A1 - Audit Reports Flashcards
What provides the most authoritative guidance for auditors of an “issuer” and “nonissuer”?
Issuer - PCAOB AS
Non issuer - Statement on Auditing Standards
Generally accepted auditing standards are;
A) rules acknowledged by accounting profession because of universal application
B) pronouncements issued by Auditing Standards board
C) measures of the quality of auditors performance
D) procedures to be used to gather evidence to support financial statements
C) measures of the quality of auditors performance
Auditor of a nonissuer must conduct the audit in accordance with:
ASB or PCAOB standards?
Accounting Standards Board standards
U.S. GAAP means
Convections, rules, and procedures necessary to define US accepted accounting principles at a particular time in US
Auditors responsibility with respect to Statements on Auditing Standards:
Auditor is generally required to follow the guidance provided by the standards, and should be able to justify any departures
When PCAOB auditing standards indicate that an auditor “could” perform a specific procedure, how should the auditor decide on how to perform ?
A) comparing PCAOB standard with related AICPA standards
B) exercising professional judgement
C) Soliciting input from issuer audit committee
D) evaluating whether audit is likely to be inspected by PCAOB
B) exercising professional judgement
What are examples of “Professional Skepticism?”
- Designing auditing procedures to obtain more reliable evidence in support of FS assertion
-obtaining corroboration of management’s explanation through consultation
- using 3rd party confirmation to provide support
-any review or further investigative work in the “current year”
In audit engagements, an auditor may be required to comply with auditing requirements in addition to GAAS. Auditor may conduct with
A) both GAAS and Gov’t auditing standards (GAGAS)
B) either GAAS as issued by AICPA or PCAOB, but not both
C) only GAAS or PCAOB, but not auditing standards of another jurisdiction or country
D) International Standards on auditing
A) both GAAS and Gov’t auditing standards (GAGAS)
which of the following identifies a requirement for audit evidence?
A) appropriate
B) adequate
C) reasonable
D) disconfirming
A) appropriate
Which opinion to express if the financial statements fail to disclose information that is required by GAAP?
A) adverse opinion or disclaimer of opinion
B) qualified opinion or adverse opinion
C) disclaimer of opinion or unmodified opinion with emphasis of matter
D) unmodified opinion with other matter paragraph or qualified opinion
B) qualified opinion or adverse opinion
When forming an opinion on FS, auditor is “most likely” to:
- evaluate accounting estimates made by management are reasonable
- financial statements provide adequate disclosures to understand material events
- terminology used on FS is appropriate
Purpose of GAAP, a “modified opinion” refers to:
Qualified opinion - yes or no
Unmodified opinion with emphasis of matter paragraph - yes or no
Qualified - YES
Unmodified - NO
Modified opinions include a qualified, adverse or a disclaimer of opinion
Emphasis of matter paragraph is not modified with respect to matter emphasized
When would an auditor “Most likely” modify the audit opinion?
If they conclude that the financial statements as a whole are materially misstated
When a FS misstatement is “Material, but not pervasive”, the auditor should issue;
A) unmodified opinion
B) qualified opinion
C) adverse opinion
D) disclaimer opinion
B) qualified opinion
Which term identifies a requirement for audit evidence?
A) appropriate
B) reasonable
C) disconfirming
D) adequate
A) appropriate
When FS contain a departure from US GAAP because of being misleading, the opinion would be
A) unmodified
B) qualified
C) adverse
D) qualified or adverse, depending on pervasiveness
A) unmodified, because the FS is not materially misstated
Opinion paragraph in auditors report for “nonissuer” should include:
Identify the applicable financial reporting framework and its origin
Which section of the auditors report does the non issuer communicate the nature of the engagement and specific FS covered
A) scope
B) basis of opinion
C) opinion
D) emphasis of matter
C) opinion
If client does not make proposed entries that are immaterial, and wants to issue report on unadjusted numbers. How to present FS?
FS is free from material misstatement, and no disclosure is required in the notes of the FS
Auditors responsibility to express an opinion on the FS of a nonissuer under US auditing standards:
A) implicitly represented in auditors report
B) explicitly represented in auditors responsibility paragraph
C) explicitly represented in basis for opinion paragraph of the auditors report
D) explicitly represented in emphasis of matter paragraph of auditors report
B) explicitly represented in auditors responsibility paragraph
The meaning of “explicitly” and “implicitly”
Explicitly: clearly stated
Implicitly: assumed
What best describes an “emphasis of matter” paragraph?
Used to highlight a matter that is fundamental to the user’s understanding of the financial statements
A CPA’s report on audited FS under auditing standards is appropriate with:
-Management’s responsibility for FS
-Evaluating appropriateness of accounting policies
-Significant estimates made by management
Which is a basic element of auditors report under U.S auditing standards?
A) disclosures provide reasonable assurance that FS are free of material misstatement
B) auditor evaluated overall internal controls
C) audit includes evaluating reasonableness of significant accounting estimates made by management
D) FS are consistent with those of prior period
C) audit includes evaluating reasonableness of significant accounting estimates made by management
How are management’s responsibility an auditors responsibility represented in auditors report?
Implicitly or explicitly?
Explicitly for both
Which sections of auditors report does one refer to US GAAP?
A) opinion and basis for opinion
B) basis for opinion and auditors responsibility
C) opinion and management’s responsibility
D) managements responsibility and auditors responsibility
C) opinion and management’s responsibility
Auditors responsibility paragraph of unmodified opinion audit report explicitly states:
A) identify and assess risks of material misstatement of financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks
B) we believe that audit evidence we have obtained is sufficient and appropriate to provide a basis for our review of the financial statements
C) we conducted our audit in accordance with generally accepted accounting principles
D) procedures selected depend on managements approval, including assessment of the risk of any errors resulting from fraud
A) identify and assess risks of material misstatement of financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks
When is the earliest an audit report may be dated?
The date the auditor has obtained sufficient appropriate audit evidence to support the opinion
What should be contained in the audit report for an issuer?
A) “should be” both PCAOB standards and generally accepted auditing standards
B) PCAOB should not be mentioned
C) both PCAOB standards and generally accepted accounting principles
D) “may be” PCAOB standards or generally accepted auditing standards
C) both PCAOB standards and generally accepted accounting principles
A critical audit matter is a matter that was communicated and…
A) relates to accounts/disclosure that are immaterial to FS
B) particularly complex transaction approved by management
C) requires significantly larger sample size to test
D) especially challenging judgement made by auditor
D) especially challenging judgement made by auditor
Which term used within standards indicates “presumptively mandatory requirement”?
A) May
B) Should
C) Must
D) Might
B) Should
Which term used within standards indicates “unconditional requirement”?
A) May
B) Should
C) Must
D) Might
C) Must
Which term used within standards indicates “explanatory material without imposing on professional requirement for performance ”?
A) May
B) Should
C) Must
D) Might
A) May
Auditors report should Include reference to the country of origin to:
Both accounting principles used to prep FS & auditing standards auditor followed for audit
“Do not present fairly” & “in our opinion” is wording for an opinion…
Adverse opinion
“Except for” is wording for the opinion…
Qualified opinion
Inadequate disclosure of a material related party transaction would result in what kind of opinion?
Qualified or adverse opinion
When an auditor has obtained sufficient appropriate audit evidence, and concludes that misstatements are both “material and pervasive, and not in conformity with GAAP/purport/omit statements”, the opinion would be
Adverse opinion
When an auditor LACKS sufficient appropriate audit evidence, and concludes that misstatements are “material, BUT NOT pervasive, and purport to present/omits statements/restrictions to scope of audit”, the opinion would be
Qualified opinion
When an auditor has obtained sufficient appropriate audit evidence, and concludes that the FS is “presented fairly/management refuses to acknowledge responsibility for fair presentation of FS”, the opinion would be
Unmodified (unqualified) opinion
When an auditor is unable to obtain appropriate audit evidence, the undetected misstatements could be “both material and pervasive, restriction of scope limitations (management refusal on written representations)” the opinion would be:
Disclaimer of opinion
If an auditor of a non-issuer qualifies an opinion, the following gets modified:
Auditors responsibility - yes or no
Opinion section - yes or no
Auditors responsibility - NO
Opinion section - YES
When an auditor expresses an adverse opinion, the section should include:
A) principal effects of the departure from GAAP
B) direct reference to separate section disclosing basis for opinion
C) reasons for FS being incorrect or misleading
D) description of uncertainty or scope limitation that prevents unmodified opinion
B) direct reference to separate section disclosing basis for opinion
Auditor will disclose the reasons for an inability to obtain sufficient audit evidence in the basis paragraph
A) following auditors responsibility for audit
B) following qualified opinion paragraph
C) preceding qualified opinion paragraph
D) within notes of FS
B) following qualified opinion paragraph
When an auditor is “not independent” but is required by law to report on the FS, the report should contain:
-State you are not independent - YES OR NO
-State the reasons for lack of independence - YES OR NO
State you are not independent - YES
State the reasons for lack of of independence - NO
When an independent CPA assists in preparing FS for an entity, but has not audited or reviewed them, the CPA should issue disclaimer of opinion. What’s the most that a CPA can do in this instance?
A) document that internal control is not being relied on
B) reading the FS for obvious material misstatements
C) ascertain if FS are in conformity with GAAP
D) determine whether management has elected to omit disclosures
B) reading the FS for obvious material misstatements
When a qualified opinion results from scope of the audit of a non-issuer, this should be described in Basis or Modification paragraph
A) preceding opinion paragraph and referred to in the introductory
B) following opinion paragraph and referred to in introductory and opinion paragraph
C) following opinion paragraph and referred to in management responsibility paragraph
D) following opinion section, have heading “Basis for Qualified Opinion” and should describe the reasons for inability to obtain sufficient evidence
D) following opinion section, have heading “Basis for Qualified Opinion” and should describe the reasons for inability to obtain sufficient evidence
When an auditor qualifies his opinion because of a scope limitation, the wording in the paragraph should be:
A) a client imposed limitation
B) departure from GAAS
C) possible effects on FS
D) inadequate disclosure of necessary information
C) possible effects on FS
The wording should not include the scope limitation itself
When disclaiming an opinion because of an insufficiency of audit evidence to non-issuer, you should refer to it in:
Responsibilities of management - YES OR NO
Notes in FS - YES OR NO
NO and NO
Lack of evidence is placed in Disclaimer of Opinion section instead of
An auditor may NOT issue a qualified opinion when
A) accounting principle at variance with GAAP is used
B) auditor lacks independence with entity
C) scope limitation prevents auditor from completing procedure
D) auditors report refers to work of a specialist
B) auditor lacks independence with entity
Instead you “disclaimer an opinion”
An auditor who is unable to form an opinion on opening inventory balances may issue an “Unmodified opinion” on current years
A) cash flows
B) shareholders equity
C) balance sheet
D) income statement
C) balance sheet
Auditor would not need beginning inventory balances. Therefore “unmodified opinion” works fine here
If material disclosures required by GAAP are omitted, an auditor is least likely to:
A) disclose omitted information on notes of FS
B) discuss omission with management
C) discuss omission with those charged with governance
D) disclose omitted information in basis for modification paragraph
A) disclose omitted information on notes of FS
What should be the wording if an auditor of a non-issuer, if there’s inadequate disclosure:
“In our opinion, EXCEPT for the omission of the information described in basis for qualified section…”
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Potential effect on the financial statement is IMMATERIAL”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - UNMODIFIED
2) Auditors responsibility section - NOT CHANGED
3) Opinion section - NOT CHANGED
4) Basis for opinion - NOT CHANGED
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Potential effect on the financial statement is MODERATE”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - QUALIFIED
2) Auditors responsibility section - NO CHANGE
3) Opinion section - MODIFY
4) Basis for opinion - MODIFY
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Potential effect on the financial statement is MODERATE”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - DISCLAIMER OF OPINION
2) Auditors responsibility section - MODIFY
3) Opinion section - MODIFY
4) Basis for opinion - MODIFY
Management for nonissuer and auditor conclude of a material loss that is probable. Management is unable to make a reasonable estimate of the amount or range of the loss. This is disclosed on the FS notes. If no accrual is made, the opinion should be:
A) qualified due to scope limitation
B) qualified due to material misstatement
C) unmodified with other matter paragraph
D) unmodified opinion
D) unmodified opinion
If contingent liability is probable, not estimable, and is disclosed in footnote, this should be unmodified
Same would be true if you have all support, loss is material of 100k, loss was disclosed in FS, but no accrual was made, this would still be unmodified opinion. The fact of this being disclosed in the FS makes it unmodified
Which event would an auditor issue that OMITS any reference to consistency?
A) material change in method of accounting for inventory
B) change from accounting principle that is not generally accepted to one that is generally accepted that has material impact on FS
C) change in the useful life to calculate provision for depreciation expense
D) management lack of reasonable justification for change in accounting principle
C) change in the useful life to calculate provision for depreciation expense
Unmodified opinion with emphasis of matter paragraph added to report if
unjustified accounting change - YES OR NO
Material weakness in internal control - YES OR NO
unjustified accounting change - NO
Material weakness in internal control - NO
This scenario would be acceptable only if accounting change were JUSTIFIED
When an entity changes its method of accounting, which has a material effect, the auditor should refer to the change in emphasis of matter paragraph. This should contain the nature of the change and
A) explain why the change is justified under GAAP
B) describe the cumulative effect of the change on the audited FS
C) state the explicit concurrence with or opposition to change
D) refer to the financial statement note that discusses the change in detail
D) refer to the financial statement note that discusses the change in detail
“As discussed in Note X to the FS, the company changed its method of accounting for income taxes in 20xx
Auditor includes separate paragraph includes that the entity had significant transactions with related parties. The inclusion of this paragraph
A) considered an “except for” qualification
B) violates GAAS if it’s already disclosed in the footnotes
C) necessitates revision of opinion paragraph with “with the foregoing explanation”
D) is appropriate and would not negate the unmodified opinion
D) is appropriate and would not negate the unmodified opinion
It is NOT appropriate to refer a reader of an auditors report to a FS footnote for details concerning:
A) subsequent event
B) pro forma effects of business combination
C) sale of discontinued operation
D) results of confirmation of receivables
D) results of confirmation of receivables
Which circumstance would auditor include an “Other-Matter paragraph in audit report?
A) material weakness in internal control
B) entity engaged in significant transactions with related party during the year and subsequent to year end
C) audited FS include a material misstatement
D) auditor has engaged to report on entity’s FS under US GAAP and IFRS
D) auditor has engaged to report on entity’s FS under US GAAP and IFRS - more than 1 framework
Refers to matters other than those presented or disclosed in FS that are relevant to users understanding
If the auditor determined that there is a substantial doubt about the issuers ability to continue as a going concern for a reasonable period of time, what would be the proper form of audit report?
A) disclaimer of opinion
B) adverse opinion with other-matter paragraph
C) unqualified opinion with explanatory paragraph
D) qualified opinion with emphasis of matter paragraph
C) unqualified opinion with explanatory paragraph
Explanatory paragraph would be “Substantial Doubt About Entity’s Ability to Continue as Going Concern”
When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statement is not material, the auditor should
A) refer to the change in an emphasis of matter paragraph
B) explicitly concur that the change is preferred
C) not refer to consistency in auditors report
D) refer to the change in opinion paragraph
C) not refer to consistency in auditors report
When reporting on comparative financial statements, an auditor should change previously issued opinion on prior years FS if:
A) PY FS are restated to conform with GAAP
B) Auditor is predecessor auditor who has been requested by former client to reissue previously issued report
C) Prior year opinion was unmodified and opinion on current year FS is modified due to lack of consistency
D) Prior year FS are restated following a change in reporting entity in CY
A) PY FS are restated to conform with GAAP
Group auditor of nonissuer decides not to refer to component auditor who audited subsidiary of group auditors client. In this situation, group auditor most likely would
A) add emphasis of matter paragraph to auditors report indicating subsidiary FS are not material to consolidated FS statements
B) document in engagement letter that group auditor assumes no responsibility for component auditors work and opinion
C) obtain written permission from component auditor to omit the reference in the group auditors report
D) determine type of work to be performed by the group auditor on FS of the component
D) determine type of work to be performed by the group auditor on FS of the component
Auditor previously expressed qualified opinion on FS of prior period b/c of departure from GAAP. Prior period FS are restated in current period to conform with GAAP. The auditors updated report on prior period statements should
A) express unmodified opinion concerning restated financial statements
B) accompanied by original auditors report on prior period
C) bear same date as original auditors report on prior period
D) qualify opinion concerning restated financial statements because of change in accounting principle
A) express unmodified opinion concerning restated financial statements
Before predessor auditor reissues prior years audit report on FS of a former client for inclusion with successor auditors rebirth on comparative financial statements, the predessor does all the following except:
A) obtain current comparative FS
B) compare current period comparative FS with those of the prior year
C) review audit documentation of successor auditor
D) obtain successor auditor representation letter
C) review audit documentation of successor auditor
If component auditor does not meet independence requirements that are relevant to a group auditor, then the group engagement team should first
A) communicate the lack of independence
B) disclose the lack of independence to nonissuer management
C) withdraw from engagement when permissible
D) attempt to obtain appropriate audit evidence relating to financial information of the component without making reference to or using work of component auditor
D) attempt to obtain appropriate audit evidence relating to financial information of the component without making reference to or using work of component auditor
For an auditor report under GAAS, group engagement partner decides not to make reference to another CPA to audited a client’s subsidiary. Group engagement partner could justify this decision if:
A) issue an unmodified opinion on consolidated FS
B) learns that component auditor issued unmodified opinion on subsidiary FS
C) is unable to review audit programs and audit documentation of component auditor
D) satisfied to the independence and professional reputation of component auditor
D) satisfied to the independence and professional reputation of component auditor
Which situation would a group engagement partner lease likely make reference to component auditor who audited a subsidiary of the entity?
A) component auditor was retained by group engagement partners and work was performed under group engagements control
B) group engagement partner finds it impractical to review component auditors work
C) FS audited by component auditor are material to consolidated FS covered by group opinion
D) group engagement partner is unable to be satisfied to the independence and reputation of component auditor
A) component auditor was retained by group engagement partners and work was performed under group engagements control
Group engagement partner decides not to refer to the audit of a component auditor. After inquiries about component auditors professional reputation and independence, group engagement partner most likely would:
A) document in engagement letter that the group engagement partner assumes no responsibility for other CPA work
B) obtain written permission from component auditor to omit the reference in group engagement auditor report
C) contact component auditor and review audit programs and working papers pertaining to component
D) add emphasis of matter paragraph indicating the component FS are not material to consolidated FS
C) contact component auditor and review audit programs and working papers pertaining to component
Example: Words describing the percentages of revenue and assets audited by other auditors are proper in dividing responsibility. What is this an example of:
A) improper form of reporting
B) divide responsibly
C) disclaim an opinion
D) qualify the opinion
B) divide responsibly
Under GAAS, if you choose to assume responsibility, do you make reference to the component auditor?
YES OR NO
NO - including it will have the reader misinterpret the degree of responsibility
When group of engagement partner decides to make reference to component auditors under GAAS, you should state “we did not audit the FS of Company X” on
A) auditors responsibilities
B) not in auditors report, but in a separate report prepared by component auditor
C) emphasis of matter paragraph
D) opinion
D) opinion
In May, year 4, auditor reissues auditors report on Y2 FS at continuing client’s request. Year 2 FS are not restated and auditor does not revise the wording. Which date to use?
A) dual date of reissued report
B) use original report date on reissued report
C) use release date of the reissued report
D) use current period auditors report date on reissued report
B) use original report date on reissued report
CPA’s report on audited financial statements under US auditing standards would be inappropriate if it referred to
A) CPA assessment of sampling risk factors
B) evaluating appropriateness of accounting policies used
C) significant estimate made by management
D) managements responsibility for the FS
A) CPA assessment of sampling risk factors
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Group auditor CPA1 decides to take responsibility for work of other Component CPA2, other CPA is unmodified”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - UNMODIFIED
2) Auditors responsibility section - NO CHANGE
3) Opinion section - NO CHANGE
4) Basis for opinion - NO CHANGE
Taking responsibility does not prevent the issuance of an unmodified opinion. You DO NOT make mention of the other auditor
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Group auditor CPA1 does not take responsibility for work of other Component CPA2, other CPA is unmodified”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - UNMODIFIED
2) Auditors responsibility section - NO CHANGE
3) Opinion section - MODIFY
4) Basis for opinion - NO CHANGE
Do not take responsibility = Division of responsibility affects the Opinion section of report, but does not impact other report section
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Group auditor CPA1 decides to take responsibility for work of other Component CPA2, other CPA is qualified”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - UNMODIFIED
2) Auditors responsibility section - NO CHANGE
3) Opinion section - NO CHANGE
4) Basis for opinion - NO CHANGE
Taking responsibility does not prevent the issuance of an unmodified opinion. You DO NOT make mention of the other auditor
TBS: Enter in what the appropriate opinion would be, and then modifications done to the report:
“Group auditor CPA1 does not take responsibility for work of other Component CPA2, other CPA is qualified”
1) Opinion type
2) Auditors responsibility section
3) Opinion section
4) Basis for opinion
1) Opinion type - UNMODIFIED
2) Auditors responsibility section - NO CHANGE
3) Opinion section - MODIFY
4) Basis for opinion - NO CHANGE
Do not take responsibility = Division of responsibility affects the Opinion section of report, but does not impact other report section
If a CPA went through the following:
-obtained sufficient audit evidence as of August 13th
-year end report of June 30
-August 27, a subsequent event came up that should be disclosed. The entity disclosed it
-CPA decides not to dual date the auditors report and dated report August 27th
How much responsibility is taken here from auditor?
A) all subsequent events occurred through August 27
B) only specific subsequent event disclosed by entity
C) all subsequent events occurred through August 13 and specific subsequent events disclosed
D) only subsequent event that occurred through August 13
A) all subsequent events occurred through August 27
Since they chose the later date of 8/27, this extends the auditors responsibility for all subsequent events to this later date
If auditor were to dual date the report, they would take responsibility for for all events through 8/13 and only one specific event up to 8/27
Which event that occurred after clients calendar year end, but before audit report date, would require disclosure in the notes to the FS, but NO adjustment to FS
A) new convertible bonds are issued to expand company’s product line
B) loss is reported on uncollectible accounts
C) fixed asset used in operations is sold at a substantial profit
D) negotiations have resulted in compensation adjustments for union employees retro to 4th QTR
A) new convertible bonds are issued to expand company’s product line
Which event would require adjustments to the FS for year ended December 31, year 1
A) loss of AR with customer suffering a major loss from flood on January, Y2
B) loss on AR with customer suffering a deteriorating condition which led to bankruptcy, 1/2
C) loss of inventory due to an earthquake on January, Y2
D) sale of a major bond, January, Y2
B) loss on AR with customer suffering a deteriorating condition which led to bankruptcy, 1/2
An auditor goes through the following:
-client is a December 31, Y3 year end
-FS is dated as of March 13, Y4
-prior to release on March 14, Y4, a new event required Y3 FS to be revised and to update the note
-auditors report is now dated April 11, Y4
-FS released on April 12, Y4
Auditor has taken responsibility up to which date?
A) March 13th, Y4
B) March 14, Y4
C) April 11, Y4
D) April 12, Y4
C) April 11, Y4 - the date that the audit report was newly dated
Which would an auditor most likely perform in obtaining evidence about subsequent events
A) determine changes in employee pay rates after year end were properly authorized
B) send confirmations for a material AR balance originating after year end
C) inquire about payroll checks that were recorded before year end, but cashed after year end
D) investigate changes in long term debt occurring after year end
D) investigate changes in long term debt occurring after year end
Which would an auditor most likely perform in obtaining evidence about subsequent events
A) recomputing sample of large dollar transactions occurring after year end
B) investigating changes in SE occurring after year end
C) inquiring of legal counsel concerning litigation, claims, and assessment arising after year end
D) confirming bank accounts established after year end
C) inquiring of legal counsel concerning litigation, claims, and assessment arising after year end
Which would an auditor most likely perform in obtaining evidence about subsequent events
A) examine changes in quoted market prices of investments purchased since YE
B) compare latest available interim financial information with FS being reported on
C) apply analytical procedures to the details of the balance sheet accounts that were tested at interim dates
D) inquired about payroll checks that were recorded before year end but cashed after year end
B) compare latest available interim financial information with FS being reported on
Which would an auditor most likely perform in obtaining evidence about subsequent events
A) verify inventory pledged under loan agreements by confirming the details with institutions
B) inquire about current status of transactions that were recorded on basis of preliminary data
C) compare FS being reported on with those of the prior year
D) trace information from shipping documents to sales invoices and sales journal transactions
B) inquire about current status of transactions that were recorded on basis of preliminary data
Which procedures would most likely help an auditor identify event after the date of the FS that should be disclosed?
A) review changes in the interest rate for cash accounts
B) follow up on AR confirmations that were not returned for additional loss accruals
C) inquire about changes in capital stock that was issued or repurchased
D) evaluate depreciation schedules for additional depreciation expense
C) inquire about changes in capital stock that was issued or repurchased
If auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts, what should be done next?
A) determine whether there are persons relying or likely to reply on FS that would have importance on it
B) required that management disclosure the newly discovered information by issuing revised FS
C) issue revised pro forma FS taking in to consideration of newly discovered information
D) give public notice that the auditor no longer associates with FS
A) determine whether there are persons relying or likely to reply on FS that would have importance on it
If a subsequently discovered fact becomes known to the auditor after the report release date, the auditor should first:
A) discuss matter with management
B) notify each member of the board of directors that the auditor will seek to prevent future reliance
C) notify regulatory agencies having jurisdiction over the client that the Auditor report should not be relied on
D) determine the effects and issue revised FS
A) discuss matter with management
What events occurring after the issuance of an auditors report most likely would cause the auditor to make further inquiries about the previously issued FS
A) uninsured natural disaster occurs that may affect the entity;s ability to continue as going concern
B) contingency is resolved that had been disclosed in the audited. FS
C) new information is discovered concerning undisclosed lease transactions of the audited period
D) subsidiary is sold that accounts for 25% of entity’s consolidated net income
C) new information is discovered concerning undisclosed lease transactions of the audited period
When an auditor issues a report that is dual dated for subsequent event occurring after the original date of the auditors report, but before insurance of the related FS, the auditors responsibility for events occurring subsequent to the original report date is
A) limited to include only events occurring up to the date of the last subsequent event
B) limited to the specific event referenced
C) extended to subsequent events occurring through later date
D) extended to include all events occurring since the original report date
B) limited to the specific event referenced
This is dual dated
Auditor went through the following:
-February 25, CPA issued auditors report with unmodified opinion
-Year end is January 31
-March 2nd, CPA learned on 2/11 of a material loss, uncollectible Rec’d with deteriorating financials
-Managmeent refused to adjust the FS for this subsequent event
-CPA determined that this info is reliable and creditors are currently relying on this FS
Next course of action?
A) notify the entity’s creditors that this should be no longer be relied on
B) notify each member of BOD about refusal to adjust
C) issue revised FS and distribute to each creditor
D) issued revised auditors report and distribute to each creditor
B) notify each member of BOD about refusal to adjust
Auditor went through the following:
-Obtained sufficient audit evidence to render opinion on 3/6 Y2
- Client year end is 12/31 Y1
-Subsequent event occurred on 4/10 Y2
-Auditor will not dual date, but they complete extended procedures up to 4/24, Y2
If adjustment is made without disclosure of event, date of report should be
A) march 6
B) April 10
C) April 24
D) using dual dating
C) April 24
Which procedures would lease likely help the auditor discover a subsequent event at the conclusion of the audit?
A) obtaining a legal letter
B) reviewing audit working papers
C) reviewing the minutes meetings
D) reviewing-analyze latest available interim FS
B) reviewing audit working papers
Modification to the independent auditors unmodified opinion report for non-issuer?
A) disclaimer of opinion and adverse opinion both include modification to the introductory paragraph
B) auditor would modify different paragraphs when rendering either qualified opinion due to departure of GAAP, or adverse due to departure from GAAP
C) auditor would modify the same paragraphs when rendering either qualified opinion due to departure from GAAP or qualified opinion due to scope limitation
D) modifications to independent audit report result in qualified, adverse or negative assurance opinions, or disclaimer of opinion
C) auditor would modify the same paragraphs when rendering either qualified opinion due to departure from GAAP or qualified opinion due to scope limitation
An auditor is unable to complete a procedure during an audit. What is least likely to be rendered?
A) disclaimer of opinion
B) qualified opinion
C) adverse opinion
D) unmodified opinion
C) adverse opinion
For a particular entity FS to be presented fairly in conformity with the applicable financial reporting framework, it is NOT required that the principles selected
A) reflect transactions in manner that presents the FS with a range of acceptable limits
B) present information in the FS that is classified and summarized in reasonable manner
C) be appropriate in circumstances for the particular entity
D) be applied on basis consistent with those followed in prior year
D) be applied on basis consistent with those followed in prior year
CPA firm decided to reply on audit work performed by another audit firm in audit of nonissuer. Which of the following procedures should the firm perform when taking responsibility?
A) review the other firms audit work to validate conclusion
B) reference the reliance in 1st paragraph of opinion
C) obtain and attach copy of the other firms rep letter and audit report
D) reference the reliance on other firms work in a footnote
A) review the other firms audit work to validate conclusion
In the audit for nonissuer, what is an auditors responsibility for supplementary information, such as disclosure of pension information, which is outside the basic FS but required by GASB
A) apply substantive tests of transactions to the supplementary information and verify its conformity with GASB requirement
B) apply certain limited procedures to supplementary information and add separate section to auditors report
C) only responsibility is to determine that it is not omitted
D) no responsibility as long as its outside basic FS
B) apply certain limited procedures to supplementary information and add separate section to auditors report
When audited FS are presented in a client’s document containing other information, auditor should
A) perform inquiry and analytical procedures to ascertain wether other info is reasonable
B) add other-matter paragraph to auditors report without changing opinion
C) perform appropriate substantive auditing procedures to corroborate the other info
D) read the other information to determine that it is consistent with the audited FS
D) read the other information to determine that it is consistent with the audited FS
Auditor reads letter of transmittal accompanying comprehensive annual financial report and identifies material inconsistency with FS. Auditor determines the FS does not require revision. Next steps?
A) request that client revise letter of transmittal
B) include other matter paragraph in auditors report
C) consider withdrawing from engagement
D) request client rep letter acknowledging inconsistency
A) request that client revise letter of transmittal
Auditor has the following
-material inconsistency in the other information in an annual report
-auditor believes FS don’t require revision
-client is unwilling to revise or eliminate material inconsistency
Actions to take?
A) consider the situation closed because other information is not in audited FS
B) issue “except for” qualified opinion after discussing with audit committee
C) disclaim an opinion on the FS with an other matter paragraph
D) communicate matter with those charged with governance
D) communicate matter with those charged with governance
Auditor is engaged to report on selected financial data that are included in client prepared document containing audited FS. Under circumstances, report should
A) presentation is prepared in accordance with special purpose framework
B) restrict use of the report to those specified users within entity
C) limited to data derived from entity audited FS
D) indicate the data are subject to prospective results that may not be achieved
C) limited to data derived from entity audited FS
What should an auditor perform on an opinion wether supplementary information is fairly stated
A) evaluate appropriateness, but not completeness of supplementary information
B) obtain verbal representation from management about significant assumptions
C) obtain verbal representation from management that it acknowledges its responsibility
D) inquire with management about the purpose of the supplementary info and criteria used to prepare it
D) inquire with management about the purpose of the supplementary info and criteria used to prepare it
When opining on whether supplementary information is fairy stated in all material respects and in relation to the FS, auditor should ensure
A) board of directors has reviewed the supplementary info
B) supplementary info compiles with applicable federal and state laws
C) neither an adverse nor disclaimer of opinion was issued
D) supplementary information is measureable
C) neither an adverse nor disclaimer of opinion was issued
Quarterly date required by SEC Reg S-K have been omitted. Which statement must be included in auditors report?
A) auditor was unable to review the data
B) company internal control provides an adequate basis to complete the review
C) company has not presented the selected quarterly financial data
D) auditor will review the selected date during the review of the subsequent quarterly financial data
C) company has not presented the selected quarterly financial data
Which is NOT considered a special purpose framework?
A) cash basis
B) tax basis
C) contractual basis
D) International Financial Reporting Standards (IFRS)
D) International Financial Reporting Standards (IFRS)
Reports on special purpose frameworks are issued in conjunction with
A) interim FS reviewed to determine whether material modifications are needed to conform with GAAP
B) feasibility studies to illustrate results
C) compliance with reporting requirements to be filed with specific regulatory agency
D) pro forma financial presentations designed to demonstrate effects of hypothetical transactions
C) compliance with reporting requirements to be filed with specific regulatory agency
When a CPA reports on audited FS prepared on cash receipts and disbursements basis of accounting, the report should
A) explain why this basis is more useful for the readers
B) refer to the note that described managements responsibility for the FS
C) state the basis of presentation is comprehensive basis of accounting (OCBOA) other than GAAP
D) seperate emphasis of matter paragraph that discusses the justification for departure from GAAP
C) state the basis of presentation is comprehensive basis of accounting (OCBOA) other than GAAP
Which of the following title would be considered suitable for FS that are prepared on cash basis?
A) income statement
B) statement of operations
C) statement of revenues collected and expenses paid
D) statement of cash flows
C) statement of revenues collected and expenses paid
What would be an appropriate title for statement of revenue and expenses prepared using Other Comprehensive basis of accounting (OCBOA)?
A) statement of operations
B) statement of income regulatory basis
C) income statement
D) statement of activities
B) statement of income regulatory basis
Entity prepares financial statements on income tax basis. Description of “how that basis” differs from GAAP should be
A) notes to the financial statements
B) auditors engagement letter
C) management representation letter
D) emphasis of matter paragraph of the auditors report
A) notes to the financial statements
Auditor most likely would issue an adverse opinion due to
A) inadequate disclosure of material information
B) management refusal to provide written representations
C) inability to determine the extent of or amounts associated with with pervasive employee fraud
D) unable to obtain the audited FS of consolidated invested
A) inadequate disclosure of material information
-Audited FS are fairly stated
-Auditor is not engaged to the report on the other information included on annual report
-Auditor notices a material inconsistency between amounts of revenue reported by management
-if management refuses to make the revision to the revenue
Auditor is LEAST LIKELY
A) include in auditors report a separate section “Other Information” describing the inconsistency
B) modify the opinion to a qualified or adverse opinion
C) withhold the use of the auditor report
D) withdraw from the engagement
B) modify the opinion to a qualified or adverse opinion
Which circumstance would the expression of adverse opinion be inappropriate?
A) FS do not adequately disclose litigation that is probable to result in material loss
B) management refuses to allow the auditor to contact legal counsel
C) management does not provide reasonable justification for change in principles
D) company issues FS that purport to present Financial position and results of operations, but refuses to include related statement of cash flows
B) management refuses to allow the auditor to contact legal counsel
Auditor is engaged to perform audit procedures and report on supplemental information that accompanies the FS pursuant to PACAOB standards. If auditor is unable to obtain sufficient appropriate audit evidence to support an opinion on supplemental information, the auditor should issue
A) disclaimer of opinion
B) adverse opinion
C) qualified opinion
D) adverse or disclaimer
A) disclaimer of opinion
In May, Year 4, an auditor reissues the auditor’s report on the Year 2 financial statements at a continuing client’s request. The Year 2 financial statements are not restated and the auditor does not revise the wording of the report. The auditor should:
A) Use the current-period auditor’s report date on the reissued report.
B) Use the release date of the reissued report.
C) Use the original report date on the reissued report.
D) Dual date the reissued report.
C) Use the original report date on the reissued report.
When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an):
A) Compilation report.
B) Unaudited association report.
C) Disclaimer of opinion.
D) Qualified opinion.
C) Disclaimer of opinion.
Which of the following terms identifies a requirement for audit evidence?
A) Disconfirming.
B) Appropriate.
C) Adequate.
D) Reasonable.
B) Appropriate.
Which circumstances would an auditor NOT express an unmodified opinion?
A) auditor wishes to emphasize the unusually important subsequent event
B) quarterly financial data required by the SEC has been omitted
C) justified material change between periods in accounting principles
D) auditor is unable to obtain audited financial statements of a consolidated investee
D) auditor is unable to obtain audited financial statements of a consolidated investee
After performing all phases of the current audit, the auditor determines that the client is in noncompliance with several required securities regulations. The auditor then prepares a modified audit report to reflect this noncompliance but the client refuses to accept the auditor’s report claiming the level of materiality does not warrant such an opinion. Under this scenario, what is the auditor’s proper course of action?
A. Withdraw from the engagement and contact the applicable regulatory authorities in writing. B. Issue an unmodified opinion with an emphasis-of-matter paragraph explaining the materiality issue. C. Issue the modified report. D. Withdraw from the engagement and notify those charged with governance in writing.
D. Withdraw from the engagement and notify those charged with governance in writing.
