A1 - Audit Reports Flashcards by Kenneth Urquhart-Green

The most authoritative guidance for auditor of a non-issuer?

A) AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client’s industry

B) Journal of Accountancy article discussing implementation of new standard

C) General guidance provided by Statement of auditing standards

D) Specific guidance provided by interpretation of a Statement on Auditing Standards

C) General guidance provided by Statement of auditing standards

General Accepted Auditing Standards (GAAS) hierarchy stands:
1. Statement of auditing standards (SAS) & Auditing Standards board (ASB) (NONISSUER) and PCAOB (Public Company Accounting Oversight Board) for ISSUERS is at the top
2. Interpretive Publications
3. Other auditing publications

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Which best describes Generally accepted auditing standards (GAAS) ?

A) rules acknowledged by accounting professions because of universal application
B) pronouncements issued by the Auditing Standards Board
C) Measures of the quality of the auditors performance
D) Procedures to be used to gather evidence to support financial statements

C) Measures of the quality of the auditors performance

No to “Rules”

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U.S. Generally Accepted Accounting Principles (GAAP):

A) Includes broad guidelines of general application but not detailed practices and procedures

B) encompasses convections, rules and procedures necessary to define US accepted accounting practice at a particular time

C) provides a measure of conventions, rules and procedures governed by AICPA

D) included in the audit report to indicate that the audit has been conducted in accordance with GAAS

B) encompasses convections, rules and procedures necessary to define US accepted accounting practice at a particular time

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Which term used in standards indicates “Presumptively mandatory requirement”

A) must
B) should
C) may
D) might

B) should

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Which term used in standards indicates “Unconditional requirement”

A) must
B) should
C) may
D) might

A) must

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Which term used in standards indicates “Explanatory material that does not impose professional requirement for performance”

A) must
B) should
C) may
D) might

C or D:

C) may
D) might

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Which is NOT an example of application of professional skepticism?

A) designing additional auditing procedures to obtain more reliable evidence in support of a particular financial statement assertion

B) Obtaining corroboration of managements explanations through consultation with a specialist

C) inquiring of prior year engagement personnel regarding managements honesty and integrity

D) using 3rd party confirmations to provide support for managements representations

C) inquiring of prior year engagement personnel regarding managements honesty and integrity

Assessment of prior year would not be relevant for current year’s audit

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Responsibilities of an auditor include all of the following except:

A) appropriate competence and capabilities to perform the audit
B) minimum amount of technical knowledge and experience in the industry
C) complying with relevant ethical requirements
D) maintaining skepticism and exercising professional judgement through planing and performance

B) minimum amount of technical knowledge and experience in the industry

Technical knowledge can be developed, and experience in the industry is not required

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In order to express an opinion, the auditor obtains a level of assurance about whether the financial statement are free from material misstatement, whether due to error or fraud. Which of the following is required of the auditor in obtaining this level of assurance?

A) plan the work and properly supervise assistance
B) obtain absolute assurance that the financial statement are not misstated due to fraud on the part of management
C) determine the applicable financial reporting framework and prepare an adequate description of the framework for inclusion in the FS
D) exercise specific legal powers and authority in investigating suspicious activities of the entity’s employees including management

A) plan the work and properly supervise assistance. This is what’s needed to obtain reasonable assurance

Also apply materiality levels, identify and assess risk, and obtain sufficient audit evidence

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Which term identifies a requirement for audit evidence?

A) appropriate
B) adequate
C) reasonable
D) disconfirming

A) appropriate

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Which term describes the type of assurance gained by auditor as the basis for opinion?

A) appropriate
B) adequate
C) reasonable
D) disconfirming

C) reasonable

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Auditor of non-issuer concludes that an illegal act, which has a material effect on the FS, has NOT been properly accounted for or disclosed. Depending on pervasiveness of the effect on the FS, the auditor should express an

A) adverse opinion or disclaimer of opinion
B) qualified or adverse opinion
C) disclaimer of opinion or unmodified opinion with emphasis of matter paragraph
D) unmodified opinion with other matter paragraph or qualified opinion

B) qualified or adverse opinion

Applies for illegal act, and has material effect on FS

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If comparative information is presented in a nonissuer FS and audit client ask she auditor to express an option on all periods presented, then the auditor should

A) consider whether the information included for the prior period contains sufficient detail to consitiute a fair presentation in accordance with applicable financial reporting framework

B) request additional written representation from management identifying the substantive reasons that the entity wants to have an opinion, including prior period info

C) issue a separate audit report on the prior period information with an appropriate expression of opinion

D) consider including an additional paragraph in the audit report disclosing the request by management for the auditor to express an opinion including the prior period information

A) consider whether the information included for the prior period contains sufficient detail to consitiute a fair presentation in accordance with applicable financial reporting framework

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For generally accepted auditing standards, a modified opinion refers to:

A) Qualified opinion - YES, Unmodified opinion with EOM paragraph - YES
B) Qualified opinion - YES, Unmodified opinion with EOM paragraph - NO
C) Qualified opinion - NO, Unmodified opinion with EOM paragraph - YES
D) Qualified opinion - NO, Unmodified opinion with EOM paragraph - NO

B) Qualified opinion - YES, Unmodified opinion with EOM paragraph - NO

Modified opinion includes - qualified, adverse or disclaimer of opinion
Unmodified opinion is NOT modified

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Client’s fixed asset experienced significant impairment loss, but client refuses to record the loss. Which opinion to note if the loss is material, BUT NOT PERVASIVE to the FS?

A) Unmodified
B) Qualified
C) adverse
D) disclaimer

B) Qualified

Qualified - material departure from GAAP, but NOT PERVASIVE
Unmodified - FS presented fairly
Adverse - misstatement is BOTH MATERIAL AND PERVASIVE
Disclaimer opinion - scope limitations are present to inhibit the auditor from issuing an opinion

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When FS contains a departure from US GAAP, becuase, due to unusual circumstances, the FS would otherwise be misleading, the auditor should express:

A) unmodified
B) qualified
C) adverse
D) qualified or adverse, depending on pervasiveness

A) unmodified

Trick question: Unusual circumstances, the FS WOULD BE OTHERWISE MISLEADING = presented fairly

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Opinion paragraph in auditors report for nonissuer includes a statement that:

A) includes the word “Independent” to indicate that the report is from independent auditor
B) describe the auditors responsibility for expressing an opinion on the FS
C) identify applicable framework and origin
D) indicates that management is responsible for fair presentation of the FS

C) identify applicable framework and origin

Auditors responsibility would be stated on a seperate paragraph rather than in the opinion paragraph

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Which section of the auditors report for nonissuer does the auditor communicate the nature of the engagement and specific FS covered by audit?

A) scope
B) basis for opinion
C) opinion
D) emphasis of matter

C) opinion

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Auditors responsibility to express an opinion on the FS of nonissuer under US audit standards is

A) implicitly represented in the auditors report
B) explicitly represented in Auditors responsibility paragraph
C) explicitly represented in Basis of opinion paragraph of the auditors report
D) explicitly represented in emphasis of matter paragraph of auditors report

B) explicitly represented in Auditors responsibility paragraph

Mentioned in the 1st sentence of Auditors responsibility section

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FS report has unmodified opinion:

Consistent application of accounting principles: IMPLICITLY or EXPLICITLY
Examination of evidence on test basis: IMPLICITLY OR EXPLICITLY

Consistent application of accounting principles: IMPLICITLY
Examination of evidence on test basis: EXPLICITLY

Implicitly means assumed
Explicitly means clearly stated

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Which is a basic element of the auditors report under US auditing standards?

A) disclosures provide reasonable assurance that FS are free of material misstatement
B) auditor evaluated the overall internal control
C) audit includes everything the reasonableness of significant accounting estimates made by management
D) FS are consistent with those of prior period

C) audit includes everything the reasonableness of significant accounting estimates made by management

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FS identifies US GAAP as the applicable financial reporting framework. Where in the auditors report should Riley, CPA refer to US GAAP?

A) opinion and basis for opinion
B) basis for opinion and auditors responsibility
C) opinion and management responsibility
D) managements responsibility and auditors responsibility

C) opinion and management responsibility

Auditors section would NOT refer to GAAP, instead, refer to Generaly accepted auditing standards (GAAS)

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Which is EXPLICITLY included in the audit report expressing an unmodified opinion?

A) we identify and assess risk of material misstatement of the FS, whether due to fraud or error, and design and perform audit procedures responsive to those risks

B) we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our review of the FS

C) we conducted our audit in accordance with GAAP

D) the procedures selected depend on managements approval, including the assessment of the risk of any errors resulting from fraud

A) we identify and assess risk of material misstatement of the FS, whether due to fraud or error, and design and perform audit procedures responsive to those risks

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Which is true for audit report of an ISSUER?

A) reference should be made to both PCAOB and GAAS
B) PCAOB standards should not be mentioned at all, although their use is implied’
C) report should include references to PCAOB standards and GAAP
D) reference may be made to either PCAOB standards or GAAS

C) report should include references to PCAOB standards and GAAP

This detail will be mentioned in the Basis for Opinion section

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For an ISSUER, an auditor is LEAST LIKELY to include the following information for critical audit matter A) description of principal considerations that led to auditor to determine that the matter was critical B) description of how the critical audit matter was addressed in the audit C) statement that disclaims the auditors responsibility for critical audit matters D) reference to relevant FS accounts that related to the critical audit matter

C) statement that disclaims the auditors responsibility for critical audit matters Language that mentions disclaiming, qualifying, restricting or minimizing the auditors responsibility is NOT APPROPRIATE

Critical audit matter is a matter that was communicated or is required to be communicated to the audit committee and A) relates to accounts or disclosures that are immaterial to the FS B) invoices a particularly complex transaction approved by management C) requires a significantly larger sample size to test D) involves an especially challenging judgment made by auditor

D) involves an especially challenging judgment made by auditor

For an auditor of an issuer, critical audit matters should be communicated in the Critical Audit matters section A) immediately follows opinion on the FS B) immediately precedes the opinion on the FS C) immediately precedes the Basis for opinion section D) immediately follows the basis for opinion section

D) immediately follows the basis for opinion section

Auditors report should include “United States” as the country of origin: I. Accounting principle to prepare the FS II. Auditing standards the auditor followed in performing the audit A. II only B) Both I and II C) I only D) Neither I nor II

B) Both I and II

March, CPA, is engaged by Monday Corp (client) to audit FS of Wall Corp, company that is not March’s client. Monday Corp expects to present Wall’s FS with March CPA to 1st Federal Bank, in an effort to ourchase Wall. March’s auditors report should be addressed to A) Monday Corp, client that engaged March CPA B) Wall Corp, the entity audited by March CPA C) 1st Federal Bank D) Both Monday Corp and 1st Federal Bank

A) Monday Corp, client that engaged March CPA Auditors should address their report to the entity that engaged them ONLY

Which phrases would an auditor of a nonissuer most likely include in the auditors report when expressing a QUALIFIED opinion due to inadequate disclosure? A) subject to the departure from GAAP B) with the foregoing explanation of omitted disclosures C) except for the omission of the information described in the basis for qualified opinion section D) do not present fairly

C) except for the omission of the information described in the basis for qualified opinion section

When would an UNMODIFIED OPINION not be appropriate? A) material related party transaction has occurred and has been accounted for appropriately, but has NOT been adequately disclosed in the FS B) justified departure from GAAP C) change in accounting principle that has material effect on current year FS D) unjustified departure from GAAP, but does not have a material effect on the FS

A) material related party transaction has occurred and has been accounted for appropriately, but has NOT been adequately disclosed in the FS

Which circumstance would the expression of ADVERSE opinion be innapropriate? A) company issues FS that purport to present financial position and results of operation, but it refuses to include CF B) management does not provide reasonable justification for change in accounting principles C) management refuses to allow the auditor to contact legal counsel D) FS does not adequately disclosure litigation that is probable to result in material loss

C) management refuses to allow the auditor to contact legal counsel THIS WOULD BE QUALIFIED or DISCLAIMER OF OPINION for Scope limitation - to withdraw from an audit all together

Auditor most likely would issue an adverse opinion due to: A) managements refusal to provide written representation’s B) inadequate disclosure of material information C) inability to determine extent of or amounts associated with pervasive employee fraud scheme D) auditor is unable to obtain the audited FS of consolidated investee

B) inadequate disclosure of material information Departure from GAAP Choice C - do not be fooled with the word “pervasive” thrown in the question

When auditor of nonissuer qualifies an opinion becuase of inadequate disclosure, the auditor should describe the nature of the omission in seperate paragraph and modify Auditor responsibility section - YES / NO Opinion section - YES / NO

Auditors responsibility section - NO (THIS STAYS THE SAME) Opinion section - YES (WORDING WOULD BE ADDED FOR “EXCEPT FOR”)

When auditor of nonissuer expresses an adverse opinion, the OPINION SECTION should include A) principle effect of the departure from GAAP B) direct reference to seperate section disclosing basis for the opinion C) substantive reasons for the FS being incorrect or misleading D) description of uncertainty or scope limitation that prevents unmodified opinion

B) direct reference to seperate section disclosing basis for the opinion “Because of the significance of the matters discussed in the Basis for Adverse Opinion section, the accompanying consolidated FS statements do not present fairly…”

Auditor of nonissuer should disclose the substantive reasons for expressing an adverse opinion in a basis for adverse opinion section A) preceding the introductory paragraph B) following the opinion section C) preceding the opinion section D) within the notes to the FS

B) following the opinion section Disclosed in a seperate BASIS FOR ADVERSE OPINION SECTION, Following the opinion section

When qualifying an opinion due to inability to obtain sufficient appropriate audit evidence, an auditor of nonissuer should include the reasons for it on Managements responsibility section - YES / NO Basis for Qualified opinion section - YES / NO

Managements responsibility section - NO (NOT MENTIONED HERE, NO CHANGES) Basis for Qualified opinion section - YES (MENTIONED HERE IN BASIS FOR OPINION & QUALIFIED OPINION)

An auditor may issue a qualified opinion under which circumstance? Lack of sufficient appropriate audit evidence - YES / NO Restrictions of the scope of audit - YES / NO

Lack of sufficient appropriate audit evidence - YES Restrictions of the scope of audit - YES A qualified or disclaimer can be issued, depending on materiality

Auditor of nonissuer should disclose the reasons for an inability to obtain sufficient appropriate audit evidence in a basis for qualified opinion paragraph A) following auditors responsibility for the audit of the financial statements paragraph B) following the qualified opinion paragraph C) preceding the qualified opinion paragraph D) within the notes to the FS

B) following the qualified opinion paragraph

Auditor may NOT issue a qualified opinion when A) FS contains a material departure from GAAP B) scope limitation prevents auditor from completing important procedure C) auditor is not independent with respect to audited entity D) auditor is unable to observe physical inventory count

C) auditor is not independent with respect to audited entity If not independent, only a disclaimer of opinion can be issued

A limitation on the scope of an audit sufficient to preclude (prevent) an unmodified opinion will usually result when management A) is unable to obtain audited FS supporting the entity’s investment in foreign subsidiary B) refuses to disclose in the notes to the FS related party transactions authorized by BOD C) does not provide auditor with engagement letter specifying responsibilities of both entity and auditor D) fails to correct significant deficiency in internal control communicated to those charged with governance after PY’s audit

A) is unable to obtain audited FS supporting the entity’s investment in foreign subsidiary

When an independent CPA assists in preparing the FS of an entity, but has not audited or reviewed them, CPA should issue a disclaimer of opinion. In such situations, CPA has no responsibility to apply any procedures beyond A) documenting internal control is not being relied on B) reading FS for obvious material misstatements C) ascertaining whether FS are in conformity with GAAP D) determining whether management has elected to omit substantially all required disclosures

B) reading FS for obvious material misstatements

When a CPA is ASSOCIATED with FS of an entity, but HAS NOT AUDITED / REVIEWED such statements, the appropriate form of report to be issued A) compilation report B) disclaimer of opinion C) unaudited association report D) qualified opinion

B) disclaimer of opinion

Auditor decides to issue a qualified opinion on entity’s FS becuase of major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of auditors report should state A) client imposed scope limitation B) departure from GAAS C) possible effects on the FS D) inadequate disclosure of necessary information

C) possible effects on the FS

If auditors report states “In our opinion, except for the below-mentioned limitation on the scope of our audit…” This is considered A) adverse opinion B) disclaimer of opinion C) qualified opinion D) example of inappropriate wording

D) example of inappropriate wording Wording should be: “In our opinion, except for the possible effects of the matter described in the Basis for Qualified opinion section…”

When an auditor qualifies an opinion becuase of inability to confirm accounts receivable by direct communication with debtors, the wording of the qualified opinion paragraph should indicate A) limitation of the auditors scope B) possible effects on FS C) lack of sufficient appropriate audit evidence D) departure from GAAS

B) possible effects on FS

For an auditor of an issuer, critical audit matters should be communicated in the Critical Audit Matters section A) immediately follows the Opinion on the FS section B) immediately follows the Basis for Opinion section C) Immediately precedes the Opinion on the FS section D) Immediately precedes the Basis for Opinion section

B) immediately follows the Basis for Opinion section

In an audit of an issuer, an auditor is LEAST LIKELY to include which of the following information related to a critical audit matter in the audit report A) Reference to relevant FS accounts that relate to the critical audit matter B) Description of how the critical audit matter was addressed in the audit C) statement that disclaims the auditors responsibility for critical audit matters D) Description of the principal considerations that led the auditor to determine that the matter was a critical audit matter

C) statement that disclaims the auditors responsibility for critical audit matters

SIMULATION: Audit firm is unable to obtain FS for an investee located in foreign country. Levine concludes sufficient audit evidence cannot be obtained Assume effect on FS is immaterial: OPINION TYPE - Unmodified / Qualified / Adverse / Disclaimer AUDITORS RESPONSIBILITY - Omit / No change / Modify OPINION SECTION - Omit / No change / Modify BASIS FOR OPINON - Omit / No change / Modify

OPINION TYPE - Unmodified AUDITORS RESPONSIBILITY - No change OPINION SECTION - No change BASIS FOR OPINION - No change

SIMULATION: Audit firm is unable to obtain FS for an investee located in foreign country. Levine concludes sufficient audit evidence cannot be obtained Assume effect on FS is IMMATERIAL: OPINION TYPE - Unmodified / Qualified / Adverse / Disclaimer AUDITORS RESPONSIBILITY - Omit / No change / Modify OPINION SECTION - Omit / No change / Modify BASIS FOR OPINON - Omit / No change / Modify

OPINION TYPE - Unmodified AUDITORS RESPONSIBILITY - No change OPINION SECTION - No change BASIS FOR OPINION - No change

SIMULATION: Audit firm is unable to obtain FS for an investee located in foreign country. Levine concludes sufficient audit evidence cannot be obtained Assume effect on FS is MODERATE: OPINION TYPE - Unmodified / Qualified / Adverse / Disclaimer AUDITORS RESPONSIBILITY - Omit / No change / Modify OPINION SECTION - Omit / No change / Modify BASIS FOR OPINON - Omit / No change / Modify

OPINION TYPE - Qualified AUDITORS RESPONSIBILITY - No change OPINION SECTION - Modify BASIS FOR OPINION - Modify

SIMULATION: Audit firm is unable to obtain FS for an investee located in foreign country. Levine concludes sufficient audit evidence cannot be obtained Assume effect on FS is HIGH: OPINION TYPE - Unmodified / Qualified / Adverse / Disclaimer AUDITORS RESPONSIBILITY - Omit / No change / Modify OPINION SECTION - Omit / No change / Modify BASIS FOR OPINON - Omit / No change / Modify

OPINION TYPE - Disclaimer AUDITORS RESPONSIBILITY - Modify OPINION SECTION - Modify BASIS FOR OPINION - Modify

Management of nonissuer believes and auditor is satisfied that a material loss will occur when pending litigation is resolved. Management is unable to make reasonable estimate of the amount or range of the loss, but fully discloses the situation in the notes to the FS. If management does not make an accrual in FS, auditor should express A) qualified opinion due to scope limitation B) qualified opinion due to material misstatement of the FS C) unmodified opinion with other-matter paragraph D) unmodified opinion

D) unmodified opinion If contingent liability is probable, not estimable, and is disclosed in the FS appropriately, auditor should issue unmodified opinion

Which of the events would an auditor issue a report that OMITS a reference to consistency? A) material change in the method of accounting for inventories B) change from an accounting principle that is not generally accepted to one that is generally accepted that has a material impact on the FS C) change in the useful life used to calculate the provision for depreciation expense D) managements lack of reasonable justiciation for a change in accounting principle

C) change in the useful life used to calculate the provision for depreciation expense No modification is necessary here

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 seperate paragraph: A) is considered “except for” qualification of opinion B) violates GAAS if this information is already disclosed in footnotes to FS C) necessitates a revision of the opinion paragraph to include “with the foregoing explanation” D) appropriate and would not negate unmodified opinion

D) appropriate and would not negate unmodified opinion

Management believes, and auditor is satisfied, that a pending lawsuit is reasonably possible in a material loss of 100k. Lawsuit has been adequately disclosed to the FS, but no loss has been accrued. If this loss is not accrued, auditor should express A) qualified or adverse opinion B) qualified or disclaimer C) unmodified opinion with EOM D) unmodified opinion

D) unmodified opinion Reasonably possible = disclosure only

Which circumstance would an auditor include other-matter paragraph in an audit report of nonissuer? A) material weakness in internal control B) entity engaged in significant transactions with related party during the year under audit and subsequent to year end C) audited FS include material misstatement D) auditor has been engaged to report entity’s FS prepared under GAAP and IFRS

D) auditor has been engaged to report entity’s FS prepared under GAAP and IFRS

When there has been a change in accounting principles, but the effect of the change on the comparability of the FS is not material, the auditor should A) refer to change in EOM B) explicitly concur that the change is preferred C) not refer to the consistency in auditors report D) refer to the change in opinion paragraph

C) not refer to the consistency in auditors report

Which of the following procedures is an auditor LEAST LIKELY to perform if material disclosures required by GAAP are omitted? A. Discuss the omission of such information with management. B. Disclose the omitted information in the basis-for-modification paragraph. C. Disclose the omitted information in the notes to the financial statements. D. Discuss the omission of such information with those charged with governance.

C. Disclose the omitted information in the notes to the financial statements

An auditor MAY NOT issue a qualified opinion when: A. The auditor lacks independence with respect to the audited entity. B. An accounting principle at variance with GAAP is used. C. A scope limitation prevents the auditor from completing an important audit procedure. D. The auditor's report refers to the work of a specialist

A. The auditor lacks independence with respect to the audited entity This would qualify as a DISCLAIMER OF OPINION

When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an): A. Disclaimer of opinion. B. Unaudited association report. C. Report on pro forma financial statements. D. Regulation S-X exemption.

A. Disclaimer of opinion

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be: A. Treated as a subsequent event. B. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. C. Treated as a consistency modification in the auditor's report for the current year. D. Disclosed in the notes to the financial statements of the current year.

D. Disclosed in the notes to the financial statements of the current year.

A client changes from FIFO to LIFO for accounting for inventory and appropriately discloses the change in the footnotes. This change does not have a material effect on the financial statements in the current year but the change is expected to have a material effect in later years. In the current-year auditor’s report, the auditor should: A. Issue an unmodified opinion with an other-matter paragraph. B. Issue an unmodified opinion with an emphasis-of-matter paragraph. C. Issue a qualified or adverse opinion. D. Issue an unmodified opinion.

D. Issue an unmodified opinion. Since this change DOES NOT have a material affect on the FS in the CY, only a unmodified opinion is needed with no EOM

In which of the following situations would a disclaimer of opinion be the most appropriate? A. The internal auditor lacks independence. B. The financial statements are presented in accordance with the cash basis of accounting. C. There is insufficient disclosure in the notes to the financial statements of reportable segments. D. The auditor is unable to obtain the audited financial statements of a significant subsidiary.

D. The auditor is unable to obtain the audited financial statements of a significant subsidiary. This is a scope limitation - therefore a disclaimer is warranted

For a particular entity's financial statements to be presented fairly in conformity with the applicable financial reporting framework, it is NOT required that the principles selected: A. Be appropriate in the circumstances for the particular entity. B. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. C. Present information in the financial statements that is classified and summarized in a reasonable manner. D. Be applied on a basis consistent with those followed in the prior year.

D. Be applied on a basis consistent with those followed in the prior year.

Which of the following is true about modifications to the independent auditor's unmodified opinion report for a nonissuer? A. A disclaimer of opinion and an adverse opinion both include modification to the introductory paragraph. B. Modifications to the independent auditor's report result in qualified, adverse or negative assurance opinions, or a disclaimer of opinion. C. An auditor would modify different paragraphs when rendering either a qualified opinion due to a departure from GAAP or an adverse opinion due to a departure from GAAP. D. An auditor would modify the same paragraphs when rendering either a qualified opinion due to a departure from GAAP or a qualified opinion due to a scope limitation.

D. An auditor would modify the same paragraphs when rendering either a qualified opinion due to a departure from GAAP or a qualified opinion due to a scope limitation.

When reporting on comparative FS, an auditor ordinarily should change the previously issued opinion on the PY’s FS if the A) PY’s FS are restated to conform with GAAP B) auditor is a predecessor auditor who has been requested by a former client to reissue the previously issued report C) PY’s opinion was unmodified and the opinion on the current years FS is modified due to a lack of consistency D) prior years FS are restated following a change in reporting entity in the CY

A) PY’s FS are restated to conform with GAAP

Comparative FS include the PY’s statements that were audited by a predecessor auditor whose report is not presented. If the predecessor report was unmodified, the successor should A) add an EOM that expresses only limited assurance concerning the fair presentation of the PYs FS B) express an opinion only on the CY’s FS and make no reference to the prior years financial statements C) Indicate in an other matter paragraph that the predecessor auditor report expressed an unmodified opinion on the prior year FS D) obtain a letter of representation from the predecessor auditor concerning any matters that might affect the successor opinion

C) Indicate in an other matter paragraph that the predecessor auditor report expressed an unmodified opinion on the prior year FS

Group auditor of nonissuer decides not to refer to the component auditor who audited a subsidiary of the group auditors client. In this situation, the group auditor most likely would A) add EOM paragraph to auditors report indicating that the subsidiary FS are not material to the consolidated FS B) document in the Engagement letter that the group auditor assumes no responsibility for the component auditors work and opinion C) obtain written permission from the component auditor to omit the reference in the group auditors report D) determine the type of work to be performed by the group auditor on the financial information of the component

D) determine the type of work to be performed by the group auditor on the financial information of the component

Auditor has previously expressed a qualified opinion on the FS of a prior period because of departure from GAAP. Prior period FS are restated in the current period to conform with GAAP. The auditors updated report on the prior period FS should A) express an unmodified opinion concerning the restated FS B) be accompanied by the original auditors report on the prior period C) bear the same date as the original auditors report on the prior period D) qualify the opinion concerning the restated FS because of change in accounting principle

A) express an unmodified opinion concerning the restated FS

Before a predecessor auditor reissues the prior years audit report on the FS of a former client for inclusion with the successor auditors report on comparative FS, the predecessor does all of the following EXCEPT A) obtain current comparative FS B) compare the current period comparative FS with those of the prior year C) review the audit documentation of the successor auditor D) obtain the successor auditor representation letter

C) review the audit documentation of the successor auditor

If a component auditor does not meet the independent requirements that are relevant to a group audit of a nonissuer’s financial statements, then the group engagement team should first A) communicate the lack of independence to the appropriate regulatory authority B) disclose the lack of independence to the nonissuers management and consider revising the audit report C) withdraw from the engagement when permissible under law or regulation D) attempt to obtain sufficient appropriate audit evidence relating to the Financial information of the component without making reference to or using the work of the component auditor

D) attempt to obtain sufficient appropriate audit evidence relating to the Financial information of the component without making reference to or using the work of the component auditor

In the audit of a nonissuer, a group engagement partner decides not to refer to the audit of a component auditor. After making inquiries about the component auditors professional reputation and independence, the group engagement partner MOST LIKELY would A) document in the engagement letter that the group engagement partner assumes no responsibility for for the other CPA’s work B) obtain written permission from the component auditor to omit the reference in the group engagement auditors report C) contact the component auditor and review the audit program and working papers pertaining to the component D) add an EOM paragraph to the auditors report indicating that the component FS are not material to the consolidated FS

C) contact the component auditor and review the audit program and working papers pertaining to the component

Words describing the percentages of Balance sheet and income statement accounts from a subsidiary for a consolidated report represents A) improper form of reporting B) divided responsibly C) disclaimer of opinion D) qualified opinion

B) divided responsibly

When group engagement partner decides to make reference to component auditors audit under GAAS, the report should state “We did not audit the FS of X Company in which section A) auditors responsibilities B) not in auditors report, but in seperate report prepared by the component auditor and appended to the auditors report C) emphasis of matter paragraph D) opinion

D) opinion

If the auditors report of a nonissuer under US GAAS, the group engagement partner decides not to make reference to another CPA who audited a clients subsidiary. The group engagement partner could justify this decision, if among other requirements, the group engagement partner A) issues an unmodified opinion on the consolidated FS B) learns that the component auditor issued an unmodified opinion on the subsidiary FS C) unable to review the audit programs and audit documentation of the component auditor D) is satisfied as to the independence and professional reputation of the component auditor

D) is satisfied as to the independence and professional reputation of the component auditor

If an auditor is precluded by the issuer from obtaining sufficient appropriate evidence to evaluate whether an illegal act that could be material to the financial statements has occurred, then the auditor generally should: A. Issue a qualified opinion on the financial statements. B. Issue an unqualified opinion on the financial statements with an other-matter paragraph. C. Issue an unqualified opinion on the financial statements with an explanatory paragraph. D. Disclaim an opinion on the financial statements.

D. Disclaim an opinion on the financial statements. PRECLUDE = PREVENT

Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, Year 3. Park obtained sufficient audit evidence for all of Tech's financial statement items except Tech's opening inventory. Due to inadequate financial records, Park could not verify Tech's January 1, Year 3, inventory balances. Park's opinion on Tech's Year 3 financial statements most likely will be: Balance sheet Income statement A. Unmodified / Adverse B. Disclaimer / Disclaimer C. Unmodified / Disclaimer D. Disclaimer / Adverse

Balance sheet Income statement C. Unmodified / Disclaimer

Jules, CPA, is reporting on comparative financial statements, but Shah, CPA conducted the previous year's audit. Which of the following is NOT TRUE in this situation? A. Dual dating may be used to indicate the appropriate dates for each audit. B. If Shah's report was qualified due to a scope limitation, Jules may still issue an unmodified opinion on the current year's financial statements. C. If Shah's report will be presented, management will need to provide a representation letter to Shah. D. If Shah's report is not presented, an other-matter paragraph should be included to describe this situation.

A. Dual dating may be used to indicate the appropriate dates for each audit.

A nonissuer changes from an accounting principle not in accordance with the applicable reporting framework to an accounting principle in accordance with the applicable reporting framework. How should the auditor characterize such a change? A. As a change in classification. B. As a correction of a misstatement. C. As a change in accounting principle. D. As a change in reporting entity.

B. As a correction of a misstatement.

Which of the following is true regarding the audit report for an issuer? A. Reference may be made to either PCAOB standards or generally accepted auditing standards. B. The report should include references to PCAOB standards and generally accepted accounting principles. C. PCAOB standards should not be mentioned at all, although their use is implied in the auditor's report. D. Reference should be made to both PCAOB standards and generally accepted auditing standards.

B. The report should include references to PCAOB standards and generally accepted accounting principles.

As of August 13, CPA had obtained sufficient appropriate audit evidence with respect to fieldwork for FS as of June 30. On August 27th, a new event came to the CPA’s attention that should be disclosed in the notes to the FS. The even was properly disclosed, but CPA did not dual date the report and dated the report August 27th. CPA was taking responsibility for A) subsequent events that occurred through August 27 B) only specific subsequent event disclosed by entity C) all subsequent events that occurred through August 13 and the specific subsequent event disclosed D) only the subsequent events that occurred through August 13

A) subsequent events that occurred through August 27

Which of the following events that occurred after a clients calendar year end, but before the audit report date, would require disclosure in the notes to the FS, but no adjustment to the FS A) new convertible bonds are issued to expand the company’s product line B) loss is reported on uncollectible accounts of an acknowledged distressed customer C) fixed asset used in operations is sold at a substantial profit D) negotiations have resulted in compensation adjustments for union employees retroactive to the 4th quarter

A) new convertible bonds are issued to expand the company’s product line

Under which of the following circumstances would an entity be expected to accrue a loss contingency for the period under audit? A) entity’s recorded the amount of an asset impaired as of the balance sheet date B) reasonable estimate was determined for a liability incurred after the balance sheet date C) legal counsel communicated that an unfavorable judgment from current litigation was reasonably possible D) before the issuance of the audit report, the entity estimated the amount of a claim that has a probable adverse outcome related to a product sold during the year under audit

D) before the issuance of the audit report, the entity estimated the amount of a claim that has a probable adverse outcome related to a product sold during the year under audit Recognized subsequent event + before report issuance date, can be estimated and is probable

Auditor completed an audit for 12/31, Y3 FS and dated the audit report 3/13, Y4. On 3/14, Y4, prior to release date of the audit report, an event occurred that required management to revise the Y3 financial statements and describe the event in a note. The auditors report on the revised Y3 FS was newly dated as of 4/11, Y4 and released on 4/12, Y4. The auditor took responsibility for all subsequent events that occurred from 1/1 to A) March 13 B) March 14 C) April 11 D) April 12

C) April 11 Auditor is responsible for subsequent events up until the date that is stamped on the auditors report 4/11

Which of the following procedures would an auditor most likely perform to obtain evidence about the occupancy of subsequent events? A) verify inventory pledges under loan agreements by confirming the details with financial institutions B) inquire about the current status of transactions that were recorded on the basis of preliminary data C) compare the FS being reported on with those of the prior year D) trace informations from shipping documents to sales invoices and sales journal transactions

B) inquire about the current status of transactions that were recorded on the basis of preliminary data

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited FS, unless: A) information, which existed at the report date and may affect the report, comes to the auditors attention B) management of the entity requests the auditor to reissue the auditors report C) information about an event that occurred after the date of the auditors report comes to the auditors attention D) final determinations or resolutions are made of contingencies that had been disclosed in the FS

A) information, which existed at the report date and may affect the report, comes to the auditors attention

Which of the following events occurring after the issuance of the auditors report most likely would cause the auditor to make further inquiry ties about the previously issued FS? A) uninsured natural disaster occurs that may affect the entity’s ability to continue as a going concern B) contingency is resolved that had been disclosed in the audited FS C) new information is discovered concerning undisclosed lease transactions of the audited period D) subsidiary is sold that accounts for 25% of the entity’s consolidated net income

C) new information is discovered concerning undisclosed lease transactions of the audited period

Auditor withdrew from further association with nonissuer entity after issuing audit report on it. Subsequently, the auditor discovered facts that, if known to the auditor at the date of the auditors report, could have caused the auditor to revise the report. Which of the following statements about this circumstance is correct? A) the auditor should talk with the successor auditor about the circumstances of the subsequentl discovered information and advise wether the FS should be revised B) auditor should extend audit procedures with regard to managements revised FS with the objective of expressing a dual dated qualified opinion C) auditor should discuss the matter with management and, if it is determined that the FS need revision, ask how management intended to address the matter in the FS D) Because the auditor is no longer associated with the entity, the auditor has no further responsibilities with regard to the FS

C) auditor should discuss the matter with management and, if it is determined that the FS need revision, ask how management intended to address the matter in the FS

Auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditors report but before issuance of the related financial statements. The auditors responsibility for events occurring subsequent to the original report date A) limited to include only events occurring up to the date of the last subsequent event referenced B) limited to the specific event referenced C) extended to subsequent events occurring through the later date D) extended to include all events occurring since the original report date

B) limited to the specific event referenced

CPA obtained sufficient appropriate audit evidence to render opinion on 12/31 statements on March 6. A subsequent event rrequiring adjustment to the statement occurred on April 10. Wilson decides not to dual date the report and completes the extended audit procedures for subsequent events on April 24. If the adjustment is made without disclosure, the CPA’s report should be dated A) March 6 B) April 10 C) April 24 D) Using dual dating

C) April 24 This is the case because the CPA decided NOT to dual date the reports. Use the most latest date for audit report

For audit of non-issuer, what is an auditors responsibility for supplementary information, such as disclosure of pension information, which is outside basic FS, but required by GASB A) auditor should apply substantive tests of transactions to the supplementary information and verify its conformity with the GASB requirement B) auditor should apply certain limited procedures to the supplementary information and add a seperate section to the auditors report C) the auditors only responsibility for the supplementary information is to determine that such information has not been omitted D) the auditor has no responsibility for such supplementary information as long as it is outside the basic financial statements

B) auditor should apply certain limited procedures to the supplementary information and add a seperate section to the auditors report

Auditor reads the letter of transmittal accompanying the county comprehensive annual financial report and identifies material inconsistency with FS. Auditor determines that the FS do not require revision. Which actions should the auditor take? A) request that the client revise the letter of transmittal B) include other-matter paragraph in auditors report C) consider withdrawing from engagement D) request a client representation letter acknowledging the inconsistency

A) request that the client revise the letter of transmittal A separate section called “Other Information” clarifying the auditors responsibility would be added to this very report

Auditor is engaged to report on selected financial data that are included in a client prepared document containing audited FS. Under these circumstances, the report on selected data A) state that the presentation is prepared in accordance with special purpose framework B) restrict the use of the report to those specified users within the entity C) be limited to data derived from the entity’s audited FS D) indicate that the data are subject to prospective results that may not be achieved

C) be limited to data derived from the entity’s audited FS

In order to provide an opinion on supplementary information of a nonissuer, the auditor should perform procedures using a materiality level that is A) double the materiality level used in the audit B) the same as the materiality level used in the audit C) 1/2 of the materiality used in the audit D) based on the balances reported in the supplementary information

B) the same as the materiality level used in the audit

If information accompanying the basic FS has been subjected to auditing procedures, the auditor may include in the auditors report on the FS an opinion that the accompanying information is fairly stated A) accordance with GAAS B) conformity with GAAP C) all material respects in relation to FS as a whole D) accordance with attestation standards expressing a conclusion about managements assertions

C) all material respects in relation to FS as a whole

What is the auditors responsibility for supplementary information, which is outside the basic FS, but required by FASB (Financial Accounting Standards Board) and GAAP (Generally Accepted Accounting Principles) A) auditor has no responsibility B) only responsibility is to determine that such information has not been omitted C) auditor should apply certain limited procedures to the required supplementary information D) apply substantive tests of details of transactions to the supplementary information

C) auditor should apply certain limited procedures to the required supplementary information

The quarterly data required by SEC Regulation S-K have been omitted. Which of the following statements must be included in the auditors report A) auditor was unable to review the data B) company’s internal control provides an adequate basis to complete the review C) company has not presented the selected quarterly financial data D) auditor will review the selected data during the review of the subsequent quarterly financial data

C) company has not presented the selected quarterly financial data

Auditors report on the FS prepared on the cash receipts and disbursements basis of accounting should include all of the following EXCEPT: A) reference to the note to the FS that describes the cash receipts and disbursements basis of accounting B) statement that the auditor is responsible for determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the FS C) opinion as to whether the FS are presented fairly in conformity with the cash receipts and disbursements basis of accounting D) statement that the audit was conducted in accordance with auditing standards generally accepted in the US

B) statement that the auditor is responsible for determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the FS MANAGEMENT IS RESPONSIBLE, NOT AUDITOR

Which of the following is NOT considered a special purpose framework? A) cash basis B) tax basis C) contractual basis D) Internal Financial Reporting Standards (IFRS)

D) Internal Financial Reporting Standards (IFRS) IFRS is a general purpose framework Special purpose frameworks are ones to meet financial information needs of specific users

When a CPA reports on audited FS prepared on the cash receipts and disbursements basis of accounting, the report should A) explain why the basis of accounting is more useful for the readers of this entity FS than GAAP B) refer to the note in the FS that describes managements responsibility for the FS C) state that the basis of presentation is a comprehensive basis of accounting (OCBOA) other than GAAP D) include a separate EOM paragraph that discusses the justification for, CPA concurrence with, and departure from GAAP

C) state that the basis of presentation is a comprehensive basis of accounting (OCBOA) other than GAAP This report INCLUDES the EOM paragraph. It is not SEPARATE

Delta Life Insurance Co prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Deltas auditor, discovers that the statements are not suitably titled, Wall should A) disclose any reservations in a basis for modification 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 used

A) disclose any reservations in a basis for modification paragraph and qualify the opinion

Which of the following titles would be considered suitable for FS that are prepared on a cash basis? A) income statement B) statement of operations C) statement of revenues collected and expenses paid D) statement of cash flows

C) statement of revenues collected and expenses paid

Which is the following would be an appopriate title for a statement of revenue and expenses prepared using an other comprehensive basis of accounting (OCBOA)? A) statement of operations B) statement of income regulatory basis C) income statement D) statement of activities

B) statement of income regulatory basis

An entity prepares its FS on income tax basis. A description of how that basis differs from GAAP should be included in A) notes to the FS B) auditors engagement letter C) management representation letter D) emphasis of matter paragraph of the auditors report

A) notes to the FS

Auditor who is UNABLE to form an opinion a new clients opening inventory balances may issue an unmodified opinion on the current years A) statement of shareholders equity B) balance sheet only C) income statement only D) statement of cash flows only

B) balance sheet only The BALANCE SHEET REPORTS ON ENDING BALANCES ONLY

Under which of the following circumstances would a DISCLAIMER OF OPINION NOT be appropriate? A) management does not provide reasonable justification for a change in accounting principle B) auditor is unable to determine the amounts associated with an employee fraud scheme C) client refuses to permit the auditor to confirm certain accounts receivable D) CEO is unwilling to sign the management representation letter

A) management does not provide reasonable justification for a change in accounting principle

SIMULATION: Assume Person decides to take responsibility for the work of the other CPA, and the other CPA issues the unmodified opinion Opinion type - UNMODIFIED / QUALIFIED / ADVERSE / DISCLAIMER Auditors responsibility - OMIT / NO CHANGE / MODIFY Opinion section - OMIT / NO CHANGE / MODIFY Basis for Opinion section - OMIT / NO CHANGE / MODIFY

Opinion type - UNMODIFIED Auditors responsibility - NO CHANGE Opinion section - NO CHANGE Basis for Opinion section - NO CHANGE

SIMULATION: Assume Person does not wish to assume responsibility for the work of the other CPA, and the other CPA issues the unmodified opinion Opinion type - UNMODIFIED / QUALIFIED / ADVERSE / DISCLAIMER Auditors responsibility - OMIT / NO CHANGE / MODIFY Opinion section - OMIT / NO CHANGE / MODIFY Basis for Opinion section - OMIT / NO CHANGE / MODIFY

Opinion type - UNMODIFIED Auditors responsibility - NO CHANGE Opinion section - MODIFY Basis for Opinion section - NO CHANGE

SIMULATION: Assume Person decides to take responsibility for the work of the other CPA, and the other CPA issues the qualified opinion Opinion type - UNMODIFIED / QUALIFIED / ADVERSE / DISCLAIMER Auditors responsibility - OMIT / NO CHANGE / MODIFY Opinion section - OMIT / NO CHANGE / MODIFY Basis for Opinion section - OMIT / NO CHANGE / MODIFY

Opinion type - UNMODIFIED Auditors responsibility - NO CHANGE Opinion section - NO CHANGE Basis for Opinion section - NO CHANGE Subject of the qualification is not material

SIMULATION: Assume Person does not wish to assume responsibility for the work of the other CPA, and the other CPA issues the qualified opinion Opinion type - UNMODIFIED / QUALIFIED / ADVERSE / DISCLAIMER Auditors responsibility - OMIT / NO CHANGE / MODIFY Opinion section - OMIT / NO CHANGE / MODIFY Basis for Opinion section - OMIT / NO CHANGE / MODIFY

Opinion type - UNMODIFIED Auditors responsibility - NO CHANGE Opinion section - MODIFY Basis for Opinion section - NO CHANGE If the other auditors opinion is qualified, but the subject is immaterial, unmodified opinion is warranted

Which of the following procedures would an auditor generally perform regarding subsequent events? A. Compare the latest available interim financial statements with the statements being audited. B. Review the client's cutoff bank statements for several months after the year-end. C. Test internal control activities that were previously reported to management as inadequate. D. Inspect inventory items that were ordered before the year-end but arrived after the year-end.

A. Compare the latest available interim financial statements with the statements being audited.

Auditor is reviewing a clients annual reports, which contain audited FS and other information. Which of the following is considered "Other information" A) notes to FS B) names of officers and directors C) auditors report D) income statement

B) names of officers and directors

In an audit of an issuer's financial statements, the auditor determined that there was substantial doubt about the issuer's ability to continue as a going concern for a reasonable period of time. If there were no other significant audit findings, which of the following indicates the proper form of the audit report that should be issued? A. An adverse opinion with an other-matter paragraph. B. A disclaimer of opinion. C. An unqualified opinion with an explanatory paragraph. D. A qualified opinion with an emphasis-of-matter paragraph.

C. An unqualified opinion with an explanatory paragraph.

An auditor may not issue a qualified opinion when: A. The auditor's report refers to the work of a specialist. B. An accounting principle at variance with GAAP is used. C. A scope limitation prevents the auditor from completing an important audit procedure. D. The auditor lacks independence with respect to the audited entity.

D) The auditor lacks independence with respect to the audited entity CHOICE B - ONLY QUALIFIED OR POSSIBLY ADVERSE OPINION CHOICE C - SCOPE LIMITATION RESULTS IN QUALIFIED OR DISCLAIMER CHOICE A - REFER TO SPECIALIST MAY RESULT CHANGE IN AUDITORS REPORT TO QUALIFIED OPINION

Julio, CPA, is auditing the financial statements of Megastar Multimedia. Megastar has included the audited financial statements (and Julio’s audit report) in its annual report to shareholders. Julio reads the annual report and discovers both a material inconsistency and a material misstatement of fact. The material misstatement of fact is unrelated to financial statement data. Julio believes both the financial statements and the audit report are correct. What should the auditor do first to respond to this situation? A. Julio should request that the annual report be revised to eliminate the material inconsistency but need not worry about the material misstatement of fact, since it is not related to financial statement data. B. Julio should request that the annual report be revised to eliminate both the material inconsistency and the material misstatement of fact. C. Julio should request that the audit report be removed from the annual report. D. Julio should withdraw from the engagement.

B) Julio should request that the annual report to be revised to eliminate both the material inconsistency and the material misstatement of fact BECAUSE THE MATERIAL INCONSISTENCY AND MATERIAL MISSTATEMENT IS UNRELATED TO THE FS DATA, AND JULIO THINKS THE FS IS CORRECT, HE CAN MAKE THE REQUEST TO REVISE THE ANNUAL REPORT TO ELIMINATE THE MATERIAL CONCERNS

An auditor notes that retained earnings includes an amount appropriated in accordance with a loan covenant. Which procedures would the auditor use to audit retained earnings? I.Trace dividend declarations to appropriate authorization by management. II.Analyze the retained earnings account since the last audit. III.Use a standard bank confirmation to confirm the amount appropriated. A. I and III, only. B. II only. C. I, II, and III. D. II and III, only.

B. II only. II.Analyze the retained earnings account since the last audit. BECAUSE NOT MANY ENTRIES FLOW THROUGH NET ASSETS, ANALYZING IT SHOULD BE SIMPLE. DIVIDEND DECLARATIONS ARE DONE BY BOARD OF DIRECTORS, NOT MANAGEMENT. BECAUSE BANK WOULD BE UNABLE TO CONFIRM APPROPRIATION AMOUNTS, THAT ARE RESTRICTIONS ON THE ACOUNT THA CAN BE PAID AS DIVIDENDS

The auditor would not express an unmodified opinion in which of the following situations? A. There has been a justifiable change in accounting principle inseparable from a change in accounting estimate, which the client has accounted for as a change in estimate. B. There has been a justifiable change in accounting principle inseparable from a change in accounting estimate, which the client has accounted for as a change in principle. C. There has been a justifiable change in the method of accounting for long-term contracts. D. There exists a remote chance that the client may lose substantial amounts in a lawsuit recently filed against the client.

B) There has been a justifiable change in accounting principle inseparable from a change in account estimate, which the client has accounted for as a change in principle IF CLIENT ACCOUNTS FOR CHANGE IN PRINCIPLE. THIS IS A DEPARTURE FROM GAAP, WHICH IS A MODIFIED OPINION (QUALIFY, ADVERSE OR DISCLAIMER)

Which of the following subsequent events would most likely result in adjustment to the financial statements? A. A strike occurred after year-end that may have a material effect on the client's future operations. B. After the balance sheet date and before the financial statements are issued, the company issues stock in the acquisition of a new business. C. After the balance sheet date and before the financial statements are issued, the company disposes of a segment of the business in a sale to an unrelated third party. D. After the balance sheet date and before the financial statements are issued, the company settles litigation that had resulted in a liability as of the balance sheet date.

D. After the balance sheet date and before the financial statements are issued, the company settles litigation that had resulted in a liability as of the balance sheet date. A SUBSEQUENT EVENT THAT EXISTED AT BALANCE SHEET DATE BUT BEFORE FS IS ISSUED WOULD REQUIRE AN ADJUSTMENT TO THE FS

A report includes the following language, "This report is intended solely for the information and use of the board of directors and management of X Company, and is not intended to be and should not be used by anyone other than the specified parties." This report would most likely relate to which of the following engagements? A. A report on a client's compliance with a regulatory requirement, assuming the report is prepared based on a financial statement audit of the complete financial statements. B. A report on a specified element in a financial statement, where that element is prepared in accordance with the tax basis of accounting. C. A report on financial statements prepared on the cash basis of accounting. D. A report on an examination of a financial forecast.

A. A report on a client's compliance with a regulatory requirement, assuming the report is prepared based on a financial statement audit of the complete financial statements.

Which of the following representations does an auditor make explicitly and which implicitly when expressing an unmodified opinion? Consistent Application of GAAP - IMPLICITLY / EXPLICITLY In accordance with GAAP in the U.S.A. - IMPLICITLY / EXPLICITLY

Consistent Application of GAAP - IMPLICITLY In accordance with GAAP in the U.S.A. - EXPLICITLY

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was: A. Limited to include only events occurring up to the date of the last subsequent event referenced. B. Extended to include all events occurring since the original report date. C. Extended to subsequent events occurring through the later date. D. Limited to the specific event referenced

D. Limited to the specific event referenced RESPONSIBILITY IS EXTENDED ONLY FOR THAT PARTICULAR SUBSEQUENT EVENT

Under U.S. GAAS, in which of the following situations would a group engagement partner least likely make reference to component auditor who audited a subsidiary of the entity in the audit of a nonissuer? A. The group engagement partner finds it impractical to review the component auditor's work or otherwise be satisfied as to the component auditor's work. B. The financial statements audited by the component auditor are material to the consolidated financial statements covered by the group engagement partner's opinion. C. The component auditor was retained by the group engagement partner and the work was performed under the group engagement partner's guidance and control. D. The group engagement partner is unable to be satisfied as to the independence and professional reputation of the component auditor.

C. The component auditor was retained by the group engagement partner and the work was performed under the group engagement partner's guidance and control.

Which of the following would be an appropriate title for a statement of revenue and expenses prepared using an other comprehensive basis of accounting (OCBOA)? A. Statement of activities. B. Income statement. C. Statement of operations. D. Statement of income-regulatory basis

D) Statement of income-regulatory basis

An auditor may reasonably issue an "except for" qualified opinion for a(an): Scope limitation - YES / NO Unjustified accounting change - YES/ NO

Scope limitation - YES Unjustified accounting change - YES THIS IS SO B/C BOTH SCOPE LIMITATION (AUDIT ISSUE) AND UNJUSTIFIED ACCOUNTING CHANGE (GAAP ISSUE) CAN BE MATERIAL, BUT NOT PERVASIVE - QUALIFIED OPINION

Digit Co., a nonissuer, 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. Adverse opinion. B. Unmodified opinion. C. Opinion qualified because of a departure from GAAP. D. Opinion qualified because of a lack of consistency.

B. Unmodified opinion. GAAP ALLOWS A COMPANY TO USE DIFFERENT METHODS FOR COSTING DIFFERENT INVENTORIES, AS LONG AS ITS DISCLOSED - NO DEPARTURE FROM GAAP

The client asked the auditor to audit financial statements covering the current year. The auditor did not observe the prior year's physical inventory count. Which of the following actions would the auditor most likely take? A. Audit the financial statements and express an opinion with a scope limitation. B. Withdraw from the engagement and provide no assurance on the current year's financial statements. C. Rely on management's representation that the prior year's balances are correct. D. Audit the prior year inventory using alternative substantive procedures.

D. Audit the prior year inventory using alternative substantive procedures. the auditor most likely will try to audit the prior year inventory using alternative substantive procedures. For example, the auditor may: -Observe a current physical inventory count and reconcile it to the opening inventory quantities. -Perform audit procedures on the valuation of the opening inventory items. -Perform audit procedures on gross profit and cutoff.

Which of the following procedures should an auditor generally perform regarding subsequent events? A. Review the cut-off bank statements for several months after the year-end. B. Communicate material weaknesses in the internal control structure to those charged with governance. C. Compare the latest available interim financial statements with the financial statements being audited. D. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.

C. Compare the latest available interim financial statements with the financial statements being audited.

Pell, CPA, decides to serve as group engagement partner in the audit of the financial statements of Tech Consolidated, Inc., a nonissuer. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell make reference to Smith's audit under U.S. GAAS? I. Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements. II. Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity. A. Neither I nor II. B. Both I and II. C. II only. D. I only.

C. II only. GROUP AUDITOR CAN ONLY MAKE REFERENCE TO COMPONENT AUDITOR ONLY WHEN ENGAGEMENT PARTNER IS UNABLE TO REVIEW THE COMPONENT AUDITORS AUDIT DOCUMENTATION

Which of the following items should be included in an auditor's report for financial statements prepared in conformity with another comprehensive basis of accounting (OCBOA)? A. A title that includes the word "independent." B. A sentence stating that the auditor is responsible for the financial statements. C. A paragraph stating that the audit was conducted in accordance with OCBOA. D. The signature of the company controller.

A) A title that includes the word "independent"

What is an auditor's responsibility for supplementary information required by the GASB that is placed outside the basic financial statements? A. Label the information as unaudited and expand the auditor's report to include a disclaimer on the information. B. Audit the required supplementary information in accordance with generally accepted governmental auditing standards. C. Apply limited procedures to the information. D. Add an other-matter paragraph to the auditor's report only if there is a problem with the supplementary information.

C. Apply limited procedures to the information.

A1 - Audit Reports Flashcards

(132 cards)