Audit Chapter 12
A. Make suggestions as to the form or content of the financial statements or to draft the in whole or in part.
B. Express an opinion on the fairness with which the statements present financial position, results from operations, and cash flow in accordance with generally accepted accounting principles.
C. Ensure adoption of sound accounting policies and the establishment and maintenance of internal control.
D. Express an opinion on the accuracy with which the statement present financial position, results of operation, and cash flows in accordance with generally accepted accounting principles.
A. Management has the responsibility for maintaining and adopting sound accounting policies, and the auditor has responsibility for internal control.
B. Management has responsibility for the basic data underlying financial statements, and the auditor has the responsibility for drafting the financial statements.
C. The auditor’s responsibility is confined to the audited portion of the financial statements, and the management’s responsibility is confined to the unaudited portions.
D. The auditor’s responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
A. Indicators of possible bias exist in management’s judgment
B. The accounting principles used are the most conservative available.
C. Management and those charged with governance agree with all the standards used in the reporting process.
D. The auditor and management agree with all the standards used in the reporting process.
A. It is difficult to prepare financial statements that fairly present a company’s financial position, results of operations, and cash flows without the expertise of an independent auditor.
B. It is management’s responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.
C. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
D. It is a customary courtesy that all shareholders of a company receive an independent report on management’s stewardship in managing the affairs of the business.
A. The external auditor found no fraud
B. The company is financially sound and the financial statements are accurate
C. Internal control is effective
D. Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor.
A. Assure investors of the complete accuracy of the financial statements
B. Clarify for the public the nature of the auditor’s responsibility and performance
C. Deter creditors from extending loans in high-risk situations
D. Describe the specific auditing procedures undertaken to gather evidence for the opinion.
A. Regional stock exchange
B. Securities and Exchange Commission
C. Board of directors of Donley.
D. Investors in Donley securities
A. Quality control
B. Generally accepted auditing standards, which include the concept of materiality
C. The auditor’s assessment of the risk of material misstatement
D. Generally accepted accounting principles
A. Qualified and describe the departure in a separate paragraph
B. Unmodified but not mention the departure in the auditor’s report
C. Qualified or adverse, depending on materiality, and describe the departure in an other-matter paragraph.
D. Unmodified and describe the departure in an other-matter paragraph.
A. All information pertaining to the company must be disclosed in the statements or related notes, even though some of the disclosures are potentially detrimental to the company or its shareholders.
B. All information believed by the auditor to be essential to the fair presentation of the financial statements must be disclosed, no matter how confidential management believes the data to be.
C. Statement notes should be written in very technical language to avoid misinterpretation by the reader.
D. A statement note must be clearly detail any deficiencies contained in the financial statements themselves.
A. Users with a reasonable knowledge of business
B. All readers of the financial statements
C. Experts in accounting and finance
D. Governmental regulatory agencies
A. Information essential for a fair presentation should be set forth in the financial statements
B. Omission of a statement of cash flows is considering inadequate disclosure
C. Inadequate disclosure normally results in the auditor including the required information in the report
D. The auditor should never disclosure information in the report that the client has not shown in the financial statements.
A. Can express an unmodified opinion
B. Must comment in the auditor’s responsibility
C. Is required to disclaim an opinion if the inventories were material
D. Must qualify the opinion if the inventories were material
A. A “subject to” opinion
B. A qualified opinion
C. An unmodified opinion
D. An adverse opinion
A. Disclose that alternative procedures were used because of a management-imposed scope limitation
B. Disclosure in the opinion paragraph that confirmation of accounts receivable was impracticable
C. Not mention the alternative procedures
D. Refer to a note that discloses the alternative procedures
A. Disclaimer of opinion
B. Adverse opinion
C. Scope qualification
D. Unmodified opinion
A. Chief operating officer
C. Board of director’s
D. Chief financial officer
A. The shareholders, XYZ Corporation
B. The State Bank
C. The board of directors, XYZ Corporation
D. Whom it may concern
A. December 31, Year 1
B. February 13, Year 2
C. February 16, Year 2
D. February 28, Year 2
A. the auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained
B. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect this date.
C. Auditing standards require all audits to be performed on a timely basis
D. It should coincide with the date of the financial statements
A. Issuance of the report
B. No earlier than competition of the auditor’s most recent audit
C. Latest financial statements being reported on
D. Last subsequent event disclosed in the statements
A. Limited to include only events occurring before the date of the last subsequent event referenced.
B. Limited to the specific event referenced
C. Extended to subsequent events occurring through the date of issuance of the related financial statements.
D. Extended to include all events occurring since the original report date
A. Dual-date the reissued report
B. Use the release date of the reissued report
C. Use the original report date on the reissued report
D. Use the current-prod auditor’s report date on the reissued report
A. Extend auditing procedures
B. Accept responsibilities for subsequent events
C. Permit inclusion of a note captioned “event (unaudited) subsequent to the date of auditor’s report”
D. Assume responsibility for events subsequent to the issuance of the auditor’s report
A. Request the client to disclosure the event in a separate, appropriately labeled note to the financial statements and reissue the original report with its original date
B. Request the client to restate the financial statement and reissue the original report with a dual date
C. Reissue the original report with its original date without regard to whether the event is disclosed in separate note to the financial statements.
D. Not reissue the original report but expresses a subject to qualified opinion that discloses the event in a separate explanatory paragraph.
A. Modify the opinion and dual date the audit report. No additional audit procedures are required.
B. Date the audit report as of the original date of the auditor’s report and caption the note disclosing the subsequent event as being subsequent to the completion of the audit procedures.
C. Not modify the audit opinion if the event is properly disclosed and date the audit report as of the original date of the auditor’s report.
D. Either dual date he audit report of date the audit report as of the time of the competition of the extended audit procedures.
A. Yes, No
B. Yes, Yes
C. No, Yes
D. No, No
A. Express an unmodified opinion but insert a emphasis-of-matter paragraph with a reference to the note
B. Disclaim an opinion
C. Not allow the accounting treatment for this item to affect the type of opinion because the misstatement was disclosed.
D. Qualifying the opinion because of the misstatement
A. Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification
B. Qualify the opinion and describe the misstatement within the opinion paragraph
C. Disclaim an opinion and explain the effect of the misstatement in a disclaimer of opinion paragraph
D. Disclaim an opinion and describe the misstatement within the opinion paragraph
A. Express an unmodified opinion provided the nature of the adjustment and the amounts involved are disclosed in notes
B. Express a qualified opinion
C. Disclaim an opinion
D. Express an adverse opinion
A. Unmodified opinion
B. Qualified opinion
C. Adverse opinion
D. Qualified or adverse opinion
Auditor’s Responsibility Section
A. Yes, No, No
B. Yes, Yes, No
C. No, Yes, Yes
D. No, No, Yes
A. A scope limitation prevents the auditor from completing an important audit procedure
B. The auditor’s report refers to the work of a specialist
C. An accounting principle at variance with the applicable financial reporting framework is used
D. The auditor lack independence with respect to the audited entity
Circumstances Related to the Work
Limitations Imposed by Management
A. Yes, Yes
B. Yes, No
C. No, Yes
D. No, No
Auditor’s Responsibility Section
Notes to the Financial Statements
A. Yes, Yes
B. Yes, No
C. No, Yes
D. No, No
A. Qualified opinion or disclaimer or opinion.
B. Disclaimer or opinion and an unmodified opinion with an emphasis-of-matter paragraph
C. Unmodified opinion with an emphasis-of-matter paragraph and an adverse opinion
D. Adverse opinion and a qualified opinion
A. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to its balance by other auditing procedures
B. The financial statements fail to disclose information that is required by the applicable reporting framework
C. The auditor is asked to report only on the entity’s balance sheet and not on the other basic financial statements.
D. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity’s ability to continue as a going concern.
A. A severe scope limitation has been imposed by management
B. A misstatement is material and pervasive
C. A qualified opinion cannot be expressed because the auditor lacks independence
D. The company’s ability to continue as a going concern is subject to substantial doubt.
A. The effects of the material misstatement
B. A direct reference to a separate paragraph disclosing the basis for the opinion
C. The financial effects of the misstatement
D. A description of the uncertainty or scope limitation that prevents an unmodified opinion
A. An unmodified opinion with an emphasis-of-matter paragraph
B. Either a qualified opinion or an adverse opinion
C. Either a disclaimer of opinion or a qualified opinion
D. Either an adverse opinion or a disclaimer or opinion
A. A compilation report offers some assurances. A disclaimer offered none.
B. A compilation relates only to income statements and balance sheets. A disclaimer pertains to all financial statements presented.
C. Any procedures applied in a compilation should be described in the report, but procedures applied when a disclaimer is issued should not be described.
D. A compilation report states what service was performed. A disclaimer states what service was to be performed.
A. Material misstatement
B. Inadequate disclosure of accounting policies
C. Inability to obtain sufficient appropriate audit evidence
D. Unreasonable justification for a change in accounting principle
A. The financial statements contain a material misstatement
B. Material related party transactions are disclosed in the financial statements
C. There has been a material change between periods in the method of application of accounting principles
D. The auditor is unable to obtain sufficient appropriate evidence to support management’s assertions concerning an uncertainty
A. Users may be misled regarding the degree of responsibility the CPA is accepting
B. A fee cannot be charged unless the CPA is associated with financial statements
C. Association is necessary for compliance with the requirement of due professional care
D. An audit must be performed if the CPA is in any way related to the financial statements
A. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances
B. The auditor is unable to determine the amounts associated with fraud committed by the client’s management
C. The financial statements fail to contain adequate disclosures concerning related party transactions
D. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry
A. Express an adverse opinion and describe the appropriate revision in the report
B. Refer to the appropriate revision and issue a modified report expressing limited assurance
C. Describe the appropriate revision to the financial statements in the accountant’s disclaimer of opinion
D. Accept the client’s inaction because the statements are unaudited and the accountant has disclaimed an opinion
A. Express limited assurance that no other material modifications should be made to the financial statements
B. Restrict the distribution of the CPA’s report to management and the entity’s board of directors
C. Issue a qualified opinion or adverse opinion depending on the materiality of the departure from GAAP
D. Describe the nature of the departure from GAAP in the CPA’s report and state the effects on the financial statements, if practicable.
A. Engages the auditor after the year-end physical inventory count is completed
B. Fails to correct a material internal control weakness that had been identified during the prior year’s audit
C. Refuses to furnish a management representation letter to auditor
D. Prevents the auditor from reviewing the audit documentation from the predecessor auditor.
A. Express an unmodified opinion with an other-matter paragraph
B. Disclaim an opinion on the financial statements.
C. Express a adverse opinion on the financial statements
D. Issue a special report regarding the illegal bribes
A. Presents financial statements that are prepared in accordance with the cash receipts and disbursements basis of accounting
B. States that the financial statements are not intended to be presented in accordance with generally accepted accounting principles
C. Does not make the minutes of the board of directors’ meeting available to the auditor
D. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
A. Management’s failure to present supplementary information required by the FASB
B. Inadequate disclosure of material information
C. A management-imposed limitation
D. A signification number of changes in accounting principles
A. The year under consideration for the audit has already ended
B. The client has many significant related party transactions
C. A limitation of its scope exists that many necessitate a disclaimer
D. The auditor already has a number of clients in the same industry
A. Asks the auditor to report on the balance sheet and not not he other basic financial statements
B. Refuses to permit its lawyer to respond to the letter of audit inquiry
C. Discloses material related party transactions in the notes to the financial statements
D. Knows that confirmations of accounts receivable is not feasible
A. Is unable to obtain audited financial statements supported the entity’s investment in a foreign subsidiary
B. Refuses to disclose in the notes to the financial statements related party transactions authorized by the board of directors
C. Does not attend discussions held amount the audit team about the susceptibility of the financial statements to material misstatements
D. Fails to correct a significant deficiency in internal control communicated to the audit committee after the prior year’s audit
I. Green’s name not be included in the communication
II. The financial statements be marked as unaudited, with a notation that no opinion is expressed on them.
A. I only
B. II only
C. Both I and II
D. Either I or II
Include a Paragraph Following the Opinion Paragraph
Specifically Use the Words “Going Concern
Specifically Use the Words “Substantial Doubt”
A. Yes, Yes, Yes
B. Yes, Yes, No
C. Yes, No, Yes
D. No, Yes, Yes
A. The auditor is asked to report on the balance sheet but no on the other basic financial statements
B. There is substantial doubt about the entity’s ability to continue as a going concern
C. Management’s estimates of the effects of future events are unreasonable.
D. Certain material transactions cannot be tested because of management’s records retention policy.
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in process.
What type of opinion should the auditor express under these circumstances?
B. “Subject to” qualified.
C. “Except for” qualified
A. Express an unmodified opinion.
B. Express an unmodified opinion with a separate emphasis-of-matter paragraph
C. Disclaim an opinion
D. Express a qualified opinion or disclaim an opinion, depending upon the materiality of the loss
A. Withdraw from the engagement
B. Value the assets on a liquidation basis
C. Plan to conduct a complete audit rather than perform procedures on a test basis
D. Include in the report a paragraph describing the nature of the difficulties
A. Resolution of an uncertainty related to and discovered in the current period
B. Removal in the current period of a double about the entity’s ability to continue as a going concern.
C. Determination in the current period that a substantial doubt exists about the entity’s ability to continue as a going concern for a reasonable time
D. Purchase and consolidation of a new company by the client
A. Only in the management’s responsibility for the financial statements paragraph
B. Only in the emphasis-of-matter paragraph
C. In in the introductory paragraph and the opinion paragraph
D. In the opinion paragraph and the basis for modification paragraph
A. Is significantly affected by a major catastrophe
B. Has omitted a statement of cash flows
C. Has had a usually important subsequent event
D. Has significant related party transactions
A. An important audit procedure was performed.
B. The client suffered a major catastrophe
C. Significant transactions with related parties were recored
D. Unusually important subsequent events occurred.
A. Is considered a qualification of the opinion
B. Violates auditing standards if this information is already disclosed in notes to the financial statements
C. Necessitates a revision of the opinion paragraph to include the phrase “with the foregoing explanation”
D. Is appropriate and would not negate the unmodified opinion
A. A material misstatement
B. A matter that is not presented or disclosed in the financial statements that is relevant to users’ understanding of the audit
C. A matter that management wishes to highlight
D. A matter appropriately presented or disclosed in the financial statements
A. The opinion on the prior-period statement has changed
B. Required supplementary information is presented
C. A predecessor auditor’s report is not reissued
D. The client has materially restated the prior year’s comparative financial statements.
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