Professional Documents
Culture Documents
AudTheory Test Bank
AudTheory Test Bank
AudTheory Test Bank
a 4. The management of a client company believes that the statement of cash flow is not a useful
document and refuses to include one in the annual report to stockholders. As a result,
the auditor's opinion should be
a. Qualified due to inadequate disclosure.
b. Qualified due to a scope limitation.
c. Adverse
d. Unqualified.
d 5. An auditor would issue an adverse opinion if
a. The audit was begun by other independent auditors who withdrew from the
engagement.
b. A qualified opinion cannot be given because the auditor lacks independence.
c. The restriction on the scope of the audit was significant.
d. The statements taken as a whole do not fairly present the financial position, results
of operations, and cash flows of the company.(AICPA ADAPTED)
d 6. The fourth reporting standard requires that the auditor's report contain either an expression
of opinion regarding the financial statements taken as a whole or an assertion that an
opinion cannot be expressed. The objective of the fourth standard is to prevent
a. An auditor from reporting on one basic financial statement and not the others.
b. An auditor from expressing different opinions on each of the basic financial
statements.
c. Management from reducing its responsibility for the basic financial statements.
d. Misinterpretations about the degree of responsibility the auditor assumes. (AICPA
ADAPTED)
d 7. An auditor's opinion read as follows: "In our opinion, except for the above-mentioned
limitation on the scope of our audit.." This is an example of a(n)
a. Review opinion.
b. Emphasis on matter.
c. Qualified opinion.
d. Unacceptable reporting practice.
(AICPA ADAPTED)
c 8. An auditor's report includes a statement that "the financial statements do not present fairly
the financial position in conformity with generally accepted accounting
principles." This auditor's report was probably issued in conection with financial
statements that were
a. Prepared on a comprehensive basis for accounting other than GAAP.
b. Restricted for use by management.
c. Misleading.
d. Condensed. (AICPA ADAPTED)
c 9. If the auditor believes there is minimal likelihood that resolution of an uncertainty will have
a material effect on the financial statements, the auditor would issue a(n)
a. Qualified opinion.
b. Adverse opinion.
c. Unqualified opinion.
d. Disclaimer of opinion.
b 10. If an accounting change has no material effect on the financial statements in the current
year but the change is reasonably certain to have a material effect in laer years, the
change should be
a. Treated as a consistency modification in the auditor's report for the current year.
b. Disclosed in the notes to the financial statements of the current year.
c. Disclosed in the notes to the financial statements and referred to in the auditor's
report for the current year.
d. Treated as a subsequent event. (AICPA ADAPTED)
c 11. When comparative financial statements are presented, the fourth reporting standard, which
refers to financial statements "taken as a whole", should be considered to apply to the
financial statements of the
a. Periods presented plus one preceding period.
b. Current period only.
c. Current period and those of the other periods presented.
d. Current and immediately preceding period only.
b 12. An auditor's standard report expressed an unqualified opinion and includes an explanatory
paragraph that emphasizes a matter included in the notes to the financial
statements. The auditor's report would be deficient if the explanatory paragraph states
that the entity
a. Is a component at a larger business enterprise.
b. Has changed from the completed contract method to the percentage of completion
method to account for long term construction contracts.
c. Has had a significant subsequent event.
d. Has accounting reclassifications that enhance the comparability between
years. (AICPA ADAPTED)
d 13. Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in,
first-out method to value the other half. Assuming the auditor is satisfied in all other
respects, under these circumstances the auditor will issue a(n)
a. Opinion modified due to inconsistency.
b. Unqualified opinion with an explanatory middle paragraph.
c. Qualified or adverse opinion, depending on materiality.
d. Unqualified opinion. (AICPA ADAPTED)
d 14. Under which of the following sets of circumstances might an auditor disclaim an opinion?
a. The financial statements contain a departure from GAAP, the effect of which is
material.
b. The principal auditor decides to make reference to the report of another auditor who
audited a subsidiary.
c. There has been a material change between periods in the method of the application
of accounting principles.
d. There were significant limitations on the scope of the audit.
a 15. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to
emphasize that the entity being reported on is a subsidiary of another business
enterprise. The inclusion of this paragraph
a. Is appropriate and would not negate the unqualified opinion.
b. Is a qualification.
c. Is a violation of generally accepted reporting standards if this information is
disclosed in footnotes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase "with the
foregoing explanation."
c 16. In which of the following circumstances would an adverse opinion be appropriate?
a. The auditor is not independent with respect to the enterprise being audited.
b. An uncertainty prevents the issuance of an unqualified report.
c. The statements are not in conformity with authoritative statements regarding
accounting for pension plans.
d. A client imposed scope limitation prevents the auditor from complying with
generally accepted auditing standards.
b 17. An audit report should be dated as of the
a. Date the report is delivered to the entity audited.
b. Date of the last day of fieldwork.
c. Balance sheet date of the latest period reported on.
d. Date a letter of audit inquiry is received from the entity's attorney of record.
d 18. An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end
client. A significant subsequent event occurred on February 22, 2002. In this case,
which of the following report dates would not be appropriate?
a. February 10, 2002.
b. February 10, except Note 1, February 22, 2002.
c. February 22, 2002.
d. December 31, 2001.
d 19. Which of the following statements indicates a qualified opinion?
a. The financial statements do not present fairly in all material respects the financial
position, results of operations, and cash flows in conformity with GAAP.
b. The auditor does not express an opinion on the financial statements.
c. The financial statements present fairly in all material respects the financial position,
results of operations, and cash flows in conformity with GAAP.
d. Except for the effects of a matter, the financial statements present fairly in all
material respects the financial position, results of operations, and cash flows in
conformity with GAAP.
b 20. Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's
Ability to continue as a Going Concern," an independent auditor is responsible for
a. Predicting whether the entity will be in business one year from the balance sheet
date.
b. Evaluating whether there is substantial doubt about the entity's ability to continue as
a going concern.
c. Weighing mitigating factors against contrary information about the entity's ability to
continue as a going concern.
d. Reporting the entity's ability to continue as a going concern to senior management
and to the board of directors.
c 21. Does an auditor make the following representations explicitly or implicitly in a standard
audit report on comparative financial statements?
Accounting Application of Examination of Evidence
Accounting Principles on a Test Basis
------------------------- -----------------------
a. Explicitly Explicitly
b. Implicitly Implicitly
c. Implicitly Explicitly
d. Explicitly Implicitly
a 22. an auditor is unable to determine the amounts associated with illegal acts committed by a
client. The auditor would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion. (AICPA ADAPTED)
b 23. A principal auditor is satisfied both with the independence and professional reputation of
another auditor who audited a subsidiary, but wants to share responsibility with the
other auditor in the audit report. The principal auditor should
a. Modify the scope and opinion paragraphs of the report.
b. Modify the introductory and opinion paragraph of the
report.
c. Not modify the report except for including in explanatory paragraph.
d. Modify the opinion paragraph of the report.
(AICPA ADAPTED)
a 24. An auditor may issue a qualified opinion for
Inadequate Scope
Disclosure Limitation
---------- ----------
a. Yes Yes
b. Yes No
c. No Yes
d. No No
a 25. An explanatory paragraph following an opinion paragraph describes an uncertainty as
follows:
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 progress. The ultimate outcome of the
litigation cannot presently be determined. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying financial
statements.
What type of opinion should the auditor express in this circumstance?
a. Unqualified c. Disclaimer
b. Qualified d. Adverse
(AICPA ADAPTED)
d 26. An auditor's report that refers to a departure form generally accepted accounting principles
includes the language. "In our opinion, with the foregoing explanation, the financial
statements referred to above present fairly...." This is a(n)
a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph
d. Example of inappropriate reporting.
(AICPA ADAPTED)
b 27. When management prepares financial statements on the basis of a going concern and the
auditor believes the company may not continue as a going concern, the auditor should
issue a(n)
a. Qualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Disclaimer of opinion.
d. Adverse opinion. (AICPA ADAPTED)
b 28. An auditor concludes that there is substantial doubt about an entity's ability to continue as a
going concern. If the entity's disclosures about continued existence are adequate, the
audit report may include
A Disclaimer of Opinion A qualifed Opinion
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a. Yes Yes
b. No No
c. No Yes
d. Yes No
a 29. Keller, CPA, was about to issue an unqualified opinion on the financial statements of
Lupton Television Broadcasting company when a letter was received from Lupton's
independent counsel. The letter stated that the Federal Communications Commission
has notified Lupton that its broadcasting license will not be renewed because of
alleged irregularities in its broadcasting practices. Lupton cannot continue to operate
without the license. Keller has also learned that Lupton and its independent counsel
plan to take all necessary legal action to retain the license. The letter from independent
counsel, however, states that a favorable outcome of any legal action is highly
uncertain. On the basis of this information, what action should Keller take?
a. Issue an unqualified opinion, with an explanatory paragraph that describes the
matter giving rise to the uncertainty.
b. Issue an unqualified opinion if full disclosure is made of the matter in a note to the
financial statements.
c. Issue an adverse opinion and disclose all reasons why.
d. Issue a piecemeal opinion with full disclosure made of the license dispute in a note
to the financial statements. (AICPA ADAPTED)
d 30. If the auditor believes that required disclosures are omitted from the financial statements,
the auditor should decide between issuing a(n)
a. Qualified opinion or an adverse opinion.
b. Disclaimer of opinion or a qualified opinion.
c. Adverse opinion or a disclaimer of opinion.
d. Unqualified opinion or a qualified opinion.
b 31. An auditor's report on comparative financial statements should be dated as of the date the
a. Report is issued.
b. Auditor's field work is completed.
c. Fiscal year ends.
d. Last subsequent event occurred. (AICPA ADAPTED)
b 32. An auditor is confronted with an exception sufficiently material to warrant departing from
the standard wording of an unqualified report. If the exception relates to a departure
from generally accepted accounting principles, the auditor must decide between a(n)
a. Adverse opinion and an unqualified opinion.
b. Adverse opinion and a qualified opinion.
c. Adverse opinion and a disclaimer of opinion.
d. Disclaimer of opinion and a qualified opinion.
(AICPA ADAPTED)
a 33. An auditor had expressed a qualified opinion on the financial statements of a prior period
because of the client's financial statements departed from generally accepted
accounting principles. The prior-period statements are restated in the current period to
conform with generally accepted accounting principles. The auditor's updated report
on the prio-period statements should
a. Express an unqualified opinion about the restated financial statements.
b. Be accompanied by the auditor's original report on the prior period.
c. Bear the same date as the auditor's original report on the prior period.
d. Qualify the opinion concerning the restated financial statements because of a
change in accounting principles. (AICPA ADAPTED)