Deck 15: Reporting on the Audit

Question 1

To provide limited assurance, the CPA must perform procedures to gather evidence that no material modifications are needed for the financial statements to be in accordance with the financial reporting framework.

Answer 1

True

Question 2

Characteristics of a pervasive misstatement or scope limitation include that is it not confined to specific elements, accounts, or items of the financial statements.

Answer 2

True

Question 3

In a compilation engagement, the CPA will assist management in the presentation of financial statements and will provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.

Answer 3

False

Question 4

An unmodified opinion is expressed by_______.

A)the internal audit function upon concluding the financial statements are fairly represented
B)the external auditor when the auditor concludes the financial statements are presented fairly, in all material respects
C)the external auditor when the auditor concludes the financial statements are presented fairly, in all material and immaterial respects
D)management when the auditor concludes the financial statements are presented fairly, in all material respects

Question 5

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.

Question 6

Adverse opinions on the effectiveness of internal control over financial reporting (ICFR) are frequently issued for large, well-established companies.

Question 7

The auditor's report can be in writing or it can be expressed orally.

Question 8

The responsibility for the financial statements rests_______.

A)jointly with the auditor and management
B)solely with management
C)with the internal audit function
D)solely with the external auditor

Question 9

An emphasis of matter paragraph is mandatory for all audit reports.

Question 10

A scope limitation occurs when auditors are able to perform planned audit procedures to gather sufficient appropriate evidence.

Question 11

Companies typically present their financial statements in comparative form, which means showing two consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity.

Question 12

An immaterial misstatement occurs when the client departs from the applicable financial reporting framework.

Question 13

Whether auditors choose to dual date or extend the end of fieldwork, they must request written representation from management as of the new date of the auditor's report.

Question 14

A component auditor, which is a different accounting firm, may audit a component or subsidiary of the parent company.

Question 15

Auditors of public companies can perform an integrated audit, which means performing the financial statement audit and the audit of the effectiveness of the internal control over financial reporting (ICFR) at the same time.

Question 16

If the client has a going concern issue, then management must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation.

Question 17

The concept of materiality is NOT an important factor in determining which type of modified report to issue.

Question 18

If the subsidiary 's financial statements audited by the component auditor is a material amount of the group financial statements, the group engagement partner typically decides to reference the work completed by the component auditor in the audit report.

Question 19

The auditor should consider modifying the opinion if the management refuses to sign the updated representation letter.

Question 20

An unmodified opinion is expressed by the auditor when the auditor concludes the financial statements are presented fairly, in all material respects.

Question 21

Companies typically present their financial statements _______.

A)to show the most recent year only
B)in comparative form, which means showing two consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity
C)in standard form, which means showing three consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity
D)only to those entities who have expressed an interest in scrutinizing them

Question 22

AU-C 700 Forming an Opinion and Reporting on Financial Statements defines an unmodified opinion as the opinion expressed by the_______.

A)internal auditor when the auditor concludes the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework
B)external auditor when the auditor concludes the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework
C)external auditor when the auditor concludes the financial statements are presented fairly, in all material and immaterial respects, in accordance with the applicable financial reporting framework
D)external auditor when the auditor concludes the financial statements are presented fairly, in all material respects, in accordance with the international financial reporting standards

Question 23

The audit process _______.

A)enhances the degree of confidence that intended users place in the financial statements
B)has no effect on the degree of confidence that intended users place in the financial statements
C)decreases the degree of confidence that intended users place in the financial statements
D)is unrelated to the degree of confidence that intended users place in the financial statements

Question 24

Which of the following is NOT a component of unmodified opinion for a private company audit?

A)Auditor tenure
B)Title
C)Opinion paragraph
D)Introductory paragraph

Question 25

An unmodified auditor's report is _______.

A)an indication that a firm is financially successful
B)an indicator that the firm's stock price may be about to drop
C)not an indication the company is successful financially, but rather an indication the company has followed accounting standards as dictated by the applicable financial reporting framework
D)an indication the company is successful financially, but not an indication the company has followed accounting standards as dictated by the applicable financial reporting framework

Question 26

The audit process _______.

A)can typically take up to a year
B)is aimed primarily at creditors
C)enhances the degree of confidence that intended users place in the financial statements
D)decreases the degree of confidence that intended users place in the financial statements

Question 27

Audit reports tend to be _______.

A)very different, depending on the company being audited
B)fairly standard with respect to wording and paragraphs
C)standard for companies within an industry, but varying between industries
D)very different, with respect to wording and paragraphs

Question 28

In the audit report, the auditor states that another party is responsible for the preparation of the financial statements.This party is _______.

A)the internal auditor
B)the client's legal counsel
C)management
D)the SEC

Question 29

Showing comparative financial statements helps users _______.

A)to calculate a definite future stock price
B)to analyze the company's financial condition and profitability
C)spot potential problems in the most recent years note disclosures
D)understand the difference between basic and diluted earnings per share

Question 30

If the client has a going concern issue, _______.

A)then management must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation
B)then the internal auditors must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation
C)then the external auditors must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation
D)the auditor should recommend that management begin the liquidation process to dissolve the firm

Question 31

An emphasis-of-matter paragraph refers to when an auditor_______.

A)issues an unmodified opinion but may include an additional paragraph in the report to draw attention to important information
B)issues a disclaimer of opinion due to a scope limitation
C)makes inquiries of the prior auditor relating to prior audit opinions issues
D)makes inquiries of the legal auditor relating to prior audit opinions issues

Question 32

If an auditor wishes to draw attention to important information that is already presented or disclosed in the financial statements, the auditor would include a _______.

A)qualified opinion
B)disclaimer of opinion
C)emphasis-of-matter paragraph
D)scope limitation paragraph

Question 33

The audit report represents the _______.

A)beginning of the audit process
B)"end product" of the financial statement audit
C)"end product" of the internal audit review and audit
D)opinion of management with respect to the fairness and accuracy of the financial statements

Question 34

When a client has a going concern issue, _______.

A)AU-C 570 The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern requires an emphasis-of-matter paragraph be added to the unmodified report, after the opinion paragraph
B)AU-C 570 The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern requires an emphasis-of-matter paragraph be added to the unmodified report, before the opinion paragraph
C)the auditor must notify the Securities and Exchange Commission (SEC) within ten business days
D)the auditor should recommend a potential acquirer

Question 35

A/an _______ is presented by the auditor to indicate that the financial statements are in accordance with the applicable financial reporting framework.

A)unmodified opinion
B)modified opinion
C)unqualified opinion
D)audit opinion

Question 36

With respect to management's disclosure required for going concern issues, _______.

A)if management determines that the disclosure is fairly presented in accordance with the applicable financial reporting framework, then an unmodified auditor's report can still be issued
B)if auditors determine that the disclosure is fairly presented in accordance with the applicable financial reporting framework, then an unmodified auditor's report can still be issued
C)the auditor should advise management that they are now unable to issue an unmodified audit opinion
D)the auditor should advise management that they are now unable to issue a modified audit opinion

Question 37

The auditor's responsibility, as expressly stated in the audit report, is to _______.

A)express an opinion on the financial statements
B)take responsibility for the financial statements
C)make it clear that responsibility for the financial statements rests with the internal audit function
D)make it clear that responsibility for the financial statements rests with the client's legal counsel

Question 38

Once auditors have gathered sufficient appropriate audit evidence, evaluated uncorrected misstatements, and completed the required communications with those charged with governance _______.

A)the final step is to prepare and issue the independent auditor's report
B)the final step is to confer with the client's legal counsel
C)the audit report should be sent to the internal audit function for review
D)the report should be sent to the SEC for modification and approval

Question 39

The emphasis-of-matter paragraph is _______.

A)placed after the opinion paragraph in the standard unmodified report.
B)placed before the opinion paragraph in the standard unmodified report.
C)placed with the opinion paragraph in the standard unmodified report.
D)referred to in a separate report

Question 40

The purpose of an audit is to _______.

A)provide financial statement users with an opinion by an independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework
B)provide internal auditors with an opinion by the external auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework
C)provide absolute assurance that the financial statements conform to Generally Accepted Accounting Principles (GAAP)
D)help management ensure yearly bonuses will be received

Question 41

A key factor in determining which type of modified report to issue is _______.

A)objectivity
B)independence
C)materiality
D)existence

Question 42

When is a disclaimer of opinion issued?

A)When a scope limitation is material and pervasive
B)When a scope limitation is materia l but not pervasive
C)When a misstatement is material and pervasive
D)When scope limitation is eliminated by alternative procedures

Question 43

Companies typically present their financial statements in comparative form, which means showing ______.

A)three consecutive years of balance sheets and four consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity
B)two consecutive years of balance sheets and two consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity
C)the last fiscal year's balance sheet income statement, statement of cash flows, and statement of stockholders' equity
D)two consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity.

Question 44

The group engagement team _______.

A)audits the parent company and is responsible for the overall audit strategy for all of the components
B)audits the subsidiary company and is responsible for the overall audit strategy for all of the components
C)has no responsibility for issuing an audit opinion
D)is responsible for the fairness of the financial statements

Question 45

Engagement of a component auditor requires an emphasis-of-a-matter paragraph?

Question 46

When reference is made to a component auditor, _______.

A)the auditor's responsibility paragraph is modified to indicate the portion of the group financial statements that were audited by the component auditor
B)the auditor's responsibility paragraph is removed, and reference is made to the group financial statements that were audited by the component auditor
C)liability for the fairness of the financial statements is transferred accordingly
D)inherent risk will decrease accordingly

Question 47

Which of the following is NOT a situation in which the auditor wants to draw users' attention to a material matter that is already presented and/or disclosed in the client's financial statements?

A)A major disaster that may not have a significant impact on the company's financial situation
B)Uncertainties relating to the future outcome of litigation
C)Significant subsequent events
D)Material transactions with related parties

Question 48

The group engagement partner _______.

A)shares joint responsibility with management for the fairness and accuracy of the financial statements
B)has sole responsibility for the fairness and accuracy of the financial statements
C)must decide whether to refer to the audit of a component auditor in the auditor's report on the group financial statements
D)must decide whether to refer to the audit of a prior auditor in the auditor's report on the group financial statements

Question 49

A component auditor is typically_______.

A)another audit partner in the same office
B)a different partner at a different office of the same firm
C)a different accounting firm that audits a component or subsidiary of the parent company
D)a different accounting firm that audits a component of the subsidiary company

Question 50

If more than one component auditor was used to audit multiple subsidiaries, _______.

A)then the audit report should not be relied upon
B)then the portion of the client audited by all component auditors can be aggregated together and expressed as one-dollar amount or percentage
C)then the portion of the client audited by all prior auditors can be aggregated together and expressed as one-dollar amount or percentage
D)control risk will increase accordingly

Question 51

The group engagement partner typically decides to reference the work completed by the component auditor in the audit report _______.

A)when management requests that the audit firm do so
B)when the subsidiary audited by the component auditor is a material amount of the group financial statements
C)when the subsidiary audited by the component auditor is an immaterial amount of the group financial statements
D)when the group auditor requests the inclusion of their firm on the audit report

Question 52

An auditor issues a modified audit opinion when the auditor _______.

A)concludes the financial statements are not presented fairly in accordance with the applicable financial reporting framework because of one or more material misstatements
B)concludes the financial statements are not presented fairly in accordance with the applicable financial reporting framework because of one or more immaterial misstatements
C)is able to gather sufficient appropriate audit evidence to draw a conclusion as to the fair presentation of the financial statements
D)is not able to gather sufficient appropriate audit evidence to draw a conclusion about the unfair presentation of the financial statements

Question 53

If the group engagement partner wants to name the component audit firm, then_______.

A)he/she must receive permission from the component auditor, and the component auditor's report on the subsidiary must be presented together with the auditor's report on the group financial statements
B)he/she must receive permission from the component auditor, and the prior auditor's report on the subsidiary must be presented together with the auditor's report on the group financial statements
C)he or she is free to do so
D)management must provide permission accordingly

Question 54

The portion of the consolidated financial statements audited by the component auditor _______.

A)is expressed in dollar amounts only
B)must be expressed in terms of percentages of total assets only
C)can be expressed in dollar amounts or percentages of total assets, total revenues, or other appropriate criteria
D)should not be relied on to the same extent as the group auditor

Question 55

When a client has a going concern issue, .AU-C 570 The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern requires an _______.

A)emphasis-of-matter paragraph be added to the unmodified report, before the opinion paragraph
B)an emphasis-of-matter paragraph be added to the unmodified report, after the opinion paragraph
C)an explanatory paragraph be added to the unmodified report, after the opinion paragraph
D)an explanatory paragraph be added to the unmodified report, before the opinion paragraph

Question 56

Which of the following paragraphs is placed after the opinion paragraph in the standard unmodified report, when applicable?

A)Emphasis-of-matter paragraph
B)Scope paragraph
C)Opinion paragraph
D)Auditor's responsibility paragraph

Question 57

When reference is made to a component auditor, which of the following paragraphs is modified to include the portion of the group financial statements that were audited by the component auditor?

A)Auditor's responsibility paragraph
B)Scope paragraph
C)Going concern paragraph
D)Emphasis-of-the-matter paragraph

Question 58

It is the responsibility of the group engagement partner to_______.

A)ensure the work completed by a component auditor meets the group engagement partner's requirements and standards.
B)ensure the financial statements are free from error
C)ensure the work completed by a prior auditor meets the group engagement partner's requirements and standards
D)notify the appropriate supervisor of fraud being committed at the next level of management up from the individual

Question 59

Which of the following types of auditors perform audits of a component or subsidiary of the parent company?

A)Component auditor
B)Subsidiary auditor
C)Individual auditor
D)Auditing firm

Question 60

Define the emphasis of matter paragraph.

A)A paragraph included in the auditor's report that is required by generally accepted auditing standards or is included at the auditor's discretion.
B)A paragraph that identifies the statements being audited and states the auditor's opinion.
C)A paragraph that states responsibilities and references registration with the Public Company Accounting Oversight Board (PCAOB).
D)A paragraph that briefly explains the process of conducting an audit and that the PCAOB standards were followed.

Question 61

An example of a scenario which would cause the auditors to modify the opinion on internal control would be _______.

A)hiring of a new Chief Operating Officer
B)there is a restriction on the scope of the auditor's work
C)there is a restriction on the scope of the prior auditor's work
D)certain analytical procedures conducted yield expected results

Question 62

The date of the auditor's report should be the _______.

A)same date as the financial statement date
B)date of the completion of fieldwork
C)date the audit report is sent to the SEC for approval
D)date the auditor receives the audit report from the internal auditors

Question 63

With respect to the issuance of an audit report, the level of materiality will determine_______.

A)how much the auditor charges for services rendered
B)which modified opinion should be issued, if any
C)which unmodified opinion should be issued
D)which type of adverse opinion should be issued

Question 64

Dual dating refers to when the auditor _______.

A)shows two dates on the same audit report
B)shows two dates on two different audit reports
C)references last year's audit report concurrently with the current year report
D)also includes the date that the internal control function issued their audit opinion

Question 65

A/an _______ is an event that occurs between the date of the financial statements and the date of the auditor's report.

A)subsequent event
B)dual event date
C)auditor's report event
D)financial event

Question 66

An emphasis-of-matter paragraph in regards to revised financial statements should include _______.

A)the date of the auditor's previous report
B)the type of opinion previously expressed
C)the key reasons for a different opinion, if there are two different opinions
D)all of these answer choices are correct

Question 67

Whether auditors choose to dual date the audit report, or extend the end of fieldwork, _______.

A)their liability with respect to the financial statements remains the same
B)they must request written representation from management as of the new date of the auditor's report
C)they must request written representation from the internal auditors as of the new date of the auditor's report
D)no further representations should be requested of management

Question 68

If a scope limitation is material, _______.

A)auditors cannot state a conclusion without evidence to support the conclusion
B)auditors should state a conclusion even without evidence to support the conclusion
C)it is of no relevance to the financial statements and their users
D)the auditor should immediately withdraw from the engagement

Question 69

A material misstatement occurs when _______.

A)management incorrectly calculate profitability ratios
B)the client departs from the applicable financial reporting framework
C)the client abides with the applicable financial reporting framework
D)the auditor does not receive the agreed upon compensation from the firm

Question 70

If the auditor's opinion on the revised financial statements is different from the previously issued audit report, _______.

A)a disclaimer of opinion should be issued
B)a scope limitation should be issued
C)then an emphasis-of-matter paragraph should be added to the revised audit report after the opinion paragraph.
D)then a management opinion paragraph should be added to the revised audit report after the opinion paragraph

Question 71

Material misstatements discovered during the audit _______.

A)are a basis for the auditor to immediately issue a scope limitation
B)are discussed with the client's legal counsel only, and usually they make the recommended adjustment to correct the misstatement
C)are discussed with management, and usually management makes the recommended adjustment to correct the misstatement
D)require a note disclosure in the financial statements

Question 72

AU-C 560 and AS 2905 state the first step when responding to subsequently discovered facts is to_______.

A)discuss the matter with the appropriate level of management and, if appropriate, those charged with governance
B)discuss the matter with the appropriate level of management rather than those charged with governance
C)issue a disclaimer of opinion, to avoid liability
D)immediately notify the board of directors, and request the internal audit function investigate accordingly

Question 73

Performing audit procedures after the end of fieldwork _______.

A)has no impact on the date of the audit report
B)automatically extends the date of the audit report by 90 days
C)automatically extends the date of the audit report by 30 days
D)impacts the dating of the audit report

Question 74

In regard to subsequent facts, the auditor _______.

A)has no responsibility
B)is responsible for making reasonable efforts to detect any material subsequent facts
C)is responsible for making reasonable efforts to detect any immaterial subsequent facts
D)is only responsible for material events occurring before the balance sheet date

Question 75

If a misstatement is considered material, _______.

A)it should have no bearing on financial statement users and the decisions they make
B)it could affect decisions that users make if the users are made aware of the misstatement
C)it should not affect decisions that users make if the users are made aware of the misstatement
D)an auditor should immediately issue an adverse opinion

Question 76

If the auditor's opinion on the revised financial statements is different from the previously issued audit report, then a/an _______ should be added to the revised audit report.

A)emphasis-of-matter paragraph
B)going concern paragraph
C)auditor's responsibility paragraph
D)opinion paragraph

Question 77

Auditors must use their professional judgment _______.

A)to distinguish if a misstatement or scope limitation is just material or pervasively material
B)to distinguish if a misstatement or scope limitation is just immaterial or pervasively material
C)to determine if the firm has the ability to pay the auditor for services rendered
D)in selecting the client's audit committee

Question 78

If management revises the financial statements due to subsequently discovered facts, auditors should_______.

A)perform no further audit procedures on the changes made by management
B)perform audit procedures on the changes made by management
C)always issue a qualified opinion with respect to the changes
D)issue a scope limitation, even if they are able to audit the changes

Question 79

Characteristics of a pervasive misstatement or scope limitation are as follows:

A)It is not confined to specific elements, accounts, or items of the financial statements
B)If it is confined, it represents or could represent a substantial portion of the financial statements
C)In the context of disclosures, it is fundamental to users' understanding of the financial statements
D)All of these answer choices are correct

Question 80

Whether auditors choose to dual date or extend the end of fieldwork, they must obtain a/an _______ from management.

A)written representation letter
B)management representation letter
C)auditing representation letter
D)auditor's report date letter