A1 Audit Reports

Question 1

Material but not pervasive effect on the financial statements

Answer 1

the auditor’s opinion should state “In our opinion, except for the omission of the information described in the basis for qualified opinion section of our report . . .”

Question 2

Qualified or Adverse opinion

Answer 2

Inadequate disclosure of a material related party transaction

Question 3

Adverse opinion

Answer 3

Misstatements are both material and pervasive to the financial statements

Question 4

Disclaimer of opinion or withdrawal from the audit

Answer 4

If Management refuses to allow the auditor to contact legal counsel

Question 5

Adverse opinion

Answer 5

Capitalizable leases but refuses to capitalize them in the financial statements and amounts that pervasively distort the financial statements

Question 6

Qualified opinion

Answer 6

Company issues financial statements that purport to present financial position and results of operations but omits the related statement of cash flows

Question 7

Disclaimer of opinion

Answer 7

A client’s refusal to permit its attorney to get information requested in a letter of audit inquiry would generally result in a disclaimer of opinion

Question 8

Auditor would modify the auditor’s responsibility

Answer 8

If they were issuing a disclaimer of opinion but not when issuing a qualified opinion.

Question 9

adverse opinion, the Opinion section should include

Answer 9

A direct reference to a separate section disclosing the basis for the opinion

Question 10

Future CPA

Answer 10

Bernice Lopez

Question 11

Qualified Opinion

Answer 11

Auditor is unable to obtain sufficient evidence and the possible effects could be material but not pervasive

Question 12

Disclaimer of opinion

Answer 12

Unable to obtain sufficient evidence and the possible effects could be both material and pervasive

Question 13

Is an auditor required to report on critical audit matters when issuing a disclaimer of opinion

Answer 13

No, because A disclaimer of opinion means the auditor cannot provide an opinion on the financial statements due to significant limitations, such as lack of sufficient evidence or severe uncertainties. Since CAMs are meant to highlight challenging, subjective, or complex audit areas in an unqualified opinion, they do not apply when the auditor is unable to form an opinion

Question 14

Adverse opinion

Answer 14

Is issued when the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements

Question 15

add an emphasis-of-matter paragraph to the report while not affecting the auditor’s unmodified opinion?

Answer 15

To describe a material but justified change in accounting principle.

Question 16

In what section should the auditor’s report for a nonissuer refer to the lack of consistency when there is a justified change in accounting principle that is significant?

Answer 16

An emphasis-of-matter paragraph.

Question 17

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor’s report. This paragraph should identify the nature of the change and:

Answer 17

Refer to the financial statement note that discusses the change in detail.

Question 18

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should:

Answer 18

Not refer to consistency in the auditor’s report.

Question 19

other-matter paragraph

Answer 19

If an auditor looks at more than one set of financial statements, each following different rules, they might add a note to explain this and avoid any confusion for the readers.

Question 20

special purpose framework

Answer 20

is a type of accounting that’s different from GAAP and includes methods like cash basis, tax basis, regulatory basis, or contractual basis. It’s used for specific needs, like meeting regulatory requirements, which don’t follow traditional GAAP rules.

Question 21

Statements on Auditing Standards (SASs)

Answer 21

Provide the highest level of guidance for audits of nonissuers.

Question 22

An auditor of a nonissuer must conduct the audit in accordance with:

Answer 22

ASB standards.

Question 23

Which of the following is not an example of the application of professional skepticism?

Answer 23

Inquiring of prior year engagement personnel regarding their assessment of management’s honesty and integrity.

Question 24

The risk of material misstatement includes the auditor’s assessment of:

Answer 24

inherent risk and control risk.

Question 25

In response to an increased level of assessed risk of material misstatement, an auditor of a nonissuer would generally:

Answer 25

Increase the emphasis on professional skepticism when gathering and evaluating audit evidence with the audit team.

Question 26

An auditor generally tests the segregation of duties related to inventory by:

Answer 26

Visual. Personal inquiry and observation.

Question 27

In which of the following circumstances, based on the impact to the risk of material misstatement, would an auditor most likely conclude that substantive testing of accounts receivable at an interim date is appropriate?

Answer 27

Relevant controls during the remaining period are effective.

Question 28

Which of the following statements about performing tests of controls to support a lower level of control risk is not true?

Answer 28

Inquiries alone generally support a conclusion that a lower level of control risk is needed. Not true, inquiry alone is not enough.

Question 29

Detection risk differs from both control risk and inherent risk in that detection risk:

Answer 29

Can be changed at the auditor's discretion.

Question 30

disclaimer of opinion

Answer 30

I can't give an opinion about whether the internal controls in place to ensure compliance are effective or not.

Question 31

top-down approach

Answer 31

1. Evaluation of overall risks at the financial statement level. 2. Consideration of controls at the entity level. 3. Evaluation of accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement.

Question 32

material weaknesses

Answer 32

adverse opinion

Question 33

incorrect rejection

Answer 33

Erroneously concluding that an account balance is materially misstated is an example of incorrect rejection.

Question 34

incorrect acceptance

Answer 34

If the auditor had concluded that the account was fairly presented when, in fact, it was not, it would be an example of incorrect acceptance.

Question 35

assist an auditor in identifying related party transactions.

Answer 35

Reviewing the minutes of the meetings of the board of directors and its committees most likely would assist an auditor in identifying related party transactions.

Question 36

analytical procedures

Answer 36

The use of analytical procedures is required during an audit for the planning and final review phases.

Question 37

Does an accountant need to understand internal control in a compilation or review engagement?

Answer 37

No