Deck 16: Auditors Reports

Question 1

When the audit client has engaged other audit firms to audit remote locations around the country,the principal auditor must mention the other auditors in his or her report.

Answer 1

False

Question 2

When the auditor concludes that there are no material weaknesses,that is,that internal controls are effective,the auditor would typically issue an unqualified opinion on internal controls.

Answer 2

True

Question 3

The substantial doubt about an entity's ability to continue is a phrase that is used in an unqualified opinion with a certain type of explanatory language.

Answer 3

True

Question 4

When financial statements contain generally accepted accounting principles in the current year that are different from the generally accepted accounting principles used in the preceding year,the auditor will typically make mention of it in the opinion.

Question 5

If the firm auditing a company realizes that it is not independent with respect to the client,it will issue a qualified of opinion based on the inherent GAAP violation imposed by the audit firm.

Question 6

If the auditor concludes that the financial statements taken as a whole are not fairly presented,the auditor should issue an adverse opinion.

Question 7

The audit report delineates the responsibility of client management and that of the audit firm.

Question 8

Uncertainties,such as doubt about the going concern of a client,may result in an adverse opinion.

Question 9

When the auditor is unable to obtain sufficient,competent evidence concerning the beginning inventory,which is material,the report is modified by adding an explanatory paragraph prior to the opinion paragraph and the auditor would issue an adverse opinion.

Question 10

A justified departure from GAAP will result in the issuance of an adverse opinion.

Question 11

A client that has a departure from generally accepted accounting standards that is immaterial will receive a qualified or adverse opinion.

Question 12

After the balance sheet date but prior to the last day of fieldwork the client decides to acquire PaperWeight Company to obtain a significant increase in revenues.The auditor would probably give a report that includes the statement: "except for the acquisition of PaperWeight Company...".

Question 13

The client will not allow Olivia and Company,CPAs to read the minutes of the board of director's meetings that occurred during the year under audit.Such a limitation will usually result in the auditor issuing a disclaimer/scope limitation.

Question 14

An auditor is not required to tell the reader of an audit report when there has been a change in accounting principles that materially affects the financial statements.

Question 15

The failure of a client to include a statement of cash flow will result in the issuance of a disclaimer of opinion by the auditor.

Question 16

If scope limitations that are not client-imposed exist,which makes it impossible for the auditor to form an opinion,the auditor should render an adverse opinion.

Question 17

Negative assurance implies that nothing has come to the reviewer's attention that requires change.

Question 18

The term "except for" is used in the opinion paragraph of an audit report that will be qualified for a GAAP violation.

Question 19

Andrews Corporation adopted an accounting principle that is a material departure from GAAP.The auditor determined that the financial statements are fairly presented,except for this specifically identifiable GAAP departure,and therefore would issue a disclaimer of opinion.

Question 20

Review reports issued by auditors give positive assurance as to the fair presentation of financial statements.

Question 21

Review reports give limited assurance on financial statements and is lesser in scope than an audit.

Question 22

Scope paragraph of an unqualified opinion mostly gives information relating to division of responsibilities.

Question 23

One procedure that is common to an audit engagement,as well as to both the compilation and review engagement,is the engagement letter.

Question 24

An auditor is required to tell the reader of an audit report when there has been impairment of goodwill or long-lived assets that has been recorded and disclosed by the client.

Question 25

An auditor can issue a disclaimer of opinion because of lack of evidence.

Question 26

Special reports would include compliance with contractual agreements.

Question 27

A compilation may be performed by CPAs or accountants who are not certified or licensed.

Question 28

When circumstances preclude an auditor from performing certain procedures and the auditor is satisfied using other alternative procedures,a disclaimer of opinion will be rendered.

Question 29

When performing a review of the financial statements the auditor must confirm cash balances and physically observe assets.

Question 30

The auditor need not be independent to perform a review engagement as it has a scope that is far less than that of an audit.

Question 31

An unqualified audit opinion with an explanatory paragraph often makes reference to the footnotes to the financial statements

Question 32

It is common for an auditor to issue a compilation report on financial statements that omit all of the disclosures required by GAAP.

Question 33

A report on compliance with a contractual agreement typically involves the use of negative assurance by the auditor in a separate report.

Question 34

Reporting on a specified account is a form of special report that an auditor may issue in relation to a specific basis of accounting.

Question 35

The performance of inquiry and analytical review procedures to provide a reasonable basis for expressing limited assurance is required for a review service.

Question 36

An auditor does not express an opinion on the fairness of the financial statements when issuing a standard compilation report.

Question 37

A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

Question 38

When a public accounting firm issues a report on financial statements that are issued on an other comprehensive basis of accounting,this special report includes an opinion paragraph identical to an adverse opinion.

Question 39

A state insurance commission requires an insurance company to prepare its financial statements in accordance with Statutory Accounting Principles.This situation may prevent an auditor from issuing a special report on the financial statements as this is not a recognized alternative comprehensive basis.

Question 40

The SEC requires public filers to have quarterly financial information reviewed by independent auditors.

Question 41

In which one of the following instances would an auditor most likely issue a disclaimer of opinion?

A)Management will not sign a management representation letter.
B)Management declines to provide a statement of cash flow.
C)The auditor is independent of the client.
D)The auditor is unable to confirm receivables but performs alternative procedures.

Question 42

Restrictions on the scope of the audit whether imposed by the client or circumstances may require the auditor to issue either a qualified or an adverse opinion.

Question 43

Inconsistent application of accounting principles by the client is a GAAP violation and would result in a qualified audit report.

Question 44

For a client with serious going concern issues the auditor has to make a choice between issuing an unqualified audit report with an explanatory paragraph or a disclaimer.

Question 45

Attestation standards require that the practitioner evaluate whether there is reasonable criteria capable of reasonably consistent estimation by which to judge the assertions being made in the engagement.

Question 46

A report on agreed-upon procedures issued by accountants provides a form of attestation assurance.

Question 47

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

A)Adverse.
B)Unqualified with explanatory language.
C)Qualified.
D)Disclaimer of opinion.

Question 48

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

A)There is serious doubt that the client can continue as a going concern.
B)Management's disclosures are not adequate.
C)There are significant uncertainties that are not properly disclosed in the footnotes.
D)There is a material dollar misstatement on the financial statements.

Question 49

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

A)Standard with three paragraphs.
B)Includes explanatory paragraph.
C)Includes modifications.
D)Does not include the opinion paragraph.

Question 50

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

A)"We have audited...."
B)"nothing came to our attention..."
C)"the financial statements do not present fairly..."
D)"An audit includes examining,on a test basis..."

Question 51

In which one of the following instances would an auditor most likely issue a standard unqualified opinion?

A)Management's disclosures are missing or inadequate.
B)There is substantial doubt about the entity's ability to continue as a going concern.
C)There is a significant limitation on the scope of the engagement.
D)There is an immaterial deviation from GAAP related to capitalizing repairs.

Question 52

Pro forma financial information shows what the significant effects might have been had a consummated or proposed transaction or event occurred at an earlier date.

Question 53

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

A)There is a highly material,and very pervasive departure from SFAS No.141 and No.142.
B)There is a change in accounting principles promulgated by the FASB.
C)There is an immaterial dollar misstatement on the financial statements.
D)There is a material departure from GAAP that is centered around two accounts.

Question 54

An audit of the Wynning Company,a diamond mining company,brings to light the fact that its equipment (a material account on the balance sheet)has been marked up to the owners' expectation of market values.Such a situation will most likely result in which type of report?

A)Disclaimer.
B)Review.
C)Adverse.
D)Unqualified with explanatory language.

Question 55

A company issuing prospective financial statements can receive a compilation on the statements but not an examination.

Question 56

A review report issued by a public accounting firm on a public client's interim financial statements includes reference to adherence to standards of the Public Company Accounting Oversight Board.

Question 57

The opinion paragraph of the audit report for SchnookCo.states that the financial statements "do not present fairly".Which type of audit report is this?

A)Improper.
B)Adverse.
C)Disclaimer.
D)Qualified.

Question 58

For a change in accounting principles that management does not justify to the auditor,the auditor has a choice for the audit report between a qualified or an adverse opinion.

Question 59

In which one of the following instances would an auditor issue an adverse opinion?

A)Management declines to present earnings per share in the income statement.
B)There is substantial doubt about the entity's ability to continue as a going concern.
C)There is a material dollar misstatement that overshadows the entire financial statement.
D)The client does not allow the auditor to send confirmations to its three largest clients.

Question 60

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

A)should appear in a footnote.
B)should appear in a paragraph added before the scope paragraph.
C)should appear in the opening paragraph.
D)should appear in a paragraph added before the opinion paragraph.

Question 61

Which of the following represents the standards followed by CPAs providing a review of a client's financial statements?

A)Statements on Standards for Accounting and Review Services.
B)Statements on Auditing Standards.
C)Statements on Standards for Consulting and Review Services..
D)Statements on Accounting Principles.

Question 62

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

A)a disclaimer of opinion.
B)a standard unqualified opinion.
C)an adverse opinion.
D)an unqualified opinion with explanatory paragraphs.

Question 63

When an auditor is faced with a material departure from GAAP that is pervasive,the audit report should contain

A)an unqualified opinion.
B)a qualified opinion with an explanatory paragraph.
C)an adverse opinion.
D)a disclaimer of opinion.

Question 64

When financial statements contain a material,unjustified departure from GAAP,the audit report should contain an explanatory paragraph
A qualification after the opinion paragraph

A)Yes No
B)Yes Yes
C)No Yes
D)No No

Question 65

An accounting service that involves performing inquiry and analytical procedures to provide a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with GAAP is best know as

A)a compilation.
B)an audit.
C)a review.
D)an agreed upon procedure.

Question 66

When the auditor wishes to emphasize a matter in the financial statements,the audit report should contain an explanatory paragraph
A qualification after the opinion paragraph

A)Yes No
B)Yes Yes
C)No Yes
D)No No

Question 67

When the CPA is not independent with respect to a client,the CPA must

A)not accept an attestation engagement.
B)include a separate paragraph in the audit report stating the lack of independence.
C)provide a review report.
D)report the non-compliance with the AICPA.

Question 68

When an auditor lacks independence with respect to a client,the auditor should issue

A)a disclaimer of opinion.
B)an adverse opinion.
C)a qualified opinion with explanatory paragraph.
D)an unqualified opinion.

Question 69

When the financial statements do not contain a footnote the auditor believes is necessary for fair presentation,the failure to include the footnote is considered to be

A)a scope limitation.
B)an uncertainty.
C)a departure from GAAP.
D)an act discreditable.

Question 70

When an accountant is asked to compile financial statements that omit substantially all of the required disclosures,the CPA may

A)not accept the engagement.
B)accept the engagement.
C)accept the engagement if the CPA believes the omission is not undertaken to mislead users.
D)express an adverse opinion.

Question 71

The review service provided by the CPA firm requires the CPA to

A)make inquiries concerning matters affecting the financial statements.
B)confirm accounts receivable.
C)test internal controls.
D)provide reasonable assurance.

Question 72

Compilations can be performed for Public Nonpublic
Companies Companies

A)Yes Yes
B)No No
C)No Yes
D)Yes No

Question 73

In which one of the following instances would an auditor not issue a disclaimer of opinion?

A)The auditors are not invited to the periodic inventory at year end.
B)There are significant misstatements in the financial statements.
C)There is a significant limitation on the scope of the engagement.
D)There is insufficient evidence for the auditor to form an opinion on the fairness of the financial statements.

Question 74

The division of responsibility between the reporting company's management and the auditor firm is set forth in the

A)scope paragraph.
B)introductory paragraph.
C)notes to the financial statements.
D)opinion paragraph.

Question 75

In the audit of consolidated financial statements 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 Scope Opinion
Paragraph Paragraph Paragraph

A)No No Yes
B)No Yes Yes
C)Yes Yes Yes
D)Yes Yes No

Question 76

When the CPA is not independent with respect to a compilation client,the CPA must

A)not accept the engagement.
B)include a separate paragraph in the report stating the lack of independence.
C)change the engagement to a review engagement.
D)issue a disclaimer.

Question 77

A CPA is required to be independent to perform Audits Reviews Compilations

A)Yes Yes Yes
B)Yes Yes No
C)Yes No No
D)Yes No Yes

Question 78

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?

A)Qualified.
B)Unqualified with an explanatory paragraph
C)Adverse.
D)Consolidation.

Question 79

A review report provides the user with which one of the following types of assurance?

A)Reasonable assurance.
B)Basic assurance.
C)Absolute assurance.
D)Limited assurance.

Question 80

When the auditor is unable to obtain sufficient competent evidence because the client did not allow a procedure to be completed,the report will most likely contain an explanatory paragraph
A qualification after the opinion paragraph

A)Yes No
B)Yes Yes
C)No Yes
D)No No