exam three Flashcards
(120 cards)
1
Q
When confirming accounts payable, emphasis should be put on what kind of accounts?
Accounts with small or zero balances from known suppliers
All accounts should be equally emphasized.
Accounts with large balances.
Accounts listed in the accounts payable subsidiary.
A
A
2
Q
“All purchase orders are supported by requisitions from proper persons” is a specific example of which management assertion?
occurrence
completeness
cutoff
classification
A
a
3
Q
For the copy of the purchase order that goes to the receiving department, it is best to
leave off the description of the goods ordered.
leave off the quantity of the goods ordered.
leave off the name of the vendor.
have the receiving department forward all copies of the purchase order to accounts payable.
A
b
4
Q
A voucher package is used to
document receipt of inventory.
document completion of services.
document a purchase contract.
provide a source document for recording the purchase of a good or service
A
d
5
Q
The usual source for journal entries posted to the general ledger to record the purchase of inventory is
sales invoices updated with cost data from the inventory records department.
purchase invoices updated with cost data from the inventory records department.
receiving reports updated with cost data from the accounts payable department.
vouchers payable journal from the accounts payable department.
A
d
6
Q
Which of the following situations indicates a potential material weakness in internal
control over acquisition and expenditure?
Purchase orders are not prepared for services acquired directly under authorization of department heads.
The same person authorizes voucher packages and signs checks.
Unacceptable goods are not scheduled on receiving reports.
The same person signs checks and stamps vouchers PAID.
A
b
7
Q
When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that
all goods purchased before year-end are received before the physical inventory count.
no goods held on consignment for customers are included in the inventory balance.
no goods observed during the physical count are pledged or sold.
all goods owned at year-end are included in the inventory balance.
A
d
8
Q
The auditor decided to test accounts payable by sending open-ended (blank) confirmations to selected vendors. The auditor’s best approach in selecting the vendor accounts to confirm is to
select vendor accounts with large balances.
select vendor accounts at random in order to apply a statistical sampling procedure.
select vendor accounts based on the number of purchases from vendors during the year.
select vendor accounts that are past due.
A
c
9
Q
Purchase cutoff procedures should be designed to produce evidence of whether merchandise is included in the inventory of the client company if the company
has paid for the merchandise.
has physical possession of the merchandise.
holds legal title to the merchandise.
holds the shipping documents for the merchandise issued in the company’s name.
A
c
10
Q
Which of the following would not be included in the supporting documents for a voucher?
purchase order
vendor invoice
receiving report
blank check
A
d
11
Q
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be
vendors with whom the entity has previously done business.
amounts recorded in the accounts payable subsidiary ledger.
payees of checks drawn in the month after the year-end.
invoices filed in the entity’s open invoice file.
A
a
12
Q
An entity’s internal control structure requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all
purchase orders.
canceled checks.
receiving reports.
approved vouchers.
A
b
13
Q
Which of the following audit procedures is best for identifying unrecorded accounts payable?
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
Reconciling vendors’ statements to the file of receiving reports to identify items received just prior to the balance sheet date.
A
a
14
Q
Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management’s assertion of
valuation or allocation.
existence or occurrence.
completeness.
rights and obligations.
A
c
15
Q
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.
Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.
Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.
A
c
16
Q
A weakness in internal control over recording retirements of equipment may cause an auditor to
inspect certain items of equipment in the plant and trace those items to the accounting records.
review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
trace additions to the “other assets” account to search for equipment that is still on hand but no longer being used.
select certain items of equipment from the accounting records and locate them in the plant.
A
d
17
Q
Improperly capitalizing an expense item results in
understatement of profit in the current year and overstatement in future years.
understatement of profit in the current year and in future years.
overstatement of profit in the current year and understatement in future years.
overstatement of profit in the current year and in future years.
A
c
18
Q
Which of the following expense accounts would not normally be tested by listing all debits and examining any significant items?
legal expense
miscellaneous expense
repairs and maintenance
payroll expense
A
d
19
Q
Which of the following is not identified as a fraud detection step that could be performed by CAATs?
Look for photocopies in invoice files.
Look for vendor invoices in numerical order.
Look for vendor invoices slightly below the approval threshold.
Look for duplicate vendor numbers.
A
d
20
Q
The permanent reference files (master files) in a personnel and payroll database ordinarily do not include which of the following?
deduction table
payroll master
compensation table
employee earning record
A
d
21
Q
Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department?
Distributing paychecks
Authorizing overtime hours
Authorizing the addition or deletion of employees from the payroll.
Collecting and retaining unclaimed paychecks
A
c
22
Q
Mini Corporation uses a Wages Clearing Account for its payroll disbursements. At the end of February, a reasonably large debit balance remained in this account. The most likely reason for this is that
more labor cost had been assigned to the expense accounts than had been paid.
some labor cost had not been properly classified in the expense accounts.
some employees had not yet cashed their checks.
not enough cash had been transferred to the bank account.
A
b
23
Q
The sampling unit in a test of controls pertaining to the existence or occurrence of payroll transactions ordinarily is a(an)
clock card or time ticket.
employee Form W-2.
employee personnel record.
payroll register (journal) entry.
A
d
24
Q
An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for
examining authorization forms for new employees.
comparing payroll registers with original batch transmittal data.
distribute payroll checks to all employees.
hiring all subordinate payroll department employees.
A
c
25
An auditor most likely would perform substantive procedures on payroll transactions and balances when
cutoff tests indicate a substantial amount of accrued payroll expense.
the assessed level of control risk relative to payroll transactions is low.
analytical procedures indicate unusual fluctuations in recurring payroll entries.
accrued payroll expense consists primarily of unpaid commissions.
c
26
Substantive tests of account balances in the payroll cycle are likely to include the following procedures except
analytical review procedures.
recalculation of accruals.
comparison of accruals to subsequent payments.
detail vouching of payroll expense entries.
d
27
For which of the following accounts would the matching concept be the most appropriate?
COGS
28
A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system?
Accounts payable are not materially understated.
Authority to incur liabilities is restricted to one designated person.
Acquisition of materials is not made from one vendor or one group of vendors.
Commitments for all purchases are made only after established competitive bidding procedures are followed.
a
29
C. Spot, the purchasing agent of River Hardware Wholesalers, has a relative who owns a retail hardware store. Spot arranged for hardware to be delivered by manufacturers to the retail store on a cash-on-delivery (COD) basis, thereby enabling his relative to buy at River's wholesale prices. Spot was probably able to accomplish this because of River's poor internal control over
purchase orders
30
Which of the following procedures is least likely to be performed before the balance-sheet date?
Search for unrecorded liabilities.
31
When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase
invoices
32
Smithson, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by
comparison of the company name to the approved vendor list by the check signer.
recognition of the excess maintenance costs by Smithson's supervisor.
refusal by the purchasing department to approve the vendor.
All of these choices are correct.
c refusal
33
Which of the following accounts would most likely be audited in connection with a related balance sheet account?
property tax expense
34
In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for
completeness
35
Which of the following events or activities may occur following the audit report release date?
Subsequently discovered facts
36
Roll-forward work normally occurs between the __________blank and the __________blank.
beginning of the year under audit; audit report release date
date of the financial statements; audit report release date
beginning of the year under audit; date of the financial statements
date of interim work; date of the auditors' report
d
37
Which of the following best describes the auditors' responsibility with respect to management's estimates?
Verifying the mathematical accuracy of management estimates.
Assessing the likelihood that actual results will be consistent with management's estimates.
Evaluating the reasonableness of management's estimates.
Identifying how the failure of the entity to achieve management's estimates will influence users' decisions.
c
38
Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses?
These accounts are likely to relate to going-concern matters.
These accounts are often more difficult to audit using normal substantive procedures.
These accounts may represent attempts of earnings management.
These accounts are likely to require the assistance of a specialist.
c
39
An important method used by auditors to learn of material contingencies is
examining documents in the client's possession concerning contingencies.
inquiring and discussing them with management.
obtaining responses to an attorney letter.
confirming accounts receivable with the client's customers.
c
40
Which of the following is typically not included in the inquiry letter sent to the client's attorneys?
A disclaimer regarding the likelihood of settlement of pending litigation.
A listing of pending or threatened litigation, claims, or assessments.
An evaluation of the likelihood of an unfavorable outcome.
An estimate of the range of potential loss.
a
41
To whom should written representations be addressed?
auditors
42
What is the primary purpose of obtaining written representations?
To provide auditors with substantive evidence of important assertions.
To impress upon management its primary responsibility for the financial statements.
To allow auditors to communicate important internal control deficiencies to management.
To allow auditors to communicate important suggestions for improvement to management.
b
43
Which of the following reporting options is available if the client refuses to provide auditors with written representations?
Unmodified or qualified opinion
Qualified or adverse opinion
Qualified opinion or disclaimer of opinion
Disclaimer of opinion or adverse opinion
c
44
Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork?
To ensure that all appropriate steps in the audit plan were performed.
To ensure that referencing among audit documentation is clear.
To ensure that the explanations included in the audit documentation are understandable.
To ensure that the overall scope of the audit was appropriate.
d
45
Subsequent events occur between the __________ and the __________.
date of the financial statements; date of the auditors' report
date of the auditors' report; audit report release date
date of the financial statements; audit report release date
audit report release date; beginning of subsequent year's audit
a
46
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?
Violation of debt covenants.
Failure to meet forecasted earnings per share.
Legal proceedings that may have a significant negative impact on the entity.
Negative cash flow from operations for each of the last three years.
b
47
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
January 25 and February 1
January 25 and February 15
February 1 and February 15
b
48
Management letters are not a means of
reporting recommendations to the client.
assisting the client in improving its operations.
satisfying professional requirements to communicate matters related to the client's internal control.
developing rapport with the client.
c
49
Auditors must complete various phases of an audit after the date of the financial statements. The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the
date of the auditors' report.
final review of the audit documentation.
audit report release date.
delivery of the auditors' reports to the client.
c
50
The primary objective of analytical procedures used near the end of an audit is to
obtain evidence from details tested to corroborate management assertions.
obtain evidence on the validity of the assessment of control risk.
assist auditors in evaluating the overall financial statement presentation.
identify areas that represent specific risks relevant to the audit.
c
51
Near the end of an audit, the application of analytical procedures is
recommended by auditing standards.
not mentioned by auditing standards.
not useful, since detailed substantive procedures have already been performed.
required by auditing standards.
d
52
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?
"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"
"…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…"
a
53
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 are required to be independent of [the client]…"
"We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion."
"We conducted our audit in accordance with…(GAAS)"
a
54
If financial statements contain a material but nonpervasive departure from generally accepted accounting principles, the auditors should render a(n)
qualified opinion with reference to departure.
adverse opinion with scope limitation reference.
adverse opinion with reference to departure.
disclaimer of opinion.
a
55
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
identify management's responsibility for the financial statements.
refer to any scope limitation in the Basis for Opinion Section.
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.
c
56
"As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 20x1…" is an illustration of a
consistency change requiring a qualified opinion.
scope limitation.
departure from generally accepted accounting principles.
report with a consistency modification.
d
57
Auditors will issue an adverse opinion when
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.
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.
b
58
When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n)
disclaimer of opinion.
qualified opinion referencing a departure from generally accepted accounting principles.
unmodified opinion with an emphasis-of-matter paragraph.
adverse opinion.
a
59
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
issue a qualified opinion on the entity's financial statements, citing a departure from generally accepted accounting principles.
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.
revise the report on the entity's financial statements to include an additional section describing the material inconsistency.
d
60
In which of the following circumstances would a qualified opinion not be appropriate?
A scope limitation prevents the auditors from completing an important auditing procedure.
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.
d
61
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 Qualified Opinion Section only.
the Basis for Qualified Opinion Section only.
the Auditor’s Responsibilities for the Audit of the Financial Statements Section only.
the Qualified Opinion Section and the Basis for Qualified Opinion Section.
d
62
If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditors should
modify the Opinion Section and Basis for Opinion Section of the report for lack of conformity with generally accepted accounting principles.
disclaim an opinion on the entity's financial statements because of uncertainty.
disclose the matter in an emphasis-of-matter paragraph but not modify the Opinion Section of the report.
not modify the report because both principles are generally accepted accounting principles.
a
63
Auditors who are reporting on financial statements that contain a material departure from generally accepted accounting principles should
express a qualified or adverse opinion.
not modify the Opinion Section of the report as long as the departure is adequately disclosed in a footnote.
disclaim an opinion on the financial statements.
express a qualified opinion or disclaimer of opinion.
a
64
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
disclaim an opinion.
express an adverse opinion.
qualify the opinion.
express an unmodified opinion with an additional section describing the going-concern uncertainty.
d
65
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.
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.
Basis for Opinion Section and Auditor’s Responsibilities for the Audit of the Financial Statements Section.
c
66
When audited financial statements are presented in a document containing other information, the auditors should
perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
add an emphasis-of-matter paragraph describing the other information to the auditors' report without modifying the opinion on the financial statements.
perform the appropriate substantive procedures to corroborate the other information.
read the other information to determine that it is consistent with the audited financial statements.
d
67
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 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."
is appropriate and would not otherwise affect the unmodified opinion.
d
68
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
unmodified.
qualified.
adverse.
qualified or adverse, depending on the overall materiality and pervasiveness of the GAAP departure.
d
69
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.
b
70
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 auditors did not observe the entity's physical inventory and are unable to become satisfied as to its balance by other auditing procedures.
The financial statements fail to disclose information that is required by generally accepted accounting principles.
The auditors are asked to report only on the entity's balance sheet and not on the other basic financial statements.
Events disclosed in the financial statements cause the auditors to have substantial doubt about the entity's ability to continue as a going concern.
b
71
Auditors would not normally issue a qualified opinion on the entity's financial statements when
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.
the entity has undertaken a change in accounting principle with which the auditor does not agree.
b
72
If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would
disclose the fact that alternative procedures were used due to client-imposed scope limitation.
disclose in the Basis for Opinion Section that confirmation of accounts receivable was impracticable.
not mention the alternative procedures.
include an other-matter paragraph that discloses the performance of alternative procedures.
c
73
Which of the following paragraphs or sections of the group auditors' report is modified to identify the extent of component auditor involvement in the audit of group financial statements?
The Opinion Section..
The Basis for Opinion Section.
The Auditor’s Responsibilities for the Audit of the Financial Statements Section.
The other-matter paragraph.
a
74
Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors' work did not identify any issues affecting the group auditors' report?
Issue a standard (unmodified) report that does not reference any involvement by the component auditors.
Identify the component auditors by name and present their report along with the group auditors' report.
Refer to the component auditors' work and disclose the extent of their work in the group auditors' report.
Disclaim an opinion on the portion of the financial statements examined by the component auditors.
d
75
Which of the following situations would require auditors to add an other-matter paragraph to their report on comparative financial statements?
An unmodified opinion is issued in the current year while a qualified opinion was issued in prior years.
A qualified opinion is issued in the current year because of a scope limitation; because this limitation was not encountered in prior years, the opinion issued in those years was unmodified.
The updated opinion issued on prior years' financial statements differs from the opinion originally issued on those financial statements.
The auditors' unmodified opinion issued on prior years' financial statements is still considered to be appropriate.
c
76
When a predecessor auditor has examined the prior years' financial statements presented in comparative format, the current auditors' report should
make no reference to the predecessor auditors' report.
reference the predecessor auditors' report in the Opinion Section, Basis for Opinion Section, and Auditor’s Responsibilities for the Audit of the Financial Statements Section.
reference the predecessor auditors' report in an other-matter paragraph.
disclaim an opinion on the prior years' financial statements.
c
77
On which of the following matters would it not be appropriate for the auditors to report using an other-matter paragraph?
An indication that a predecessor auditor examined prior year’s financial statements presented in comparative form
Procedures performed related to supplementary mineral reserve information required by the Financial Accounting Standards Board.
The consistency of summary financial statements with the audited financial statements from which they were derived.
An updated opinion on comparative financial statements that differs from the opinion originally issued by the auditors.
c
78
Which of the following best reflects the auditors' reporting responsibility under generally accepted auditing standards?
A. Exception , required
B. Exception, Exception
C. Required, Required
D. Required, Exception
c
79
An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's
income statement only.
statement of cash flows only.
balance sheet only.
statement of changes in shareholders' equity only.
c
80
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.
d
81
The group auditors decide not to refer to the audit of component auditors who audited a subsidiary of the group financial statements. After making inquiries about the component auditors' professional reputation and independence, the group auditor most likely would
Multiple Choice
document in the engagement letter that the group auditors assume no responsibility for the component auditors' work.
obtain written permission from the component auditors to omit the reference in the group auditors' report.
contact the component auditors' and review the audit programs and working papers pertaining to the subsidiary.
add an other-matter paragraph to the group auditors' report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.
c
82
An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should
Multiple Choice
issue an updated comparative report indicating the involvement of component auditors.
explain to the client that comparative financial statements may not be presented under these circumstances.
express an opinion only on the current year's financial statements and make no reference to the prior years' statements.
indicate the substantive reasons for the qualification in the predecessor auditors' opinion.
d
83
An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. The entity's financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s).
A Yes, Yes
B Yes, No
C No, Yes
D. No, No
d
84
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the
A. Yes, Yes
B. Yes, No
C. No, Yes
D. No, No
d
85
Issuers’ financial statements should be accompanied by all of the following reports except the
auditors' report on internal control over financial reporting.
management's report on internal control over financial reporting.
auditors' report on financial statements and related disclosures.
management's report on financial statements and related disclosures.
d
86
Which of the following would not be communicated to users in the auditors' report on an entity's financial statements and related disclosures?
Whether the financial statements are presented in accordance with GAAP, or another applicable financial reporting framework.
Unusual aspects of the audit examination, such as the involvement of component auditors in the audit of group financial statements.
Specific details regarding the audit examination, such as the materiality threshold used to identify material misstatements.
Other matters affecting the client, such as substantial doubt about the entity's ability to continue as a going concern.
c
87
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
qualified opinion based on a material and pervasive uncertainty.
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.
a
88
When a circumstance-imposed scope limitation has a material but not pervasive effect on the sufficiency of the auditors' evidence, the auditors' report will
modify the Opinion Section and Basis for Opinion Section.
modify the Opinion Section and Auditor’s Responsibilities for the Audit of the Financial Statements Section.
modify the Opinion Section, Basis for Opinion Section, and Auditor’s Responsibilities for the Audit of the Financial Statements Section.
modify the Opinion Section and Basis for Opinion Section and omit the Auditor’s Responsibilities for the Audit of the Financial Statements Section.
a
89
Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report?
The report should be modified to include an emphasis-of-matter paragraph describing the pending litigation.
A disclaimer of opinion should be issued because the auditors' independence is impaired.
The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty.
A qualified or adverse opinion should be issued depending on the severity of the lawsuit.
b
90
Carson, LLP, audited Best Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, Carson gave Best permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for Carson's responsibility on the reissued report?
December 31, Year 1.
March 1, Year 2.
December 31, Year 2.
February 15, Year 3.
b
91
When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is
limited to the previously issued report date.
extended to the date of the updated audit report.
limited to 30 days after the date of the prior years' financial statements.
extended to the updated report date only if information comes to the auditors' attention requiring modification of the previously expressed opinion.
b
92
When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements
is complete with respect to disclosures required by the SEC.
is fairly stated, in all material respects, in accordance with generally accepted accounting principles.
is consistent, in all material respects, with the prior years' summary financial statements.
is fairly stated, in all material respects, in relation to the complete financial statements.
d
93
Harris is auditing the financial statements of Cole Corporation., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Harris issue?
Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information.
Adverse opinion on the financial statements and mineral reserve information due to the misstatement.
Unmodified opinion on the financial statements with an other-matter paragraph expressing an adverse opinion on the mineral reserve information.
Qualified opinion on the financial statements and mineral reserve information due to the misstatement.
a
94
An auditors’ report on financial statements prepared in conformity with the cash basis of accounting should include an emphasis-of-matter paragraph that:
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.
explains how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles.
c
95
Special purpose frameworks include all of the following except:
statements that conform to a regulatory agency.
statements prepared on a tax basis.
statements that conform to accounting principles that are generally accepted.
statements prepared on a cash basis.
c
96
Which of the following would not be an appropriate reporting option for financial statements prepared using a special purpose framework?
Multiple Choice
A qualified opinion because of a departure from the accounting principles of the special purpose framework.
A disclaimer of opinion because of the failure of the entity to use generally accepted accounting principles.
An adverse opinion because of a departure from the accounting principles of the special purpose framework.
A qualified opinion because of a circumstance-imposed scope limitation.
a
97
Assurance services are defined as independent professional services that
establish criteria for effective measurement of business activity.
improve the quality of information, or its context, for decision makers.
attest to the adequacy of controls over business operations.
develop efficient and effective accounting systems to ensure compliance with accounting standards and policy.
b
98
The phrase "Trust services" refers to
WebTrust and SysTrust Services.
XBRL and SysTrust Services.
WebTrust and XBRL Services.
All AICPA designated assurance services.
a
99
What is the appropriate name for an assurance service provided by a CPA regarding a client's commercial Internet site with reference to the principles of privacy, security, processing integrity, availability, and confidentiality?
WebTrust.
SysTrust.
XBRL.
WebSecure.
a
100
The accountant's standard report for a compilation engagement would not include a statement that
a compilation service has been performed in accordance with Statements on Standards for Accounting and Review Services.
financial statement information is the representation of the owners of the business.
compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data.
financial statements have not been audited or reviewed and the accountant does not express an opinion or any other form of assurance.
c
101
Attestation engagements may be more difficult than financial statement audits when
the establishment of suitable measurement criteria is difficult.
internal controls are difficult to assess.
management may not understand the underlying assumptions of the attestation.
the report may be submitted to individuals with insufficient knowledge of the nature of an attestation engagement.
a
102
Which of the following procedures would not be performed in a review of financial statements of a nonissuer?
Multiple Choice
Inquire about the accounting system and procedures.
Perform analytical procedures to identify relationships and individual items that appear to be unusual.
Obtain an attorney's letter regarding litigation and unasserted claims.
Study the financial statements for indications that they conform to generally accepted accounting principles.
c
103
In an agreed-upon procedures engagement, an accountant
Multiple Choice
follows all of the fundamental principles of GAAS.
may restrict the use of the report to specified users.
expresses limited assurance in the report.
expresses a qualified audit opinion.
b
104
When an accountant is engaged to compile a nonissuer’s financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements
Multiple Choice
might influence users' conclusions about the business, if the disclosures were included.
are prepared in conformity with a comprehensive basis of accounting other than GAAP.
are not compiled in accordance with Statements on Standards for Accounting and Review Services.
are special-purpose financial statements that are not comparable to those of prior periods.
a
105
Which of the following best describes an engagement to report on a nonissuer’s internal control over financial reporting?
Multiple Choice
An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control over financial reporting.
An audit engagement to render an opinion on the entity's internal control over financial reporting.
An engagement to project and report on the expected benefits of the entity's internal control over financial reporting.
A consulting engagement to provide constructive advice to the entity on its internal control over financial reporting.
a
106
When providing limited assurance that the reviewed financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should
Multiple Choice
assess the risk that a material misstatement could occur in a financial statement assertion.
confirm with the entity's attorneys that material loss contingencies are disclosed.
understand the accounting principles of the industry in which the entity operates.
develop audit plans to determine whether the entity's financial statements are fairly presented.
c
107
Compiled financial statements for a nonissuer should be accompanied by a report stating that
Multiple Choice
the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management.
the accountant assessed the accounting principles used and significant estimates made by management.
the accountant does not express an opinion or any other form of assurance on the financial statements.
a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.
c
108
Which of the following is not a condition that must be met before an accountant can conduct an attestation engagement?
Multiple Choice
Management accepts responsibility for the matter related to the attestation.
Management has appropriately documented the matter related to the attestation.
Management's assertion related to the matter of the attestation can be supported by sufficient evidence.
Management presents a written assertion about the matter related to the attestation.
b
109
The procedures used in a review engagement are
Multiple Choice
physical examination, reperformance, and obtaining a management representation letter.
analytical procedures, reperformance, and obtaining a management representation letter.
analytical procedures, inquiry, and obtaining a management representation letter.
physical examination, inquiry, and obtaining a management representation letter.
c
110
In a compilation engagement
Multiple Choice
all appropriate disclosures must be presented.
managers or owners may choose to omit all the footnote disclosures.
financial statements must be presented in prescribed forms.
an auditor provides only limited assurance.
b
111
Which of the following procedures are not performed in an assertion-based examination engagement?
Assessing risk of material misstatement.
Evaluating of internal controls.
Expressing an opinion on management’s written assertion.
Providing limited assurance on management’s written assertion.
d
112
Auditors can gain sufficient understanding of the internal controls at a service organization by
Multiple Choice
reviewing the contract with the service organization.
inquiry with management of the service organization.
reviewing a report on internal controls provided by the service organization's auditors.
sending a confirmation concerning internal controls to the service organization's auditors.
c
113
During a review engagement, the accountant is required to obtain written representations from management. Which of the following is not one of the required elements of the representation?
Multiple Choice
Management's responsibility for the fair presentation of the financial statements.
Management's belief that it has answered all inquiries fully and truthfully.
Management has made all adjustments identified during the review.
Management has disclosed information about subsequent events.
c
114
A report on sustainability, as defined by the AICPA, might include all of the following except
internal control over financial reporting.
115
The primary information evaluated in an accounting and review services engagement includes
Multiple Choice
compliance with contractual requirements.
financial forecasts and projections.
historical financial statements.
internal controls implemented at service organizations.
c
116
The conclusion expressed by accountants in agreed-upon procedures engagements is in the form of a(n)
summary of findings.
117
Which of the following is true with respect to engagements performed on prospective financial information?
Accountant’s reports on financial forecasts and financial projections will indicate that differences between forecasted and actual results may occur.
The distribution of the accountant’s report on financial forecasts is more restricted that the distribution of the accountant’s report on financial projections.
Reports on partial presentations of prospective financial information are available for general distribution.
Accountant’s reports on examinations of prospective financial information will express an opinion on the prospective financial information, but not the reasonableness of the assumptions serving as a basis for the prospective financial information.
A
118
Which of the following engagements may be performed by accountants on a broker-dealer’s exemption report?
Agreed-upon procedures engagement.
Examination engagement.
Review engagement.
Any of the above, depending upon user requirements.
C
119
The party in an attestation engagement who provides an assertion with respect to information is the
asserting party.
attesting party.
limited party.
responsible party.
D
120
An engagement in which accountants perform procedures delineated by the entity is referred to as a(n)
agreed-upon procedures engagement.
attestation engagement.
evaluation engagement.
preparation engagement.
A
