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Flashcards in REPT Deck (182):
1

When reporting on financial statemetns that are required to include sement information, the auditor's quantitative measurement of materiality with respect to segment information should be

Primarily related to the financial statements taken as a whole.

2

When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive

Negative assurance on capsule information.

3

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unmodified opinion with an emphasis-of matter paragraph most likely would be determined by the

Lack of sufficient evidence.

4

An auditor may report on summary financial statements that are derived from a complete set of audited financial statements only if the auditor

Indicates whether the information is fairly stated in all material respects in relation to the complete financial statements.

5

Which of the following are Trust Services principles?

a. Security and Availability
b. Security
c. Availability
d. Niether

Security and Availability

6

Whenever reports filed on a printed form designed by authorities, call upon the independent auditor to make an assertion that theauditor believes is not justified, the auitor should

Reword the form or attach a separate report.

7

When an accountant compiles a financial forecast, the accountant's report should include a

Caveat that the prospective results of the financial forecast may not be acheived.

8

Which of the following titles would be considered suitable for financial statements that are prepared on a cash basis?

a. Statement of operations.
b. Statement of revenues collected and expenses paid.
c. Income statement.
d. Statement of cash flows.

Statement of revenues collected and expenses paid.

9

Inclusion of inaccurate interim information required by the FASB will result in which of the following types of reports?

a. Qualified with a basis for modification paragraph.
b. Standard unmodified.
c. Adverse.
d. Unmodified with an emphsis-of-matter paragraph.

Unmodified with an emphasis-of-matter paragraph.

10

The predecessor auditor, who is satisfied after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make

No reference to the report or the work of the successor auditor.

11

A consistency emphasis-of-matter is not added to an audit report for an accounting change that results from a change in

An accounting estimate.

12

An auditor's report includes the follwoing statement: "The financial statementds do not present fairly the financial position, results of operations, or cash flows in conformity with generally accepted accounting principles." This auditor's report was most likely issued in connection with financial statements that are

Misleading.

13

The objective of a review of interim financial information is to provide the CPA with a basis for

Reporting whether material modifications should be made to such information to make it conform with generally accepted accounting principles.

14

A practitioner's report on agreed-upon porcedures that is in the form of procedures and findings whould contain

A statement of restrictions on the use of the report.

15

When comparative financial statements are presented, which statements are being referred to when the term "taken as a whole" is used in an audit report?

a. Current and immediately preceding period only.
b. Current period only.
c. Periods presented plus one preceding period.
d. Current period and those of the other periods presented.

Current period and those of the other periods presented.

16

An auditor is reporting on cash basis financial statements. These statements are best referred to in his opinion by which of the follwoing descriptions?

a. Balance sheet and income statement resulting from cash transactions..
b. Assets and liabilities arising from cash transactions, and revenue collected and expenses paid.
c. Cash balance sheet and the source and application of funds.
d. Financial position and results of operationgs arising from cash transactiosn.

Assets and liabilities arising from cash transactions, and revenue collected and expenses paid.

17

Under which of the follwoing circumstances would a disclaimer of opinion not be appropriate?

a. The auditor is unable to determine the amounts associated with illegal acts committed by the client's management.
b. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances.
c. The financial statements fail to contain adequate disclosure of related-party transactions.
d. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.

The financial statements fail to contain adequate disclosure of related-party transactions.

18

Which of the follwoing is correct concerning an agreed-upon procedures engagement performed under the attestation standards?

a. Mere reading of an assertion ordinarily constitutes a minimum sufficient procedure to issue a report.
b. A written assertion is generally not required.
c. The use of the report is ordinarily restricted to management.
d. The minimum procedures to be performed include a consideration of internal control.

A written assertion is generally not required.

19

Which of the follwoing bodies promulgates standards for audits of federal financial assistance recipients?

a. Financial Accounting Standards Board.
b. General Accounting Office.
c. Governmental Accounting Standards Board.
d. Governmental Auditing Standards Board

General Accounting Office.

20

A CPA is engaged to examine an entity's financial forecast. The CPA believes that several significant assumptions do not provide a reasonable basis for the forecast. Under these circumstances, the CPA should issue an

Adverse opinion.

21

The auditor's report ordinarily shoul be dated as of the date on which the

Auditor has obtained sufficient appropriate audit evidence.

22

A practitioner has been engaged to apply agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements to prospective financial statements. Which of the following conditions must be met for the practitioner to perform the engagement?

a. The prospective financial statement includes a summary of significant account policies.
b. The practitioner takes responsibility for the sufficiency of the agreed-upon procedures.
c. The practitioner reports on the criteria to be used in the determination of findings.
d. the practitioner and specified parties agree upon the procedures to be performed by the practitioner.

The practitioner and specified parties agree upon the procedures to be performed by the practitioner.

23

Which of the follwoing requires recognition in the auditor's opinion as to consistency?

a. Changing from consolidating a subsidiary to carrying it on the equity basis.
b. Division of the consolidated subsidiary into two subsidiaries which are both consolidated.
c. Changing the salvage value of an asset.
d. Changing the presentation of prepaid insurance from inclusion in "other assets" to disclosing it as a separate line item.

Changing from consolidating a subsidiary to carrying it on the equity basis.

24

Which of the follwoing is not correct concerning information included in an audit report of financial statements issued under the requirements of the PCAOB?

a. The report should include a paragraph referring to the auditor's report on compliance with SEC regulations.
b. the report should refer to the standards of the PCAOB.
c. The report should include the title "Report of Independent Registered Public Accounting Firm."
d. the report should contain a statement that management is responsible for the financial statements.

The report should include a paragraph referring to the auditor's report on compliance with SEC regulations.

25

Basis for modification paragraphs resulting from audits of financial statements are placed?

Immediately preceding the opinion section.

26

When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should

State that the basis of presentation is a basis of accounting Other than GAAP.

27

Which of the follwoing narrative disclosures appearing in notes to financial statements would an auditor be most likely to consider inapprpriate?

a. The accounts of subsidiaries in which the corporation has more than 50% ownership are fully consolidated.
b. Legal and other costs associated with the covenant-not-to-competed will be amortized using the straight-line method during the next 3 years.
c. Minor fluctuations in foreign currency exchange rates are not reflected in the accompanying financial statements.
d. the related-party transactions was consummated on terms no less favorable than those that would have been obtained if the transaction had been with an unrelated party.

The related-party transaction was consummated on terms no less favorable than those that would have been obtained if the transaction had been with an unrelated party.

28

A lawyer limits a response concerning a litigated claim because the lawyer is unable to determine the likelihood of an unfavorable outcome. Which type of opinion should the auitor express if the litigation is adequately disclosed and the range of potential loss is material in relation to the client's financial statements considered as a whole?

a. Unaudited.
b. Unmodified.
c. Qualified.
d. Adverse.

Unmodified.

29

The auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the client refuses to revise or eliminate the material inconsistency, the auditor should

Revise the auditor's report to include a separate other-matter paragraph describing the material inconsistency.

30

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 the GASB?

The auditor should apply certain limited procedures to the supplementary information and report deficiencies in, or omissions of, such information.

31

Because fo the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor should obtain written management representations acknowledging that management has

Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.

32

Jones, CPA, is the group engagement partner who is auditing the consolidated financial statements of his client. Jones, plans to refer to a component auditor's examination of the financial statements of a subsidary company but does not wish to present the other CPA's audit report. Both Jones and the other CPA's audit reports have noted no exceptions to generally accepted accounting principles. Under these circumstances the opinion paragraph of Jones' consolidated audit report should express

An unmodified opinion.

33

An auditor notes significant deficiencies in a financial statement audit conducted in accordance with Government Auditing Standards. In reporting on internal control, the auditor should state that

The auditor obtained an understanding of the design of relevant controls and determined whether they have been implemented.

34

When planning a review of an audit client's interim financial statements, which of the following procedures should the accountant perform to update the accountant's knowledge about the entity's business and its internal control?

a. consider the results of audit procedures performed with respect to the current year's financial statements.
b. Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year-end.
c. Select a sample of material revenue transactions occuring during the interim period and examine supporting documentation.
d. Inquire of the entity's outside legal counsel about the status of a previous pending litigation and any new ligitagion invoving the entity.

Consider the results of audit procedures performed with respect to the current year's financial statements.

35

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

Indicate the substantive reasons for the qualification in the predecessor auditor's opinion.

36

which of the following professional services would be considered an attest engagement?

a. Providing human resource utilization advice to the client.
b. A management consulting engagement to provide accountg information systems advice to a client.
c. An engagement to report on compliance with stautory requirements.
d. An income tax engagement to prepare federal and state tax returns.

An engagement to report on compliance with stautory requirements.

37

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that

Use of the report is to e limited to the specified users involved.

38

The auditor who wishes to point out that the entity has sufficient transactions with related parties should disclose this fact in

An emphasis-of-matter paragraph to the auditor's report.

39

When management refuses to disclose illegal activities which were identified by the independent auditor, the independent auditor may be charged with violating the AICPA Code of professional Conduct for

Issuing a disclaimer of opinion

40

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasoanble period of time. If the entity's disclosures concerning this matter are adequate, the audit report may include a

Disclaimer of opinion.

41

How does Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, define a subreceipient?

As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

42

Which of the following components is appropriate in a practitioner's report on the results of applying agreed-upon procedures?

a. A title that includes the phrase "independent audit.
"
b. A list of procedures performed, as agreed to by the specified parties identified in the report.
c. A statement that the report is unrestricted inits use.
d. A statement that management is responsible for expressing an opinion.

A list of procedures performed, as agreed to by the specified parties identified in the report.

43

Miller Co. uses the first-in, first-out method of costing for its international subsidiary's inventory and the last-in, first-out method of costing for its domestic inventory. under these circomstances, miller should issue an auditor's report with an

Unmodified opinion.

44

When an auditor conducts an udit in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in acordance with a basis of accounting such as the cash basis of accounting, the auditor should issue an

Unmodified opinion with an emphasis-of-matter paragraph.

45

For each Trust Services Principle, an auditor considers the criterai of policies, communications, procedures, and

Monitoring.

46

The AICPA organization established to identify, develop, and communicate new assurance opprotunities to CPAs is the

Assurance Services Executive Committee.

47

Which of the following statements is correct regarding the auditor's responsibilities for supplementary information required by the FASB?

a. Because the supplementary information is not a required part of the basic financial statements, the auditor should apply only certain limited procedures.
b. The omission of supplementary information ordinarily requires the auditor to isssue an adverse opinion, but mere deficiencies require and "except for" qualified opinion.
c. Because the supplementary information is a required part of the basic financial statements, the auditor should apply normal auditing procedures.
d. The omission of, ut not deficiencies in, supplementary information should be disclosed in the opinion paragraph of the auditor's report.

Because the supplementary information is not a required part of the basic financial statements, the auditor should apply only certain limited procedures.

48

When a client will not make essential corporate minutes available to the auditor, the audit report will probably contain a

Disclaimer of opinion.

49

An investor is reading the financial statements of teh Stankey Corporation and observes that the statements are accompanied by an auditor's unmodified report. From this the investor may conclude that

Any disputes over significant accounting issues have been settled to the auditor's satisfaction.

50

An auditor believes there is a substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the enity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to

Postpone expenditures to upgrade its information technology system.

51

When the auditor is unable to determine tha mounts associated with the illegal acts of client personnel because of an inabliity to obtain sufficient appropriate audit evidence, the auditor should issue a

Disclaimer of opinion.

52

An accountant has been engaged to compile pro forma financial statements. During the accountant's acceptance procedures, it is discovered that the accountant is not independent with respect to the company. What action should the accountant take with regard to compilation?

The account should disclose the lack of independence in the accountant's compilation report.

53

Which of the follwoing auditing procedures most likely would assist an auditor in identifying condistions and events that may indicate substantial doubt about an entity's ability to conitnue as agoing concern?

a. Reconciling the cash balance per books with the cutoff bank statement and the bank confirmation.
b. Confirming with third parties the details of arrangements to maintain financial support.
c. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.
d. Inspecting confirmations fromfinancial insititutions.

Confirming with third parties the details of arrangements to maintain financial support.

54

A properly disclosed uncertainty relating to litigation arising against a company is most likely to result in which of the following types of reports?

a. component auditor report.
b. unmodified opinion with an emphasis-of-matter paragraph.
c. Qualified with a asis for modification paragraph.
d. Adverse with a basis for modification paragraph.

Unmodified opinion with an emphais-of-matter paragraph.

55

Jones, CPA, is auditing an entity's financial statements in accordance with Government Auditing Standards. Jones should preapare a written report which describes

The scope of the auditor's testing of compliance with laws and regulations and of internal control.

56

The party responsible for assumptions identified in the preparation of prospective financial statements is usually

The client's management.

57

Grant Company's financial statements adequately disclose uncertainties that concern future events, the outcome of which are not susceptible to reasonable estimation. The auditor's report should include an

Unmodified opinion.

58

Which of the follwoing will result in an emphasis-of-matter paragraph as to consistency in the auditor's report when that item is fully disclosed in the financial statements?

a. A change in classification.
b. A change in accounting estimate.
b. Changing the life of an asset from 8 to 5 years.
d. A change from an unacceptable accounting principle to a generally accepted one.

a change from an unacceptable accounting principle to a generally accepted one.

59

Under which of the following circumstances would an auditor's expression of an unmodified opinion be inappropriate?

a. The auditor is unable to obtain the audited financial statements of a significant subsidiary.
b. The financial statements are prepared on the entity's income tax basis.
c. analytical procedures indicate that many year-end account balances are not comparable with the prior year's balances.
d. There are significant deficiencies in the design and operation of the entity's internal control.

The auditor is unable to obtain the audited financial statements of a significant subsidiary.

60

When a CPA is associated with the preparation of forecasts, all of the follwoing should be disclosed except the

a. Probability of achieving estimates.
b. Character of the work performed by the CPA.
c. Sources of information.
D. Major assumptions in the preparation of the forecasts.

Probability of acheiving estimates.

61

A CPA's report on an examination of a forecast should include all of the following except

a. A description of what the forescast information is intended to represent.
b. A statement that the CPA assumes no responsibility to update the report for events occurring after the date of the report.
c. An opinion as to whether the forecast is fairly presented.
d. A caveat as to the ultimate attainment of the forecasted results.

An opinion as to whether the forecast is fairly presented.

62

A CPA engaged to examine financial statements observes that the accounting for a certain material item is not in conformity with generally accepted accounting principles, and that this fact is prominently disclosed in a footnote to the financial statements. The CPA should

Qualify the opinion becaause of the deviation from GAAP.

63

Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. Such prospective financial statements are known as

Financial projections.

64

A financial statement audit report issued for the audit of an issuer (public) company concludes that the financial statements follow

GAAP

65

The auditor is unable to reach a conclusion as to the propriety of management's representations due to management's inadequate record retention policies. The auditor will have to consider issuing a

Qualified opinion or a disclaimer of opinion.

66

With respect to consistency, which of the following should be done by an independent auditor, who has not examined a company's financial statements for the proceding year but is doing so in the current year?

a. consider the consistent application of principles within the year under examination but not between the current and preceding year.
b. Report n the financial statements of the current year without considering consistency with the prededing year.
c. Adopt procedures that are practicable and reasonable in the circumstances to obtain assurance that the principles employed are consistent between the current and preceding year.
d. Rely on the report of the prior year's auditors if such a report does not provide emphasis-of-matter language as to consistency.

Adopt procedures that are practicable and reasonable in the circumstances to obtain assurance that the principles employed are consistent between the current and preceding year.

67

Reporting standards for financial audits under GAS (the Yellow Book) differ from reporting under GAAS in the GAS require the auditor to

Present the results of the auditor's test of controls.

68

An auditor may report on summary financial statements that are derived from complete audited financial statements if the

Auditor indicates whether the information in the summary financial statements is fairly stated in all material respects.

69

An auditor includes an emphasis-of-matter paragraph in an otherwise unmodified report in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. the incluseion of this emphasis-of-matter paragraph

Is appropriate and would not negate the unmodified opinion.

70

Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc, a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. under these circumstances, Morris should

Disclaim an opinion on the financial statements.

71

when third-party use of prospective financial statements is expected, an accountant may not accept an engagement to

Perform a review.

72

Accepting an engagement to compil a financial projection most likely would be inappropriate if the projections is to be distributed to

Potential stockholders in an offering statement.

73

The GAO standards of reporting for governmental financial audits incorporate the AICPA standards of reporting and prescribe supplemental standards to satisfy the unique needs of governmental audits. Whcich of the follwoing is a supplemental reporting standard for governemtal financial audits?

a. Instances of abuse, fraud, mismanagement, and wast should be reported to the organization with legal oversight authority over the entity audited.
b. A written report on the auditor's understanding of the entity's internal control and assessment of control risk should be prepared.
c. Material indications of illegal acts should be reported in a document with distribution restricted to senior officials of the entity audited.
d. All privileged and confidential information discovered should be reported to the senior officials of the organization that arranged for the audit.

A written report on the auditor's understanding of the entity's internal control and assessment of control risk should be prepared.

74

When a predecessor auditor reissues the report on the prior period's financial statements at the request of the former client, the predecessor auditor should

Compare the prior period's financial statements that the predecessor reported on with the financial statements to be presented for comparative purposes.

75

Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also

Compliance.

76

In which of the following circumstances would an auditor be most likely to express an adverse opinion?

a. Tests of controls show that the entity's internal control structue is so poor that it cannot be relied upon.
b. The statements are not in conformity with a FASB pronouncement regarding the capitalization of leases.
C. The chief executive officer refuses the auditor access to minutes of board of director's meetings.
d. Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue as a going concern.

The statements are not in conformity with a FASB pronouncement regarding the capitilization of leases.

77

Which of the follwoing is least likely to be included in the audit report on the financial statements of a public company?

a. A title such as "Report of Independent Certified Public Accounting Firm."
b. A statement that the financial statements follow generally accepted accounting principles of the United States.
c. The city in whcih the report was issued.
d. The signature or printed name of the CPA firm.

A title such as "Report of Independent Certified Public Accounting Firm."

78

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. The auditor believes that the financial statementds do not require revision, but the client is unwilling to revise or eliminate the material inconsistency in the other information. under these circumstances, what action would the auditor most likely take?

Revise the auditor's report to include a separate paragraph describing the material inconsistency.

79

Which of the follwoing is correct concerning an engagement to apply agreed-upon procedures?

a. Independence of the CPA is not required.
b. A clear understanding of the terms of the engagmeent must be established through use of an engagement letter.
c. Use of the report is restricted to the specified users.
d. The procedures maybe as limited or as extensive as the CPA's desire ranging from a mere reading of the information to performing search and verification procedures.

Use of the report is restricted to the specified users.

80

Assurance services performed for decision makers may address the

Quality of information and context of information.

81

If the auditor beleives that financial statements which are prepared using a special purpose financial reporting framework are not suitably titled, the auditor should

Modify the auditor's report to disclose any reservations.

82

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. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically uses the phrase

Going conern

83

An auditor's report that refers to the use of an accounting principle at variance with GAAP contains the words, "In our opion, with the foregoing explanation, the finacial statements refered to above present fairly..." this is cconsidered an

Example of inappropriate reporting.

84

A modification of the CPA's report on a review of the interim financial statments of a publicly held company would be necessitated by which of the following?

a. An uncertainty.
b. Lack of consistency.
c. Reference to another accountant.
d. Inadequate disclosure.

Inadequate disclosure.

85

When a client with a history of much costly litigation will not permi inquiry of outside legal counsel, the audit report will ordinarily contain a

Disclaimer of opinion.

86

Accepting an engagement to compile an entity's financial projection most likely would be inappropriate if the projection is to be included in an

Offering statement of the entity's intitial public offering of common stock.

87

Kane, CPA, concludes that there is substantial doubt, about Lima Co.'s ability to continue as a going concern for a reasonabl eperiod of time. If Lima's financial statements adequately disclose its financials difficulties, Kane's auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrases.

a. Possible disconinuance of operations and Reasonable period of time, not to exceed 1 year.
b. Possible discontinuance of operations.
c. Reasonable period time, not to exceed 1 year.
d. Neither.

Neither
Neither

88

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

a. Arrearages in preferred stock dividends are paid.
b. Usual trade credit from suppliers is denied.
c. Significant related-party transactions are pervasive.
d. Restrictions on the disposal of principal assets are present.

Usual trade credit from suppliers is denied.

89

Which of the following best describes the auditor's responsibility for "other information" included in the annual report to stockholders which contains financial statements and the auditor's report?

a. the auditor should extend the examination to the extent necessary to verify the "other information."
b. The auditor must modify the auditor's report to state that the "other information is unaudited" or "not covered by the auditor's report."
c. The auditor has no obligation to corroborate the "other information," but should red the "other information" to detemine whether it is materially inconsistent with the financial statements.
d. The auditor has no obligation to read the "other information."

the auditor has no obligation to corroborate the "other information," but should read the "other information" to determine whether it is materially inconsistent with the financial statements.

90

As a condition of obtaining a loan from the First National Bank, Maxim Co.. is required to submit an audited balance sheet but not the related statements of income, retained earnings, or cash flows. Maxim would like to engage a CPA to audit only its balance sheet. Under these circumstances, the CPA

May audit only Maxim's balance sheet if access to the information underlying the basic financial statements is not limited.

91

Comfort letters are ordinarily signed by the

Independent auditor.

92

The prior year's financial statements of YZ, Inc., which were audited by Pate, CPA, are presented for comparative purposes without Pate's audit report. jennings, CPA, the successor auditor, should indicate in the current year audit report that the prior year's financial statements were examined by another auditor

Bust should not name Pate as the predecessor auditor.

93

Which of the following is a professional engagement that a CPA may perform to provide assurance on a system's reliability?

a. CPA WebMaster.
b. MAS AttestSure.
c. CPA SysTrust.
d. MAS AssurAbility.

CPA SysTrust.

94

A material change in an accounting estimate

Affects comparability and may require disclosure in a note to the financial statements but does not require a consistency modification in the auditor's report.

95

How does an auditor make the follwoing representations when issuing the nonpublic company standard auditor's report on comparative financial statements?

Consistent application of accounting principles - Implicitly
Reasonableness of accounting estimates - explicitly

96

In an accountant's review of interim financial information, the accountant typically performs each of the follwoing, except

a. Obtaining corroborating external evidence.
b. Inquiring of the accounting department's management.
c. Applying financial ratios to the interim finanial information.
d. Reading the available minutes of the latest stockholders' meeting.

Obtaining corroborating external evidence.

97

An enterprise engaged a CPA to audit its financial statements in accordance with GAS (The Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise's internal controls either in the report on the fubabcuak statenebts ir ub

A separate report.

98

Which of the following is considered "unaudited" information when included with historical financial statement?

a. Investment security classifications.
b. Segmental information.
c. Interim information.
d. Notes to the financial statements.

Interim information.

99

Does an auditor make the "Consistent application of accounting principles" and "Examination of evidence on a test basis" representation explicitly or implicitly when issuing the public company standard auditor's report on comparative financial statements.

Consistent application of accounting principles - implicitly
Examination of evidence on a test basis - explicitly

100

After performing all necessary procedures a predecessor auditor reissues a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditor should

Use the date of the previous report.

101

Which of the following forms of auditor association are possible relating to management’s discussion and analysis (MD&A)?

a. Review
b. Review and Examination
c. Examination
d. Neither

Review and Examination

102

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits
have in common?

a. The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients.

b. The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.

c. The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general.

d. The accounts should be iOO% verified by substantive tests because certain statistical sampling applications are not permitted.

The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.

103

It is not appropriate to refer a reader of an auditor’s report to a financial statement note for details concerning

The results of confirmation of receivables.

104


A financial statement audit report issued for a public company states that the audit was performed in accordance with which of the following standards?

a. Public Company Accounting Oversight Board standards.
b. Securities and Exchange Commission standards.
c.Generally accepted auditing standards.
d. Sarbanes-Oxley standards

Public Company Accounting Oversight Board standards.

105


Before reissuing a report which was previously issued on the financial statements of a prior period, a predecessor auditor should

Obtain a letter of representation from the successor auditor.

106

A CPA is engaged to examine management’s assertion that the entity’s schedule of investment returns is presented in accordance with specific criteria. In performing
this engagement, the CPA should comply with the provisions of

Statements on Standards for Attestation Engagements (SSAE).

107

The following emphasis-of-matter paragraph was included in an auditor’s report to indicate a lack of consistency:
“As discussed in note T to the financial statements, the company changed its method of computing depreciation in 200X.”
How should the auditor report on this matter if the auditor concurred with the change?
Type of opinion Location of emphasis-of-matter paragraph
A. Unmodified Before opinion paragraph
B. Unmodified After opinion paragraph
C. Qualified Before opinion paragraph
D. Qualified After opinion paragraph

B. Unmodified After opinion paragraph

108

When the report of a group auditor makes reference to the examination made by a component auditor, the component auditor may be named if express permission
to do so is given and

The report of the component auditor is presented together with the report of the group auditor.

109


Green, CPA, is requested to render an opinion on the application of accounting principles by an entity that is audited by another CPA. Green may

Accept the engagement but should consult with the continuing CPA to ascertain all the available facts relevant to forming a professional judgment.

110

An auditor’s report included an additional paragraph disclosing that there is a difference of opinion between the auditor and the client for which the auditor believed
an adjustment to the financial statements should be made. The auditor views the misstatement involved as material, but not so pervasively material as to make the
overall financial statements misleading. The opinion paragraph of the auditor’s report most likely expressed a(n)

Qualified opinion.

111

An auditor believes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. In evaluating the entity’s
plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity’s plans to
a. Issue stock options to key executives.
b. Accelerate expenditures for research and development projects.
c. Operate at increased levels of production.
d. Extend the due dates of existing loans.

Extend the due dates of existing loans.

112

An auditor believes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. In evaluating the entity’s
plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity’s plans to

a. Repurchase the entity's stock at a price below its book value.
b. Lease rather than purchase operating facilities.
c. Accelerate the due date of an existing mortgage.
d. Issue stock options to key executives.

Lease rather than purchase operating facilities.

113

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

Not refer to consistency in the auditor’s report.

114

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to

A separate paragraph which discusses the basis for the opinion rendered.

115

A client is presenting comparative (two-year) financial statements. Which of the following is correct concerning reporting responsibilities of a continuing auditor?

a. The auditor should issue one audit report, but only on the most recent year.
b. The auditor should issue one audit report that is on both presented years.
c. The auditor should issue two audit reports, one on each year.
d. The auditor should get the predecessor auditors to reissue their report.

The auditor should issue one audit report that is on both presented years.

116

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is
responsible for

Updating the report on the previous financial statements regardless of the opinion previously issued.

117

Thomas, CPA, has examined the consolidated financial statements of Kass Corporation. Jones, CPA, has examined the financial statements of the sole subsidiary
which is material in relation to the total examined by Thomas. It would be appropriate for Thomas to serve as the group engagement partner, but it is impractical for
Thomas to review the work of Jones. Assuming an unmodified opinion is expressed by Jones, one would expect Thomas to

Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones.

118

Which of the following statements with respect to an auditor’s report expressing an opinion on a specific item in a financial statement is correct?
a. The attention devoted to the specified item is usually less than it would be if the financial statements taken as a whole were being audited.
b. Materiality must be related to the specified item rather than to the financial statements taken as a whole.
c. The auditor who has issued an adverse opinion on the financial statements taken as a whole can never express an opinion on a specified item in these financial
statements.
d. Such a report can only be expressed if the auditor is also engaged to audit the entire set of financial statements.

Materiality must be related to the specified item rather than to the financial statements taken as a whole.

119

An auditor would issue an adverse opinion if

The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

120

Which of the following are required on all attestation engagements?
A. Suitable criteria and Written assertion
B. Suitable criteria
C. Written assertion
D. Neither

Suitable criteria

121

How are management’s responsibility and the auditor’s responsibility represented in the standard auditor’s report?

Explicitly

122

Which type of report on a service organization controls (SOC) is presented in the Professional Standards but is least related to SysTrust?
a. SOC 2
b. SOC4
c. SOC3
d. SOC 1

SOC 1

123

The AICPA outlined auditor reports based on three services that may be provided on service organization controls (SOC). This type most directly related to SysTrust is:

SOC 3

124

In which of the following ways may suitable criteria appropriately be made available?
A. Publicly, Included with subject matter, and Included in the CPA report.
B. Publicly, and Included with subject matter.
C. Publicly, and Included in the CPA report.
D. Included with subject matter, and Included in the CPA report.

Publicly, Included with subject matter, and Included in the CPA report.

125

The objective of the auditor reporting on consistency is to provide assurance that

The comparability of financial statements between periods is not materially affected by changes in accounting principles without disclosure.

126

When the financial statements contain a departure from generally accepted accounting principles, the effect of which is material, the auditor should

Qualify the opinion and explain the effect of the departure from generally accepted accounting principles in a separate paragraph.

127

An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor’s report.
The auditor’s responsibility for events occurring subsequent to the completion of fieldwork was

Limited to the specific event referenced

128

When performing a review of interim financial information, an accountant would typically do each of the following, except
a. Perform analytical procedures.
b. Consider the results from the latest audit.
c. Test controls related to the preparation of annual financial information.
d. Make inquiries of management

Test controls related to the preparation of annual financial information.

129

Comfort letters are ordinarily addressed to

Underwriters of securities.

130

A CPA’S standard report on a nonpublic company’s audited financial statements would be inappropriate if it referred to

The CPA’s assessment of sampling risk factors.

131

Which of the following uses what is considered a special purpose financial reporting framework?
a. Interim financial information reviewed to determine whether material modifications should be made to conform with GAAP.
b. Financial statements following a state’s insurance statutory basis.
c. Feasibility studies presented to illustrate an entity’s results of operations.
d. Pro forma financial presentations designed to demonstrate the effects of hypothetical transactions.

Financial statements following a state’s insurance statutory basis.

132

An auditor reads the letter of transmittal accompanying a county’s comprehensive annual financial report and identifies a material inconsistency with the financial
statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?
a. Consider withdrawing from the engagement.
b. Request a client representation letter acknowledging the inconsistency.
c Include an emphasis-of-matter paragraph in the auditor’s report.
d. Request that the client revise the letter of transmittal.

Request that the client revise the letter of transmittal.

133

An auditor’s examination reveals a misstatement in segment information that is material in relation to the financial statements taken as a whole. If the client refuses
to make modifications to the presentation of segment information, the auditor should issue a(n)

Qualified opinion.

134

A limitation on the scope of the auditor’s examination sufficient to preclude an unmodified opinion will always result when management

Refuses to furnish a representation letter.

135

When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive

Negative assurance on capsule information.

136

When auditing a public entity’s financial statements that include segment information, the auditor should

Audit the segment information, and, if the information is adequate and in conformity with GAAP, do not make reference to the segment information in the auditor’s report.

137

An auditor’s report on financial statements that are prepared in accordance with a special purpose financial reporting framework should preferably include all of the
following, except
a. An opinion as to whether the financial statements are presented fairly in conformity with the basis of accounting described.
b. An opinion as to whether the disclosed basis of accounting has been applied in a manner consistent with the preceding period.
c. An opinion as to whether the use of the disclosed method is appropriate.
d. Disclosure of the fact that the financial statements are not intended to be presented in conformity with generally accepted accounting principles.

An opinion as to whether the use of the disclosed method is appropriate.

138

In which of the following circumstances would an auditor be required to issue a qualified report with a separate basis for qualified opinion paragraph?
a. The financial statements of a significant subsidiary were examined by another auditor, and reference to the other auditor’s report is to be made in the principal
auditor’s report.
b. A particular note to the financial statements discloses a company accounting method which deviates from generally accepted accounting principles.
c. The auditor satisfactorily performed alternative accounts receivable procedures because scope limitations prevented performance of normal procedures.
d. The financial statements reflect the immaterial effects of a change in accounting principles from one period to the

A particular note to the financial statements discloses a company accounting method which deviates from generally accepted accounting principles.

139

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt
about an entity’s ability to continue as a going concern?
a. Confirmation of accounts receivable from principal customers.
b. Reconciliation of interest expense with debt outstanding.
c. Review compliance with the terms of debt agreements.
d. Confirmation of bank balances.

Review compliance with the terms of debt agreements.

140

When an auditor has substantial doubt about an entity’s ability to continue as a going concern because of the probable discontinuance of operations, the auditor
most likely would express a qualified opinion if
a. Negative trends and recurring operating losses appear to be irreversible.
b. The effects of the adverse financial conditions likely will cause a bankruptcy filing.
c. Management has no plans to reduce or delay future expenditures.
d. Information about the entity’s ability to continue as a going concern is not disclosed.

Information about the entity’s ability to continue as a going concern is not disclosed.

141

If the auditor believes that required disclosures of a significant nature are omitted from the financial statements under examination, the auditor should decide
between issuing

A qualified opinion or an adverse opinion.

142

An auditor has previously expressed a qualified opinion on the financial statements of a prior period because of a departure from generally accepted accounting
principles. The prior-period financial statements are restated in the current period to conform with generally accepted accounting principles. The auditor’s updated
report on the prior-period financial statements should

Express an unmodified opinion concerning the restated financial statements.

143

Which of the following procedures is most likely to be an appropriate procedure when performed as an agreed-upon procedures engagement under the attestation
standards?
a. Evaluation of the competence or objectivity of another party.
b. Interpreting documents outside the scope of the practitioner’s professional expertise.
c. Obtaining an understanding about a particular subject.
d. Performance of mathematical computations.

Performance of mathematical computations.

144

When engaged to audit a not-for-profit organization in accordance with Government Auditing Standards, an auditor is required to prepare a written report on
compliance with laws and regulations that includes

All instances or indications of illegal acts that could result in criminal prosecution.

145

Kramer, CPA, is auditing the financial statements of Jeffersonville in accordance with Government Auditing Standards. Kramer’s report on compliance with laws and
regulations should contain a statement of

Positive and negative assurance,

146

An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are requires by the GASB. Under these
circumstances, the auditor should

Compare the required supplementary information for consistency with the audited financial statements.

147

Which of the following is correct about reporting on compliance with laws and regulations in a financial audit under Government Auditing Standards (the Yellow Book)?

a. Auditors are not required to report fraud, illegal acts, and other material noncompliance in the audit report.
b. In some circumstances, auditors are required to report fraud and illegal acts directly to parties external to the audited entity.
c. The reporting standards in a governmental audit modify the auditor’s responsibilities under generally accepted auditing standards.
d. The auditor’s key findings of the audit of the financial statements should be communicated in a separate report.

In some circumstances, auditors are required to report fraud and illegal acts directly to parties external to the audited entity.

148

When performing an audit of a city that is subject to the requirements of the Uniform Single Audit Act of 1984, an auditor should adhere to

General Accounting Office Standards for Audit of Governmental Organizations, Programs, Activities, and Functions.

149

Comfort letters ordinarily are

Addressed to the underwriter of securities and signed by the client's independent auditor

150

When the financial statements of a nonpublic entity for a prior period have not been audited and are presented, for comparative purposes, with current period
statements that have been audited,

The auditor should identify the financial statements that were not examined in a separate paragraph in the auditor’s report accompanying the current
statements.

151

Which of the following is not a principle included in Trust Services engagements?
a. Availability.
b. Independence.
c. Confidentiality.
d. Security.

Independence.

152

The auditor’s judgment concerning the overall fairness of the presentation of financial position, results of operations, and statement of cash flows is applied within
the framework of

Generally accepted accounting principles.

153

Negative assurance is not permissible in

Reports based upon an audit of the interim financial statements of a closely held business entity.

154

If management chooses to place supplementary information required by the FASB in footnotes attached to the financial statements, this information should be clearly
marked as

Unaudited.

155

Stone was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records. Stone has observed the current inventory but
has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance, which is not auditable, is a material factor
in the determination of cost of goods sold for the current year. Stone will probably

Express an unmodified opinion on the balance sheet and disclaim an opinion on the income statement.

156

A CPA firm is completing the fieldwork for an audit of Swenson Co. for the current year ended December 31. The manager in charge of the audit is performing the final
steps in the evidence accumulation phase of the audit and notes that there have been several changes in Swenson during the year under audit. Which of the
following items would indicate there could be substantial doubt about Swenson’s ability to continue as a going concern for a reasonable period of time?

a. Term debt refinanced with a new bank.
b. Recurring working capital shortages.
c. Cash infusion by a venture capital firm.
d. A lack of significant contracts with new customers.

Recurring working capital shortages.

157

The GAO standards of reporting for governmental financial audits incorporate the AICPA standards of reporting and prescribe supplemental standards to satisfy the
unique needs of governmental audits. Which of the following is a supplemental reporting standard for governmental financial audits?

a. Material indications of illegal acts should be reported in a document distributed only to the entity’s senior officials.
b. All changes in the audit program from the prior year should be reported to the entity’s audit committee.
c. Any privileged or confidential information discovered should be reported to the organization that arranged for the audit.
d. Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls.

Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls.

158

Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity’s
ability to continue as a going concern?

a. Reading the minutes of meetings of the stockholders and the board of directors.
v. Comparing the market value of property to amounts owed on the property.
c. Inspecting the documents to verify whether any assets are pledged as collateral.
d. Reviewing lease agreements to determine whether leased assets should be capitalized.

Reading the minutes of meetings of the stockholders and the board of directors.

159

Which of the following procedures should an accountant perform during an engagement to compile prospective financial statements?
a. Compare the prospective financial statements with the entity’s historical results for the prior year.
b. Test the entity’s internal controls to determine if adequate controls exist so that financial projections can be reasonably achieved.
c. Make inquiries prior to the date of the report about possible future transactions that may impact the forecast once the report is issued.
d. Make inquiries about the accounting principles used in the preparation of the prospective financial statements.

Make inquiries about the accounting principles used in the preparation of the prospective financial statements.

160

After considering management’s plans, an auditor concludes that there is substantial doubt about a client’s ability to continue as a going concern for a reasonable
period of time. The auditor’s responsibility includes

Considering the adequacy of disclosure about the client’s possible inability to continue as a going concern.

161

Which of the following will not result in modification of the auditor’s report due to a scope limitation?

a. Reliance placed on the report of another auditor.
b. Inadequacy in the accounting records.
c. Inability to obtain sufficient competent evidential matter
d. Restrictions imposed by the client.

Reliance placed on the report of another auditor.
Inadequacy in the accounting records.

162

Ordinarily in an attest examination report a CPA generally may report on

Management's written assertion and subject matter.

163

An auditor should disclose the substantive reasons for expressing an adverse opinion in a basis for adverse opinion paragraph

Preceding the opinion paragraph.

164

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 a paragraph that specifically uses the
phrase(s)

a. “Except for the effects of such adjustments" and “Possible discontinuance of the entity’s operations”
b. "Except for the effects of such adjustments"
c. "Possible discontinuance of the entity's operations"
d. Neither

Neither

165

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?
a. The auditor is unable to obtain the audited financial statements of a consolidated investee.
b. Management refuses to allow the auditor to have access to the company’s canceled checks and bank statements.
c. The company failed to make a count of its physical inventory during the year and the auditor was unable to apply alternative procedures to verify inventory
quantities.
d. Management does not provide reasonable justification for a change in accounting principles.

Management does not provide reasonable justification for a change in accounting principles.

166

Suitable criteria for use in an attestation engagement must be objective, measurable, complete,

Relevant

167

Restrictions imposed by a client prohibit the observation of physical inventories, which account for an extremely significant portion of total assets (65%). Alternative
audit procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all other items in the financial statements. The auditor
should issue a(n)

Disclaimer of opinion.

168

Which of the following would be an appropriate title for a statement of revenue and expenses prepared using an other special framework?

a. Income statement.
b. Statement of operations.
c. Statement of income--regulatory basis
d. Statement of activities.

Statement of income--regulatory basis

169

Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity’s ability
to continue as a going concern?
a. Performing cutoff tests of sales transactions with customers with long-standing receivable balances.
b. Inspecting title documents to verify whether any real property is pledged as collateral.
c. Evaluating the entity’s procedures for identifying and recording related-party transactions.
d. Inquiring of the entity’s legal counsel about litigation, claims, and assessments.

Inquiring of the entity’s legal counsel about litigation, claims, and assessments.

170

In an audit in accordance with Government Auditing Standards an auditor provides what level of assurance?

Reasonable assurance of detecting misstatements that are material to the financial statements.

171

Which of the following prospective financial statements is(are) appropriate for general use?

Financial forecast

172

The phrase “generally accepted accounting principle” is an accounting term that

Encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

173

A company issues audited financial statements under circumstances which require the presentation of a statement of cash flows. If the company refuses to present a
statement of cash flows, the independent auditor should

Qualify his opinion with an ‘except for” qualification and a description of the omission in a basis for modification paragraph of the report.

174

Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to

All stockholders of record as of the report date.

175

Skates, an independent auditor, was engaged to perform an examination of the financial statements of Apex Incorporated 1 month after its fiscal year had ended.
Although the inventory count was not observed by Skates, and accounts receivable were not confirmed by direct communication with creditors, Skates was able to
gain satisfaction by applying alternative auditing procedures. Skates’ auditor’s report will probably contain

A standard unmodified opinion.

176

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the

Scope paragraph

177

Which of the following is not an assertion embodied in management’s discussion and analysis (MD&4)?
a. Occurrence.
b. Consistency with the financial statements.
c. Completeness.
d. Rights and obligations.

Rights and obligations.

178

When issuing letters for underwriters, commonly referred to as comfort letters, an accountant may provide negative assurance concerning

The conformity of the entity’s unaudited summary interim financial information with generally accepted accounting principles (GAAP).

179

Which of the following representations does an auditor make explicitly and which implicitly when issuing an unmodified opinion?

Conformity with GAAP - Explicitly
Adequacy of disclorsuer - Implicit

180

The auditor would most likely issue a disclaimer of opinion because of

A client-imposed scope limitation.

181

Comparative financial statements include the financial statements of a prior period which were examined by a predecessor auditor, whose report is not presented. If
the predecessor auditor’s report was qualified, the successor auditor must

Disclose the reasons for any qualification included in the predecessor auditor’s opinion.

182

When an auditor concludes there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time? the auditor’s
responsibility is to

Consider the adequacy of disclosure about the entity’s possible inability to continue as a going concern.