Question 1

When expressing an opinion on a specified account or item in the financial statements,the auditor need only consider that account or item.However,the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's
A) net income.
B) retained earnings.
C) assets.
D) working capital.

Accepted Answer

The answer of When expressing an opinion on a specified...

Question 2

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...

Question 3

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

If the auditor believes that the financial statements are misleading, a disclaimer of opinion and explanation of the circumstances are not sufficient to meet their reporting responsibilities. In this case, the auditor may need to withdraw from the engagement or express a qualified or adverse opinion.

Question 4

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 successor auditor must disclose the reasons for any qualification in the predecessor auditor's opinion to provide full transparency and context for the users of the financial statements.

Question 5

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 entity 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 clearly state that the CPA is not independent and should not provide any detailed reasons for the lack of independence. This is in line with Generally Accepted Auditing Standards (GAAS), which require the CPA to explicitly state the reason for the disclaimer when the financial statements are materially affected. However, in cases where the issue is independence, it is sufficient to state that the CPA is not independent without providing any specific details.

Question 6

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

According to the International Standards on Auditing (ISA) 570, when 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, the auditor should include an explanatory paragraph in the auditor's report that specifically uses the phrase "going concern." The auditor is not required to include the phrase "reasonable period of time, not to exceed one year" as the period of time is dependent on the individual circumstances of the entity. Therefore, option C is the best choice.

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. The auditor must ensure that the financial statements disclose all material uncertainties about the entity's ability to continue as a going concern beyond the date on which the financial statements are issued. The auditor does not prepare prospective financial information or project future conditions and events, and issuing a qualified or adverse opinion depends on materiality and the circumstances surrounding the going concern issue.

Question 8

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 auditing standards, the auditor should read the other information in the document containing audited financial statements to consider whether it is materially inconsistent with the audited financial statements. If the auditor becomes aware of a material inconsistency, the auditor should discuss the matter with management and determine whether changes to the financial statements or other information are necessary. However, the auditor generally has no obligation to perform auditing procedures to corroborate the other information or issue an "except for" qualified opinion unless the other information is required by auditing standards to be audited or the auditor chooses to audit such information.

Question 9

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 opinion.
D) reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor.

Accepted Answer

The successor auditor should make reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor. This is because the comparative financial statements would not be complete without the information about the prior year's audit, even if the predecessor auditor's report is not presented. The successor auditor should disclose in the current year's report that the prior year's financial statements were audited by a predecessor auditor and describe any circumstances that led to a change in auditors.

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 will generally be more extensive in scope than the assessment of control risk made during a financial statement audit. This is because the auditor needs to understand the design and implementation of the system of internal control and perform tests of its operating effectiveness. The goal of this engagement is to provide assurance on the effectiveness of the organization's internal control system as a whole.

Question 11

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 an entity'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 not true. While the auditor must consider whether the other information is consistent with the audited financial statements and request that material inconsistencies be corrected, they are not required to perform audit procedures on this other information unless they have been engaged to do so.

Question 12

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. The scope limitation means the auditor is not able to obtain sufficient appropriate audit evidence to support the audit opinion. An unjustified accounting change means the company has changed its accounting policies or methods without proper justification, which has a material effect on the financial statements. In both cases, the auditor may still believe that the financial statements are fairly presented except for the specific limitation or change.

Question 13

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

Opinion based in part on the report of another auditor would not require an explanatory/emphasis-of-matter paragraph because the report of the other auditor already contains the necessary information.

Question 14

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 is required to read the other information and consider whether such information is consistent with the information in the financial statements.
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 required to read the other information and consider whether such information is consistent with the information in the financial statements. However, they are not required to audit or apply tests to supplementary information.

Question 15

When audited financial statements are presented in an entity'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 should read the other information to ensure it is consistent with the audited financial statements, as discrepancies could indicate a need for further investigation or clarification.

Question 16

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) regulatory basis, tax basis, and contractual basis.

Accepted Answer

Auditing standards define special purpose financial statements as those prepared under regulatory basis, tax basis, and contractual basis. These bases of accounting are different from generally accepted accounting principles (GAAP) and therefore require specific auditing procedures to be performed by the auditor.

Question 17

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 should not include an opinion on whether the basis of accounting used is appropriate under the circumstances, as this is not within the auditor's purview. The auditor's role is to assess whether the financial statements are fairly presented in accordance with the specified basis of accounting.

Question 18

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 auditor's report should clearly indicate that the financial statements are prepared on a special purpose framework, such as the income tax basis, to avoid confusion with GAAP statements.

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 information is not audited, so the auditor cannot provide assurance on its accuracy, but the auditor is expected to review and consider whether there are any inconsistencies with the audited financial statements or other known information. Additionally, the auditor should determine whether the "other financial information" is presented in accordance with applicable reporting frameworks, such as generally accepted accounting principles. Therefore, the best course of action is to read and consider the manner of presentation of the "other financial information."

Question 20

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 statement of cash flows is a required part of a company's financial statements according to the Generally Accepted Accounting Principles (GAAP). If a company omits this statement, the auditor cannot express an unqualified opinion, but may issue a qualified opinion stating that the financial statements are fairly presented except for the omission of the statement of cash flows.

Quiz 18: Reports on Audited Financial Statements

When expressing an opinion on a specified account or item in the financial statements,the auditor need only consider that account or item.However,the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's

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

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

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

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

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

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

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 an entity's annual report except:

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

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

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 audited financial statements are presented in an entity's document containing other information,the auditor should

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

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

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

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)