If the auditor believes that required disclosures are omitted from the financial statements, the auditor should decide between issuing a(n)

If the auditor believes that required disclosures are omitted from the financial statements, the auditor should decide between issuing a(n)

a. Qualified opinion or an adverse opinion.
b. Disclaimer of opinion or a qualified opinion.
c. Adverse opinion or a disclaimer of opinion.
d. Unqualified opinion or a qualified opinion.








Answer: D

Keller, CPA, was about to issue an unqualified opinion on the financial statements of Lupton Television Broadcasting company when a letter was received from Lupton's independent counsel. The letter stated that the Federal Communications Commission has notified Lupton that its broadcasting license will not be renewed because of alleged irregularities in its broadcasting practices. Lupton cannot continue to operate without the license. Keller has also learned that Lupton and its independent counsel plan to take all necessary legal action to retain the license. The letter from independent counsel, however, states that a favorable outcome of any legal action is highly uncertain. On the basis of this information, what action should Keller take?

Keller, CPA, was about to issue an unqualified opinion on the financial statements of Lupton Television Broadcasting company when a letter was received from Lupton's independent counsel. The letter stated that the Federal Communications Commission has notified Lupton that its broadcasting license will not be renewed because of alleged irregularities in its broadcasting practices. Lupton cannot continue to operate without the license. Keller has also learned that Lupton and its independent counsel plan to take all necessary legal action to retain the license. The letter from independent counsel, however, states that a favorable outcome of any legal action is highly uncertain. On the basis of this information, what action should Keller take?

a. Issue an unqualified opinion, with an explanatory paragraph that describes the matter giving rise to the uncertainty.
b. Issue an unqualified opinion if full disclosure is made of the matter in a note to the financial statements.
c. Issue an adverse opinion and disclose all reasons why.
d. Issue a piecemeal opinion with full disclosure made of the license dispute in a note to the financial statements.












Answer: A

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern. If the entity's disclosures about continued existence are adequate, the audit report may include A Disclaimer of Opinion A qualifed Opinion ----------------------- ------------------

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern. If the entity's disclosures about continued existence are adequate, the audit report may include

A Disclaimer of Opinion A qualifed Opinion
----------------------- ------------------




a. Yes Yes
b. No No
c. No Yes
d. Yes No





Answer: B

When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n)

When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n)

a. Qualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Disclaimer of opinion.
d. Adverse opinion.









Answer: B

An auditor's report that refers to a departure form generally accepted accounting principles includes the language. "In our opinion, with the foregoing explanation, the financial statements referred to above present fairly...." This is a(n)

An auditor's report that refers to a departure form generally accepted accounting principles includes the language. "In our opinion, with the foregoing explanation, the financial statements referred to above present fairly...." This is a(n)

a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph
d. Example of inappropriate reporting.







Answer: D

An explanatory paragraph following an opinion paragraph describes an uncertainty as follows: As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements. What type of opinion should the auditor express in this circumstance?

An explanatory paragraph following an opinion paragraph describes an uncertainty as follows:
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements.
What type of opinion should the auditor express in this circumstance?

a. Unqualified
b. Qualified
c. Disclaimer
d. Adverse








Answer: A

An auditor may issue a qualified opinion for Inadequate Scope Disclosure Limitation

An auditor may issue a qualified opinion for
Inadequate Scope
Disclosure Limitation

---------- ----------




a. Yes Yes
b. Yes No
c. No Yes
d. No No










Answer: A

A principal auditor is satisfied both with the independence and professional reputation of another auditor who audited a subsidiary, but wants to share responsibility with the other auditor in the audit report. The principal auditor should

A principal auditor is satisfied both with the independence and professional reputation of another auditor who audited a subsidiary, but wants to share responsibility with the other auditor in the audit report. The principal auditor should

a. Modify the scope and opinion paragraphs of the report.
b. Modify the introductory and opinion paragraph of thereport.
c. Not modify the report except for including in explanatory paragraph.
d. Modify the opinion paragraph of the report.







Answer: B

An auditor is unable to determine the amounts associated with illegal acts committed by a client. The auditor would most likely issue

An auditor is unable to determine the amounts associated with illegal acts committed by a client. The auditor would most likely issue

a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion.









Answer: A

Does an auditor make the following representations explicitly or implicitly in a standard audit report on comparative financial statements?

Does an auditor make the following representations explicitly or implicitly in a standard audit report on comparative financial statements?

Accounting Application of Examination of Evidence
Accounting Principles on a Test Basis
------------------------- -----------------------




a. Explicitly Explicitly
b. Implicitly Implicitly
c. Implicitly Explicitly
d. Explicitly Implicitly






Answer: C

Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's Ability to continue as a Going Concern," an independent auditor is responsible for

Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's Ability to continue as a Going Concern," an independent auditor is responsible for

a. Predicting whether the entity will be in business one year from the balance sheet date.
b. Evaluating whether there is substantial doubt about the entity's ability to continue as a going concern.
c. Weighing mitigating factors against contrary information about the entity's ability to continue as a going concern.
d. Reporting the entity's ability to continue as a going concern to senior management and to the board of directors.








Answer: B

Which of the following statements indicates a qualified opinion?

Which of the following statements indicates a qualified opinion?

a. The financial statements do not present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP.
b. The auditor does not express an opinion on the financial statements.
c. The financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP.
d. Except for the effects of a matter, the financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP.








Answer: D

An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end client. A significant subsequent event occurred on February 22, 2002. In this case, which of the following report dates would not be appropriate?

An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end client. A significant subsequent event occurred on February 22, 2002. In this case, which of the following report dates would not be appropriate?

a. February 10, 2002.
b. February 10, except Note 1, February 22, 2002.
c. February 22, 2002.
d. December 31, 2001.






Answer: D

An audit report should be dated as of the

An audit report should be dated as of the

a. Date the report is delivered to the entity audited.
b. Date of the last day of fieldwork.
c. Balance sheet date of the latest period reported on.
d. Date a letter of audit inquiry is received from the entity's attorney of record.









Answer: B

In which of the following circumstances would an adverse opinion be appropriate?

In which of the following circumstances would an adverse opinion be appropriate?

a. The auditor is not independent with respect to the enterprise being audited.
b. An uncertainty prevents the issuance of an unqualified report.
c. The statements are not in conformity with authoritative statements regarding accounting for pension plans.
d. A client imposed scope limitation prevents the auditor from complying with generally accepted auditing standards.








Answer: C

An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that the entity being reported on is a subsidiary of another business enterprise. The inclusion of this paragraph

An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that the entity being reported on is a subsidiary of another business enterprise. The inclusion of this paragraph

a. Is appropriate and would not negate the unqualified opinion.
b. Is a qualification.
c. Is a violation of generally accepted reporting standards if this information is disclosed in footnotes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."








Answer: A

Under which of the following sets of circumstances might an auditor disclaim an opinion?

Under which of the following sets of circumstances might an auditor disclaim an opinion?

a. The financial statements contain a departure from GAAP, the effect of which is material.
b. The principal auditor decides to make reference to the report of another auditor who audited a subsidiary.
c. There has been a material change between periods in the method of the application of accounting principles.
d. There were significant limitations on the scope of the audit.









Answer: D

Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in, first-out method to value the other half. Assuming the auditor is satisfied in all other respects, under these circumstances the auditor will issue a(n)

Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in, first-out method to value the other half. Assuming the auditor is satisfied in all other respects, under these circumstances the auditor will issue a(n)

a. Opinion modified due to inconsistency.
b. Unqualified opinion with an explanatory middle paragraph.
c. Qualified or adverse opinion, depending on materiality.
d. Unqualified opinion.






Answer: D

An auditor's standard report expressed an unqualified opinion and includes an explanatory paragraph that emphasizes a matter included in the notes to the financial statements. The auditor's report would be deficient if the explanatory paragraph states that the entity

An auditor's standard report expressed an unqualified opinion and includes an explanatory paragraph that emphasizes a matter included in the notes to the financial statements. The auditor's report would be deficient if the explanatory paragraph states that the entity

a. Is a component at a larger business enterprise.
b. Has changed from the completed contract method to the percentage of completion method to account for long term construction contracts.
c. Has had a significant subsequent event.
d. Has accounting reclassifications that enhance the comparability between years.







Answer: B

When comparative financial statements are presented, the fourth reporting standard, which refers to financial statements "taken as a whole", should be considered to apply to the financial statements of the

When comparative financial statements are presented, the fourth reporting standard, which refers to financial statements "taken as a whole", should be considered to apply to the financial statements of the

a. Periods presented plus one preceding period.
b. Current period only.
c. Current period and those of the other periods presented.
d. Current and immediately preceding period only.








Answer: C