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1 | |
Which paragraph of the standard audit opinion states the financial statements are the responsibility of the company's management? |
| | A) | Conclusionary paragraph. |
| | B) | Introductory paragraph. |
| | C) | Scope paragraph. |
| | D) | Opinion paragraph. |
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2 | |
Which paragraphs of an auditor's standard report on financial statements should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP)?
GAAS GAPP |
| | A) | Introductory Scope |
| | B) | Scope Scope |
| | C) | Scope Opinion |
| | D) | Introductory Opinion |
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3 | |
Which of the following is true regarding the notes to financial statements prepared following GAAP? |
| | A) | Notes are not required, but are typically included by all companies. |
| | B) | Notes are not required, since they only give additional information contained in the financial statements. |
| | C) | Notes are an integral part of the financial statements. |
| | D) | Notes are not encompassed in the auditors' opinion of the financial statements since they are supplementary information. |
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4 | |
An auditor would express an unqualified opinion with an explanatory paragraph added to the audit report for:
An unjustified accounting change material weakness in the internal control |
| | A) | Yes Yes |
| | B) | Yes No |
| | C) | No Yes |
| | D) | No No |
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5 | |
In which of the following conditions is an unqualified audit opinion least likely? |
| | A) | The auditor believes that substantial doubt about the entity's ability to continue as a going concern exists. |
| | B) | the auditor believes that inventory is valued at market values that accurately reflect market conditions and materially exceed cost. |
| | C) | The audit was conducted with no circumstance imposed scope limitations. |
| | D) | GAAP were not consistently applied from year to year. |
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6 | |
CPA Firm A qualifies as the principal auditor. However, since Firm A did not have the resources, it hired CPA Firm B to audit a subsidiary of the client located in Bolivia. If Firm A is willing to take responsibility for the work of Firm B, which type of audit report is Firm A most likely to issue? |
| | A) | Unqualified-standard report. |
| | B) | Unqualified with explanatory language. |
| | C) | Qualified with explanatory language. |
| | D) | Disclaimer of opinion. |
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7 | |
If a company's financial statements violate GAAP for an immaterial item which is expected to become material in the future, then the audit opinion the company will likely receive is: |
| | A) | Unqualified-standard report. |
| | B) | Unqualified with explanatory language. |
| | C) | Qualified. |
| | D) | Adverse. |
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8 | |
In performing an audit, a client was found to have changed the estimated useful life of its assets. The auditors believe that the change in useful lives is realistic. The appropriate report is: |
| | A) | Unqualified-standard report. |
| | B) | Unqualified with explanatory language. |
| | C) | Qualified. |
| | D) | Disclaimer. |
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9 | |
Which of the following conditions is most likely to result in auditor consideration of issuing a going concern modification? |
| | A) | A decrease in profitability as compared to the previous year. |
| | B) | A loss contingency related to a lawsuit. |
| | C) | Default on a loan agreement. |
| | D) | A material related party transaction. |
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10 | |
Which statement is correct concerning a disclaimer of opinion and an adverse opinion? |
| | A) | A disclaimer of opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements, while an adverse opinion indicates that the financial statements are materially misstated. |
| | B) | A disclaimer of opinion indicates that the financial statements are materially misstated, while an adverse opinion indicates that the auditor has not been able to gather enough evidence to render an opinion on the financial statements. |
| | C) | The opinions are generally equivalent, except an adverse opinion includes a going concern paragraph. |
| | D) | Adverse opinions indicate that the financial statements are materially misstated, while a disclaimer indicates that the financial statement are "so wrong" that no opinion can be given. |
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11 | |
When a company has a probable and material loss contingency, and the company has accrued the loss in the financial statements, the appropriate audit opinion is ordinarily which of the following? |
| | A) | Adverse opinion. |
| | B) | Qualified opinion. |
| | C) | Standard unqualified opinion. |
| | D) | Unqualified opinion with explanatory language. |
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12 | |
A departure from GAAP with a material effect on the financial statements is most likely to result in a(n): |
| | A) | Disclaimer of opinion. |
| | B) | Qualified opinion. |
| | C) | Standard unqualified opinion. |
| | D) | Unqualified opinion with explanatory language. |
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13 | |
In which circumstance would an auditor be most likely to express an adverse opinion? |
| | A) | The chief executive officer refuses the auditor access to minutes of the board of directors' meetings. |
| | B) | Tests of controls show that the client's internal control is so poor that it cannot be relied upon. |
| | C) | The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases. |
| | D) | Information comes to the auditor's attention that raises substantial doubt about the client's ability to continue as a going concern. |
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14 | |
Addition of an "emphasis of a matter" paragraph to what remains an unqualified opinion is least likely for which of the following situations? |
| | A) | Related party transactions. |
| | B) | Scope limitation. |
| | C) | A large subsequent event. |
| | D) | An uncertainty. |
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