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Auditing Chapter 3

53 Questions  I  By Kosdaisy
Auditing Chapter 3
Quiz based on Auditing and Assurance Services 14e by Arens

  
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1.  Auditing standards require that the audit report must be titled and that the title must:
A.
B.
C.
D.
2.  To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be:     Company Controller Shareholders Board of Directors
A.
B.
C.
D.
3.  The purpose of the introductory paragraph in the standard unqualified report is:
A.
B.
C.
D.
4.  The scope paragraph of the standard unqualified audit report states that the audit is designed to:
A.
B.
C.
D.
5.  The audit report date on a standard unqualified report indicates:
A.
B.
C.
D.
6.  As a result of management’s refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to conclude whether financial statements are stated in accordance with GAAP. The auditor must depart from the unqualified audit report because:
A.
B.
C.
D.
7.  An adverse opinion is issued when the auditor believes:
A.
B.
C.
D.
8.  If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods, it is appropriate to issue a(n):
A.
B.
C.
D.
9.  Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms?
A.
B.
C.
D.
10.  Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:
A.
B.
C.
D.
11.  A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued.  Normally, such explanatory information is:
A.
B.
C.
D.
12.  An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph. The auditor should also refer to the limitation in the:        Scope                        Opinion                           Notes to the     paragraph                   paragraph                   financial statements
A.
B.
C.
D.
13.  Conditions requiring a departure from an unqualified audit report include all but which of the following?
A.
B.
C.
D.
14.  The introductory paragraph of the standard audit report states that the financial statements are:
A.
B.
C.
D.
15.  The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those statements are:
A.
B.
C.
D.
16.  The audit report indicates that (1) management is responsible for the content of the financial statements and (2) the auditor is responsible for evaluating the appropriateness of the accounting principles chosen by management. Which paragraph contains those statements?
A.
B.
C.
D.
17.  If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to:
A.
B.
C.
D.
18.  A combined report on financial statements and internal control over financial reporting includes all but which of the following types of paragraphs?
A.
B.
C.
D.
19.  Whenever an auditor issues a qualified opinion, the implication is that the auditor:
A.
B.
C.
D.
20.  When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:
A.
B.
C.
D.
21.  If the auditor lacks independence, a disclaimer of opinion must be issued:
A.
B.
C.
D.
22.  Whenever there is a scope restriction, the appropriate response is to issue a(n):
A.
B.
C.
D.
23.  Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?
A.
B.
C.
D.
24.  The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:
A.
B.
C.
D.
25.  When a disclaimer is issued because the auditor lacks independence:
A.
B.
C.
D.
26.  When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n):
A.
B.
C.
D.
27.  Which of the following is not a change that affects consistency and, therefore, does not require an explanatory paragraph?
A.
B.
C.
D.
28.  Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:
A.
B.
C.
D.
29.  When there is uncertainty about a company’s ability to continue as a going concern, the auditor’s concern is the possibility that the client may not be able to continue its operations or meet its obligations for a “reasonable period of time.” For this purpose, a reasonable period of  time is considered not to exceed:
A.
B.
C.
D.
30.  An auditor may not issue a qualified opinion when:
A.
B.
C.
D.
31.  When a company’s financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:
A.
B.
C.
D.
32.  Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion? Conformity                   Adequacy of with GAAP                    disclosure
A.
B.
C.
D.
33.  William Gregory, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Gregory is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor’s examination. With respect to his report on the consolidated financial statements, taken as a whole, Gregory:
A.
B.
C.
D.
34.  A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor’s report on the financial statements of the year of the change should include:
A.
B.
C.
D.
35.  Sarbanes-Oxley requires auditors of a public company to audit a company’s financial statements and attest to management’s report on the effectiveness of internal control over financial reporting. What type of assurance does the auditor provide in this report?
A.
B.
C.
D.
36.  Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:
A.
B.
C.
D.
37.  CPAs issue several types of “special audit reports.” Which of the following circumstances would not require the issuance of a special audit report?
A.
B.
C.
D.
38.  Which of the following is not a primary category of attestation report?
A.
B.
C.
D.
39.  In which of the following situations would the auditor most likely issue an unqualified report?
A.
B.
C.
D.
40.  Which of the following statements is true?
A.
B.
C.
D.
41.  The most common case in which conditions beyond the client’s and auditor’s control cause a scope restriction is an engagement:
A.
B.
C.
D.
42.  When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to:
A.
B.
C.
D.
43.  The “unqualified report with explanatory paragraph” and the “unqualified report with modified wording”:
A.
B.
C.
D.
44.  Which of the following will not cause the auditor to issue a standard unqualified report with an explanatory paragraph or modified wording?
A.
B.
C.
D.
45.  Which of the following is not one of the principal CPA firm’s alternatives when issuing a report if a different CPA firm performed part of the audit?
A.
B.
C.
D.
46.  Which of the following requires recognition in the auditor’s opinion as to consistency?
A.
B.
C.
D.
47.  When an auditor encounters a situation involving more than one of the conditions requiring a departure from a standard unqualified report, the auditor should modify his or her opinion for each condition unless one has the effect of neutralizing the others. In which of the following situations would the auditor not include more than one modification in the report?
A.
B.
C.
D.
48.  Indicate which changes would require an explanatory paragraph in the audit report. Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable       Change from LIFO to FIFO
A.
B.
C.
D.
49.  Indicate which changes would require an explanatory paragraph in the audit report.   Change in the estimated life of an asset   Variation in the format of the financial statements
A.
B.
C.
D.
50.  Indicate which changes would require an explanatory paragraph in the audit report.         The CPA concludes there is substantial doubt about the entity’s ability to continue as a going concern       Change from FIFO to LIFO
A.
B.
C.
D.
51.  Indicate which changes would require an explanatory paragraph in the audit report.         A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion.   The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion.
A.
B.
C.
D.
52.  Indicate which changes would require an explanatory paragraph in the audit report..   The existence of related party transactions   Important events occurring subsequent to the balance sheet date
A.
B.
C.
D.
53.  In which situation would the auditor be choosing between “except for” qualified opinion and an adverse opinion? 
A.
B.
C.
D.
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