Audit Exam #1

SSARS are issued by the

Accounting and Review Services Committee

The standard unmodified opinion audit report for a nonpublic entity must

Be dated

If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of

Breach of contract

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

In all cases

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

the issue in question is immaterial in amount

Which of the following is not an example of a compliance audit?

is the computerized processing of payroll at the Indian subsidiary operating effectively and efficiently?

The CPA must not subordinate his or her professional judgment to that of others in any

engagement

A bank loan officer is trying to decide whether the bank should make a loan to a particular company. The interest rate the bank will charge the company is determined by many factors. Which of the following factors is influenced by the auditor’s report?

information risk

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

i and iii

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

Provide the information in the report and modify the opinion

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

The auditor must understand the client’s business and industry

Indicate which changes would require an explanatory paragraph in the audit report: Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable ___; Change from LIFO to FIFO ___

Yes; Yes

The AICPA principles underlying an audit are organized around four principles. Which of the following is not one of those principles?

Fairness

Indicate which changes would require an explanatory paragraph in the audit report: a.        Changes in reporting entities, such as the inclusion of an additional company in the combined financial statements ___; Make reference to the work of another auditor to indicate shared responsibility in an unqualified opinion ___

Yes; No

Subsequentto the close of Spacely Sprockets fiscal year ending October 31, 2023, a major debtor has declared backrupcty 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?

qualified due to a GAAP departure

Which of the following is considered an assurance​ engagement?

Audit

Which of the following engagements is most likely to be considered an operational​ audit?

The auditor evaluates the​ organization's efficiency in processing payments.

In a financial statement​ audit, the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. To obtain reasonable​ assurance, the auditor must

obtain sufficient audit evidence.

An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with

PCAOB standards.

Which of the following provides authoritative guidance for the auditor of a nonpublic​ company?

Statements on Auditing Standards

The Public Company Accounting Oversight Board​ (PCAOB) has the duty to

conduct investigations concerning registered public accounting firms.

As compared to an unmodified​ opinion, an opinion qualified due to a material departure from generally accepted accounting principles would

indicate​ that, except for the problem​ noted, the financial statements are presented fairly.

An auditor who qualified an opinion because of an insufficiency of audit evidence should refer to the scope limitation in the

No; Yes; No

An adverse opinion and a disclaimer of opinion

both require modification of the opinion section.

The concept of materiality would be least important to an auditor when considering the

effects of a direct financial interest in the client on the​ CPA's independence

According to the​ profession's ethical​ standards, which of the following events may justify a departure from​ GAAP?

I.	New legislation.
II.	Conflicting industry practices.
III.	Evolution of a new form of business transaction.

I and III

Which of the following is not a provision of the Sarbanes-Oxley

Act of​ 2002?

Audit documentation must be maintained for five years.

Which of the following elements is required to be proven by the plaintiff to hold an accountant liable for gross negligence but not for actual​ fraud?

Reckless action

One of the elements that a plaintiff must prove to hold a CPA who signs off on financial statements in a registration statement liable for misstatements in the financial statements under Section 11 of the 1933 Act is that the

plaintiff suffered a loss.

Under the Ultramares​ rule, an accountant that negligently prepares a​ client's financial report will be liable to

persons in privity of contract with the CPA and intended third parties.

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

include the word​ "independent."

The​ auditor's responsibilities section of the standard unmodified opinion audit report states that the audit is designed to

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

The audit report date on a standard unmodified opinion audit report indicates

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

Which of the following is not explicitly stated in the standard unmodified opinion audit​ report?

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

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

included in a separate paragraph in the report

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?

all of the above

As a result of​ management's refusal to permit the auditor to physically examine​ inventory, the auditor must depart from the unmodified opinion audit report because

the scope of the audit has been restricted.

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

a reasonable user of the financial statements.

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

pervasive

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

standard unmodified opinion.

If the scope restriction imposed by the client is so material that the overall fairness of the financial statements is in​ question, the auditor should issue​ a(n)

disclaimer of opinion.

For which of the following professional services must CPAs be​ independent?

audits of financial statements

When CPAs are able to maintain their actual​ independence, it is referred to as independence in

fact

The Sarbanes-Oxley Act​ ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client.

prohibits

A CPA is subject to criminal liability to defraud another person if the CPA

is knowingly involved with false financial statements.

Critical lessons learned after analyzing major criminal cases against auditors include the fact that

an investigation of the integrity of management is an important part of deciding whether to accept a new client.

In the performance of an​ audit, a CPA

must exercise due professional care in the performance of their audit responsibilities.

If an auditor fails to fulfill a certain requirement in the​ contract, they may be guilty of

breach of contract.

The standard of due care to which the auditor is expected to adhere in the performance of the audit is referred to as the

prudent person concept.

​"Absence of reasonable care that can be expected of a person in a set of​ circumstances" defines

ordinary negligence.