Practice Ch. 11 And 12 Wrong Answers Flashcards
Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts?
A. Current-year recorded (unaudited) balances
B. Expected balances using a statistical analysis or relationships among accounts
C. Internal budgets and reports
D. Prior-year balances
Current-year recorded (unaudited) balances
For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit?
A. Obtaining evidence about assertions related to account balances or classes of transactions
B. Evaluating the adequacy of evidence gathered in response to unexpected account balances
C. Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit
D. Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances
Obtaining evidence about assertions related to account balances or classes of transactions
Roll-forward work normally occurs between the ____ and the ____.
A. beginning of the year under audit; audit report release date
B. date of the financial statements; audit report release date
C. beginning of the year under audit; date of the financial statements
D. date of interim work; date of the auditors’ report
date of interim work; date of the auditors’ report
A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on
A. the fair presentation of the financial statements in conformity with GAAP.
B. irregularities involving the client’s management and its employees.
C. the materiality of the adjusting entries proposed by the audit staff.
D. the communication of internal control deficiencies to the client’s audit committee (or those charged with governance).
the fair presentation of the financial statements in conformity with GAAP.
On March 15, 2015, Kent, CPA, issued an unqualified opinion on a client’s audited financial statements for the year ended December 31, 2014. On May 4, 2015, Kent’s internal inspection program disclosed that engagement personnel failed to observe the client’s physical inventory. Omission of this procedure impairs Kent’s present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first
A. advise management to disclose to the stockholders that Kent’s unqualified opinion should not be relied on.
B. undertake to apply alternative procedures that would provide a satisfactory basis for the opinion.
C. reissue the auditors’ reports and add an explanatory paragraph describing the departure from generally accepted auditing standards.
D. compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.
undertake to apply alternative procedures that would provide a satisfactory basis for the opinion.
Assume that Rory is auditing the financial statements of Augusta Inc. Rory completes his fieldwork on February 25 and his report (along with Augusta’s financial statements) is issued on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount of uninsured inventory. Which of the following best describes Rory’s responsibility with respect to the effects of this hurricane on Augusta’s financial statements?
A. Because the inventory was included in the financial statements audited by Rory, he is required to perform additional procedures and reissue his report on the revised financial statements.
B. Because the hurricane occurred after the date of Rory’s report, he has no responsibility to perform additional procedures or reissue his report.
C. Because the hurricane occurred prior to the next fiscal quarter, Rory is required to perform additional procedures and reissue his report on the revised financial statements.
D. Because the hurricane occurred after the release of the financial statements and Rory’s report, he has no responsibility to perform additional procedures or reissue his report.
Because the hurricane occurred after the release of the financial statements and Rory’s report, he has no responsibility to perform additional procedures or reissue his report.
Harris is auditing the financial statements of Cole Corp., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Harris issue?
A. Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information
B. Adverse opinion on the financial statements and mineral reserve information due to the misstatement
C. Unmodified opinion on the financial statements with an other-matter paragraph expressing an adverse opinion on the mineral reserve information
D. Qualified opinion on the financial statements and mineral reserve information due to the misstatement
Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information
Which of the following situations would not result in auditors adding an additional paragraph to their report without modifying the introductory, scope, or opinion paragraphs of that report?
A. Reference to a change in the method of accounting mandated by the issuance of a new accounting standard
B. Reference to a going-concern uncertainty facing the entity
C. Reference to a departure from GAAP that is material, but not pervasive, to the financial statements
D. Reference to an acquisition made by the entity during the most recent fiscal year
Reference to a departure from GAAP that is material, but not pervasive, to the financial statements
When component auditors are involved in the audit of group financial statements, the group auditors are required to
A. consider the independence and professional reputation of the component auditors in deciding how to utilize their work.
B. identify the extent of component auditors’ involvement if they choose not to rely on the component auditors’ work.
C. identify the component auditors by name in their report to appropriate limit their liability for the component auditors’ work.
D. disclaim an opinion on the portion of the financial statements examined by the component auditors.
consider the independence and professional reputation of the component auditors in deciding how to utilize their work.
Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors’ report?
A. The report should be modified to include an emphasis-of-matter paragraph describing the pending litigation.
B. A disclaimer of opinion should be issued because the auditors’ independence is impaired.
C. The litigation will not have any impact on the report or auditors’ independence unless Holmes & Smith are found guilty.
D. A qualified or adverse opinion should be issued depending on the severity of the lawsuit.
A disclaimer of opinion should be issued because the auditors’ independence is impaired.
In which of the following should an auditors’ report refer to the lack of consistency when there is a change in accounting principle that is significant?
A. The Auditor’s Responsibility section
B. The opinion paragraph
C. An emphasis-of-matter paragraph following the opinion paragraph
D. An emphasis-of-matter paragraph before the opinion paragraph
An emphasis-of-matter paragraph following the opinion paragraph
Which of the following guidelines should be followed when a disclaimer of opinion is issued?
A. The report should identify the financial statements accompanying the disclaimer of opinion.
B. The report should be addressed to the client and specific users who originally retained the auditors.
C. If the disclaimer is due to a lack of independence, the report should indicate the specific reasons for the auditors not being independent.
D. The report should include a reference to any auditing procedures performed prior to issuing the disclaimer.
The report should identify the financial statements accompanying the disclaimer of opinion.
Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements, assuming that the component auditors’ work did not identify any issues affecting the group auditors’ report?
A. Issue a standard (unmodified) report that does not reference any involvement by the component auditors.
B. Identify the component auditors by name and present their report along with the group auditors’ report.
C. Refer to the component auditors’ work and disclose the extent of their work in the group auditors’ report.
D. Disclaim an opinion on the portion of the financial statements examined by the component auditors.
Disclaim an opinion on the portion of the financial statements examined by the component auditors.
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 audits its financial statements without the statement of cash flows although Brown’s access to all of the information underlying the basic financial statements would not be limited. Under the circumstances, Brown most likely would
A. add an other-matter paragraph to the standard (unmodified) report that justifies the omission.
B. refuse to accept the engagement as proposed because of the client-imposed scope limitation.
C. explain to Zag that the omission requires a qualification of the auditors’ opinion.
D. prepare the statement of cash flows as an accommodation to Zag and express an unmodified opinion.
explain to Zag that the omission requires a qualification of the auditors’ opinion.
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
A. disclaiming an opinion on the financial statements due to the indications of possible financial difficulties.
B. indicating to the client’s audit committee whether management’s plans for dealing with the adverse effects of the financial difficulties can be effectively implemented.
C. considering the adequacy of disclosure about the client’s possible inability to continue as a going concern.
D. issuing a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.
considering the adequacy of disclosure about the client’s possible inability to continue as a going concern.
