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A special report related to compliance with contractual provisions provides:


A) positive assurance.
B) negative assurance.
C) no assurance.
D) none of these.

E) All of the above
F) A) and D)

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A change in accounting estimate is an example of an accounting change that affects comparability and requires an explanatory paragraph in the audit report.

A) True
B) False

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In the first audit of an entity, because of the entity's record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would:


A) be unable to express an opinion on the current year's results of operations and cash flows.
B) express a qualified opinion on the financial statements because of a client-imposed scope limitation.
C) withdraw from the engagement and refuse to be associated with the financial statements.
D) specifically state that the financial statements are not comparable to the prior year because of an uncertainty.

E) A) and D)
F) B) and C)

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Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?


A) Required supplementary information is omitted or departs materially from the requirement of the applicable financial reporting framework.
B) Lack of comparability in the financial statements due to accounting changes.
C) Going concern.
D) Opinion based in part on the report of another auditor.

E) A) and D)
F) B) and C)

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The following four situations require a modification to the standard unqualified audit report for public companies. Identify the modification required for each. a. Opinion based in part on the report of another auditor. b. Going concern. c. Lack of comparability. d. Emphasize a matter.

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a. This situation results in a modificat...

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A scope limitation sufficient to preclude an unqualified opinion always will result when management:


A) prevents the auditor from reviewing the working papers of the predecessor auditor.
B) engages the auditor after the year-end physical inventory is completed.
C) requests that certain material accounts receivable not be confirmed.
D) refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.

E) A) and B)
F) All of the above

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When audited financial statements are presented in a document containing other information, the auditor:


A) has an obligation to perform auditing procedures to corroborate the other information.
B) is required to issue an "except for" qualified opinion if the other information has a material misstatement of fact.
C) should read the other information to consider whether it is inconsistent with the audited financial statements.
D) has no responsibility for the other information because it is not part of the basic financial statements.

E) A) and D)
F) C) and D)

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Discuss the new enhancements implemented by the new PCAOB reporting standards for "listed" (public)entities.

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• The Opinion section of the report is n...

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An auditor may reasonably issue an "except for" qualified opinion for:


A) a scope limitation or an unjustified accounting change.
B) a scope limitation, but not an unjustified accounting change.
C) an unjustified accounting change, but not a scope limitation.
D) neither an unjustified accounting change nor a scope limitation.

E) All of the above
F) B) and C)

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A scope limitation results from an inability to obtain sufficient appropriate evidence about some component of the financial statements.

A) True
B) False

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Auditing standards define special purpose financial statements as including those prepared under the following basis(es) :


A) regulatory basis.
B) tax basis.
C) contractual basis.
D) regulatory basis, tax basis, and contractual basis.

E) B) and D)
F) A) and D)

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Changes that affect comparability but that do not involve a change in accounting principle or the correction of a misstatement are normally disclosed in the footnotes but do not require an explanatory paragraph in the audit report.

A) True
B) False

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An opinion based in part on the report of another auditor requires an explanatory/emphasis-of-matter paragraph be added to the standard unqualified audit report.

A) True
B) False

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When an auditor reports on financial statements prepared according to a special purpose framework, the auditor's report should:


A) have an explanatory paragraph added after the opinion paragraph to describe the framework.
B) disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
C) not express an opinion on whether the statements are presented in conformity with the basis of accounting used.
D) include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.

E) None of the above
F) A) and B)

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Jeff Johns is a staff accountant and has been assigned to the audit of Worldwide Enterprises, Inc. Subsequent to the completion of fieldwork; Jeff was assigned to draft the audit report. The content of one of the paragraphs he has drafted reads as follows: As explained in Note 2 to the financial statements, Worldwide Enterprises has charged goodwill and certain other intangible assets acquired in two separate acquisitions directly to shareholders' equity. Under generally accepted accounting principles, these intangibles should have been recorded as assets and amortized to income over future periods. Had these intangibles been capitalized, total assets would have increased by $400,000 as of December 31, 2011 and net income and earnings per share would be increased by $380,000 and $2.25, respectively (assuming a 20-year amortization period). a. Based on the contents of the paragraph above, which condition requiring a departure from a standard unqualified opinion exists in the engagement? b. Assuming that the engagement partner agrees with the paragraph Jeff has prepared above, where in the auditor's report should the paragraph be placed? c. How would the materiality of the condition above affect the final choice of opinion?

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a. The paragraph indicates a departure f...

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When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the entity's financial statement?


A) When the independent auditor with sufficient appropriate evidence believes the financial statements are not prepared in accordance with GAAP.
B) When the auditor was unable to observe the taking of the physical inventory.
C) When the auditor is not independent.
D) When the auditor has performed insufficient auditing procedures to express an opinion.

E) B) and C)
F) C) and D)

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If a public company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(n) :


A) disclaimer of opinion.
B) qualified opinion.
C) review report.
D) unqualified opinion with a separate explanatory paragraph.

E) A) and C)
F) None of the above

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Other bases of accounting (special purpose frameworks) include all of the following except:


A) tax basis.
B) non-GAAP methods used for internal reporting.
C) cash basis.
D) regulatory basis.

E) B) and C)
F) A) and D)

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When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented, the successor auditor should make:


A) no reference to the predecessor auditor.
B) reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion.
C) reference to the predecessor auditor only if the predecessor auditor expressed an unqualified opinion.
D) reference to the predecessor auditor in an explanatory paragraph regardless of the type of opinion expressed by the predecessor auditor.

E) A) and B)
F) C) and D)

Correct Answer

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In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:


A) issues an unqualified opinion on the consolidated financial statements.
B) learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.
C) is unable to review the other CPA's audit programs and working papers.
D) is satisfied as to the other CPA's independence and professional reputation.

E) B) and C)
F) A) and C)

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