses an adverse opinion, the opinion paragraph should include

a. The principal effects of the departure from GAAP

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 unmodified opinion.

b. A direct reference to a separate paragraph disclosing the basis for the opinion.

An auditor concludes that a clients illegal act, which has a material effect on the financial stmts. has not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements, the auditor should express either a(n)

a. Adverse opinion or disclaimer of opinion

b. Qualified opinion or an adverse opinion

c. Disclaimer of opinion or an unmodified opinion with a separate emphasis of matter paragraph

d. Unmodified opinion with a separate emphasis of matter paragraph or a qualified opinion.

b. Qualified opinion or an adverse opinion

Which of the following phrases would an auditor most likely include in the auditor report when expressing a qualified opinion because of inadequate disclosure?

a. Subject to the departure from US GAAP, as described above.

b. With the foregoing explanation of these omitted disclosures

c. Except for the omission of the information discussed in the preceding paragraph

d. Does not present fairly in all material respects.

c. Except for the omission of the information discussed in the preceding paragraph

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

a. The CEO refuses the auditor access to minutes of the BOD meetings

b. Tests of controls show that the entity's internal control is so poor that it cannot be relied upon.

c. The financial statements are not in conformity with a FASB requirement regarding the capitalization of leases.

d. Information comes to the auditors attention that raises substantial doubt about the entity's ability to continue as a going concern.

c. The financial statements are not in conformity with a FASB requirement regarding the capitalization of leases.

When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a basis for qualification paragraph and modify the

I. Intro Paragraph

II. Auditor Responsibility Paragraph

III. Opinion Paragraph

a. Yes No No

b. Yes Yes No

c. No Yes Yes

d. No No Yes

d. No No Yes

If a publicly held company issues financial stmts. that purport to present its financial position and results of operations but omits the stmt. of cash flows, which of the following types of opinion is most likely to be appropriate?

a. Disclaimer opinion

b. Qualified opinion

c. Review report with negative assurance.

d. Unmodified opinion with a separate emphasis of matter paragraph

b. Qualified opinion

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or 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 stmts. fail to disclose information that is required by generally accepted accounting principles.

c. The auditor is asked to report only on the entity's balance sheet and not on the other basis financial stmts.

d. Events disclosed in the financial statements cause the auditor to have substantial doubt about an entity's ability to continue as a going concern

b. The financial stmts. fail to disclose information that is required by generally accepted accounting principles.

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

a. The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures

b. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed

c. There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements

d. The auditor is unable to apply necessary procedures concerning an investors share of an investees earnings recognized on the equity method.

b. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year...If the amounts in question could materially affect current operating results, the auditor would

a. Be unable to express an opinion on the current years results of operation and cash flows.

b. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.

c. Withdraw from the engagement and refuse to be associated with the financial statements.

d. Specifically state that the financial statements are not comparable to the prior year due to an uncertainty

a. Be unable to express an opinion on the current years results of operation and cash flows.

In which of the following circumstances would an auditor not express an unmodified opinion?

a. There has been a material change between periods in accounting principles.

b. quarterly financial data required by the SEC has been omitted.

c. The auditor wishes to emphasize an unusually important subsequent event.

d. The auditor is unable to obtain audited financial statements of a consolidated investee.

d. The auditor is unable to obtain audited financial statements of a consolidated investee.

Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor's report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is

a. Not appropriate because it may tend to overshadow the auditors disclaimer of opinion

b. Not appropriate bc the auditor is prohibited from reporting on only one basic financial stmt

c. Appropriate provided the auditors scope paragraph adequately describes the scope limitation

d. Appropriate providing the statement is in a separate paragraph preceding the disclaimer of opinion paragraph

a. Not appropriate because it may tend to overshadow the auditors disclaimer of opinion

Park, CPA, was engaged to audit the financial statements of Tech Co. for the year ended December 31, 2009...Park could not verify Tech's January 1, 2009 inventory balances. Parks opinion on Tech's 2009 financial statements most likely will be

Balance Sheet Income Statement

a. Disclaimer Disclaimer

b. Unmodified Disclaimer

c. Disclaimer Adverse

d. Unmodified Adverse

b. Unmodified Disclaimer

An auditor who qualified an opinion because of an insufficiency of audit evidence should describe the limitations in a basis for modification paragraph. The auditor should also refer to the limitation in the

I. Auditors responsibility section

II. Opinion Paragraph

III. Notes to the Fin. Stmts.

a. Yes No Yes

b. No Yes No

c. Yes Yes No

d. Yes Yes Yes

c. Yes Yes No

Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co...Harris will have access to all information underlying the basic financial statements. Under these circumstances, Harris may

a. Not accept the engagement bc it would constitute a violation of the professions ethical standards

b. Not accept the engagement b/c it would be tantamount to rendering a piecemeal opinion

c. Accept the engagement because such engagements merely involve limited reporting objectives.

d. Accept the engagement but should disclaim an opinion b/c of an inability to apply the procedures considered necessary.

c. Accept the engagement because such engagements merely involve limited reporting objectives.

When disclaiming an opinion due to a client an opinion due to a client-imposed scope limitation on a nonpublic company's financial stmts. an auditor should indicate in a separate paragraph why the audit did not comply with generally accepted auditing standards. The auditor should also omit which of the two sections below?

Auditor Responsibility Opinion

a. No Yes

b. yes yes

c. Yes No

d. No No

d. No No

An auditor decides to issue a qualified opinion on an entity's financial stmts. bc a major inadequacy in its computerized accting. Records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditors report should state that the qualification pertains to

a. A client-imposed scope limitation

b. A departure from generally accepted auditing standards

c. The possible effects on the financial statements

d. Inadequate disclosure of necessary information.

c. The possible effects on the financial statements

A scope limitation sufficient to preclude an unmodified opinion always will result when management

a. Prevents the auditor from reviewing the working papers of the predecessor auditor.

b. Engages the auditor after the year-end physical inventory is completed.

c. Requests that certain material accounts receivable not be confirmed

d. Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP

d. Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP

An auditor concludes that extreme doubt exists about the integrity of management and the representations obtained from management relating to the fairness of the financial statements and the completeness of the record of transactions. If the auditor retains the clients, which audit report is most likely to be appropriate?

a. Unmodified with emphasis of matter paragraph

b. Standard unmodified

c. disclaimer

d. adverse

c. disclaimer

In which of the following situations would an auditor ordinarily issue an unmodified audit opinion without an emphasis-of-matter paragraph?

a. The auditor wishes to emphasize that the entity had significant related-party transactions.

b. The auditor decides to make reference to the report of an auditor who audited a component of group financial statements.

c. The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows.

d. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.

b. The auditor decides to make reference to the report of an auditor who audited a component of group financial statements.

A group engagement partner decides not to refer to the audit of another CPA who audited a component of the overall group financial statements. After making inquiries about the other CPA's professional reputation and independence, the principal auditor most likely would

a. Add an emphasis-of-matter paragraph to the auditor's report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.

b. Document in the engagement letter that the principal auditor assumes no responsibility for the other CPA's work and opinion.

c. Obtain written permission from the other CPA to omit the reference in the principal auditor's report.

d. Perform additional audit procedures based on the significance of the subsidiary.

d. Perform additional audit procedures based on the significance of the subsidiary.

The auditor's responsibility section of a nonpublic company's auditor's report contains the following sentences: We did not audit the financial statements of EZ Inc., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 27% and 29%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion,

In so far as it relates to the amounts included for EZ Inc., is based solely on the report of the other auditors.

These sentences

a. Indicate a division of responsibility.

b. Assume responsibility for the other auditor.

c. Require a departure from an unmodified opinion.

d. Are an improper form of reporting

a. Indicate a division of responsibility.

An auditor may issue the standard audit report when the

a. Auditor refers to the findings of a specialist.

b. Financial statements are derived and summarized from complete audited financial statements that are filed with a regulatory agency.

c. Financial statements are prepared on the cash receipts and disbursements basis of accounting.

d. Group engagement partner assumes responsibility for the work of a component auditor.

d. Group engagement partner assumes responsibility for the work of a component auditor.

In the auditor's report, the group engagement partner decides not to make reference to a component auditor who audited a client's subsidiary. The group engagement partner could justify this decision if, among other requirements, he or she

a. Issues an unmodified opinion on the consolidated financial statements.

b. Learns that the component auditor issued an unmodified opinion on the subsidiary's financial statements.

c. Is unable to review the audit plan (programs) and working papers of the component auditor.

d. Is satisfied as to the independence and professional reputation of the other CPA.

d. Is satisfied as to the independence and professional reputation of the other CPA.

When financial statements of a company that follows GASB standards would be misleading due to unusual circumstances depart from those standards, the auditor should explain the unusual circumstances in a separate paragraph and express an opinion that is

a. Unmodified.

b. Qualified.

c. Adverse.

d. Qualified or adverse, depending on materiality.

a. Unmodified.

A client follows US GAAP for its domestic operations and foreign GAAP for a foreign subsidiary. The foreign subsidiary is audited by a component auditor, while the group auditor audits the remainder of the corporation and issues an audit report on consolidated operations.

Which auditor(s) is (are) responsible for evaluating the appropriateness of the adjustment of the foreign GAAP statements to US GAAP?

I. Group auditor

II. Component auditor

a. Yes Yes

b. Yes No

c. No Yes

d. No No

b. Yes No

In May 20X9, an auditor reissues the auditor's report on the 20X7 financial statements at a continuing client's request. The 20X7 financial statements are 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 period auditor's report date on the reissued report.

c. Use the original report date on the reissued report.

When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion on the prior year's financial statements if the

a. Prior year's financial statements are restated to conform with generally accepted accounting principles.

b. Auditor is a predecessor auditor who has been requested by a former client to reissue the previously issued report.

c. Prior year's opinion was unmodified and the opinion on the current year's financial statements is modified due to a lack of consistency.

d. Prior year's financial statements are restated following a pooling of interests in the current year.

a. Prior year's financial statements are restated to conform with generally accepted accounting principles.

Jewel, CPA, audited Infinite Co.'s prior year financial statements. These statements are presented with those of the current year for comparative purposes without Jewel's auditor's report, which expressed a qualified opinion. In drafting the current year's auditor's report, Crain, CPA, the successor auditor, should

I. Not name Jewel as the predecessor auditor.

II. Indicate the type of report issued by Jewel.

III. Indicate the substantive reasons for Jewel's qualification.

a. I only.

b. I and II only.

c. II and III only.

d. I, II, and III.

d. I, II, and III.

Before reissuing the prior year's auditor's report on the financial statements of a former client, the predecessor auditor should obtain a letter of representations from the

I. Former client's management

II. Successor auditor

a. Yes Yes

b. Yes No

c. No Yes

d. No No

a. Yes Yes

When single-year financial statements are presented, an auditor ordinarily would express a standard audit report if the

a. Auditor is unable to obtain audited financial statements supporting the entity's investment in a foreign affiliate.

b. Entity declines to present a statement of cash flows with its balance sheet and related statements of income and retained earnings.

c. Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of the prior year.

d. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented.

d. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented.

A client is presenting comparative (two-year) financial statements. Which of the following is correct concerning reporting responsibilities of a continuing auditor?

a. The auditor should issue one audit report that is on both presented years.

b. The auditor should issue two audit reports, one on each year.

c. The auditor should issue one audit report, but only on the most recent year.

d. The auditor may issue either one audit report on both presented years, or two audit reports, one on each year.

a. The auditor should issue one audit report that is on both presented years.

The predecessor auditor, who is satisfied 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. Reference to the report of the successor auditor only in the scope paragraph.

b. Reference to the work of the successor auditor in the scope and opinion paragraphs.

c. Reference to both the work and the report of the successor auditor only in the opinion paragraph.

d. No reference to the report or the work of the successor auditor.

d. No reference to the report or the work of the successor auditor.

Compiled financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status and

I. The report on the prior period should be reissued to accompany the current period report.

II. The report on the current period should include as a separate paragraph a description of the responsibility assumed for the prior period's financial statements.

a. I only.

b. II only.

c. Both I and II.

d. Either I or II.

d. Either I or II.

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may

a. Revise the auditor's report to include a separate emphasis-of-matter paragraph describing the material inconsistency.

b. Issue an "except for" qualified opinion after discussing the matter with the client's board of directors.

c. Consider the matter closed since the other information is not in the audited financial statements.

d. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate basis for disclaimer paragraph.

a. Revise the auditor's report to include a separate emphasis-of-matter paragraph describing the material inconsistency.

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 emphasis-of-matter 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.

d. Read the other information to determine that it is consistent with the audited financial statements.

An auditor may express an opinion on an entity's accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole provided the

a. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the financial statements.

b. Distribution of the report on the accounts receivable is restricted to internal use only.

c. Auditor also reports on the current asset portion of the entity's balance sheet.

d. Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.

d. Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.

In an audit of a nonissuer company, which statement is correct concerning required supplementary information by a designated accounting standards setter?

a. The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.

b. The auditor's only responsibility for required supplementary information is to determine that such information has not been omitted.

c. The auditor should apply certain limited procedures to the required supplementary information, and report deficiencies in, or omissions of, such information.

d. The auditor should apply tests of details of transactions and balances to the required supplementary information, and report any material misstatements in such information.

c. The auditor should apply certain limited procedures to the required supplementary information, and report deficiencies in, or omissions of, such information.

If management declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a(n)

a. Adverse opinion.

b. Qualified opinion with an other-matter paragraph.

c. Unmodified opinion.

d. Unmodified opinion with an additional other-matter paragraph.

d. Unmodified opinion with an additional other-matter paragraph.

If an auditor is asked to provide an opinion relating to information accompanying the financial statements in a document, the opinion will ordinarily be upon whether the information is fairly stated in

a. Accordance with US generally accepted auditing standards

b. Conformity with US generally accepted accounting principles

c. All material respects in relation to the basic financial statement taken as a whole

d. Accordance with attestation standards expressing a conclusion about management's assertions.

c. All material respects in relation to the basic financial statement taken as a whole

Which of the following statements is correct concerning an auditor's responsibility for controlling the distribution by the client of a restricted-use report?

a. An auditor must make clear to the client that it is illegal to distribute such a report beyond to specific parties.

b. When an auditor is aware that a client has distributed a restricted-use-report to inappropriate third parties the auditor should immediately inform the client to cease and desist.

c. An auditor controls distribution through insisting that the client not duplicate the restricted-use report for any purposes.

d. An auditor is not responsible for controlling the distribution of such reports.

d. An auditor is not responsible for controlling the distribution of such reports.

Which of the following types of reports is most likely to include an alert as to its use being restricted to certain specified parties?

a. Audit report.

b. Review report.

c. Compilation report.

d. Agreed-upon procedures report.

d. Agreed-upon procedures report.

Which of the following is least likely to be a restricted use report?

a. A report on internal control significant deficiencies noted in an audit.

b. A required communication with the audit committee.

c. A report on financial statements prepared following a financial reporting framework other than generally accepted accounting principles.

d. A report on compliance with aspects of contractual agreements.

c. A report on financial statements prepared following a financial reporting framework other than generally accepted accounting principles.

An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should

a. Be accompanied by the auditor's original report on the prior year's financial statements.

b. Continue to express a qualified opinion on the prior year's financial statements.

c. Make no reference to the type of opinion expressed on the prior year's financial statements.

d. Express an unmodified opinion on the restated financial statements of the prior year.

d. Express an unmodified opinion on the restated financial statements of the prior year.

Before reporting on the financial statements of a US entity that have been prepared in conformity with another country's accounting principles, an auditor practicing in the US should

a. Understand the accounting principles generally accepted in the other country.

b. Be certified by the appropriate auditing or accountancy board of the other country.

c. Notify management that the auditor is required to disclaim an opinion on the financial statements.

d. Receive a waiver from the auditor's state board of accountancy to perform the engagement.

a. Understand the accounting principles generally accepted in the other country.

The financial statements of KCP American, a US entity are prepared for inclusion in the consolidated financial statements of it non-US parent. These financial statements are prepared in conformity with the accounting principles generally accepted in the parent's country and are for use only in that country. How many KCP America's auditor report on these financial statements?

I. A US-style report (unmodified).

II. A US-style report modified to report on the accounting principles of the parent's country.

III. The report form of the parent's country.

a. I. Yes II. No III. No

b. I. No II. Yes III. No

c. I. Yes II. No III. Yes

d. I. No II. Yes III. Yes

d. I. No II. Yes III. Yes

An auditor of a nonpublic company should disclose the substantive reasons for expressing an adverse opinion in a basis for modification paragraph

a. Preceding the auditor's responsibility section

b. Preceding the opinion section.

c. Following the opinion section.

d. Within the notes to the financial statements.

b. Preceding the opinion section.

When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should

a. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.

b. Not express an opinion on whether the statements are presented in conformity with the financial reporting framework used.

c. Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.

d. State that the basis of presentation is a financial reporting framework other than GAAP.

d. State that the basis of presentation is a financial reporting framework other than GAAP.

Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Green audited the financial statements in accordance with generally accepted auditing standards and concluded that the financial statements were fairly presented on the prescribed basis. Green should issue a report with a(n)

a. Qualified opinion.

b. Adverse opinion.

c. Disclaimer of opinion.

d. Unmodified opinion.

d. Unmodified opinion.

An auditor's report on financial statements prepared in conformity with the cash basis of accounting should include a separate emphasis-of-matter paragraph that

a. Justifies the reasons for departing from generally accepted accounting principles.

b. States whether the financial statements are fairly presented in conformity with GAAP.

c. Refers to the note to the financial statements that describes the basis of accounting.

d. Explains how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles.

c. Refers to the note to the financial statements that describes the basis of accounting.

An auditor's report would refer to a basis of accounting other than GAAP in which of the following situations?

a. Interim financial information of a publicly held company that is subject to a limited review.

b. Compliance with aspects of regulatory requirements related to audited financial statements.

c. Application of accounting principles to specified transactions.

d. Limited use prospective financial statements such as a financial projection.

b. Compliance with aspects of regulatory requirements related to audited financial statements.

Delta Life Insurance Co. prepared its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta's auditor, discovers that the statements are not suitably titled, Wall should

a. Disclose any reservations in an emphasis-of-matter paragraph and qualify the opinion.

b. Apply to the state insurance commission for an advisory opinion.

c. Issue a special statutory basis report that clearly disclaims any opinion.

d. Explain in the notes to the financial statements the terminology.

a. Disclose any reservations in an emphasis-of-matter paragraph and qualify the opinion.

Financial information is presented in a printed form that prescribes the wording of the independent auditor's report. The form is not acceptable to the auditor because the form calls for statements that are inconsistent with the auditor's responsibility. Under these circumstances, the auditor most likely would

a. Withdraw from the engagement.

b. Reword the form or attach a separate report.

c. Express a qualified opinion with an explanation.

d. Limit distribution of the report to the party who designed the form.

b. Reword the form or attach a separate report.

Field is an employee of Gold enterprises. Hardy, CPA, is asked to express and opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if

a. Hardy also audits Gold's complete financial statements.

b. Gold's financial statements are prepared in conformity with GAAP.

c. Hardy's report is available for distribution to Gold's employees.

d. Field owns controlling interest in Gold.

a. Hardy also audits Gold's complete financial statements.

A CPA is permitted to accept a separate engagement (NOT in conjunction with an audit of financial statements) to audit an entity's ( Schedule of accounts receivable, Schedule of royalties)

A. Yes, Yes

B. Yes, No

C. No, Yes

D. No, No

A. Yes, Yes

In an accountant's review of interim financial information, the accountant typically performs each of the following, EXCEPT

A. Reading the available minutes of the latest stockholders' meeting.

B. Applying financial ratios to the interim financial information.

C. Inquiring of the accounting department's management.

D. Confirming major receivable accounts.

D. Confirming major receivable accounts.

When an independent CPA has reviewed the interim financial statements of a public client, which procedure is least likely to have been performed?

A. Obtaining written representations from management for all interim financial information presented.

B. Observing the interim count of inventory

C. Reading the financial statements for obvious material misstatements.

D. Performing analytical procedures related to sales.

B. Observing the interim count of inventory

The objective of a review of interim financial information of a public entity (issuer) is to provide an accountant with a basis for reporting whether

A. Material modifications should be made to conform with generally accepted accounting principles.

B. A reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited.

C. Summary financial statements or pro forma financial information should be included in a registration statement.

D. The financial statements are presented fairly in accordance with generally accepted accounting principles.

A. Material modifications should be made to conform with generally accepted accounting principles.

An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the

A. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.

B. Accountant assumes NO responsibility to update the report for events and circumstances occurring after the date of the report.

C. Accountant's review was performed in accordance with standards established by the Securities and Exchange Commission.

D. Accountant obtained corroborating evidence to determine whether material modifications are needed for such information to conform with GAAP.

A. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.

A modification of the CPA's report on a review of the interim financial statements of a publicly held company would be necessitated by which of the following?

A. An uncertainty.

B. Lack of consistency

C. Reference to another accountant.

D. Inadequate disclosure.

D. Inadequate disclosure.

Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity?

A. Verify changes in key account balances.

B. Read the minutes of the board of directors' meetings.

C. Inspect the open purchase order file.

D. Perform cut-off tests for cash receipts and disbursements.

B. Read the minutes of the board of directors' meetings.

Which of the following is least likely to be a procedure included in an accountant's review of interim financial information of a public entity?

A. Compare disaggregated revenue data by month to that of the previous interim period

B. Read available minutes of meetings of stockholders.

C. Observe counting of physical inventory.

D. Inquire of management concerning significant journal entries and other adjustments.

C. Observe counting of physical inventory.

An accountant's review report on interim financial information of a public entity is MOST likely to include a

A. Statement that the interim financial information was examined in accordance with standards of the Public Company Accounting Oversight Board.

B. Statement that the interim financial information is the responsibility of the entity's shareholders.

C. Description of the procedures for a review.

D. Statement that a review of interim financial information is less in scope than a compilation conducted in accordance with AICPA standards.

C. Description of the procedures for a review.

An auditor may report on summary financial statements that are derived from complete financial statements if the

A. Summary financial statements are distributed to stockholders along with the complete financial statements.

B. Auditor described the additional procedures performed on the summary financial statements.

C. Auditor indicates whether the information in the summary financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.

D. Summary financial statements are presented in comparative form with the prior year's summary financial statements.

C. Auditor indicates whether the information in the summary financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.