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Worksheetsch.7-11
Total questions: 101
Worksheet time: 25hrs 15mins
"Bill and hold" refers to an arrangement where
sales are billed but not collected.
inventory is held but not billed.
sales are recorded but are not shipped.
sales are shipped but are not recorded.
The file that contains sales transactions that were initiated in the system but are not yet completed is the
pending order master.
inventory master.
credit check file.
sales detail.
The assertion that auditors will probably emphasize in the revenue and collection cycle is
accuracy.
classification.
completeness.
occurrence.
Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of
occurrence.
accuracy.
completeness.
classification.
Confirmations of accounts receivable provide the most evidence for which of the following assertions?
rights and obligations
completeness
existence
valuation or allocation
To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?
Confirm year-end transactions with regular customers.
Examine cash receipts in the subsequent period.
Analyze transactions occurring within a few days before and after year-end.
Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period.
In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from
no reply to negative confirmations.
an aging schedule of past due accounts that the auditor has tested.
financial statements of individual customers.
correspondence with the client's collection agency.
An auditor should normally perform alternative procedures to substantiate the existence of accounts receivable when
collectability of the receivables is in doubt.
no reply to a negative confirmation request is received.
pledging of the receivables is probable.
no reply to a positive confirmation request is received.
In the revenue and collection cycle, the auditor checks the numerical sequence of shipping documents. This procedure is related to which of the following assertions?
valuation or allocation
completeness
existence
rights and obligations
Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the
internal control over balances confirmed.
collectability of the balances confirmed.
existence of the balances confirmed.
ownership of the balances confirmed.
"Recorded vouchers (accounts payable entries) in the voucher register (e.g., purchases journal) supported by completed voucher documentation" is a specific example of which management assertion?
classification
cutoff
occurrence
completeness
Vouchers should be stamped PAID to
generate a new purchase order.
facilitate preparation of the bank reconciliation.
prevent duplicate payment.
indicate posting in the voucher register.
A voucher package is used to
document completion of services.
provide a source document for recording the purchase of a good or service.
document a purchase contract.
document receipt of inventory.
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to
test whether payments were for goods actually ordered.
identify usually large purchases that should be investigated further.
verify that cash disbursements were for goods actually received.
determine that purchases were properly recorded.
Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?
Unacceptable goods are not scheduled on receiving reports.
The same person signs checks and stamps vouchers PAID.
Purchase orders are not prepared for services acquired directly under authorization of department heads.
The same person authorizes voucher packages and signs checks.
When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that
no goods held on consignment for customers are included in the inventory balance.
all goods purchased before year-end are received before the physical inventory count.
all goods owned at year-end are included in the inventory balance.
no goods observed during the physical count are pledged or sold.
What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices?
Purchase orders and bid quotes
Purchase requisitions and purchases orders
Receiving reports and purchase orders
Purchase requisitions and accounts payable entries
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
Reconcile receiving reports with related cash payments made just prior to year-end.
Compare cash payments occurring after the balance sheet date with the accounts
payable trial balance.
Contrast the ratio of accounts payable to purchases with the prior year's ratio.
Vouch a sample of creditor balances to supporting invoices, receiving reports, and
purchase orders.
To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is
prenumbered and accounted for.
approved for authorized purchases.
stamped "paid" by the check signer.
supported by a vendor's invoice.
Tracing a sample of time clock cards to payroll registers (journals) is a procedure designed to obtain evidence about the transaction assertion(s) of
occurrence and accuracy only.
accuracy only.
completeness only.
occurrence only.
Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?
Vouchers should be prepared by individuals who are responsible for signing disbursement checks.
Disbursement vouchers should be approved by at least two responsible management officials.
The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment.
The official who signs the check should compare the check with the voucher and should stamp PAID on the voucher documents.
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all
receiving reports.
canceled checks.
vendors' invoices.
purchase orders.
The audit procedures used in an observation of the client's physical inventory taking are designed primarily to
verify independently the physical counts obtained by the client.
determine whether inventory contains obsolete goods.
assist the client in taking test counts of year-end inventory.
test and observe the client's physical count of inventory.
S. Jimenez, CPA, was auditing a client, Wonderful Retail Company and selected a sample of inventory items from the perpetual records and vouched additions to receiving reports. This procedure was intended to satisfy which PCAOB assertion?
completeness
valuation or allocation
existence or occurrence
rights and obligations
An auditor selected an inventory item on the warehouse floor, test counted it, and traced the count to the final inventory compilation. The auditor most likely was testing the PCAOB assertion of
completeness.
rights and obligations.
existence.
valuation.
An auditor selected an invoice for a large inventory purchase and vouched the invoice to the receiving report. Which ASB transaction assertion is the auditor most likely testing?
completeness
valuation
occurrence
rights and obligations
An auditor selected a product maintained in the finished goods warehouse. The auditor counted the product and compared this amount with the amount in the finished goods perpetual inventory subsidiary account. Which ASB balance assertion is the auditor most likely testing?
completeness
valuation
rights and obligations
existence
An auditor selected a product recorded in the finished goods perpetual inventory subsidiary account. The auditor went to the warehouse and counted the product and compared this amount with the amount in the finished goods perpetual inventory subsidiary account. Which ASB balance assertion is the auditor most likely testing?
valuation
rights and obligations
completeness
existence
Periodic or cycle counts of selected inventory items are made at various times during the year rather than during a single inventory count at year-end. Which of the following is necessary if the auditor plans to observe inventories at interim dates?
Complete recounts by independent teams are performed.
Inventory balances are rarely at low levels.
Perpetual inventory records are maintained.
Unit cost records are integrated with production accounting records.
While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record
purchase discounts.
sales returns.
sales.
purchase discounts.
Selecting a sample of cost accounting reports for labor and vouching it to time records is a procedure designed to test the ASB transaction assertion of
completeness.
presentation and disclosure.
valuation.
occurrence.
Generally accepted accounting principles (GAAP) require that inventory be recorded at
None of the choices are correct.
the higher of cost or net realizable value less a normal profit (floor).
the higher of cost or fair market value.
the lower of cost or fair market value.
Which of the following steps would not normally be included in a program for a physical inventory observation?
Obtain the client's inventory counting instructions and review them for completeness.
Obtain the numbers of the last five receiving reports and last five shipping
documents.
Inspect the tags used and unused and record the tag numbers used.
Vouch unit prices to vendors' invoices or other cost records.
Counting different parts of inventory at different times of the year is called
just-in-time inventory.
LIFO inventory.
cycle counting.
inventory cutoff.
An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's balance assertion of
completeness.
accuracy and valuation.
existence.
rights and obligations.
An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about
accuracy and valuation.
existence.
completeness.
rights and obligations.
An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about
completeness.
valuation.
existence.
rights and obligations.
Your client counts inventory three months before the end of the fiscal year. Internal controls over inventory are excellent. Which procedure is not necessary for the inventory roll- forward?
Request the client to recount inventory at the end of the year.
Check that shipping documents for the last three months agree with perpetual records.
Tracing receiving reports for the last three months to perpetual records.
Compare gross margin percentages for the last three months.
Vouching a sample of items from the perpetual inventory records to the receiving reports achieves the specific ASB balance assertion of
presentation.
valuation.
occurrence.
completeness.
Selecting a sample of paid notes and tracing interest to the general ledger account is a test of the PCAOB assertion for
accounting.
existence or occurrence.
valuation or allocation.
completeness.
The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities?
rights and obligations
custody
record keeping
periodic reconciliation
Auditors count investment securities held by the client primarily to test the ASB balance assertion of
completeness.
valuation.
rights and obligations.
existence.
Which of the following would not be a place in which owners' equity transactions would be documented?
Minutes of the meetings of the board of directors
Securities offering registration statements
Proxy statements
Capital budget
A transfer agent
keeps the stockholder list and, from time to time, determines the shareholders eligible
to receive dividends.
handles the exchange of shares, canceling the shares surrendered by sellers and
issuing new certificates.
makes investment decisions for an entity.
records notes and bonds payable.
In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the ASB balance assertion of
existence.
rights and obligations.
completeness.
valuation.
In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client's name, an auditor most likely gathers evidence in support of ASB balance assertion of existence and
accuracy.
completeness.
rights and obligations.
valuation.
Loan covenants
describe the collateral of the loan.
All of these choices are correct.
describe the lender's responsibilities.
require the borrower to maintain certain financial characteristics.
Keeping track of securities owners for payment of interest or dividends is usually done by the company's
treasurer.
registrar.
transfer agent.
broker.
Loan covenants are used for which of the following reasons?
To protect the borrower from the lender calling the loan early.
To protect shareholders from management taking on too much debt.
To protect the auditors from false information by the borrower.
To protect the lender from the borrower substantially weakening the borrower's
financial position.
Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?
Stock dividends and stock splits during the year under audit were approved by the stockholders.
Entries in the capital stock account can be traced to resolutions in the minutes of
meetings of the board of directors.
Stock dividends are capitalized at par or stated value on the dividend declaration date.
Changes in the capital stock account are verified by an independent stock transfer agent.
When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should
not be defaced but be segregated from other stock certificates and retained in a
canceled certificates file.
be defaced and sent to the secretary of state.
not be defaced but be segregated from other stock certificates and retained in a
canceled certificates file.
be defaced to prevent reissuance and attached to their corresponding stubs.
When a client company does not maintain its own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerning
guarantees of preferred stock liquidation value.
the number of shares subject to agreements to repurchase.
restrictions on the payment of dividends.
the number of shares issued and outstanding.
All corporate capital stock transactions should ultimately be traced to the
numbered stock certificates.
minutes of the meetings of the board of directors.
cash receipts journal.
cash disbursements journal.
An audit team would most likely verify the interest earned on bond investments by
recomputing the interest earned on the basis of face amount, interest rate, and period
held.
testing internal controls relevant to cash receipts.
vouching the receipt and deposit of interest checks.
confirming the bond interest rate with the issuer of the bonds.
For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit?
Evaluating the adequacy of evidence gathered in response to unexpected account balances
Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances
Obtaining evidence about assertions related to account balances or classes of transactions
Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit
Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts?
Current-year recorded (unaudited) balances.
Prior-year balances.
Expected balances using a statistical analysis or relationships among accounts.
Internal budgets and reports.
Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses?
These accounts may represent attempts of earnings management.
These accounts are likely to require the assistance of a specialist.
These accounts are likely to relate to going-concern matters.
These accounts are often more difficult to audit using normal substantive procedures.
Subsequent events occur between the__________ and the__________.
date of the financial statements; audit report release date
audit report release date; beginning of subsequent year's audit
date of the financial statements; date of the auditors' report
date of the auditors' report; audit report release date
Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events?
Performing cut-off testing near year end.
Obtaining written representations.
Inquiring of officers and other client executives.
Reviewing the latest interim financial statements.
Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern?
Legal proceedings that may have a significant negative impact on the entity.
Legal proceedings that may have a significant negative impact on the entity.
Violation of debt covenants.
Failure to meet forecasted earnings per share.
Which of the following subsequent events would represent an event that provides information about conditions that arose following the date of the financial statements?
Settlement of long outstanding litigation.
Loss of inventory as a result of a flood.
Collection of a past due accounts receivable.
An additional tax assessment on prior income.
The Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports?
December 31 and January 25
February 1 and February 15
January 25 and February 1
January 25 and February 15
An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the
audit plan procedures are "signed off."
tick-mark notations are cleared.
audit work meets the quality standards of the firm.
"to-do lists" are reviewed and cleared.
The primary objective of analytical procedures used near the end of an audit is to
obtain evidence on the validity of the assessment of control risk.
identify areas that represent specific risks relevant to the audit.
assist auditors in evaluating the overall financial statement presentation.
obtain evidence from details tested to corroborate management assertions.
Near the end of an audit, the application of analytical procedures is
not mentioned by auditing standards.
not useful, since detailed substantive procedures have already been performed.
required by auditing standards.
recommended by auditing standards.
A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on
irregularities involving the client's management and its employees.
the communication of internal control deficiencies to the client's audit committee (or
those charged with governance).
the materiality of the adjusting entries proposed by the audit staff.
the fair presentation of the financial statements in conformity with GAAP.
Analytical procedures performed near the end of an audit generally include
performing tests of transactions to corroborate management's financial statement
assertions.
retesting control activities that appeared to be ineffective during the assessment of
control risk.
gathering evidence concerning account balances that have not changed from the prior
year.
considering unusual or unexpected account balances that were not previously
identified.
Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?
Inquire about payroll checks that were recorded before year end but cashed after year
end.
Investigate changes in long-term debt occurring after year end.
Determine that changes in employee pay rates after year end were properly authorized.
Recompute depreciation charges for plant assets sold after year end.
Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity?
Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern.
Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.
Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern.
Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.
Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?
Confirming a sample of material accounts receivable established after year-end.
Comparing the financial statements being reported on with those of the prior period.
Reading minutes of meetings of owners, management, or those charged with
governance held after the date of the financial statements.
Inquiring as to whether any unusual adjustments were made just before year-end.
If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(an)
subsequent event.
subsequently discovered fact.
omitted procedure.
prior period adjustment.
Select the appropriate term to which it is most likely related. Each term is associated with only one statement.
Audit documentation and financial statements, including footnotes, are reviewed by a partner who did not participate on the audit.
Written representations.
Engagement quality review.
Management letter.
Interim audit work.
Attorney letters.
For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written.
Acceptance letter (signed copy of engagement letter)
Prior to the engagement; Written
Following the date of the auditors' report; Either oral or written
Prior to or at the date of the auditors' report; Written
Either following the date of the auditors' report or as significant matters are identified;
Written
Which of the following statements is not included in the Auditor's Responsibilities for the Audit of the Financial Statements Section of the standard (unmodified) report?
"...it is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement..."
"Reasonable assurance is a high level of assurance but is not absolute assurance..."
"In accordance with accounting principles generally accepted in the United States of America."
"Our objectives are to obtain reasonable assurance...and to issue an auditor’s report that includes our opinion"
Which of the following situations would not result in auditors adding an emphasis-of-matter paragraph or section to their report without modifying the remainder of the report?
Reference to a change in the method of accounting mandated by the issuance of a new accounting standard.
Reference to a going-concern uncertainty facing the entity.
Reference to an acquisition made by the entity during the most recent fiscal year.
Reference to a departure from GAAP that is material, but not pervasive, to the
financial statements.
Which of the following statements is not included in the Basis for Opinion Section of the standard (unmodified) report on the entity's financial statements?
"We are required to communicate with those charged with governance..."
"We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion."
"We are required to be independent of [the client]..."
"We conducted our audit in accordance with...(GAAS)"
If financial statements contain a material but nonpervasive departure from generally accepted accounting principles, the auditors should render a(n)
adverse opinion with scope limitation reference.
disclaimer of opinion.
adverse opinion with reference to departure.
qualified opinion with reference to departure.
Which of the following scope limitations would ordinarily be of most concern to the auditors?
The use of the work of component auditors in the audit of group financial statements.
Management's refusal to provide auditors with written representations.
The inability to observe inventories because auditors were appointed following the date of the financial statements.
The inability to obtain confirmation of year-end balances from customers because of
different billing dates.
When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation, the report would not
modify the Auditor’s Responsibilities for the Audit of the Financial Statements
Section to identify the basis for the disclaimer.
indicate that the auditors were engaged to audit the financial statements.
identify management's responsibility for the financial statements.
refer to any scope limitation in the Basis for Opinion Section.
The auditors' report on the entity's financial statements included language disclosing a difference of opinion between the auditors and the entity for which the auditors believed an adjustment to the financial statements should be made. The Opinion Section of the auditors' report should express a(n)
qualified opinion citing a departure from generally accepted accounting principles.
disclaimer of opinion.
qualified opinion citing a scope limitation and lack of specific evidence.
unmodified opinion.
Auditors will issue an adverse opinion when
a qualified opinion cannot be rendered because the auditors lack independence.
the entity's ability to continue as a going concern is subject to substantial doubt.
a severe scope limitation has been imposed by the entity.
a violation of generally accepted accounting principles is sufficiently material and
pervasive that a qualified opinion is not justified.
In which of the following circumstances may auditors issue the standard (unmodified) report on the entity's financial statements?
The auditors reference component auditors who examined a subsidiary of group
financial statements.
The entity changed accounting principles having an immaterial effect on the entity's financial position, results of operations, and cash flows.
The auditors have not been able to audit a substantial portion of the balance sheet
because of a circumstance-imposed scope limitation.
The auditors wish to emphasize a matter regarding the financial statements.
The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements. If the auditors conclude that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditors may
consider the matter closed since the other information is not included in the audited financial statements.
issue an adverse opinion on the entity's financial statements due to inadequate disclosure.
issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles.
revise the report on the entity's financial statements to include an additional section describing the material inconsistency.
When auditors lack independence, which of the following is true about the report on the entity's financial statements that should be issued?
The auditors should disclaim an opinion but not mention that they are not independent.
The auditors should issue an unmodified opinion with an other-matter paragraph stating that they are not independent.
The auditors should disclaim an opinion and should state specifically that they are not independent.
The auditors should issue a qualified opinion with an other-matter paragraph stating that they are not independent.
In which of the following circumstances would a qualified opinion not be appropriate?
The entity has failed to properly disclose going-concern uncertainties.
An accounting principle at variance with generally accepted accounting principles is
used.
The auditors lack independence with respect to the audited entity.
A scope limitation prevents the auditors from completing an important auditing
procedure.
Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in
the Adverse Opinion Section.
the Basis for Adverse Opinion Section.
the Auditor’s Responsibilities for the Audit of the Financial Statements Section.
the footnotes to the financial statements.
When auditors qualify their opinion on the entity's financial statements because of inadequate disclosure, the auditors should describe the nature of the omission and modify
the Auditor’s Responsibilities for the Audit of the Financial Statements Section only.
the Qualified Opinion Section and the Basis for Qualified Opinion Section.
the Qualified Opinion Section only.
the Basis for Qualified Opinion Section only.
Independent auditors must consider whether the entity has the ability to continue as a going concern. If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, the auditors would normally
express an unmodified opinion with an additional section describing the going-
concern uncertainty.
express an adverse opinion.
disclaim an opinion.
qualify the opinion.
When disclaiming an opinion due to a client-imposed scope limitation, auditors should describe the nature of the scope limitation and modify the
Opinion Section.
Basis for Opinion Section and Auditor’s Responsibilities for the Audit of the
Financial Statements Section.
Opinion Section and Auditor’s Responsibilities for the Audit of the Financial
Statements Section.
Opinion Section, Basis for Opinion Section, and Auditor’s Responsibilities for the
Audit of the Financial Statements Section.
Under which of the following circumstances would a disclaimer of opinion on the entity's financial statements not be appropriate?
The auditors are unable to determine the amounts associated with illegal acts committed by the entity's management.
The auditors are engaged after the date of the financial statements and are unable to observe physical inventories or apply alternative procedures to verify their balances.
The entity refuses to permit its attorney to furnish information requested in an attorney letter.
The financial statements fail to contain adequate disclosure of related-party transactions.
The auditors include an emphasis-of-matter paragraph in an otherwise unmodified report on the entity's financial statements to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph
is appropriate and would not otherwise affect the unmodified opinion.
is considered a qualification of the opinion.
violates generally accepted auditing standards if this information is already disclosed
in footnotes to the financial statements.
necessitates a revision of the Opinion Section to include the phrase "with the
foregoing explanation."
When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is
qualified or adverse, depending on the overall materiality and pervasiveness of the
GAAP departure.
adverse.
unmodified.
qualified.
In which of the following circumstances would auditors be most likely to express an adverse opinion?
Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon.
The financial statements are not in accordance with generally accepted accounting principles regarding the presentation and disclosure of leases.
Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern.
The chief executive officer refuses to provide the auditors access to minutes of board of directors' meetings.
In which of the following circumstances would auditors most likely add an emphasis-of- matter paragraph or additional section to the standard (unmodified) report without modifying the opinion on the entity's financial statements?
The auditors are asked to report on the balance sheet, but not on the other basic financial statements.
There is substantial doubt about the entity's ability to continue as a going concern.
Management's estimates of the effects of future events on the entity's financial
condition, results of operations, and cash flows are unreasonable.
Certain transactions cannot be tested because of management's records retention
policy.
In which of the following situations would auditors ordinarily choose between expressing a qualified opinion or an adverse opinion on the entity's financial statements?
The financial statements fail to disclose information that is required by generally accepted accounting principles.
Events disclosed in the financial statements cause the auditors to have substantial doubt about the entity's ability to continue as a going concern.
The auditors are asked to report only on the entity's balance sheet and not on the other basic financial statements.
The auditors did not observe the entity's physical inventory and are unable to become satisfied as to its balance by other auditing procedures.
Auditors would not normally issue a qualified opinion on the entity's financial statements when
the entity has undertaken a change in accounting principle with which the auditor
does not agree.
the auditors lack independence with respect to the audited entity.
an accounting principle at variance with generally accepted accounting principles is used.
a scope limitation prevents the auditors from completing an important auditing
procedure.
Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure?
"Except for the effects of the matter described in the Basis for Qualified Opinion
Section of our report"
"Does not present fairly in all material respects."
"With the foregoing explanation of these omitted disclosures."
"Subject to the departure from generally accepted accounting principles, as described below."
A client has lease agreements that they do not wish to properly in the financial statements. Which of the following reporting options does an auditor have if the misstatements have a material and pervasive effect on the financial statements?
Qualified opinion.
Unmodified opinion.
Disclaimer of opinion.
Adverse opinion.
The auditors have determined that there is substantial doubt about an entity's ability to continue as a going concern. When considering the appropriateness of management's disclosures and severity of the uncertainty, all of the following reports could be issued, except
unmodified opinion with an additional section describing the uncertainty.
adverse opinion based on inadequate disclosure of the uncertainty.
disclaimer of opinion based on a material and pervasive uncertainty.
qualified opinion based on a material and pervasive uncertainty.
The standard (unmodified) report issued in the audit of a non-issuer includes a(n)
Internal Control Section indicating the effectiveness of the entity's internal control
over financial reporting.
Responsibilities of Management for the Financial Statements Section providing a
general description of an audit conducted in accordance with the applicable auditing
standards.
Opinion Section identifying the responsibility of management and auditors in the
financial reporting process.
Opinion Section providing the auditors' conclusion as to the fair presentation of the
financial statements.
An auditors’ report on financial statements prepared in conformity with the cash basis of accounting should include an emphasis-of-matter paragraph that:
explains how the results of operations differ from financial statements prepared in
conformity with generally accepted accounting principles.
justifies the reasons for departing from generally accepted principles.
states whether the financial statements are fairly presented in conformity with a
special purpose framework.
refers to the note to the financial statements that describes the special purpose
framework.
