AU 60 Final Exam: Audit Reports, Ethics, Risk & Evidence Q&A

AU 60 Final Exam Test Qs COMPLETE QUESTIONS AND
ANSWERS | ALREADY PASSED | 2026 LATEST
Section 1: Audit Reports & Opinions
Q1: An auditor concludes that there is substantial doubt about an entity's ability
to continue as a going concern for a reasonable period of time. If the financial
statements adequately disclose the material uncertainties, the auditor should
issue:
A) An unmodified opinion with an Emphasis-of-Matter (EOM) paragraph.
B) A qualified opinion with a Basis for Qualified Opinion paragraph.
C) An adverse opinion.
D) A disclaimer of opinion.
CORRECT ANSWER>: A) An unmodified opinion with an Emphasis-of-Matter (EOM)
paragraph.
Rationale: If the going concern uncertainties are properly disclosed in the
footnotes, the financial statements are in accordance with the applicable
reporting framework. The auditor issues an unmodified opinion but adds an
Emphasis-of-Matter paragraph to draw users' attention to the disclosure.


Q2: Under which of the following circumstances would an auditor issue an
adverse opinion?
A) The auditor is unable to obtain sufficient appropriate audit evidence regarding
a material account balance.
B) The financial statements are materially and pervasively misstated.
C) The financial statements are materially misstated, but the misstatements are
confined to a single, isolated account balance.
D) The auditor lacks independence from the audit client.

,CORRECT ANSWER>: B) The financial statements are materially and pervasively
misstated.
Rationale: An adverse opinion is issued when misstatements are both material
and pervasive (meaning they affect many items in the financial statements). If
misstatements are material but not pervasive, a qualified opinion is issued. If the
scope limitation is material and pervasive, a disclaimer is issued.


Q3: When a material inconsistency exists between the audited financial
statements and the "Other Information" (e.g., Management's Discussion and
Analysis) included in the annual report, and the auditor concludes the Other
Information needs to be revised but management refuses, the auditor should:
A) Withhold the audit report until the Other Information is revised.
B) Issue an adverse opinion on the financial statements.
C) Communicate the unresolved material inconsistency to those charged with
governance and include an Other Matter paragraph in the auditor's report.
D) Resign from the engagement immediately.
CORRECT ANSWER>: C) Communicate the unresolved material inconsistency to
those charged with governance and include an Other Matter paragraph in the
auditor's report.
Rationale: The auditor's opinion is on the financial statements, not the Other
Information. If the Other Information is materially inconsistent and management
refuses to correct it, the auditor cannot issue an adverse opinion on the financials.
Instead, they notify those charged with governance and add an Other Matter
paragraph to alert users of the inconsistency.


Section 2: Professional Ethics & Independence

, Q4: Which of the following threats to independence is created when an audit firm
depends on a single client for a significant percentage of its total revenue (e.g.,
25%)?
A) Self-review threat
B) Advocacy threat
C) Familiarity threat
D) Adverse interest threat
CORRECT ANSWER>: C) Familiarity threat (Note: High fee dependency can also be
classified as an "Intimidation threat" or a "Self-interest threat" depending on the
specific framework, but under the AICPA conceptual framework, undue
dependence on a client creates a familiarity/self-interest threat to independence).
Correction for exact AICPA terminology: High fee dependence is typically classified
under the Self-Interest Threat, but let's use the most precise AICPA term for the
situation.
Revised Q4: Which of the following non-audit services, if performed by a CPA firm
for an attest client, would create a "Self-Review" threat to independence?
A) Tax planning and tax return preparation for the client's executives.
B) Maintaining custody of the client's investment securities.
C) Valuation services where the results are material to the financial statements.
D) Acting as a fiduciary for the client's employee benefit plan.
CORRECT ANSWER>: C) Valuation services where the results are material to the
financial statements.
Rationale: Preparing a valuation that is then audited by the same firm creates a
self-review threat because the firm is essentially auditing its own work. Tax return
prep (with safeguards) is generally permitted. Custody of assets and acting as a
fiduciary are prohibited non-audit services (creating advocacy or management
participation threats).