Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the quest

1) If a misstatement is immaterial relative to the financial statements of the entity for the current
1)
period and is not expected to have a material effect in future periods, it is appropriate to issue
A) a qualified opinion. B) an unqualified opinion.
C) an adverse opinion. D) a disclaimer of opinion.

2) According to CAS 700, the standard unqualified report's title should be 2)

A) Auditor's report. B) Independent auditor's report.
C) Unqualified report of the auditor. D) Audited financial statements.

3) Under the Canadian Auditing Standards, the introductory paragraph indicates that the auditor
3) has
audited the balance sheet, the income statement, the cash flow, a summary of accounting policies
and notes and
A) the internal controls of the company.
B) the statements of retained earnings.
C) management's discussion and analysis letter.
D) the statement of changes in equity.

4)
4) The scope paragraph of the standard unqualified audit report states that the audit is designed to
A) obtain reasonable assurance whether the statements are free of material misstatement.
B) conform to generally accepted accounting principles.
C) discover all errors and/or irregularities.
D) discover material errors and/or irregularities.

5) In the scope paragraph of the audit report, the use of the term "reasonable assurance" is5)intended to
indicate that
A) no misstatements exist in the financial statements.
B) there is some possibility that material misstatements still exist in the financial statements.
C) no material misstatements exist in the statements.
D) there is a possibility that immaterial misstatements still exist in the financial statements.

6) Clark Kent is a PA partner at the firm of Kent, Lane and Lang, a limited liability partnership.
6) Kent's
firm has just completed the audit of a client with a March 31, 20106, year end. How should the
audit report be signed?
A) Kent, Lane and Lang, PAs B) Clark Kent, PA
C) Clark Kent, LLP D) Kent, Lane and Lang, LLP

7) The use of the term "reasonable assurance" is intended to indicate that an audit cannot be
7) expected
to
A) be compliant with the generally accepted accounting principles for every account.
B) provide assurance to investors who are using the financial statements for investment
decisions.
C) consider or search for minor errors.
D) completely eliminate the possibility that a material error or fraud exists.

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8) The phrase "in our opinion" indicates that 8)
A) the auditor performed the audit on a test basis.
B) the auditor relied on their knowledge to perform the audit.
C) there may be some information risk associated with the financial statements.
D) the auditor's judgement can be relied upon.

9) The appropriate date for the audit report for a public company is the one on which the 9)
A) client's fiscal year ended.
B) board of directors approved the financial statements.
C) auditor prepares and delivers the report to the client.
D) auditor and client entered into a contract.

10)Double dating a report is done when 10)

A) a material event occurs after the date of the auditor's report and before the date the report is
issued.
B) a material event occurs after the date of the auditor's report and affects the period that was
audited
C) the auditor finishes his work later than planned.
D) the parent company and their subsidiaries have different year ends.

11)A deviation from the standard unqualified report will cause knowledgeable users of financial
11)
statements to recognize that
A) the Canadian Auditing Standards were not followed.
B) the financial statements contain an error.
C) the auditor intends to communicate additional or limiting information.
D) the financial statements contain a material error.

12)The audit report date is important to users because it indicates the last day 12)
A) of the fiscal period.
B) on which the financial statements may be filed with the provincial securities commission.
C) of the auditor's responsibility for the review of significant events that occurred after the date
of the financial statements.
D) on which users may institute a lawsuit against either client or auditor.

13)If the balance sheet of a company is dated December 31, 2010, the audit report is dated 13)
March 6,
2011, and both are released to the public on March 15, 2011, this indicates that the auditor has
searched for material unrecorded transactions and events that occurred up to
A) December 31, 2011. B) March 6, 2011.
C) December 31, 2010. D) March 15, 2011.

14)The most common type of audit report contains 14)

A) a qualified opinion. B) a disclaimer of opinion.
C) an unqualified opinion. D) an adverse opinion.

15)The auditor's report of the Rogers Trump company indicates that the financial statement15)
are fairly
presented except for the goodwill balance which does not comply with GAAP. The auditor's report
is
A) unqualified with explanatory paragraph. B) qualified.
C) unqualified. D) adverse.

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16)The auditor's report of the Samcorp company indicates that the auditor is unable to form16)
an
opinion on whether the financial statements of the company are fairly presented. The auditor's
report is
A) unqualified. B) adverse.
C) qualified. D) denial of opinion.

17)Beem & Lord, a PA firm, audited the financial statements of Frazer Inc. Since this was a17)
first time
audit, Beem & Lord did not audit the comparative financial statements, as this was done by the
previous auditor. Beem & Lord should expand their report to include an explanation
A) in a paragraph following the opinion paragraph.
B) in the opinion paragraph.
C) in the scope paragraph.
D) in a paragraph following the scope paragraph.

18)The "unqualified report with explanatory paragraph" and the "unqualified report with modified
18)
wording"
A) meet the criteria of a complete audit but with unsatisfactory results.
B) arise as a result of an incomplete audit.
C) meet the criteria of a complete audit with satisfactory results.
D) arise when the financial statements are not quite "presented fairly."

19)Black, White and Brown are a national firm of PAs who conduct audits for local, regional,19)
national
and international clients. One of their clients with a Canadian head office has a going concern
problem, with the result that the wording of the audit report accompanying the financial
statements will be different for the Canadian and U.S. security exchange commission filings. How
should the PA firm issue the audit report(s)? The PA firm should provide the
A) Canadian audit report with additional comments providing U.S. information.
B) U.S. audit report only to both security exchange filings.
C) U.S. audit report with additional comments providing Canadian information.
D) Canadian audit report only to both security exchange filings.

20)A company has changed its method of inventory valuation from an unacceptable one to one 20)that
complies with generally accepted accounting principles. The auditor's report on the financial
statements of the year of the change should include
A) a justification for making the change and the impact of the change on reported net income.
B) an explanatory paragraph explaining the change.
C) a reference to a change in accounting principle in the opinion paragraph.
D) no reference to the item assuming that the change has been properly disclosed.

21)Assuming the items are material, which of the following requires note disclosure? 21)
A) A change in the estimate of provisions for warranty costs
B) A change in depreciation method which has no effect on current year's financial statements
but is certain to affect future years
C) The acquisition of a new building
D) The correction of an error in the prior year's financial statements resulting from a
mathematical mistake in capitalizing interest

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22)PA firm has been auditing Big Manufacturing Company (BMC) for several years. Last year, 22)BMC
converted their inventory and purchasing systems to a new system effective December 31, the date
of the year end. To their horror, the PA firm discovered at the beginning of the current error that
- off error in the accounts payable system of $25 million dollars LAST YEAR. Neither
there was a cut
the client nor the firm had detected that the purchases of December 31 had been omitted from the
old computer system transaction processing and had been recorded only in the new computer
system, understating last year's expenses. Last year's financial statements have been restated and
the error disclosed in the notes to both last year's and this year's financial statements. What type of
audit opinion will BMC receive this year?
A) Disclaimer B) Unqualified C) Adverse D) Qualified

23)When a material uncertainty exists, the auditor must 23)

A) issue a qualified opinion.
B) issue a disclaimer of opinion.
C) first determine the materiality of the item and whether adequate disclosure is included in the
financial statements.
D) disclose it in the audit report.

24)ProForce Inc is facing a large lawsuit from their employees. The contingency is significant
24)and may
lead to a going concern issue if ProForce is found guilty. ProForce took the adequate measures, as
prescribed by GAAP, to account, disclose and present the contingency in the financial statements.
The auditor should
A) add an emphasis-of-matter paragraph after the opinion paragraph.
B) issue a standard unqualified report.
C) deny an audit opinion.
D) issue a qualified report.

25)When a misstatement in the financial statements would affect a user's decision but the overall
25)
statements are still fairly stated, it would be appropriate to issue
A) a qualified opinion. B) an unqualified opinion.
C) a disclaimer of opinion. D) an adverse opinion.

26)The client has presented all required financial statements with the exception of the statement
26) of
cash flows. The auditor has completed the audit and is satisfied that everything, with the exception
of the missing statement, is presented fairly. As a result, the auditor would likely
A) issue either an unqualified or qualified opinion.
B) issue a qualified opinion.
C) issue a disclaimer of opinion.
D) issue an unqualified opinion.

27)As a result of management's refusal to permit the auditor to physically examine inventory,
27)the
auditor has not accumulated sufficient evidence to conclude whether financial statements are stated
in accordance with GAAP. The auditor must depart from the unqualified audit report because
A) the auditor has lost independence.
B) the scope of the audit has been restricted by the client.
C) the scope of the audit has been restricted by circumstances beyond either the client's or
auditor's control.
D) the financial statements have not been prepared in accordance with GAAP.

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28)Three of the following conditions would, by themselves, require the auditor to issue a report
28) other
than an unqualified report. Which one would permit a standard unqualified report?
A) The financial statements show a significant net loss for each of the last three years, including
the current fiscal period
B) The scope of the auditor's examination has been restricted, although the cause of the
restriction was not the client's fault
C) The auditor is not independent during the fiscal period under audit
D) The financial statements have not been prepared in accordance with generally accepted
accounting principles and are misleading

29)A report other than an unqualified report must be issued whenever any of the five conditions
29)
requiring a departure from an unqualified report
A) exists.
B) exists and is material.
C) exists, is material, and is within management's control.
D) exists, is material, and is within either management's or the auditor's control.

30) are
30)A qualified opinion is appropriate when the auditor is satisfied that the financial statements
A) materially misstated.
B) fairly stated, but there is a material exception.
C) fairly stated, even though there is an immaterial exception.
D) fairly stated.

31)The least severe type of report for disclosing departures from an unqualified report is the31)
A) disclaimer of opinion. B) adverse opinion.
C) qualified opinion. D) report on unaudited financial statements.

32)When the auditor knows that the financial statements may be misleading because they were 32) not
prepared in accordance with generally accepted accounting principles, he or she must issue
A) an adverse opinion.
B) a qualified or an adverse opinion, depending on the materiality of the item in question.
C) a disclaimer of opinion.
D) a qualified opinion.

33)Whenever the client imposes restrictions on the scope of the audit, the auditor should be33)
concerned
about the possibility that management is trying to prevent discovery of misstated information. In
such cases, which type of report should be issued?
A) A disclaimer of opinion, whenever materiality is in question
B) A disclaimer of opinion, in all cases
C) A qualification of both scope and opinion, whenever materiality is in question
D) A qualification of both scope and opinion, in all cases

34)The auditor would most likely issue a disclaimer of opinion because of 34)
A) inadequate disclosure of material information.
B) the client's failure to present supplementary information.
C) the qualification of an opinion by the other auditor of a subsidiary where there is a division of
responsibility.
D) a client-imposed scope limitation.

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35)A misstatement in the financial statements can be considered material if 35)
A) knowledge of the misstatement would affect the decision of a reasonable user of the
statements.
B) it overshadows the financial statements as a whole.
C) it affects more than one account on the statements.
D) it affects only one account on the statements.

36)When a misstatement in the financial statements exists but is unlikely to affect the decisions
36) of a
reasonable user, it would be appropriate to issue
A) a disclaimer of opinion. B) a qualified opinion.
C) an adverse opinion. D) an unqualified opinion.

37)An adverse opinion is issued when the auditor believes 37)

A) some parts of the financial statements are materially misstated or misleading.
B) the audit firm is not independent.
C) the overall financial statements are so materially misstated or misleading as a whole that they
do not present fairly the financial position or results of operations and changes in financial
position.
D) the financial statements will be found to be misleading or misstated, if an adequate
investigation is performed.

38)Both disclaimers of opinion and adverse opinions are used 38)

A) only when the condition is highly material.
B) regardless of the auditor's independence.
C) regardless of the client's choice of a non-GAAP accounting method.
D) whether the condition is material or not.

39)If inventory is the largest balance on the financial statements, a large misstatement would
39)be so
material that the auditor should issue
A) an unqualified opinion. B) a qualified opinion.
C) a disclaimer of opinion. D) an adverse opinion.

40)When determining whether an exception is highly material, the extent to which the exception40)
affects different parts of the financial statements must be considered. This is referred to as
A) materiality. B) ratio analysis.
C) financial analysis. D) pervasiveness.

41)Fractal Software Limited has acquired a 100% subsidiary in Malaysia that produces keyboards41) and
other types of computer hardware. Fractal is refusing to consolidate its financial statements, as this
would increase the debt to equity ratio to the point that Fractal would violate its debt agreement.
Instead, Fractal would like to record the investment in the Malaysian subsidiary at cost. What type
of effect does the non-consolidation have upon the financial statements?
A) Material and pervasive B) Material and isolated
C) Immaterial D) Material

42)Mafah Distribution Limited has requested that the audited financial statements be completed
42) by
January 5, five days after the December 31 year end. This means that the auditor will be unable to
verify subsequent payments on accounts receivable and will be unable to determine whether
accounts payable have been set up correctly. What type of audit report should Mafah receive if the
auditor is unable to use alternative procedures for these two audit areas?
A) Adverse B) Qualified C) Unqualified D) Disclaimer

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43)The dollar amount of some misstatements cannot be accurately measured. If, for example, 43)the client
was unwilling to disclose an existing lawsuit, the materiality question the auditor must evaluate in
such a situation is
A) what effect will it have on net income.
B) does it increase the auditor's exposure to lawsuits.
C) what effect will it have on statement users.
D) how will it affect management's future decisions.

44)The primary concern in measuring materiality when a client has failed to follow GAAP is 44)
usually
A) the nature of the item in error.
B) whether it can materially affect some future period.
C) measurability of the dollar error.
D) the total dollar error in the accounts involved, compared with some base.

45)Bianca Jones was engaged to conduct the audit of Smilicor Company, a toy distributor, three
45)
months after the year end date. Bianca was unable to conduct an audit of opening inventory, but
was able to satisfy herself with respect to the opening balances. She was also able to conduct audit
procedures for other opening balances, for example, by observing fixed assets. What type of audit
opinion would Smilicor receive?
A) Qualified B) Adverse C) Unqualified D) Disclaimer

46)Dussault & Montgomery, the auditors of Greenwich Corp relied on Groves & Padden, another 46) PA
firm, to audit the Quebec subsidiaries of Greenwich. The responsibility for the opinion to issue on
the financial statements is the responsibility of
A) Greenwich Corp.
B) Groves & Padden.
C) Dussault & Montgomery.
D) Dussault & Montgomery and Groves & Padden

47)When Dussault & Montgomery relied on Groves & Padden, another PA firm, to audit the 47) Quebec
subsidiaries of one of their audit client, Dussault & Montgomery should
A) ask Groves & Padden to also sign the auditor's report.
B) send one of their auditors to Quebec to supervise the work being done by Groves & Padden.
C) assess Groves & Padden's professional qualifications.
D) issue a qualified opinion for the financial information pertaining to the Quebec subsidiaries.

48)The use of negative assurances in audit reports of historical financial statements is 48)
A) properly located in the opinion paragraph of the unqualified report.
B) a violation of the reporting standards.
C) a help in clarifying the degree of responsibility being assumed by the auditor.
D) encouraged by the Canadian Institute of Chartered Accountants.

49)The primary auditor who relies on a secondary auditor 49)

A) has no responsibility for checking the work of the secondary auditor.
B) will mention the name of the secondary auditor if he or she decides that an unqualified
opinion is appropriate.
C) is responsible for any deficiencies in the secondary auditor's work.
D) will never mention the name of the secondary auditor in his or her report.

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50)A statement in a report such as "Nothing came to our attention that would lead us to question
50) the
fairness of the presentations" is referred to as
A) negative assurance. B) the unqualified opinion.
C) positive assurance. D) a disclaimer of opinion.

51)Your firm audits a large electronics company. Financial statements are provided to investors
51) via
email, and are published on the company web site. What is the auditor's responsibility with respect
to financial information published on a company web site? The auditor
A) should make sure that the financial information on the web site matches the audited financial
statements.
B) should confirm that the proper audit report is provided on the internet web site.
C) is not required to read the financial information published on the web site.
D) may conduct analytical review on the information that is placed on the internet.

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Answer Key
Testname: UNTITLED14

1) B
2) B
3) D
4) A
5) B
6) D
7) D
8) C
9) B
10)A
11)C
12)C
13)B
14)C
15)B
16)D
17)A
18)C
19)A
20)D
21)A
22)B
23)C
24)A
25)A
26)B
27)B
28)A
29)B
30)B
31)C
32)B
33)A
34)D
35)A
36)D
37)C
38)A
39)D
40)D
41)A
42)D
43)C
44)D
45)C
46)C
47)C
48)B
49)C
50)A
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Answer Key
Testname: UNTITLED14

51)C

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