Missed Questions Flashcards
Dante, CPA, is auditing the financial statements of Crest Computing. During the previous year, Kratzke & Kratzke, CPAs, audited Crest’s financial statements. Crest has decided to present comparative financial statements for the current year. Which statement is true about Kratzke & Kratzke’s report?
A. Kratzke & Kratzke may reissue their report on the previous statements only after performing limited procedures to evaluate the continuing appropriateness of the report.
B. Kratzke & Kratzke should not reissue their report, since they may be unaware of recent circumstances that might have affected the previous year’s financial statements.
C. Kratzke & Kratzke may reissue their report on the previous statements without performing any additional procedures as long as no changes have been made to those statements.
D. Kratzke & Kratzke should not reissue their report unless Dante agrees to co-sign that report.
A. Kratzke & Kratzke may reissue their report on the previous statements only after performing limited procedures to evaluate the continuing appropriateness of the report.
A special report on financial statements prepared on the cash basis of accounting should include:
A. A statement that the audit was conducted in accordance with generally accepted auditing standards.
B. A disclaimer of opinion, because an auditor should not report on financial statements that are not designed to be in conformity with GAAP.
C. A qualified or adverse opinion, due to the departure from GAAP.
D. An emphasis-of-matter paragraph including a brief explanation of the cash basis of accounting.
A. A statement that the audit was conducted in accordance with generally accepted auditing standards.
Which of the following procedures would a CPA most likely include in planning a financial statement audit?
A. Determine the extent of involvement of the client’s internal auditors.
B. Ask the client’s lawyer if contingencies have been recorded in conformity with GAAP.
C. Obtain a written representation letter from the client’s management.
D. Scan the client’s journals and ledgers to identify any unusual transactions.
A. Determine the extent of involvement of the client’s internal auditors.
Which of the following is a required component of the independent auditor’s report expressing an unmodified opinion?
A. An Opinion section including a reference to generally accepted auditing principles.
B. A Basis for Opinion section including a reference to generally accepted auditing standards.
C. An Auditor’s Responsibility section including the audit firm name.
D. An other-matter paragraph including the reason for the unmodified opinion.
B. A Basis for Opinion section including a reference to generally accepted auditing standards.
Which of the following properly describes the auditor’s responsibilities as opposed to management’s responsibilities?
A. The auditor is responsible for the entity’s financial statements and management is responsible for the selection and application of accounting principles.
B. Management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial and the auditor is responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatement.
C. Management is responsible for the entity’s financial statements and the auditor is responsible for the selection and application of accounting principles.
D. The auditor is responsible for identifying the laws and regulations applicable to the entity’s activities and management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial.
B. Management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial and the auditor is responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatement.
A limitation on the scope of an audit sufficient to preclude an unmodified opinion will usually result when the client:
A. Asks the auditor to report on the balance sheet and not the other basic financial statements.
B. Refuses to disclose in the notes to the financial statements a significant related party transaction.
C. Omits the statement of cash flows.
D. Does not make the minutes of the Board of Directors meetings available to the auditor.
D. Does not make the minutes of the Board of Directors meetings available to the auditor.
Cyrus, CPA is the continuing auditor of Topaz, Inc. During the current year’s audit, Cyrus becomes aware of evidence that affects the previous year’s statements as well as the opinion that was expressed. Topaz is planning to present comparative financial statements that will include last year’s financial statements. How should Cyrus handle this situation?
A. Report on both sets of financial statements, using the original opinion on last year’s financial statements.
B. Report on both sets of financial statements, updating the previous opinion for any changes that have occurred.
C. Report on both sets of financial statements, using the original opinion on last year’s financial statements only after reviewing the previous year’s audit documentation to ensure that auditing standards were followed.
D. Report only on the current year’s financial statements.
B. Report on both sets of financial statements, updating the previous opinion for any changes that have occurred.
An uncertainty may result in:
An unmodified opinion:
A qualified opinion:
An adverse opinion:
A disclaimer of opinion:
An unmodified opinion: Yes
A qualified opinion: Yes
An adverse opinion: Yes
A disclaimer of opinion: Yes
In a large public corporation, evaluating internal control procedures should be the responsibility of:
A. Operations management staff who report to the chief operations officer.
B. Security management staff who report to the chief facilities officer.
C. Internal audit staff who report to the board of directors.
D. Accounting management staff who report to the CFO.
C. Internal audit staff who report to the board of directors.
Assuming no other material misstatements are found, an independent auditor determines that supplementary information is not fairly stated relative to the basic financial statements taken as a whole. In this instance where the independent auditor was engaged to audit both the financial statements and the supplementary information, the independent auditor should:
A. Issue an unmodified opinion on the financial statements without reference to the supplementary information outside the basic financial statements.
B. Issue an unmodified opinion on the financial statements and modify the auditor’s opinion on the supplementary information within a separate section of the auditor’s report with the heading “Supplementary Information.”
C. Issue a disclaimer of opinion on the financial statements.
D. Issue a qualified (except for) or adverse opinion on the financial statements.
B. Issue an unmodified opinion on the financial statements and modify the auditor’s opinion on the supplementary information within a separate section of the auditor’s report with the heading “Supplementary Information.”
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:
A. Reclassifications and adjustments.
B. Reconciliations and tickmarks.
C. Accruals and deferrals.
D. Expense and revenue summaries.
A. Reclassifications and adjustments.
Obtaining a signed engagement letter would most likely help the auditor to avoid which of the following?
A. Management needed to obtain an audit report in accordance with a special purpose framework other than U.S. GAAP, but the auditor does not have the appropriate training and knowledge to perform the required engagement.
B. A disagreement between management and the auditor on the terms of the contingent portion of the audit fee agreement.
C. The auditor assumed that all subsequent events had been disclosed by management, but management failed to communicate a transaction that closed just before the audit report was issued.
D. The auditor believed that management intended to correct an identified material misstatement, however, management determined that the misstatement should be left as uncorrected.
A. Management needed to obtain an audit report in accordance with a special purpose framework other than U.S. GAAP, but the auditor does not have the appropriate training and knowledge to perform the required engagement.
