Chapter 15 - Part 1

1.

1 point

If the auditor decides to draw attention to large related party transactions occurring in the financial statements of the client, which report will most likely be issued?

Qualified.

Unqualified with an explanatory paragraph.

Adverse.

Consolidation.

2.

1 point

Qualified opinions can only be issued by auditors for which of the following?

Violations of GAAP.

Scope limitations.

Going concern.

Lack of independence.

Either A and B.

3.

1 point

The use of another CPA firm by an audit firm to perform part of the engagement on a client's subsidiary will require the audit firm to do which of the following?

Merge with the other CPA firm.

Perform a peer review on the other CPA firm.

Ensure the independence of the other CPA firm of the client.

List the other firm in the footnotes to the client's financial statements.

4.

1 point

Which of the following is a change that is not being debated by auditing standard setters and investors?

Adding disclosure about which engagement partner at the firm supervised the audit and who from outside the audit firm participated in the audit.

Adding commentary on areas of risk of material misstatement of the financial statements identified by the auditor.

Adding commentary about the level of materiality applied by the auditor to perform the audit.

All of the above are being debated.

5.

1 point

The division of responsibility between the reporting company's management and the audit firm is described in which one of the following?

Scope paragraph.

Introductory paragraph.

Notes to the financial statements.

Opinion paragraph.

6.

1 point

Which one of the following is an instance where the auditor would add a paragraph after the opinion paragraph?

There is serious doubt that the client can continue as a going concern.

Management's disclosures are not adequate.

There are significant uncertainties that are not properly disclosed in the footnotes.

There is a material dollar misstatement in the financial statements.

7.

1 point

When the financial statements contain a material departure from GAAP that the auditor believes is justified, where should the justification appear?

In a footnote.

In a paragraph added before the scope paragraph.

In the opening paragraph.

In a paragraph added before the opinion paragraph.

8.

1 point

Violations of GAAP resulting in qualified opinions affect the standard audit report through which of the following?

Modifying the scope paragraph.

Adding an explanatory paragraph before the opinion paragraph.

Modifying the opinion paragraph to read “except for.”

Both B and C.

All of the above.

9.

1 point

If the auditor believes that there is a remote probability that resolution of an uncertainty will have a material effect on the financial statements, which of the following would the auditor issue?

A disclaimer of opinion.

A standard unqualified opinion.

An adverse opinion.

An unqualified opinion with explanatory paragraphs.

10.

1 point

When the auditor is unable to obtain sufficient appropriate evidence because the client did not allow a procedure to be completed, which of the following would the report most likely contain?

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: No.

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: No.

11.

1 point

Audit reports are designed to promote clear communication between the auditor and the financial statement user. Which of the following is not delineated in the audit report?

What was audited and the relative responsibilities of the client and the auditor.

The experience level of the audit team.

The nature of the audit opinion formulation process.

The auditor’s opinion on the fairness of the financial statements.

12.

1 point

A client company has a history of negative cash flow trends and continuing losses. Which type of opinion will the auditor most likely issue?

Adverse.

Unqualified with explanatory language.

Qualified.

Disclaimer of opinion.

13.

1 point

According to the AICPA, the auditor needs to clearly express an opinion based on audit evidence obtained in the form of a written report. This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?

Principle 1

Principle 4

Principle 5

Principle 7

14.

1 point

Which of the following would not result in an unqualified audit report with an explanatory paragraph?

Going concern issue.

Scope limitation.

Emphasis of a matter.

Consistency of presentation.

15.

1 point

According to the AICPA, the auditor needs to form an opinion on the financial statements based on an evaluation of the audit evidence obtained. This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?

Principle 1

Principle 4

Principle 5

Principle 7

16.

1 point

According to the AICPA principles, which of the following is incorrect?

If the auditor has reservations about the fairness of financial statement presentation, the reason(s) must be stated in the auditor’s report.

If there is a material departure from GAAP in the financial statements, the auditor should explicitly state the nature of the departure and the dollar effects where determinable.

Auditors should state the reasons why an unqualified opinion cannot be issued.

Auditors should issue an unqualified opinion in all cases where companies have provided an entire set of financial statements and footnotes that include all years presented for comparative purposes.

17.

1 point

In the audit of consolidated financial statements under U.S. auditing standards when more than one CPA firm is involved and the principal audit firm chooses to mention the other firm(s), the wording of which paragraph(s) is modified?

Introductory Paragraph: No; Scope Paragraph: No; Opinion Paragraph: Yes.

Introductory Paragraph: No; Scope Paragraph: Yes; Opinion Paragraph: Yes.

Introductory Paragraph: Yes; Scope Paragraph: Yes; Opinion Paragraph: Yes.

Introductory Paragraph: Yes; Scope Paragraph: Yes; Opinion Paragraph: No.

18.

1 point

How would the auditor categorize a situation when the financial statements do not contain a footnote the auditor believes is necessary for fair presentation?

A scope limitation.

An uncertainty.

A departure from GAAP.

An act discreditable.

19.

1 point

The scope paragraph of an unqualified opinion primarily gives information relating to which of the following?

The division of responsibilities.

The final assessment of a company’s standings with the audit firm.

The statements and dates under audit.

Audit planning and procedure.

20.

1 point

In which one of the following instances would an auditor most likely issue a standard unqualified opinion without explanatory language?

Management's disclosures are missing or inadequate.

There is substantial doubt about the entity's ability to continue as a going concern.

There is a significant limitation on the scope of the engagement.

There is an immaterial deviation from GAAP related to capitalizing repairs.

21.

1 point

Which one of the following is not a type of unqualified audit opinion issued by auditors?

Standard with three paragraphs.

Includes explanatory paragraph.

Includes modifications.

Does not include the opinion paragraph.

22.

1 point

Which one of the following is an example of the contents of an opinion paragraph found in an audit report?

"We have audited...."

"Nothing came to our attention..."

"The financial statements referred to above present fairly,..."

"An audit includes examining, on a test basis..."

23.

1 point

When the auditor wishes to emphasize a matter in the financial statements, which of the following would the audit report contain?

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: No.

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: No.

24.

1 point

In which one of the following cases would an auditor most likely issue a qualified opinion?

There is a highly material, and very pervasive departure from SFAS No. 141 and No. 142.

There is a change in accounting principles promulgated by the FASB.

There is an immaterial dollar misstatement on the financial statements.

There is one material departure from GAAP that is affects only two accounts.

25.

1 point

Auditing reporting standards for financial statement and integrated audits require auditors to provide which of the following?

Positive assurance.

Negative assurance.

Materiality assurance.

No assurance.

26.

1 point

When financial statements contain a material, unjustified departure from GAAP, which of the following is contained in the audit report?

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: No.

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: Yes.

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: No.