Question 1

Any CPA firm in the U.S. that audits more than 100 public companies is required to have an annual inspection by the PCAOB.

Accepted Answer

Firms that audit more than 100 issuers (public companies) are subject to annual inspections by the Public Company Accounting Oversight Board (PCAOB), as mandated by the Sarbanes-Oxley Act of 2002.

Question 2

In the Arab world, the review of the quality of the audit provided by auditing firms is undertaken by the international CPA networks.

Accepted Answer

The answer of In the Arab world, the review of...

Question 3

In Egypt, the Egyptian Society of Accountants and Auditors has established a unit responsible for monitoring the quality of services provided by registered audit firms with the Capital Market Authority.

Accepted Answer

The answer of In Egypt, the Egyptian Society of Accountants...

Question 4

To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be:

Accepted Answer

The answer of To emphasize the fact that the auditor...

Question 5

The purpose of the introductory paragraph in the standard unmodified report is:

Accepted Answer

The introductory paragraph in the standard unmodified report primarily serves to identify the financial statements that were audited, including specifying the dates and time periods these statements cover. This sets the context for the reader about what the report will address.

Question 6

An auditor determines the financial statements include a material departure from IFRS. Which type of opinion may be issued?

Accepted Answer

The answer of An auditor determines the financial statements include...

Question 7

When the auditor evaluates the effect of a change in accounting principle, the materiality of the change should be evaluated based on:

Accepted Answer

The materiality of a change in accounting principle should be evaluated based on the current year effect of the change, as it directly impacts the financial statements being audited.

Question 8

Conditions requiring a departure from an unmodified audit report include all but which of the following?

Accepted Answer

C) is the correct choice because it describes a situation where, despite an initial limitation (management not allowing confirmation of significant accounts receivable), the auditor was able to obtain sufficient appropriate audit evidence through alternative procedures (examining subsequent cash receipts). This would not require a departure from an unmodified audit report, as the auditor was still able to satisfactorily complete the audit procedures.

Question 9

PCAOB Auditing Standard 5 requires the audit of internal control over financial reporting to be integrated with:

Accepted Answer

PCAOB Auditing Standard 5 requires the audit of internal control over financial reporting to be integrated with the audit of the financial statements, ensuring a comprehensive evaluation of the financial reporting process.

Question 10

The audit report indicates that (1) management is responsible for the content of the financial statements and (2) the auditor is responsible for evaluating the appropriateness of the accounting principles chosen by management. Which paragraph contains those statements?

Accepted Answer

The management's responsibility paragraph contains the statement about management's responsibility for the financial statements, while the auditor's responsibility paragraph contains the statement about the auditor's responsibility for evaluating the appropriateness of accounting principles.

Question 11

Whenever an auditor issues a qualified opinion, the implication is that the auditor:

Accepted Answer

A qualified opinion is issued when the auditor concludes that the financial statements are presented fairly in all material respects except for a specific issue that does not misrepresent the financial position as a whole.

Question 12

The necessity to issue a disclaimer of opinion may arise because of:

Accepted Answer

A disclaimer of opinion may be necessary due to a lack of independence between the auditor and the client, which compromises the auditor's objectivity, or because of a severe limitation on the scope of the audit, which prevents the auditor from obtaining sufficient appropriate audit evidence.

Question 13

Whenever there is a scope restriction, the appropriate response is to issue a(n):

Accepted Answer

When there is a scope restriction, the auditor's response depends on the materiality of the information that cannot be audited. Depending on the situation, the auditor may issue an unmodified report (if the matter is not material), a qualified opinion (if the matter is material but not pervasive), or a disclaimer of opinion (if the matter is both material and pervasive).

Question 14

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

Accepted Answer

A client's lawsuit against another company for patent infringement is less directly related to the financial health or operational stability of the entity in question compared to working capital deficiencies, significant recurring operating losses, or the loss of major customers. These other factors directly impact the entity's ability to generate revenue and manage its debts, thus more directly influencing its ability to continue as a going concern.

Question 15

When a client has not applied IFRS consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in IFRS has a material effect on the financial statements, the auditor should issue a(n):

Accepted Answer

A qualified opinion is issued when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion. In this case, the auditor does not agree with the inconsistency in applying IFRS, which has a material effect, thus leading to a qualified opinion.

Question 16

Which of the following is not a change that affects consistency and, therefore, does not require an emphasis of matter paragraph?

Accepted Answer

Changes in estimates, like adjusting the useful life of an asset, are part of the normal accounting process and do not typically require an emphasis of matter paragraph in the auditor's report. Changes in accounting principles, corrections of errors, and changes in the reporting entity are more significant and might require such a paragraph.

Question 17

When a company's financial statements contain a departure from IFRS with which the auditor concurs, the departure should be explained in:

Accepted Answer

An emphasis of a matter paragraph is used to draw attention to a matter that is appropriately presented or disclosed in the financial statements but is of such importance that it is fundamental to users’ understanding of the financial statements. When there is a departure from IFRS that the auditor agrees with, it should be explained in an emphasis of a matter paragraph to ensure that the users of the financial statements are adequately informed about the departure and its implications. This paragraph appears before the opinion paragraph to highlight its significance before presenting the auditor's opinion.

Question 18

Which of the following representations does an auditor make explicitly and which implicitly when issuing an unmodified opinion?

Accepted Answer

The answer of Which of the following representations does an...

Question 19

Auditors issue several types of 'special audit reports.' Which of the following circumstances wouldnot require the issuance of a special audit report?

Accepted Answer

Special audit reports are issued for reasons other than the standard financial statement audit, such as audits of specific financial components (A), reviews of internal controls (B), or financial statements prepared on a basis other than generally accepted accounting principles, like the cash basis (D). The accrual basis (C) is a standard accounting method, so it would not require a special audit report.

Question 20

Which of the following will not cause the auditor to issue a standard unmodified report with an emphasis of matter paragraph or modified wording?

Accepted Answer

An auditor's disagreement with a client's departure from IFRS would lead to a modified audit opinion, not an unmodified opinion with an emphasis of matter paragraph or modified wording. The emphasis of matter or modified wording is used to draw attention to matters that are appropriately presented or disclosed in the financial statements, not to indicate disagreements over accounting policies or their application.

Quiz 1: The Demand for Audit, Cpa Profession, Audit Reports and Other Assurance Services