A1 - Becker Wrong answers Flashcards
FUl review
Foley, CPA, is the group engagement partner for a multinational corporation. Pente, CPA, audits a wholly owned subsidiary of this corporation. Which of the following is true about Foley’s decision between assumption and division of responsibility under U.S. GAAS?
A. If Foley chooses to divide responsibility, she need not evaluate Pente's reputation and independence. B. If Foley chooses to divide responsibility, no reference to the work done by Pente will be included in the audit report. C. If Foley chooses to assume responsibility, the report will mention this assumption in the auditor's responsibility paragraph. D. If Foley chooses to assume responsibility, she must not make reference to the component auditor in her report.
Choice “D” is correct. Under U.S. GAAS, if Foley chooses to assume responsibility, no reference to the component auditor should be made in the auditor’s report because to do so may cause a reader to misinterpret the degree of responsibility being assumed. Furthermore, the group engagement team should determine the type of work to be performed on the financial information of the components. Note that division of responsibility is generally not permitted under ISAs.
Choice “A” is incorrect. Regardless of Foley’s decision, she must always become satisfied regarding Pente’s reputation and independence.
Choice “B” is incorrect. If Foley chooses to divide responsibility, the report should clearly indicate that the component was not audited by the auditor of the group financial statements but was audited by the component auditor, and should include the magnitude of the portion of the financial statements audited by the component auditor.
Choice “C” is incorrect. If Foley chooses to assume responsibility, no reference to this assumption or to the work done by Pente will be included in the audit report.
Which of the following best describes what is meant by the term generally accepted auditing standards?
A. Rules acknowledged by the accounting profession because of their universal application. B. Pronouncements issued by the Auditing Standards Board. C. Measures of the quality of the auditor's performance. D. Procedures to be used to gather evidence to support financial statements.
Choice “C” is correct. Generally accepted auditing standards (“GAAS”) are measures of the quality of the auditor’s performance, and guide the auditor in the performance of a properly planned and executed audit.
Choice “A” is incorrect. GAAS are not “rules,” nor are they universally applicable. GAAS are measures of the quality of an auditor’s performance.
Choice “B” is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) “Statements on Auditing Standards” (SASs). While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS.
Choice “D” is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts.
In the audit of a nonissuer, what is an auditor’s responsibility for supplementary information, such as the disclosure of pension information, which is outside the basic financial statements but required by the GASB?
A. The auditor has no responsibility for such supplementary information as long as it is outside the basic financial statements.
B. The auditor’s only responsibility for the supplementary information is to determine that such information has not been omitted.
C. The auditor should apply substantive tests of transactions to the supplementary information and verify its conformity with the GASB requirement.
D. The auditor should apply certain limited procedures to the supplementary information and add a separate section to the auditor’s report.
Choice “D” is correct. The auditor should perform limited procedures on required supplementary information accompanying the financial statements. In addition, the auditor’s report on the financial statements should include a separate section with the heading, “Supplementary Information.”
Choice “A” is incorrect. The auditor is responsible for performing certain limited procedures on supplementary information and for adding a separate “Supplementary Information” section to the audit report.
Choice “B” is incorrect. The auditor is required to perform certain limited procedures with respect to supplementary information.
Choice “C” is incorrect. The auditor is not required to audit supplementary information.
Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?
A. Compare the latest available interim financial information with the financial statements being reported upon. B. Examine changes in the quoted market prices of investments purchased since the year-end. C. Apply analytical procedures to the details of the balance sheet accounts that were tested at interim dates. D. Inquire about payroll checks that were recorded before the year-end but cashed after the year-end.
Choice “A” is correct. In obtaining evidence about subsequent events, the auditor should examine the latest available interim financial information, and compare them with the financial statements under audit.
Choice “B” is incorrect. Changes in quoted market prices subsequent to year-end are to be expected, and would not provide information about subsequent events.
Choice “C” is incorrect. Applying analytical procedures to the details of the balance sheet accounts that were tested at interim dates is part of testing the year-end financial statements, not part of obtaining evidence about subsequent events.
Choice “D” is incorrect. Payroll checks that are recorded before year-end are not subsequent events, even if they are not cashed until after year-end.
When a group engagement partner decides to make reference to a component auditor’s audit under U.S. GAAS, the group engagement partner’s report should state “We did not audit the financial statements of X Company…” in which section of the audit report?
A. Opinion B. Auditor's Responsibilities C. An emphasis-of-matter paragraph D. Not in the auditor's report, but in a separate report prepared by the component auditor and appended to the auditor's report
Choice “A” is correct. Such a statement is included in the Opinion section of the auditor’s report. The statement includes the following language: “Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for X Company, is based solely on the report of the other auditors.”
Choice “B” is incorrect. The Auditor’s Responsibility section would remain unchanged from the standard unmodified report when reference is made to a component auditor in a report issued by a group engagement partner.
Choice “C” is incorrect. An emphasis-of-matter paragraph is not added to an auditor’s report when reference is made to a component auditor.
Choice “D” is incorrect. No separate report would be issued when reference is made to a component aud
Inadequate disclosure would result in a
qualified or adverse opinion
A _____________ would be appropriate when a “statement of cash flows” is omitted and the scope of the audit is not restricted.
qualified report
A departure from GAAP would result in either a _____________, depending on materiality.
qualified or adverse opinion
What are the rules, with respect to the disclosure of a subsidiary CPA firm and component auditors’ (based on assumed responsibility)?
If the parent firm assumes responsiblity, than there is not mention of the component auditor in the report. Engagement firm determines work to be performed.
(note: Division of responsibility is NOT usually allowed under ISAs).
If the engagement team chooses to divide the responsilbility, the report should cleary indicate that the component was not audited by the auditor of grp fin stmts, but by the component auditor AND should include the magnitude of the portion of the fin stmts audited by the component auditor.
NOTE: In either case Independance Rules still apply for both firms.
MCQ-03208
Which of the following best describes what is meant by the term generally accepted auditing standards?
A. Measures of the quality of the auditor’s performance.
B. Pronouncements issued by the Auditing Standards Board.
C. Rules acknowledged by the accounting profession because of their universal
application.
D. Procedures to be used to gather evidence to support financial statements
Choice “A” is correct. Generally accepted auditing standards (“GAAS”) are measuresof the quality of the auditor’s performance, and guide the auditor in the performance of
a properly planned and executed audit.
Choice “B” is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) “Statements on Auditing Standards” (SASs). While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS.
Choice “C” is incorrect. GAAS are not “rules,” nor are they universally applicable. GAAS are measures of the quality of an auditor’s performance.
Choice “D” is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts.
An auditor completed an audit of a nonissuer’s December 31, Year 3, financial statements and dated the audit report as of March 13, Year 4. On March 14, Year 4, prior to the release of the audit report, an event occurred that required management to revise the Year 3 financial statements and describe the event in a note. The auditor’s report on the revised Year 3 financial statements was newly dated as of April 11, Year 4, and released on April 12, Year 4. In this situation, the auditor has taken responsibility for all subsequent events that occurred from January 1, Year 4, until:
A. March 14, Year 4. B. April 12, Year 4. C. March 13, Year 4. D. April 11, Year 4.
Choice “D” is correct. Since the auditor’s report was newly dated as of April 11, Year 4, the auditor is responsible for subsequent events until that date. The period between the date of the financial statements and the date of the auditor’s report is the subsequent period, during which the auditor is responsible for investigating certain subsequent events.
MCQ-15005
When a group engagement partner decides to make reference to a component auditor’s audit under U.S. GAAS, the group engagement partner’s report should state “We did not audit the financial statements of X Company…” in which section of the audit report?
A. Auditor's Responsibilities B. Not in the auditor's report, but in a separate report prepared by the component auditor and appended to the auditor's report C. Opinion D. An emphasis-of-matter paragraph
Choice “C” is correct. Such a statement is included in the Opinion section of the auditor’s report. The statement includes the following language: “Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for X Company, is based solely on the report of the other auditors.”
Choice “A” is incorrect. The Auditor’s Responsibility section would remain unchanged from the standard unmodified report when reference is made to a component auditor in a report issued by a group engagement partner.
Choice “B” is incorrect. No separate report would be issued when reference is made to a component auditor.
Choice “D” is incorrect. An emphasis-of-matter paragraph is not added to an auditor’s report when reference is made to a component auditor.
Which of the following events occurring after the issuance of an auditor’s report most likely would cause the auditor to make further inquiries about the previously issued financial statements?
A. The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales. B. A technological development that could affect the entity's future ability to continue as a going concern. C. The final resolution of a lawsuit explained in a separate paragraph of the auditor's report. D. The discovery of information regarding a contingency that existed before the financial statements were issued.
Choice “D” is correct. With respect to events occurring after the issuance of an auditor’s report, the auditor is only responsible for information that existed at the audit report date.
Choice “A” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.
Choice “B” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.
Choice “C” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.
In which of the following situations would an auditor ordinarily choose between expressing an “except for” qualified opinion or an adverse 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 generally accepted accounting principles. C. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern. D. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
Choice “B” is correct. Failure to disclose information that is required by GAAP is a departure from GAAP. Departures from GAAP result in a qualified or an adverse opinion.
Choice “A” is incorrect. If the auditor is unable to observe physical inventory and is unable to become satisfied through alternative means, that is a scope limitation. Scope limitations result in either a qualified opinion or a disclaimer of opinion.
Choice “C” is incorrect. If, after considering identified conditions and events and management’s plans, the auditor concludes that substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time remains, the audit report should include a separate section with the heading “Substantial Doubt About the Entity’s Ability to Continue as a Going Concern” to reflect that conclusion.
Choice “D” is incorrect. The auditor can report on one financial statement and not the others. This does not preclude issuance of an unmodified opinion.
A scope limitation may result in what kinds of opinions?
qualified opinion or a disclaimer of opinion
