 |
| 1 | |
In their examination, the auditors concluded that True Fax's financial statements presented its financial condition, results of operations, and cash flows in accordance with GAAP. In his "Letter to Stockholders" in the annual report, True Fax's president states that this year was the most profitable year in the company's history. Actually, the company did better profit-wise last year according to the audited financial statements. What type of opinion should the auditors issue? |
| | A) | An unmodified opinion with an additional paragraph noting the inconsistency. |
| | B) | A disclaimer of opinion because the additional information accompanying the financial statements was not audited. |
| | C) | An adverse opinion because the annual report does not fairly present the financial condition of the company. |
| | D) | A qualified opinion because the president's letter is not part of the audited financial statements. |
|
|
|
| 2 | |
The auditors conclude that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditors' report is required to include an emphasis-of-matter paragraph that specifically mentions.
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0077862341/1014840/Ch12_q2.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (8.0K)</a>]]>
|
| | A) | a. |
| | B) | b. |
| | C) | c. |
| | D) | d. |
|
|
|
| 3 | |
Auditors may express a qualified opinion because of
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0077862341/1014840/Ch12_q3.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (12.0K)</a>]]>
|
| | A) | a. |
| | B) | b. |
| | C) | c. |
| | D) | d. |
|
|
|
| 4 | |
In which of the following situations could auditors express an unmodified opinion with an emphasis-of-matter paragraph? |
| | A) | The auditors wish to emphasize that the entity had lost a significant customer. |
| | B) | The auditors decide to not refer to the report of component auditors as a basis, in part, for their opinion on group financial statements. |
| | C) | The entity issues financial statements that present its financial position, results of operations, and cash flows in accordance with GAAP but omits the necessary footnote disclosures. |
| | D) | At the entity's request, their attorney has refused to respond to the auditors' inquiries about ongoing litigation. |
|
|
|
| 5 | |
The group auditors decide not to assume responsibility for the work of component auditors who audited a wholly owned subsidiary of the group financial statements. The total assets and revenues of the subsidiary represent 27% and 28% of the related group financial statements. If no issues are encountered in either the group auditors' or component auditors' examination, what type of opinion should the group auditors issue? |
| | A) | Unmodified opinion. |
| | B) | Adverse opinion. |
| | C) | Qualified opinion. |
| | D) | Disclaimer of opinion. |
|
|
|
| 6 | |
The opinion paragraph of the auditors' report states: "In our opinion, with the exception of the effects of not observing inventory in one of the client's Siberian warehouses, as discussed in the preceding paragraph, the financial statements present fairly, in all material respects..." This paragraph expresses a(n) |
| | A) | Unmodified opinion. |
| | B) | Adverse opinion. |
| | C) | Qualified opinion. |
| | D) | Opinion modified because of an uncertainty. |
|
|
|
| 7 | |
In which of the following circumstances would auditors be most likely to express an adverse opinion? |
| | A) | The chief executive officer refuses the auditors access to minutes of board of directors' meetings. |
| | B) | The entity's internal control is so poor that control risk must be assessed at the maximum level. |
| | C) | The financial statements are not in accordance with generally accepted accounting principles regarding the valuation of marketable securities. |
| | D) | The entity has filed for bankruptcy and appears to be subject to going-concern uncertainties. |
|
|
|
| 8 | |
Auditors were unable to obtain sufficient appropriate evidence concerning certain transactions because a fire destroyed all the entity's accounting records. Given these circumstance, auditors would most likely choose between a(n) |
| | A) | Qualified opinion and an unmodified opinion with an emphasis-of-matter paragraph. |
| | B) | Unmodified opinion with an emphasis-of-matter paragraph and an adverse opinion. |
| | C) | Adverse opinion and a disclaimer of opinion. |
| | D) | Disclaimer of opinion and a qualified opinion. |
|
|
|
| 9 | |
Auditors who are reporting on financial statements that contain a material departure from GAAP should include an additional paragraph and |
| | A) | Not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote. |
| | B) | Disclaim an opinion on the financial statements. |
| | C) | Express a qualified or adverse opinion. |
| | D) | Express a qualified opinion or disclaim an opinion. |
|
|
|
| 10 | |
When auditors mention consistency in their report, a reader of the financial statements may infer that |
| | A) | GAAP has been not consistently observed in the current period in relation to the preceding period. |
| | B) | A material departure from GAAP has been detected. |
| | C) | A reclassification of items or change in classifications has occurred. |
| | D) | Nothing about application of accounting principles within the period. |
|
|
.