Deck 3: Reports on Audited Financial Statements and Audited Internal Controlt

Question 1

A scope limitation imposed by a client would result in an adverse opinion.

Answer 1

False

Question 2

Which level of assurance is provided by a public accountant as a result of an audit?

A)Complete assurance.
B)Moderate assurance.
C)Negative assurance.
D)Positive assurance.

Answer 2

D

Question 3

Levels of assurance refer to

A)The nature of the work performed and the conclusions auditors can render about financial statements.
B)Generally accepted auditing standards.
C)Qualifications, modifications, expansions.
D)Changes in the language of the audit report.

Answer 3

A

Question 4

When an adverse opinion is given all the substantive reasons for the opinion must be disclosed in the report in explanatory paragraphs.

Question 5

Auditors cannot give negative assurance in an audit report.

Question 6

Without the public accountant's knowledge or consent, the enterprise indicates that the PA
Was involved with information issued by them.

A)The PA has no responsibilities with respect to the information.
B)The PA should issue an opinion on the information.
C)The PA is not associated with the information.
D)The PA is associated with the information.

Question 7

In which of the following circumstances is a public accountant considered associated with a company's financial information.

A)The PA is a former employee of the company and prepared the statements.
B)Financial statements are reproduced on the PA's letterhead.
C)The PA is engaged by the company's auditors to do limited procedures in a remote location.
D)The PA is married to the company's Chief Financial Officer.

Question 8

Securities commissions such as the Ontario Security Commission allow public companies to file of financial statements that are not in accordance with GAAP as long as the auditor explains the departure in the audit report.

Question 9

By its silence, a clean opinion implies that the financial statement disclosures are reasonably adequate.

Question 10

The words "except for" should be used in the scope paragraph only if there is a reservation resulting in a disclaimer of opinion or a scope qualification.

Question 11

The standard audit report must always refer to consistency of accounting principles.

Question 12

When significant uncertainties exist the auditor must modify the opinion paragraph of the standard audit report.

Question 13

Auditing standards require that an appropriate communication be issued in all cases where an accountant's name is associated with financial information.

Question 14

When there is material uncertainty about an auditee's ability to continue as a going concern is doubtful, and the issue has been fully disclosed in the notes to the financial statements, the auditor should issue a qualified report with a paragraph drawing attention to the going concern issue.

Question 15

An accountant becomes associated with financial statements when they sign them as the
Chief Financial Officer

Question 16

Under which of the following circumstances does an accountant become associated with a financial report?

A)The accountant works for the enterprise which issues the report.
B)The accountant sits on the board of directors of the enterprise which issues the report.
C)The enterprise indicates that the accountant audited or reviewed the information included in the report.
D)The report is does not mention that the accountant prepared or performed other services with respect to the information.

Question 17

Which level of assurance requires PA to gather the most evidence?

A)Audit
B)Review
C)Examination
D)Compilation

Question 18

Many users interpret audit reports based on the number of paragraphs.In a standard audit report on financial statements, how many paragraphs are there?

A)Three paragraphs.
B)Four paragraphs.
C)Five paragraphs
D)Six paragraphs

Question 19

When the auditor is not independent, a GAAP departure qualification is required.

Question 20

All modifications to the standard unqualified audit report are called qualifications.

Question 21

Management has decided that the life of a piece of heavy equipment should be decreased from 15 years to 10 years thus increasing the annual amortization.The auditor agrees that this amortization period is more reflective of the nature of the asset.The type of audit report that should be issued is:

A)Unqualified.
B)Qualified.
C)Adverse.
D)Disclaimer.

Question 22

"The company has not made an allowance for bad debts for an account deemed uncollectible in the amount of $250,000 as of the year ended December 31, 2001..." is an example of a

A)GAAP change requiring a qualified opinion.
B)Scope limitation.
C)Departure from GAAP.
D)Report with a disclaimer of opinion.

Question 23

An auditor most likely would issue a disclaimer of opinion because of

A)Inadequate disclosure of material information.
B)The omission of the statement of cash flows.
C)A material departure from generally accepted accounting principles.
D)Management's refusal to furnish written representations.

Question 24

A holding company has decided to carry its wholly owned subsidiary companies in the balance sheet using the equity method.The type of audit report required is

A)Unqualified.
B)Qualified.
C)Adverse.
D)Disclaimer.

Question 25

An auditor who is reporting on financial statements that contain a material departure from generally accepted accounting principles should include a separate explanatory paragraph and

A)Express a qualified or adverse opinion.
B)Not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote.
C)Deny an opinion on the financial statements.
D)Express a qualified opinion or deny an opinion.

Question 26

Restrictions imposed by a client prohibited the observation of physical inventories that account for 35% of total assets.Alternative audit procedures for inventory were not feasible, although the auditor was able to obtain satisfactory evidence for all other items in the financial statements.The auditor should express

A)An "except for" qualified opinion referring to a departure from generally accepted accounting principles.
B)A disclaimer of opinion.
C)An unqualified opinion with a separate explanatory paragraph.
D)An unqualified opinion with an explanation in the scope paragraph.

Question 27

Under which of the following circumstances would a disclaimer of opinion be appropriate?

A)The client refuses to allow the auditor to review the minutes of the Board of Director's meetings.
B)The financial statements fail to contain adequate disclosure of related party transactions.
C)The auditor is engaged during the year and is unable to observe opening physical inventories which are material.
D)The auditor has identified illegal payments to foreign officials made by the client's management.

Question 28

An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client.The auditor believed that an adjustment should be made to the financial statements.The opinion paragraph of the audit report should express

A)An unqualified opinion.
B)An "except for" opinion citing a departure from generally accepted accounting principles.
C)An "except for" opinion citing a scope limitation.
D)A disclaimer of opinion.

Question 29

A disclaimer of opinion generally indicates

A)The auditor is very uncertain with respect to an item and cannot form an opinion on the fairness of presentation of the financial statements as a whole.
B)Because of a lack of evidence the auditor is uncertain with respect to an isolated item that is material but not so material that the auditor cannot form an opinion on the fairness of presentation of the financial statements as a whole.
C)The auditor has observed a departure from generally accepted accounting principles that
D)The auditor has observed a departure from generally accepted accounting principles that is so material that a qualified opinion is not justified.

Question 30

If financial statements contain a very material departure from GAAP such that the financial statements are virtually useless, the auditor can render a (an)

A)Qualified "except for" opinion with reference to the departure.
B)Adverse opinion with scope limitation reference.
C)Adverse opinion with reference to the departure.
D)Disclaimer of opinion.

Question 31

Green, CPA, was engaged to audit the financial statements of Essex Co.after its fiscal
Year had ended.The timing of Green's appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtors impracticable.Green applied other procedures and was satisfied as to the reasonableness of the account balances.Green's auditor's report most likely contained a (an)

A)Unqualified opinion.
B)Unqualified opinion with an explanatory paragraph.
C)Qualified opinion due to a scope limitation.
D)Qualified opinion due to a departure from generally accepted auditing standards.

Question 32

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

A)The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
B)The financial statements fail to disclose information that is required by generally accepted accounting principles.
C)The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
D)Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

Question 33

What is the best description of the basis on which an auditor issues her report on financial statements?

A)Reporting standards.
B)Sufficiency and appropriateness of evidence.
C)Application of GAAP.
D)Integrity of management.

Question 34

In which of the following circumstances may the auditor issue the standard unqualified, unmodified audit report?

A)The client disclosed a change in accounting principles with an immaterial effect on financial position and results of operations.
B)The financial statements do not disclose significant going concern issues.
C)The financial statements do not disclose a justified departure from generally accepted accounting principles.
D)The auditor has not been able to audit a substantial portion of the balance sheet because of circumstances beyond anyone's control.

Question 35

CA has been engaged to audit the financial statements of Marchano Ltd., a manufacturer of toys.Several individuals are suing the company because of a toy that injured children.The company has not disclosed the lawsuit in its financial statements.The type of audit report issued should be:

A)Adverse.
B)A GAAP qualification.
C)A scope qualification.
D)Disclaimer or denial

Question 36

When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a (an)

A)Disclaimer of opinion.
B)"Except for" qualified opinion regarding a departure from generally accepted accounting principles.
C)Unqualified opinion with a separate explanatory paragraph.
D)Adverse opinion.

Question 37

An auditor decided to issue a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevented the auditor from applying necessary procedures.The opinion paragraph of the auditor's report should state that the qualification pertains to

A)A GAAP departure.
B)A departure from generally accepted auditing standards.
C)The possible effect of the lack of audit evidence on the financial statements.
D)Inadequate disclosure of necessary information.

Question 38

An auditor will issue an adverse opinion when

A)A severe scope limitation has been imposed by the client.
B)A violation of GAAP is sufficiently material that a qualified opinion is not justified.
C)A qualified opinion cannot be rendered because the auditor lacks independence.
D)The company's ability to continue as a going concern is subject to substantial doubt.

Question 39

In which of the following circumstances is an auditor most likely to express an adverse opinion?

A)The chief executive officer refuses the auditor access to minutes of board of directors' meetings.
B)Tests of controls show that the entity's internal control system is so poor that it cannot be relied upon.
C)The financial statements are not in accordance with the CICA Handbook regarding the capitalization of leases.
D)Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue as a going concern.

Question 40

In Canada, when there has been a change in accounting principles and the effect of the change has been properly disclosed the auditor should

A)Refer to the change in an explanatory paragraph.
B)Explicitly concur that the change is preferred.
C)Issue an unqualified opinion.
D)Refer to the change in the opinion paragraph.

Question 41

An independent auditor must consider whether the auditee has the ability to continue as a going concern.If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, under CICA section 5510, the auditor should

A)Disclaim an opinion.
B)Express an adverse opinion.
C)Qualify the opinion.
D)Express an unqualified opinion.

Question 42

An organization undergoing significant going concern problems presents several challenges for the PA to consider.Discuss some of these.

Question 43

What are the public accountant's responsibilities when he or she is associated with the financial information of a company?

Question 44

What are the three ways that accountants become associated with financial information issued by an enterprise?

Question 45

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

A)Inspecting title documents to verify whether any assets are pledged as collateral.
B)Confirming with third parties the details of arrangements to maintain financial support.
C)Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
D)Comparing the entity's amortization and asset capitalization policies to other entities in the industry.

Question 46

Why must a CA issue a report when associated with financial information?

Question 47

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to

A)Prepare prospective financial information to verify whether management's plans can be effectively implemented.
B)Project future conditions and events for a period of time not to exceed one year following the date of the financial statements.
C)Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.
D)Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.