In which of the following situations would a disclaimer of opinion not be appropriate?

In which of the following situations would a disclaimer of opinion not be appropriate?

a. The auditor is not independent.
b. The client imposed a substantial restriction on the scope of the audit.
c. The financial statements have a departure from GAAP that is not justified.
d. A disclaimer of opinion would be appropriate in all of the above situations.






Answer: C

When disclaiming an opinion because of a client-imposed scope limitation, which of the following is false regarding changes that would be made to the audit report?

When disclaiming an opinion because of a client-imposed scope limitation, which of the following is false regarding changes that would be made to the audit report?

a. The auditor would indicate in a separate paragraph why the audit did not comply with professional auditing standards.
b. The auditor would omit the scope paragraph.
c. The auditor would modify the introductory paragraph.
d. The auditor would omit the opinion paragraph.








Answer: D

When an auditor issues an adverse opinion, which of the following should be included in the opinion paragraph?

When an auditor issues an adverse opinion, which of the following should be included in the opinion paragraph?

a. The reasons that the financial statements are misleading.
b. A reference to a separate paragraph that describes the reason for the adverse opinion.
c. A statement that indicates that the financial statements are fairly stated except for a reason that is described in the separate paragraph.
d. The financial statement effects of the departure from GAAP.








Answer: B

In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?

In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?

a. Information comes to the auditor's attention that raises substantial doubt about the company's ability to continue as a going concern.
b. The auditor is denied access to minutes of board of directors' meetings by the client.
c. Tests of controls indicate that the organization's ICFR is ineffective.
d. The financial statements are not in conformity with FASB requirements regarding the capitalization of leases.








Answer: D

Which of the following phrases should not be used when the auditor is qualifying the audit opinion?

Which of the following phrases should not be used when the auditor is qualifying the audit opinion?

a. With the exception of
b. Except for
c. Subject to
d. Any of the above phrases would be appropriate.








Answer: C

Tech Company has an uncertainty because of pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by which of the following?

Tech Company has an uncertainty because of pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by which of the following?

a. Lack of sufficient evidence.
b. Inability to estimate the amount of loss.
c. The client's lack of experience with such litigation.
d. Adequacy of the disclosures.








Answer: D

Eagle Company's financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. Which of the following audit opinions should the auditor provide?

Eagle Company's financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. Which of the following audit opinions should the auditor provide?

a. Unqualified, but not mention the departure in the auditor's report.
b. Unqualified, and describe the departure in a separate paragraph of the audit report.
c. Qualified, and describe the departure in a separate paragraph of the audit report.
d. Qualified or adverse, depending on materiality, and describe the departure in a separate paragraph of the audit report.










Answer: B

In which of the following situations would an auditor typically issue an unqualified opinion, but include explanatory language?

In which of the following situations would an auditor typically issue an unqualified opinion, but include explanatory language?

a. The client has changed an accounting principle, has reasonable justification for the change, and has followed GAAP in accounting for and disclosing the change.
b. The auditor has substantial doubt about the client being a going concern.
c. The client has had significant transactions with related entities that the auditor wants to emphasize.
d. An auditor would typically issue an unqualified opinion, but include explanatory language, in all of the above situations.






Answer: D

Which of the following describes a situation when an auditor cannot typically issue a standard unqualified audit opinion?

Which of the following describes a situation when an auditor cannot typically issue a standard unqualified audit opinion?

a. The client has prepared its financial statements using IFRS as the financial reporting framework.
b. The auditor has complied with the auditing standards of both the AICPA and the IAASB.
c. The auditor is not independent.
d. The auditor believes that the client will remain a going concern for a reasonable period of time.







Answer: C

In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?

In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?

a. The auditor wishes to emphasize that the entity had significant related-party transactions.
b. The auditor decides to refer to the report of another auditor as a basis, in part, for the auditor's opinion.
c. The entity issues financial statements that present financial position and results of operations but omits the statement of cash flows.
d. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.







Answer: B

Which of the following statements is true regarding the auditor's responsibilities related to reporting?

Which of the following statements is true regarding the auditor's responsibilities related to reporting?

a. Sufficient appropriate evidence should be obtained to afford a reasonable basis for the opinion regarding the financial statements under audit.
b. The audit opinion relates only to the client's financial statements, and does not relate to the required footnote disclosures.
c. If the auditor has reservations about the fairness of presentation of the financial statements, the auditor does not need to provide the reason for this reservation, but needs to only state that the financial statements are not fairly presented.
d. All of the above statements are true.






Answer: A

Which of the following statements is false regarding audit reporting?

Which of the following statements is false regarding audit reporting?

a. The auditor's opinion should be expressed in a written report.
b. The auditor should provide an opinion in accordance with the auditor's findings or state that an opinion cannot be expressed.
c. The opinion should state whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
d. None of the above statements are false.









Answer: D

Which of the following is not a typical communication between the auditor and the audit committee?

Which of the following is not a typical communication between the auditor and the audit committee? 

A. The auditor should clearly communicate the auditor's responsibility under GAAS.
B. The auditor should clearly communicate the planned scope of the audit engagement with the audit committee and discuss its adequacy.
C. The auditor and management should discuss issues related to the retention of both client staff and audit firm staff during the period of audit.
D. All major accounting disagreements with management, even if eventually resolved, should be discussed with the audit committee.









Answer: C

Which of the following is the best example of a Type II subsequent event?

Which of the following is the best example of a Type II subsequent event?

A. Election of new board members.
B. Change in auditors.
C. Inability to collect from a significant customer.
D. Acquisition of a subsidiary.







Answer: D

The date of the audit opinion of Upton Industries, Inc. reads: March 7, 2014 except for Note D, as to which the date is March 12, 2014. What is this an example of?

The date of the audit opinion of Upton Industries, Inc. reads: March 7, 2014 except for Note D, as to which the date is March 12, 2014. What is this an example of? 

A. Improper reporting.
B. A GAAP violation.
C. Dual dating.
D. A contingent event.








Answer: C

Management of AllTech, Inc. refuses to sign the management representation letter given to them in the course of the audit on the grounds that it invades the company's privacy. What does this refusal constitute?

Management of AllTech, Inc. refuses to sign the management representation letter given to them in the course of the audit on the grounds that it invades the company's privacy. What does this refusal constitute? 

A. A violation of full and fair disclosure.
B. A securities law violation.
C. A scope limitation.
D. A breakdown in internal controls.








Answer: C

Which of the following statements is false regarding analytical procedures that help auditors assess the overall final presentation of the financial statements?

Which of the following statements is false regarding analytical procedures that help auditors assess the overall final presentation of the financial statements?

A. By performing a final analytical review, the audit firm will identify any unusual, unexpected or unexplained relationships that should be resolved before the issuance of the audit report.
B. A basic five step process for using analytical procedures applies.
C. Analytical procedures provide evidence on whether certain relationships make sense in light of the knowledge obtained during the audit.
D. Auditing standards require the use of analytical procedures in the final review phase of the audit to assist in identifying ending account relationships that are unusual.








Answer: B

Which of the following is not a typical analytical procedure for the completion of the audit?

Which of the following is not a typical analytical procedure for the completion of the audit? 

A. Ratio analysis
B. Common-size analysis
C. Changes from the prior year
D. All of the above would typically be used









Answer: D

If the auditor concludes that there may be a going-concern problem with the client, which of the following is the best course of action for the auditor to follow?

If the auditor concludes that there may be a going-concern problem with the client, which of the following is the best course of action for the auditor to follow? 

A. Issue a qualified report.
B. Identify and assess management's plan to overcome the situation.
C. Chart the negative trends as an addendum to the audit report.
D. Increase fees to cover the probable exposure.








Answer: B

Which one of the following is false regarding the adequacy of disclosures in a financial statement audit?

Which one of the following is false regarding the adequacy of disclosures in a financial statement audit? 

A. The auditor should consider matters for disclosure while gathering evidence during the course of the audit, not just at the end of the audit.
B. One of the key disclosures is a summary of significant accounting policies used by the company.
C. Disclosures should be limited to only checklist items.
D. The auditor's report does not specifically cover the statements made by management in the "Management Discussion and Analysis" (MD&A) section of the annual report.









Answer: C