Audit Ch 3

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1.

An adverse opinion is issued when the auditor believes::

15.

the overall financial statements are so materially misstated that

they do not present fairly the financial position or results of
operations and cash flows in conformity with GAAP.
2.

AICPA professional standards provide uniform wording

control over financial reporting includes all but which

of the following types of paragraphs?: Description
paragraph
16.

for the auditor's report to enable users of the financial

statements understand the audit report.: True
3.

4.

5.

18.

19.

20.

Auditors of public company financial statements must

issue separate reports on internal control over financial
reporting.: False

9.

21.

there is a highly material client-imposed scope

restriction.: False

22.

The explanatory paragraph for a qualified opinion

The audit report date is the date the auditor completed

23.

If an auditor performs an audit of a public company, the

would:: follow the scope paragraph.

scope paragraph should make reference to which
standards?: Standards issued by the PCAOB (U.S.).

audit procedures in the field.: True

11.

The audit report date on a standard unqualified report

indicates:: the last day of the auditor's responsibility for the
review of significant events that occurred subsequent to the date
of the financial statements.

12.

24.

If the auditor lacks independence, a disclaimer of

25.

If the balance sheet of a company is dated December 31,

opinion must be issued:: in all cases.

2011, the audit report is dated February 8, 2012, and
both are released on February 15, 2012, this indicates
that the auditor has searched for subsequent events
that occurred up to:: February 8, 2012.

Brown Co.'s financial statements adequately disclose

uncertainties that concern future events, the outcome of
which are not reasonably estimable. The auditor's
report should be a(n):: unqualified opinion.

13.

Changes in an estimate, such as a change in the

26.

Changes of an accounting estimate requires the auditor

to issue a modified unqualified audit report with a
consistency paragraph is inserted after the opinion
paragraph.: False

The independent auditor must issue a qualified opinion

when which of the financial(s) are missing?
I. Balance Sheet
II. Income Statement
III. Statement of Cash Flows: III only

estimated useful life of an asset for depreciation

purposes, affect consistency but not comparability, and
therefore require an explanatory paragraph in the
audit report.: False
14.

Examples of unqualified opinions which contain

modified wording (without adding an explanatory
paragraph) include:: the use of other auditors.

Auditors should issue a disclaimer of opinion when

10.

The date of the auditor's report is indicative of the last

day of the auditor's responsibility for the review of
significant events occurring after the balance sheet
date.: True

Departure from GAAP and Lack of sufficient evidence; NOT from

lack of consistency
8.

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.

An audit of historical financial statements most

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

Consididaries: consolidate in consolidated financial

statements

commonly includes the:: balance sheet, income statement,

and the statement of cash flows.
7.

Conditions for Standard Unqualified Audit Report: 1)

Include all financial statements 2) Sufficient appropriate
evidence (best judgement, appropriate and reasonable, relevant,
reliable) 3) Financial statements present in accordance with US
GAAP 4) No circumstances require an explanatory paragraph or
report modification

Auditing standards require that the audit report must be

titled and that the title must:: include the word
"independent."

6.

17.

As a result of management's refusal to permit the auditor

to physically examine inventory. The auditor must
depart from the unqualified audit report because:: the
scope of the audit has been restricted.

A company has changed its method of inventory

valuation from an unacceptable one to one in
conformity with generally accepted accounting
principles. The auditor's report on the financial
statements of the year of the change should include:: an
explanatory paragraph explaining the change.

All of the following are conditions requiring a departure

from a standard unqualified audit report except::
Management decided not to allow the auditor to confirm
significant accounts receivable, but the auditor obtained
sufficient appropriate evidence by examining subsequent cash
receipts.

A combined report on financial statements and internal

27.

The introductory paragraph of the standard audit

report performs which functions?
I. State the CPA has performed an audit.
II. Lists the financials being audited.
III. States the financials are the responsibility of the
auditor.: II and III

28.

29.

The introductory paragraph of the standard audit

43.

Scope Limitation: aren't able to collect sufficient evidence

report states that the auditor is:: responsible for the

opinion on the financial statements.

44.

The scope paragraph of the standard unqualified audit

report states that the financial statements are:: the

responsibility of management.
30.

33.

47.

48.

"presented fairly" when the statements are in

accordance with GAAP, and that it is also necessary to::
examine the substance of transactions and balances for possible
misinformation.
36.

49.

37.

50.

51.

52.

53.

40.

41.

Reports Involving Other Auditors (modified wording):

1) make no reference in the audit report 2) make reference in the
report 3) qualify the opinion (or disclaimer)

When a qualified or adverse opinion is issued, the

qualifying paragraph is inserted:: between the scope and
opinion paragraphs.

55.

When comparing misstatements with a measurement

base, the auditor must consider the pervasiveness of the
misstatement. Of the following examples, the most
pervasive misstatement is a(n):: understatement of
inventory.

The phrase "The audit is designed to obtain reasonable

assurance about whether the statements are free of
material misstatements" is included in the introductory
paragraph of an audit report.: False

42.

54.

The phrase "generally accepted accounting principles"

can be found in the opinion paragraph of a standard
unqualified report.: True

When a qualified opinion is issued, an explanatory

paragraph is added immediately after the opinion
paragraph to explain the nature of the qualification that
affects the opinion.: False

The phrase "auditing standards generally accepted in

the United States of America" can be found in the
opinion paragraph of a standard, unqualified audit
report for a public company.: False

When a pervasive scope limitation exists which

paragraphs will be included in the independent
auditors report?: Introductory, Opinion and Explanatory;
NOT scope

of the financial statements.: True

39.

When an auditor discovers a highly material GAAP

violation in the financial statements and the client
refuses to correct it, the auditor should issue a
disclaimer of opinion.: false

PCAOB Auditing Standard No. 2 requires the audit of

A pervasive exception is one that affects different parts

When a company's financial statements contain a

departure from GAAP with which the auditor concurs,
the departure should be explained in:: an explanatory
paragraph that appears before the opinion paragraph

internal control over financial reporting to be

integrated with:: the audit of the financial statements.
38.

When a client has changed their method of valuing

inventory from FIFO to LIFO and the change has a
material effect on the financial statements. If the
auditor does not concur with the appropriateness of the
change, the auditor should issue a(n):: qualified opinion.

The most common case in which conditions beyond the

client's and auditor's control cause a scope restriction
is an engagement:: agreed upon after the client's balance sheet
date.

What type of audit opinion does the independent

auditor issue when the following financial statements
are not presented?: Balance Sheet=Adverse; Income
Statement=Adverse; Statement of Cash Flows= Qualified

A modified unqualified auditor report arises when the

Most auditors believe that financial statements are

Unqualified Report with Explanatory (Add an extra

paragraph 1-4): 1) Lack of consistent application of GAAP 2)
Substantial doubt about going concern 3) Auditor agrees with a
departure from a promulgated principle 4) Emphasis of a matter
(optional with the auditor)

auditor believes the financials are fairly stated but also

believes additional information should be provided.:
True
35.

The standard audit report refers to GAAS and GAAP in

which paragraphs?: GAAS (Scope Only) GAAP (Opinion
Only)

Materiality is essential when an auditor considers

his/her determination of the appropriate report for a
given set of circumstances.: True

34.

46.

Materiality is an essential consideration in determining

the appropriate type of report under a given set of
circumstances. Which of the following is not considered
an immaterial instance that would not cause the
financials to become qualified?: A misstatement in property,
plant and equipment affects a user's decision.

Section 404(b) of the Sarbanes Oxley Act requires that

the auditor of an issuer attest to management's report
on the efficiency of internal controls over financial
reporting.: False

In which situation would the auditor be choosing

between "except for" qualified opinion and an adverse
opinion?: Lack of full disclosure within the footnotes.

32.

45.

In which of the following circumstances would an

auditor most likely express an adverse opinion?: The
financial statements are not in conformity with the FASB
statement on loss contingencies.

31.

report states that the audit is designed to:: obtain

reasonable assurance whether the statements are free of material
misstatement.

The introductory paragraph of the standard audit

56.

When other auditors are involved in the audit and they

qualify their portion of the audit, the principle auditor
must decide if the amount in question is material to the
financial statements as a whole.: True

57.

When the auditor cannot perform procedures and the

amounts are so material that a disclaimer of opinion is
required, the:: scope paragraph will be deleted.

58.

When the auditor determines the financial statements

are fairly stated and then determines that the auditor
lacks independence, the auditor should issue:: a
disclaimer of opinion.

59.

When the auditor evaluates the effect of a change in

accounting principle, the materiality of the change
should be evaluated based on:: the current year.

60.

When the client fails to make adequate disclosure in the

body of the statements or in the related footnotes, it is
the responsibility of the auditor to:: present the
information in the audit report and to issue a qualified or an
adverse opinion.

61.

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?: Error corrections not involving
principles; Changes in accounting estimates; Variations in the
format and presentation of financial information

62.

Which of the following circumstances would not require

more than one report modification in from the
standard unqualified independent auditor's report?:
There is a scope limitation and the auditor's are not independent.

63.

Which of the following is least likely to cause uncertainty

about the ability of an entity to continue as a going
concern?: A potential lawasuit against the entity for a patent
infringement.

64.

Which of the following is not a cause for a modification

of the format for a standard unqualified auditor's
report?: A departure from promulgated accounting principles.

65.

Which of the following is not explicitly stated in the

standard unqualified audit report?: The audit was
conducted in accordance with generally accepted accounting
principles.

66.

Which of the following is true concerning financial

statements issued by a U.S. entity to the Securities and
Exchange Commission?: The United States only allows an
auditor to perform an audit of financial statement of an entity in
accordance with GAAS if they are using International Financial
Reporting Standards.

67.

Which of the following modifications of the auditor's

report does not include an explanatory paragraph?: A
principle auditor accepts the work of another auditor.

68.

Which of the following requires recognition in the

auditor's opinion as to consistency?: The change from the
cost method to the equity method of accounting for investments
in common stock.

69.

Which of the following scenarios does not result in a

qualified opinion?: The auditor lacks independence with
respect to the audited entity.

70.

Which of the following statements are true?

I. The introductory paragraph states that management
is responsible for the preparation and content of the
financial statements.
II. The scope paragraph states that the auditor
evaluates the appropriateness of those accounting
principles, estimates, and financial statement
disclosures.: I and II