Question 1

Management has decided that the life of a piece of heavy equipment should be decreased from 15 years to 10 years thus increasing the annual amortization.The auditor agrees that this amortization period is more reflective of the nature of the asset.The type of audit report that should be issued is:

Accepted Answer

The change in the amortization period is a change in accounting estimate, which is acceptable if it reflects the asset's nature. Since the auditor agrees with the change, an unqualified opinion is appropriate.

Question 2

"The company has not made an allowance for bad debts for an account deemed uncollectible in the amount of $250,000 as of the year ended December 31, 2001..." is an example of a

Accepted Answer

The failure to make an allowance for bad debts is a departure from GAAP because it affects the accuracy of the financial statements by not properly accounting for potential losses.

Question 3

An auditor most likely would issue a disclaimer of opinion because of

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence, which can occur if management refuses to provide written representations.

Question 4

A holding company has decided to carry its wholly owned subsidiary companies in the balance sheet using the equity method.The type of audit report required is

Accepted Answer

The answer of A holding company has decided to carry...

Question 5

An auditor who is reporting on financial statements that contain a material departure from generally accepted accounting principles should include a separate explanatory paragraph and

Accepted Answer

When financial statements contain a material departure from GAAP, the auditor should express a qualified or adverse opinion, depending on the severity of the departure, and include an explanatory paragraph.

Question 6

Restrictions imposed by a client prohibited the observation of physical inventories that account for 35% of total assets.Alternative audit procedures for inventory were not feasible, although the auditor was able to obtain satisfactory evidence for all other items in the financial statements.The auditor should express

Accepted Answer

The auditor should express a disclaimer of opinion because the inability to observe the physical inventory and the lack of alternative procedures result in a scope limitation that is material and pervasive.

Question 7

Under which of the following circumstances would a disclaimer of opinion be appropriate?

Accepted Answer

A disclaimer of opinion is appropriate when the auditor is unable to obtain sufficient appropriate audit evidence, such as when the client refuses access to important documents like the minutes of the Board of Director's meetings.

Question 8

An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client.The auditor believed that an adjustment should be made to the financial statements.The opinion paragraph of the audit report should express

Accepted Answer

The "except for" opinion is appropriate when there is a departure from generally accepted accounting principles that is material but not pervasive, which aligns with the situation described where there is a disagreement on an adjustment.

Question 9

A disclaimer of opinion generally indicates

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion, resulting in uncertainty about the financial statements as a whole.

Question 10

If financial statements contain a very material departure from GAAP such that the financial statements are virtually useless, the auditor can render a (an)

Accepted Answer

An adverse opinion is issued when financial statements contain a very material departure from GAAP, making them misleading or useless, and the auditor references the departure.

Question 11

Green, CPA, was engaged to audit the financial statements of Essex Co.after its fiscal
Year had ended.The timing of Green's appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtors impracticable.Green applied other procedures and was satisfied as to the reasonableness of the account balances.Green's auditor's report most likely contained a (an)

Accepted Answer

Green was satisfied with the reasonableness of the account balances through other procedures, so an unqualified opinion is appropriate.

Question 12

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

Accepted Answer

The answer of In which of the following situations would...

Question 13

What is the best description of the basis on which an auditor issues her report on financial statements?

Accepted Answer

The answer of What is the best description of the...

Question 14

In which of the following circumstances may the auditor issue the standard unqualified, unmodified audit report?

Accepted Answer

The answer of In which of the following circumstances may...

Question 15

CA has been engaged to audit the financial statements of Marchano Ltd., a manufacturer of toys.Several individuals are suing the company because of a toy that injured children.The company has not disclosed the lawsuit in its financial statements.The type of audit report issued should be:

Accepted Answer

The company has not disclosed a material lawsuit, which is a departure from GAAP, thus requiring a GAAP qualification in the audit report.

Question 16

When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a (an)

Accepted Answer

When a client restricts access to outside legal counsel, it limits the auditor's ability to obtain sufficient appropriate audit evidence, leading to a scope limitation. This typically results in a disclaimer of opinion.

Question 17

An auditor decided to issue a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevented the auditor from applying necessary procedures.The opinion paragraph of the auditor's report should state that the qualification pertains to

Accepted Answer

The qualification is due to the possible effect of the lack of audit evidence on the financial statements, as the auditor could not apply necessary procedures due to inadequate records.

Question 18

An auditor will issue an adverse opinion when

Accepted Answer

An adverse opinion is issued when there is a material and pervasive violation of GAAP that affects the financial statements, making them misleading or misstated.

Question 19

In which of the following circumstances is an auditor most likely to express an adverse opinion?

Accepted Answer

The answer of In which of the following circumstances is...

Question 20

In Canada, when there has been a change in accounting principles and the effect of the change has been properly disclosed the auditor should

Accepted Answer

The answer of In Canada, when there has been a...

Quiz 3: Reports on Audited Financial Statements and Audited Internal Controlt