Question 1

When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the client's financial statement?
A) When the auditor believes the financial statements are misleading.
B) When the auditor was unable to observe the taking of the physical inventory.
C) When the auditor is uncertain about the outcome of a material uncertainty.
D) When the auditor has performed insufficient auditing procedures to express an opinion.

Accepted Answer

An auditor's reporting responsibilities cannot be met simply by attaching an explanation and disclaimer if they believe the financial statements are misleading. The auditor must take additional steps to ensure that the financial statements are not misleading and express an appropriate opinion on them.

Question 2

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements.The disclaimer should
A) Clearly state the specific reasons for lack of independence.
B) Not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards.
C) Not describe the reason for lack of independence but should state specifically that the CPA is not independent.
D) Include a middle paragraph clearly describing the CPA's association with the client and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.

Accepted Answer

The disclaimer should not only state that the CPA is not independent, but it should also clearly state the specific reason for lack of independence. This is done in order to provide transparency to the users of financial statements. Option A is too specific and may not be necessary, whereas option B is not specific enough. Option D includes additional information that may not be required for a disclaimer of opinion.

Question 3

What is an auditor's responsibility for supplementary information,such as segment information,that is outside the basic financial statements,but required by the FASB?
A) The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.
B) The auditor's only responsibility for required supplementary information is to assist in preparing the supplementary information.
C) The auditor should apply certain limited procedures to the required supplementary information and report deficiencies in or omissions of, such information.
D) The auditor should apply tests of details of transactions and balances to the required supplementary information and report any material misstatements in such information.

Accepted Answer

The auditor is responsible for applying certain limited procedures to required supplementary information and reporting any deficiencies or omissions in such information. The auditor is not required to perform tests of details on this information unless it is included in the audited financial statements. Therefore, option A and D are not correct. The auditor is also not responsible for preparing the supplementary information, which makes option B incorrect.

Question 4

When an auditor reports on financial statements prepared on an entity's income tax basis,the auditor's report should
A) Be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.
B) Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
C) Not express an opinion on whether the statements are presented in conformity with the basis of accounting used.
D) Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.

Accepted Answer

The answer of When an auditor reports on financial statements...

Question 5

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in a client's annual report except:
A) The auditor is under no obligation to perform audit procedures on this other information.
B) The auditor must consider whether the other information is consistent with the information contained in the audited financial statements.
C) The auditor must request that material inconsistencies be corrected.
D) The auditor must perform audit procedures on this other information.

Accepted Answer

The statement "The auditor must perform audit procedures on this other information" is false. While the auditor must consider whether the other information is consistent with the audited financial statements and request material inconsistencies be corrected, they are not required to perform audit procedures on the other information.

Question 6

When audited financial statements are presented in a document containing other information,the auditor
A) Has an obligation to perform auditing procedures to corroborate the other information.
B) Is required to issue an "except for" qualified opinion if the other information has a material misstatement of fact.
C) Should read the other information to consider whether it is inconsistent with the audited financial statements.
D) Has no responsibility for the other information because it is not part of the basic financial statements.

Accepted Answer

According to the auditing standards, when audited financial statements are presented in a document containing other information, the auditor should read the other information to consider whether it is materially inconsistent with the audited financial statements. However, the auditor has no obligation to perform auditing procedures to corroborate the other information or issue an "except for" qualified opinion unless the other information contains a material misstatement of fact impacting the audited financial statements. While the other information is not part of the basic financial statements, the auditor should still consider whether it is consistent with the audited financial statements.

Question 7

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time,the auditor's responsibility is to
A) Prepare prospective financial information to verify whether management's plans can be effectively implemented.
B) Project future conditions and events for a period of time not to exceed one year following the date of the financial statements.
C) Issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements.
D) Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Accepted Answer

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to consider the adequacy of disclosure about the entity's possible inability to continue as a going concern. This involves evaluating whether the disclosures in the financial statements are appropriate and adequate to inform users of the financial statements of the potential issues and risks associated with the entity's ability to continue as a going concern. This may involve evaluating the adequacy of management's plans to mitigate risks and address financial difficulties, as well as assessing the likelihood of success of these plans. Depending on the nature and extent of the issues identified, the auditor may also need to consider whether to modify the audit opinion to include a qualified or adverse opinion. However, the primary responsibility is to ensure that the disclosures in the financial statements are appropriate and adequate.

Question 8

An auditor may reasonably issue an "except for" qualified opinion for
A) A scope limitation or an unjustified accounting change.
B) A scope limitation, but not an unjustified accounting change.
C) An unjustified accounting change, but not a scope limitation.
D) Neither an unjustified accounting change nor a scope limitation.

Accepted Answer

An auditor may issue an "except for" qualified opinion when there is a scope limitation or an unjustified accounting change. This means that, despite these issues, the financial statements are fairly presented in all material respects. However, an auditor cannot issue an "except for" qualified opinion for just an unjustified accounting change or just a scope limitation.

Question 9

Auditing standards define special purpose financial statements as including those prepared under the following base(s)
A) Regulatory basis.
B) Tax basis.
C) Contractual basis.
D) All of the above.

Accepted Answer

Special purpose financial statements may be prepared under any of the bases mentioned in options A, B, and C, among others. Therefore, option D, which includes all of the above, is the most appropriate choice.

Question 10

An engagement to express an opinion on a system of internal control will generally
A) Only require those procedures already applied in assessing control risk during a financial statement audit.
B) Increase the reliability of the financial statements that have already been audited.
C) Be more extensive in scope than the assessment of control risk made during a financial statement audit.
D) Be more limited in scope than the assessment of control risk made during a financial statement audit.

Accepted Answer

An engagement to express an opinion on a system of internal control is more extensive in scope than the assessment of control risk made during a financial statement audit. This is because it involves evaluating the design and operation of the system of internal control as a whole, rather than only assessing control risk for specific financial statement assertions.

Question 11

When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented,the successor auditor should make
A) No reference to the predecessor auditor.
B) Reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion.
C) Reference to the predecessor auditor only if the predecessor auditor expressed an unqualified/unmodified opinion.
D) Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor.

Accepted Answer

When reporting on comparative financial statements, the successor auditor should always make reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor. This reference should include the type of opinion expressed by the predecessor auditor and the date of the auditor's report. This is required by generally accepted auditing standards to provide users of the financial statements with continuity of information and to enhance their understanding of the financial statements.

Question 12

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except:
A) An opinion as to whether the basis of accounting used is appropriate under the circumstances.
B) An opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting.
C) Reference to the note to the financial statements that describes the basis of presentation.
D) A statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles.

Accepted Answer

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include an opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting (option B), a reference to the note to the financial statements that describes the basis of presentation (option C), and a statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles (option D). Option A is incorrect because the auditor should express an opinion on whether the financial statements are presented fairly in conformity with the other basis of accounting, not on whether the basis of accounting used is appropriate under the circumstances.

Question 13

When audited financial statements are presented in a client's document containing other information,the auditor should
A) Perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B) Add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements.
C) Perform the appropriate substantive auditing procedures to corroborate the other information.
D) Read the other information to determine that it is consistent with the audited financial statements.

Accepted Answer

The auditor is required to read the other information to ensure it is consistent with the audited financial statements, but is not required to perform additional procedures unless inconsistencies are found.

Question 14

Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?
A) Additional emphasis.
B) Lack of consistency in the financial statements due to accounting changes.
C) Going concern.
D) Opinion based in part on the report of another auditor.

Accepted Answer

When the auditor's opinion is based in part on the report of another auditor, a reference is made to the other auditor in the auditor's report, but no explanatory paragraph is required. On the other hand, additional emphasis, lack of consistency, and going concern are all situations that would require an explanatory/emphasis-of-matter paragraph in the auditor's report.

Question 15

In the auditor's report,the principal auditor decides not to make reference to another CPA who audited a client's subsidiary.The principal auditor could justify this decision if,among other requirements,the principal auditor
A) Issues an unqualified/unmodified opinion on the consolidated financial statements.
B) Learns that the other CPA issued an unqualified/unmodified opinion on the subsidiary's financial statements.
C) Is unable to review the other CPA's audit programs and working papers.
D) Is satisfied as to the other CPA's independence and professional reputation.

Accepted Answer

The principal auditor can decide not to make reference to another CPA if they are satisfied with the other CPA's independence and professional reputation, indicating trust in their work without needing to review it directly.

Question 16

Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor whose report is not presented.If the predecessor auditor's report was qualified,the successor auditor must
A) Obtain written approval from the predecessor auditor to include the prior year's financial statements.
B) Issue a standard comparative audit report indicating the division of responsibility.
C) Express an opinion on the current year statements alone and make no reference to the prior year statements.
D) Disclose the reasons for any qualification in the predecessor auditor's opinion.

Accepted Answer

The answer of Comparative financial statements include the financial statements...

Question 17

If a public company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows,the auditor ordinarily will express a(an)
A) Disclaimer of opinion.
B) Qualified opinion.
C) Review report.
D) Unqualified opinion with a separate explanatory paragraph.

Accepted Answer

The answer of If a public company issues financial statements...

Question 18

An auditor concludes 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 auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s)
A) "Reasonable period of time, not to exceed one year" and "going concern."
B) "Reasonable period of time, not to exceed one year" but not "going concern."
C) "Going concern" but not "reasonable period of time, not to exceed one year."
D) Neither "going concern" nor "reasonable period of time, not to exceed one year."

Accepted Answer

The auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase "going concern" when the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern. The phrase "reasonable period of time, not to exceed one year" is not required, but can be included if the auditor believes it is necessary to clarify the time frame under consideration. As the entity's financial difficulties are adequately disclosed, an explanatory paragraph addressing the going concern issue is sufficient, and neither phrase is required. Choice C is the best choice as it includes the required phrase, "going concern," without including unnecessary information.

Question 19

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to
A) Indicate in the auditor's report that the "other financial information" is unaudited.
B) Consider whether the "other financial information" is accurate by performing a limited review.
C) Obtain written representations from management as to the material accuracy of the "other financial information."
D) Read and consider the manner of presentation of the "other financial information."

Accepted Answer

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to read and consider the manner of presentation of the "other financial information." This means that the auditor should review the information for consistency and clarity, and ensure that it is presented fairly and accurately. It is not the auditor's responsibility to audit or review this information, and indicating that it is unaudited or obtaining written representations from management may create an inappropriate level of assurance.

Question 20

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements?
A) First standard.
B) Second standard.
C) Third standard.
D) Fourth standard.

Accepted Answer

The answer of Which of the generally accepted auditing standards...

Quiz 18: Reports on Audited Financial Statements

When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the client's financial statement?

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements.The disclaimer should

What is an auditor's responsibility for supplementary information,such as segment information,that is outside the basic financial statements,but required by the FASB?

When an auditor reports on financial statements prepared on an entity's income tax basis,the auditor's report should

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in a client's annual report except:

When audited financial statements are presented in a document containing other information,the auditor

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time,the auditor's responsibility is to

An auditor may reasonably issue an "except for" qualified opinion for

Auditing standards define special purpose financial statements as including those prepared under the following base(s)

An engagement to express an opinion on a system of internal control will generally

When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented,the successor auditor should make

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except:

When audited financial statements are presented in a client's document containing other information,the auditor should

Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?

In the auditor's report,the principal auditor decides not to make reference to another CPA who audited a client's subsidiary.The principal auditor could justify this decision if,among other requirements,the principal auditor

Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor whose report is not presented.If the predecessor auditor's report was qualified,the successor auditor must

If a public company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows,the auditor ordinarily will express a(an)

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements?