AUD2

Question 1

auditor finds out an officer has entered fraudulent transactions in the financial statements. the fraudulent transactions can be adjusted so the statements are not materially misstated.
what should the auditor do?
1. report the matters to regulatory auditories
2. communicate the matter to those charged with governance.

Answer 1

[2]
1–>監管機構
2–>負責管理人員

Question 2

which components of internal control contributes most to a strong control environment?
1. management adheres to internal control policies
2. policy manuals provide a clear understanding of internal controls

Answer 2

[1]
2–> Auditors focus on the substance of the control environment rather than on the form because the duties performed in the actual environment may be different from the stated duties

Question 3

the uesfulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:
1. be unaware of all the financial relationships that the bank has with the client
2. not have access to the client’s cutoff bank statement

Answer 3

[1]
2–> even through it is likely that the bank would have access to a cutoff bank statement. the detail on this statement is unnecessary to confirm the final balance.

Question 4

before reissuing the prior year’s audit report on the financial statements of a former client, the auditor should
1. read the financial statements of the current period
2. compare the prior period information that the auditor reported on with the financial statements to be presented for comparative purposes
3. obtain letters of representation from _____ and from _____.

Answer 4

management of the former client and from the successor auditor

Question 5

a report on internal control over compliance will include which assertions?
1. an opinion as to whether internal controls were adequate to provide reasonable assurance that the organization would comply, in all material respects, with laws rules and regulations.
2. a disclaimer of opinion on internal control over compliance

Answer 5

[2]
the audit opinion states that the audit was conducted in order to express an opinion on compliance but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance.

Question 6

1. tracing transactions from shipping documents to cash receipts test for what?
2. tracing transactions from purchase orders to sales journal test for what?
3. tracing transactions from cash receipts to customers’ purchase orders test for what?
4. tracing transactions from the sales journal to the shipping documents test for what?

Answer 6

1–> completeness
2–> completeness
3–> existence. the best starting point is the sale journal to detect overstatements of sales.
4–> existence. detect the overstatement of sales

Question 7

in performing an attest engagement, a CPA typically:
1. supplies litigation support services
2. issues a report on subject matter(or on an assertion about subject matter) that is the responsibility of another party

Answer 7

[2]
supplying litigation support services is not an attest engagement because the CPA is not reporting on subject matter that is the responsibility of another party.

Question 8

when an auditor issues a report that is dual dated for a subsequent event occurring after the original date of the auditor’s report, but before the issuance of the related financial statements, the auditor’s responsibility for events occurring subsequent to the original report date
1. extended to include all events occurring since the original report date
2. limited to the specific event reference

Answer 8

[2]
the auditor takes responsibility for only the specific events noted in the dual dating and no other event occurring subsequent to the original report date.

Question 9

an auditor should design the written audit plan so that:
1. the audit procedures selected will achieve specific audit objectives
2. substantive tests prior to the balance sheet date will be minimized.

Answer 9

[1]
1–> An audit plan aids in instructing assistants in the work to be done. it should set forth in reasonable detail the audit procedures that the auditor believes are necessary to accomplish the objectives of the audit.

2–> assuming that incremental risk can be controlled, substantive tests can be performed prior to year-end.

Question 10

determine whether accounts payable have been misstated?
1. examining vendor statements for amounts not reported as purchases.
2. searching for customer-returned goods that were not reported as returns
3. examining reported purchase returns that appear too low,

Answer 10

[1]

2–> in effect on A/R and sale returned account, not A/P
3–> Examing purchase returned means the transaction has been recorded.

Question 11

A CPA firm has decided to rely on the audit work performed by another firm. which should the CPA firm perform when taking responsibility for the other firm’s audit work?
1. review the other firm’s audit workpapers and reperform a subset of audit testing to validate the firm’s conclusions
2. reference the reliance on the other firm’s work in a footnote disclosure to the financial statements.
3. reference the reliance on the other firm’s work in the first paragraph of the opinion in the audit report

Answer 11

[1]
2–> the auditor may not make their own footnote disclosure in the client’s financial statement.

3–>the CPA firm would not reference the other’s firm’S work in the audit report because the CPA firm decided to take responsibility for another firm’s audit work.

Question 12

during the initial fieldwork phase of a new engagement, the auditor discovers that the client is currently involved in several lawsuit, if the auditor requests that the client prepare a letter of inquiry request to their outside attorneys, and the client refuses, the auditor firm should take which action?
1. perform alternative procedures to gather information regarding theses lawsuits.
2. issue a disclaimer of opinion or withdraw from the audit engagement

Answer 12

[2]
client refuses to prepare a letter of inquiry to be sent by the auditor to the client’s outside attorneys–> scope limitation

scope limitation –> not mitigated by alternative audit procedures–> 1 does not work

Question 13

auditor confirmation of A/P balances at the balance sheet date may be unnecessary because:
1. there is likely be other reliable external evidence available to support the balance
2. this is a duplication of cutoff tests

Answer 13

[1]
the documents available to support accounts payable balance come from external sources, which make them more reliable.

2–>confirmation of A/P is not a duplication of cutoff test. cutoff testing addresses questions about proper period while confirmation of A/P balance generally tests for understated balance.

Question 14

the auditor cannot be finalized until:
1. consideration of the entity’s internal control has been completed
2. representation letter has been signed by the client

Answer 14

[1]
2–> representation letter is not obtained until the end of the audit

Question 15

which group is considered a subgroup ordinarily charged with assisting the board of directors in fulfilling its oversight responsibilities?
1. senior management
2. audit committee

Answer 15

[2]
2–>審計委員會被認為是一個通常負責協助董事會履行監督職責的小組。

1–> senior management assist the board of directors with the day to day activities of the business

secure creditors–> hold a legally enforceable claim on the entity’s assets.

Question 16

an auditor testing long-term investments would ordinarily use analytical review as the primary audit procedure to ascertain the reasonableness of the:
1. completeness of recorded investment income
2. valuation of marketable equity securities

Answer 16

[1]
1–> analytical review–>completeness

2–> valuation would be verified using listed priced

Question 17

which should be include in the representation from management?
1. the belief that misstatement identified by the auditor and not corrected are immaterial
2. the belief that misstatement identified by the auditor and corrected are material

Answer 17

[1]
if the misstatements have been corrected, there is no need for management to make representations regarding their materiality.

Question 18

primary audit procedures used to test the completeness assertion are
O
T
P

Answer 18

Observation ]

Tracing a sample of transaction from the source documents to the accounting entries and financial statements.

performing analytical review procedures

Question 19

inspecting documents that support a transaction may be done when testing
1.rights
2.understand
3.valuation

Answer 19

1.rights and obligations assertion
2.understandability and classification assertion
3.valuation, allocation and accuracy assertion

Question 20

which would assist an auditor to identify litigation, claims, and assessments?
1. obtain a letter from representations from the client’s underwriter of securities
2. read the file of correspondence from taxing authorities

Answer 20

[2]
1–>獲取客戶證券承銷商的證明書
2–>閱讀稅務機關的信件檔案

Question 21

an auditor required to establish an understanding with a client regarding the services to be performed for each engagement. the understanding generally includes:
1. the auditor’s responsibility for determining the preliminary judgements about materiality and audit risk factors.
2. the auditor’s responsibility for ensuing that those charged with governance are aware of any significant deficiencies in internal control that come to the auditor’S attention

Answer 21

[2]
1–> an understanding generally is not obtained with respect to audit procedures or specific audit assessments.

Question 22

when should use blank form of confirmation of A/R?
1. recipients are likely to sign other types of positive confirmations without careful investigation
2. the auditor’s combined assessed level of control risk and inherent risk is low

Answer 22

[1]
1–>防止收件人未確認就簽字，所以故意留白
2–>when assessed level of control risk and inherent risk are low, the auditor would most likely utilize positive confirmation that state the amount owed/

Question 23

as the acceptable level of detection risk decrease, the assurance provided from substantive tests should increase.

so the auditor should do one or more of the following:
1.change the nature
2. change the time
3. change the extent

Answer 23

1.change the nature of substantive tests from a less effective to a more effective procedure
2. change the time from interim date to year-end
3. change the extent of substantive test, such as using a larger sample size.

Question 24

an auditor is unable to complete a procedure during an audit. what opinion should not be rendered?

Answer 24

adverse opinion

Question 25

The six interrelated elements of quality control are:
HELP
ME

Answer 25

1.human resources,
2.engagement/client acceptance and continuance, 參與/客戶接受和持續，
3.leadership responsibilities,
4.performance of the engagement, 參與的表現，
5.monitoring, and
6.ethical requirements.道德要求。

Question 26

a CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by:
1. having an appropriate system of quality control
2. maintaining an attitude of independence in its engagements

Answer 26

[1]
1–> quality control standards relate to the conduct of a firm’S audit practice. they set forth standards for the establishment of policies and procedures to provide reasonable assurance of conforming with professional standards.

2–> independence is part if quality control but independence along will not help the firm meet its responsibility to conform with professional standards

Question 27

determining the sample size for a test controls?
自由選択
1. expected deviation rate
2. tolerable deviation rate

Answer 27

both

to determine the number of items to be selected for a particular sample for a test of control:
1. consider the tolerable rate of deviation from the controls being tested
2. the likely rate of deviations(expected deviation rate)
3. the allowable risk of assessing control risk too low

Question 28

when a change method of accounting may affect 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:
1. explain why the change is justified under generally accepted accounting principle
2. refer to the financial statement note that discusses the change in detail

Answer 28

[2]
example of an appropriate emphasis-of-matter paragraph:
as discussed in note X to the financial statements, the company changed its method of accounting for income tax in X2.

1–> not need to explain why a change from one generally accepted accounting principle to another is justified.

Question 29

when an auditor expresses an adverse opinion, the Opinion section should include:
1. a direct reference to a separate section disclosing the basis for the opinion
2. the principal effects of the departure from generally accepted accounting principles

Answer 29

[1]
the opinion paragraph in an adverse opinion should state that, in the auditor’s opinion, because of the significance of the matter discussed in the basis for the adverse opinion section, the accompanying consolidated financial statements do not present fairly…

Question 30

subsequently discovered facts that lead to a change in an audit opinion may be presented in: (multiple choice)
1. emphasis-of-matter paragraph
2. other-matter paragraph

Answer 30

both
subsequently discovered facts that lead to a change in an audit opinion may be presented in an emphasis-of-matter paragraph or other-matter paragraph

Question 31

the opinion paragraph in an auditor’S report for a nonissuer should include a statement that:
1. identifies the applicable financial reporting framework and its origin
2. indicates that management is responsible for the fair presentation of the financial statements.

Answer 31

[1]
1–> The opinion paragraph should include a statement regarding the auditor’s opinion and an indication of the applicable financial reporting framework and its origin.

2–> Management’s responsible should be included in a separate paragraph rather in the opinion paragraph

Question 32

which would issue an adverse opinion?
1. the inability to determine the extent of or the amounts associated with a pervasive employee fraud scheme
2. inadequate disclosure of material information

Answer 32

[2]
2–>inadequate disclosure of material information a departure fro GAAP and may result in either a qualified or adverse opinion, depending on materiality
1–> qualified or disclaimer of opinion.
unable to determine the extent of or the amounts associated with a pervasive employee fraud scheme
–> Not sufficient appropriate audit evidence
–> qualified or disclaimer of opinion.

Question 33

the quarterly data required by SEC Regulation S-K have been omitted. which must be included in the auditor’s report?
1. the company has not presented the selected quarterly financial data
2. the auditor was unable to review the data.

Answer 33

[1]
2–> The auditor’s report should only state that the auditor was unable to review quarterly data required by SEC Regulation S-K when the data have been included, but the auditor has not reviewed such data.

Question 34

an auditor’s special report on financial statements prepared in conformity with the cash basis of accounting should include an emphasis-of-matter paragraph that:
1. refers to the note to the financial statement that describes the basic accounting
2. explains how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles.

Answer 34

[1]
2–> need not explain the difference between GAAP and the OCBOA, but merely states that they are different.

Question 35

express an unmodified opinion without emphasis-of-matter paragraphs to the report if the auditor:
1. believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.
2. concus with the entity’s change in ist method of computing depreciation

Answer 35

[1]
2–> A change in accounting principle will result in an emphasis-of-matter paragraph appended to an otherwise unmodified opinion.

Question 36

what is an auditor’s responsibility for supplementary information which is outside the basic financial statements but required by GASB?
1. apply substantive tests of transactions to the supplementary information and verify its conformity with the GASB requirement
2. apply certain limited procedures to the supplementary information and add a separate section to the auditor’s report.

Answer 36

[2]
1–> Not required to audit supplementary information

Question 37

which procedures would be performed to obtain evidence about the subsequent events?
1. review tax returns prepared by management after year end
2. investigate changes in capital stock recorded after year end.

Answer 37

[2]
2–> should be disclose in the footnote of F/S

Question 38

unmodified opinion–> assume the potential effect on the F/S is immaterial
1. Auditor’s responsibility section: no change/ omit/ modified
2. opinion section: no change/ omit/ modified
3. basis for the opinion section: no change/ omit/ modified

Answer 38

1. no change
2. no change
3. no change

Question 39

qualified opinion–> assume the potential effect on the F/S is material
1. Auditor’s responsibility section: no change/ omit/ modified
2. opinion section: no change/ omit/ modified
3. basis for the opinion section: no change/ omit/ modified

Answer 39

1. no change
2. modify
3. modify

Question 40

disclaimer opinion–> assume the potential effect on the F/S is high
1. Auditor’s responsibility section: no change/ omit/ modified
2. opinion section: no change/ omit/ modified
3. basis for the opinion section: no change/ omit/ modified

Answer 40

1. modify
2. modify
3. modify

Question 41

which will an auditor usually communicate to management?
1. arrangements involving a predecessor auditor
2. identification of recurring operating losses.

Answer 41

[1]
the auditor usually communicates with management about arrangements involving a predecessor auditor

Question 42

which is not among primary objectives for obtaining understanding of the existing internal control?
1. make constructive suggestions to the client for improvement
2. identify types of material misstatements

Answer 42

[1]

primary internal control planning objectives
1. identify types of potential material misstatements
2. consider factors that affect the risk of material misstatements
3. design effective substantive tests.

Question 43

5 components of internal control:

C
R
I
M
E

Answer 43

Control environment–> the overall tone of the organization

Risk assessment–> management’s identification of risk

Information and communication system–> a means of recording transaction and communicating responsibilities

Monitoring–>assessment of internal control performance over time

Existing control activities–> control policies and procedures

Question 44

in developing an overall audit strategy, an auditor should consider:
1. whether the inquiry of the client’s attorney identifies any litigation, claims, or assessments not disclosed in the financial statements.
2. preliminary evaluations of materiality, audit risk and internal control

Answer 44

[2]

2–> performed during fieldwork, after the planning process has been completed

Question 45

analytical procedures used in planning an audit should focus on:
1. evaluating the adequacy of evidence gathered concerning unusual balances.
2. enhancing the auditor’s understanding of the client’s business

Answer 45

[2]
the purpose of applying analytical procedures in planning–> assist in planning the nature, timing and extent of auditing procedures the will be used to obtain audit evidence for specific account balance or classes of transactions

to accomplish this, the analytical procedures should focus on:
1. enhancing the audit understanding of the client’s business and the transactions and events that have occurred since the last audit date
2. identifying areas that may represent specific risk relevant to the audit.

Question 46

in obtaining an understanding of an entity’S internal control, an auditor is required to obtain knowledge about: (multiple choice)
1. operating effectiveness of controls
2. design of controls

Answer 46

no-yes
auditor required to obtain knowledge about the design of controls and whether they have been implemented.

Question 47

a CPA firm would best provide itself reasonable assurance of meeting its responsibility to odder professional services that conform with professional standards by:
1. assessing the risk that errors and fraud may cause the financial statements to contain material misstatements.
2. maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.

Answer 47

[2]
statements of quality control standards(SQCS) are issued to provide guidance with respect to audit quality control.
nature and extent of quality control policies –> tied to organization structures.

Question 48

which is most accurately describes the process of a walkthrough?
1. following a transaction from its origination until it is reflected in the financial statements.
2. inspection of selected documents, records, and internal control documentation.

Answer 48

[1]
2–> walkthrough procedure = inspection, inquiry, obsercation, recalculation, control performance

Question 49

which would be included in the engagement letter prepared by an auditor?
1. services to be provided in addition to the audit
2. meeting dates, attendance, and topics at board of director’s meetings.

Answer 49

[1]
1–> would include the scope of audit and any additional services to be provided by the auditor to the entity.
2–> would be maintained by the entity but not in the engagement letter

Question 50

when assessing an internal auditor’s competence, what should an external auditor do?
1. whether the board of directors, audit committee, or owner-manager oversees employment decisions related to the internal auditor
2. the educational level and professional experiences of the internal auditor.

Answer 50

[2]
1–> Objectivity is reflected by the organization level to which the internal auditor reports, which includes who oversees the employment decisions related to the internal auditor客觀性反映在內部審計師報告的組織級別上，其中包括誰監督與內部審計師相關的僱傭決策

Question 51

in computer audit applications, efficient and effective system usage requires:
1. identification
2. appropriate

Answer 51

1. identification of the appropriate audit task
2. appropriate software to perform the selected audit tasks

Question 52

at a minimum, an understanding with a client should include:
1. the auditor’s opinion regarding whether the financial statements are free of material misstatement
2. the objectives and limitations of the engagement, as well as the responsibilities of management and of the auditor

Answer 52

[2]
1–> the auditor does not issue an opinion until the audit is complete

Question 53

an auditor considers materiality for the financial statements as a whole in terms of the [ largest / smallest ] level of misstatements that could be material to any one of the financial statements.

Answer 53

smallest
Materiality levels include an overall level for each statement, however, because the statements are interrelated, and for reasons of efficiency, the auditor ordinarily considers materiality for planning purposes in terms of the smallest aggregate level of misstatement that could be considered material to any one of the financial statement.

Question 54

which is right about directional testing?
1. in order to ensure that an asset has not been overstated, an auditor may want to vouch to source documentation.
2. in order to test the existence assertion, an auditor may select a sample of items and trace to their corresponding source documentation.

Answer 54

[1]
1–> An auditor would be likely to test for overstatement of an asset by the existence assertion. This test would include vouching down to supporting source documentation.

2–> Tracing is an activity that would be performed to test the completeness assertion, by tracing up from sources documentation to the summary accounting records.
To test existence–> by vouching down from the summary accounting records to supporting source documentation.
2的方法是完整性測試而不是存在性測試，所以不對

Question 55

the purpose of tracing
purchase orders and related receiving reports
–>
purchases journal and cash disbursements journals
1. test whether payments were for goods actually ordered
2. determine that purchases were properly recorded

Answer 55

[2]
1–> to test whether payments were pay, should trace from cash disbursements back to purchase order
2–> can seeks to answer the question” were all purchases properly recorded?”(completeness)

Question 56

which is not an analytical procedure?
1. comparing the inventory balance of this year versus the prior year
2. determining the accuracy of the client’s reported year-end cash and cash equivalents balance.

Answer 56

[2]
analytical procedures focus on the relationship between financial, ratio, and non-financial data.
1–> Substantive analytical procedure
2–> Test of details.

Question 57

1. predictive analytic
2. prescriptive analytic
3. diagnostic analytic
4. descriptive analytic

Answer 57

1. predictive analytic–> provide expected on historical data, like regression analysis
2. prescriptive analytic–>based on advanced analytics to reach a desired goal–>for an action
3. diagnostic analytic–> why something happened
4. descriptive analytic–> what happened within data

Question 58

which would not be considered an attest engagement subject to attestation standards?
1. an engagement to review the financial statements of a nonpublic company
2. an engagement to review pro format financial statements.

Answer 58

[1]
1–> A review of a nonpublic company’s F/S is conducted under SSARS, and attest engagements covered under Statements on Standards of Accounting and Review Engagements(SSAE) exclude SSARS(Accounting and Review Services)

Question 59

which is right?
1. all reports on prospective financial statements required that the accountant be independent/
2. all reports on prospective financial statements require a statement indicating that the prospective results may not be achieved.

Answer 59

[2]
1–> A compilation of prospective financial statements does not require independence.
2–>所有關於預期財務報表的報告都需要一份表明預期結果可能無法實現的聲明。

Question 60

an accountant who reviews the financial statements of a nonissuer should issue a report stating that a review:
1. provides only limited assurance that the financial statements are fairly presented
2. is substantially less in scope than an audit

Answer 60

[2]
1–> a review does provide limited assurance as to GAAP, but this is not the appropriate wording for the report.

Question 61

which computer-assisted auditing techniques process client input data on a controlled program under the auditor’s control to test control in the computer system?
1. test data
2. parallel simulation

Answer 61

[2]
1–> the test data approach uses the auditor’s input data on the client’s system, off-line
2–> parallel simulation is a technique in which the auditor reprocessed the client’s data using the auditor’s own software. the auditor then compares his or her results to those obtained by the client.

Question 62

complied financial statements should be accompanied by a report stating that:
1. a compilation is substantially less in scope than a review or an audit in accordance with generally accepted auditing standards.
2. the accountant is not required to perform any procedures to verify the accuracy or completeness of the information provided by management.

Answer 62

[2]
1–> the report must state that the financial statements have not been audited or reviewed, but does not compare the scope of a compilation to the scope of a review or an audit.

Question 63

equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for:
1. investigation of variances within a formal budgeting system.
2. independent verification of invoices for disbursements recorded as equipment acquisitions

Answer 63

[1]
1–> would be detected by internal control procedures that provide for investigation of variances within a formal budgeting system.

2–> verifying invoices for disbursements already recorded as equipment acquisitions would not include examining invoices for disbursements recorded as maintenance expenses.

Question 64

in the integrated audit of an issuer, which would not be considered an entity-level control?
1. the outside auditor’s assessment process of internal auditor competence and objectivity.
2. the executive committee’s process for assessing business risk.

Answer 64

[1]
an entity-level control exists independently of the auditor, therefore, the external auditor’s assessment process of internal auditor competence and objectivity would not be considered an entity-level control.

Question 65

each page of nonissuer’s financial statements reviewed by an accountant should include the following reference:
1. reviewed, no accountant’s assurance expressed.
2. see independent accountant’s review report.

Answer 65

[2]
remember

Question 66

which would perform to obtain audit evidence supporting the effecting operation of controls?
1. observing an entity’s employee prepare the schedule of past due accounts receivable
2. sending confirmation requests to an entity’s principal customers to verify the existence of accounts receivable

Answer 66

[1]
evidence supporting the effective operation of controls–> obtain evidence regarding how controls were applied, the consistency with which controls were applied, and by whom or by what means controls were applied.

Question 67

in testing long-term investment, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of the:
1. completeness of recorded investment income
2. valuation of marketable equity securities

Answer 67

[1]
1–> completeness of recorded investment income, would probably include a comparison of the recorded investment income with the expected amount and the income balance audited in the prior year.
2–> the test the valuation of marketable equity securities an auditor would most likely compare to marker quotations(cost method) or examine the audited financial statement of the investee company(equity method)

Question 68

which is the best approach for developing expectations when applying analytical procedures during an audit?
1. considering unaudited account balances and ratios to calculate what adjusted balance should be
2. identifying reasonable explanations for unexpected differences before talking to client management.

Answer 68

[2]
1–> unaudited balance are less reliable
2–> management’s explanation should always be corroborated with other evidence.

Question 69

why not test controls related to certain assertions?
1. evaluating the effectiveness of controls is inefficient
2. considering the relationship of assertions to specific account balances is more efficient

Answer 69

[1]
1–> auditor may decide to assess control risk at the maximum level
–> evaluating the effective ness of control is inefficient
–>would be more efficient to test the assertions substantively

Question 70

which can obtain evidence about the occurrence of subsequent events?
1. review tax returns prepared by management after year-end
2. investigate changes in capital stock recorded after year-end

Answer 70

[2]
1–> Tax returns prepares after year-end is not a subsequent event issue.

2–> A change in capital stock that is recorded after the year-end is an example of a subsequent event that might require disclosure in the footnotes to the financial statements.

Question 71

the auditor may not issue a qualified opinion when:
1. the auditor is not independent with respect to the audited entity
2. the financial statements contain a material departure from generally accepted accounting principles.

Answer 71

[1]
1–>onlu a disclaimer of opinion may be issued
2–>may result in a qualified opinion

Question 72

an auditor’s report on financial statements prepared in accordance with an other comprehensive basis of accounting includes an opinion as to whether the basis of accounting used is appropriate under the circumstances.

why is wrong?

Answer 72

the auditor would not indicate in his/her report an opinion as to whether the method of accounting used is appropriate.

Question 73

how to obtain evidence about the occurrence of subsequent events?
1. inquire about the current status of transactions that were recorded on the basis of preliminary data.
2. Trace information for shipping documents to sale invoices and sales journal transactions
3. verify inventory pledged under loan agreements by confirming the details with financial institutions.

Answer 73

[1]
1–> the auditor is likely to inquire about the current status of transactions that were recorded on the basis of preliminary data when obtaining evidence about the occurrence of subsequent events. the additional information may affect the amount and/or disclosures in the financial statements that are under audit.
2–> An auditor is likely to compare the financial statements being reported on with those of the prior year in the planning stage of the audit when the auditor is performing analytical procedures
3–> for providing evidence of the completeness of sales.

Question 74

the opinion paragraph in an auditor’s report for a nonissuer should include a statement that:
1. identifies the applicable financial reporting framework and its origin
2. describes the auditor’s responsibility for expressing an opinion on the financial statements

Answer 74

[1]
2–> would be included in a separate paragraph

Question 75

when auditing a nonissuer, what is an auditor’s responsibility for supplementary information, such as disclosure of pension information, which is outside the basic financial statements but required by GAAP?
1. the auditor should perform tests of transactions to the supplementary information to verify that it is reasonably comparable to the prior year’s information
2. the auditor should apply certain limited procedures to the supplementary information

Answer 75

[2]
1–> not required
2–>the auditor should apply certain limited procedures to the supplementary information and add a separate section with the heading “supplement information” to the financial statement audit report

Question 76

if client-prepared document is materially inconsistent with the financial statements and the financial statement do not require revision, the auditor should require:
1. request that the client revise the letter of transmittal
2. include another matter paragraph in the auditor’s report

Answer 76

[1]
2–> a separate section with the heading “other information” clarifying the auditor’s responsibility with resoect to the other information would be assed to the report rather than an other-matter paragraph