AUD 2

Question 1

Zag Co. issues financial statements that present financial position and results of operations but Zag omits the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows although Brown’s access to all of the information underlying the basic financial statements will not be limited. Under these circumstances, Brown most likely would:

Answer 1

explain to Zag that the omission requires a qualification of the auditor’s opinion.

Question 2

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?

Answer 2

The company issues financial statements that purport to present financial position and results of operations, but refuses to include the related statement of cash flows.

Question 3

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor’s report but before issuance of the related financial statements. The auditor’s responsibility for events occurring subsequent to the original report date was:

Answer 3

limited to the specific event referenced.

Question 4

Which of the following statements is correct concerning letters for underwriters, commonly referred to as comfort letters?

Answer 4

Letters for underwriters typically give negative assurance on unaudited interim financial information.

Question 5

Which of the following items should be included in an auditor’s report for financial statements prepared in conformity with a special-purpose framework?

Answer 5

A title that includes the word “independent”

Question 6

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor’s report but before issuance of the related financial statements. The auditor’s responsibility for events occurring subsequent to the original report date was:

Answer 6

limited to the specific event referenced.

Question 7

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

Answer 7

Adverse opinion

Question 8

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:

Answer 8

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

Question 9

On August 13, a CPA completed fieldwork on an engagement to audit financial statements for the year ended June 30. On August 27, an event came to the CPA’s attention that should be disclosed in the notes to the financial statements. The event was properly disclosed by the entity, but the CPA decided not to dual date the auditor’s report and dated the report August 27. Under these circumstances, the CPA was taking responsibility for:

Answer 9

all subsequent events that occurred through August 27.

Question 10

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor’s report but before issuance of the related financial statements. The auditor’s responsibility for events occurring subsequent to the original report date was:

Answer 10

limited to the specific event referenced

Question 11

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

Answer 11

Adverse opinion

Question 12

When an accountant is engaged to compile a nonissuer’s financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are:

Answer 12

not designed for those who are not informed about such matters

Question 13

When the auditor reissues a report of the financial statements, the responsibility of the auditor with respect to the reissued report is which of the following?

The auditor:

Answer 13

obtain a representation letter from the successor auditor.

Question 14

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

Answer 14

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

Question 15

A CPA is required to comply with the provisions of the Statements on Standards for Attestation Engagements when engaged to:

Answer 15

provide assurance on investment performance statistics prepared by an investment company on established criteria.

Question 16

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to report on management’s description of CSC’s system and suitability of the design of controls. CSC’s system is relevant to the schools’ internal control, so Drake’s report will be useful in providing the schools’ independent auditors with information necessary to plan their audits. Drake’s report expressing an opinion on CSC’s system and suitability of the design of controls should contain:

Answer 16

a written assertion by management on whether the service organization’s controls were suitably designed

Question 17

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

Answer 17

The financial statements fail to disclose information that is required by generally accepted accounting principles.

Question 18

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph:

Answer 18

is appropriate and would not negate the unmodified opinion.

Question 19

The objective of a review of interim financial information of an issuer is to provide an accountant with a basis for reporting whether:

Answer 19

material modifications should be made to conform with the applicable financial reporting framework.

Question 20

If prior-period compiled financial statements have been restated and the predecessor accounting firm decides not to reissue its report, the successor accounting firm

Answer 20

may be engaged to reissue the prior-period report.