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| 1 | |
An auditor includes a separate paragraph in an unmodified opinion to emphasize that there is significant doubt about the entity’s ability to continue as a going concern. The inclusion of this separate paragraph |
| | A) | Is appropriate and would not negate the unmodified opinion. |
| | B) | Is considered an ‘except for’ qualification of the opinion. |
| | C) | Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. |
| | D) | Necessitates a revision of the opinion paragraph to include the phrase ‘with the foregoing explanation’. |
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| 2 | |
Which of the following is not a major element of an audit report with an unmodified opinion? |
| | A) | Introductory paragraph. |
| | B) | Auditor’s responsibility paragraph. |
| | C) | Timeline paragraph. |
| | D) | Auditor’s opinion paragraph. |
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| 3 | |
The existence of audit risk is best recognized by the statement in the auditor’s report that the |
| | A) | The procedures selected depend on the auditor’s judgement. |
| | B) | Auditor obtains reasonable assurance about whether the financial statements are free from material misstatement. |
| | C) | An audit also includes evaluating the appropriateness of accounting policies used. |
| | D) | Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. |
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| 4 | |
The basic elements of a standard audit report with an unmodified opinion include all of the following except: |
| | A) | A statement that the financial statements are the responsibility of management. |
| | B) | A title that includes the word ’Independent’. |
| | C) | A statement that although estimates are believed to be reasonable, there are normally differences between actual and estimated results. |
| | D) | A statement that an audit also includes evaluating of the reasonableness of accounting estimates made by management. |
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| 5 | |
In which of the following situations would an auditor ordinarily issue an unmodified financial statement audit opinion with no emphasis of matter/other matter paragraph? |
| | A) | The auditor wishes to emphasize that the entity applied a new accounting standard in advance of its effective date, that has a pervasive effect on the financial statements. |
| | B) | The auditor concludes that the financial statements are fairly stated. |
| | C) | The entity issues financial statements that present financial position and results but omits the statement of cash flows. |
| | D) | The auditor has significant doubt about the entity’s ability to continue as a going concern and the circumstances are fully disclosed in the financial statements. |
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| 6 | |
In which of the following situations is an auditor permitted to issue an audit report with an unmodified opinion (assume all information is material)? |
| | A) | The entity has omitted required note disclosures. |
| | B) | Management prevents the auditor from conducting an audit procedure that the auditor considers necessary. |
| | C) | The auditor is unable to obtain sufficient appropriate evidence in support of assets reported by a consolidated subsidiary. |
| | D) | The entity failed to make a large debt payment during the subsequent event period. |
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| 7 | |
Which of the following is not a situation that would require an emphasis of matter paragraph in an audit report with an unmodified opinion? |
| | A) | A material uncertainty that cast significant doubt on the entity’s ability to continue as a going concern exists and adequate disclosure is made in the financial statements. |
| | B) | An uncertainty relating to the future outcome of a massive litigation action exists. |
| | C) | A devastating fire of the production facilities that has a significant effect on the entity’s financial position has occurred. |
| | D) | The auditor is unable to apply necessary procedures concerning the entity’s share of an investee’s earnings recognized on the equity method. |
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| 8 | |
Eagle Company had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient appropriate audit evidence relating to Eagle’s inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either |
| | A) | A qualified opinion or a disclaimer of opinion. |
| | B) | A qualified opinion or an adverse opinion. |
| | C) | An unqualified opinion with no emphasis of matter paragraph or an unqualified opinion with an emphasis of matter paragraph. |
| | D) | A qualified opinion with no emphasis of matter paragraph or a qualified opinion with an emphasis of matter paragraph. |
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| 9 | |
Tech Company has disclosed an uncertainty due to pending litigation. The auditor’s decision to issue a qualified opinion on Tech’s financial statements would most likely result from |
| | A) | A lack of sufficient appropriate evidence. |
| | B) | An inability to estimate the amount of loss. |
| | C) | The entity’s lack of experience with such litigation. |
| | D) | A lack of insurance coverage for possible losses from such litigation. |
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| 10 | |
In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion on a client’s financial statements? |
| | A) | Departure from the applicable financial reporting framework. |
| | B) | Inadequate disclosure of accounting policies. |
| | C) | Inability to obtain sufficient appropriate evidence. |
| | D) | Significant doubt about the entity’s ability to continue as a going concern. |
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| 11 | |
King, independent auditor, was engaged to audit the financial statements of Chang Company after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King’s financial statement audit report most likely contained a(n) |
| | A) | Qualified opinion. |
| | B) | Disclaimer of opinion. |
| | C) | Unmodified opinion. |
| | D) | Unmodified opinion with an emphasis matter paragraph. |
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| 12 | |
What type of opinion is expressed when the financial statements are not presented fairly? |
| | A) | Unmodified. |
| | B) | Qualified. |
| | C) | Highly qualified. |
| | D) | Adverse. |
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| 13 | |
Which of the following is true with respect to a scope limitation? |
| | A) | The auditor can choose to issue an audit report with an adverse opinion or disclaim an opinion. |
| | B) | The auditor will generally issue an audit report with a qualified opinion or disclaim an opinion. |
| | C) | The auditor may not issue an audit report with an unmodified opinion even if the auditor can compensate for the scope limitation by performing alternative procedures. |
| | D) | The auditor should withdraw from the engagement. |
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| 14 | |
An auditor decides to express a qualified opinion on an entity’s financial statements because a major inadequacy in the entity’s electronic accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification pertains to |
| | A) | A client-imposed scope limitation. |
| | B) | A departure from auditing standards. |
| | C) | The possible effects of the inadequacy in the entity’s records on the financial statements. |
| | D) | Inadequate disclosure of necessary information. |
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| 15 | |
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? |
| | A) | The auditor did not observe the entity’s physical inventory and is unable to become satisfied about its balance by other auditing procedures. |
| | B) | The inventory account is misstated due to improper test of lower of cost or net realizable value. |
| | C) | An early application of a new accounting standard in advance of its effective date that has a pervasive effect on the financial statements. |
| | D) | The auditor is unable to apply necessary procedures concerning an investor’s share of an investee’s earnings recognized on the equity method. |
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| 16 | |
Which of the following is corresponding figures? |
| | A) | Separate financial statements for the prior periods for comparison with the financial statements of the current period. |
| | B) | Comparative information whereby amounts and other disclosures for the prior periods are an integral part of the current-period financial statements. |
| | C) | Financial statements prepared in accordance with a special reporting framework. |
| | D) | Summary financial statements derived from financial statements audited in accordance with ISAs by that same auditor. |
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| 17 | |
An auditor notifies management that there is a material inconsistency between other information provided in the annual report and the correct information in the audited financial statements. If management refuses to revise the material inconsistency in the annual report, the auditor is not permitted to |
| | A) | Include an ‘other matter’ paragraph in the audit report. |
| | B) | Withhold the audit report until the material inconsistency is corrected. |
| | C) | Withdraw from the engagement. |
| | D) | Issue a qualified opinion. |
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| 18 | |
Which of the following best describes the auditor’s responsibility for ‘other information’ included in the annual report to stockholders that contains financial statements and the auditor’s report? |
| | A) | The auditor has no obligation to read the ‘other information’. |
| | B) | The auditor has no obligation to corroborate the ‘other information’ but should read the ‘other information’ to determine whether it is materially inconsistent with the financial statements. |
| | C) | The auditor should extend the examination to the extent necessary to verify the ‘other information’. |
| | D) | The auditor must modify the opinion in the audit report to state that the other information ‘is unaudited’ or ‘is not covered by the auditor’s report’. |
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| 19 | |
When reporting on financial statements prepared on the basis of accounting used for income tax purposes, the auditor should include in the report a paragraph that |
| | A) | Emphasizes that the financial statements have not been examined in accordance with auditing standards. |
| | B) | Refers to the authoritative pronouncements that explain the income tax basis of accounting being used. |
| | C) | Emphasizes that the financial statements are prepared on an income tax basis of accounting. |
| | D) | Justifies the use of the income tax basis of accounting. |
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| 20 | |
Nationwide Life Insurance Co. prepares its financial statements using a special purpose framework required according to the rules of the insurance regulators. Fagan, Nationwide’s independent auditor, discovers that the financial statements do not describe the basis of the accounting. Nationwide refuses to correct the error. Fagan should |
| | A) | Explain in the notes to the financials the terminology used. |
| | B) | Issue a disclaimer of opinion. |
| | C) | Qualify the opinion. |
| | D) | Appeal to the insurance regulators for an advisory opinion. |
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| 21 | |
When an auditor is asked to express an opinion on an entity’s rent and royalty revenues, he or she may |
| | A) | Not accept the engagement because to do so would be tantamount to agreeing to issue a piecemeal opinion. |
| | B) | Not accept the engagement unless also engaged to audit the full financial statements of the entity. |
| | C) | Accept the engagement, provided the auditor’s opinion is expressed in a special report. |
| | D) | Accept the engagement, provided distribution of the auditor’s report is limited to the entity’s management. |
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