ACCT 4240 - EXAM 2 REVIEW UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
1. A report that acknowledges reliance on the reports of
component auditors is a type of report modification
known as a(n)
a. division of responsibility.
b. expansion of scope.
c. qualification.
d. scope limitations.
Answer:
a. division of responsibility.
Question:
2. When auditors conclude that a material and pervasive
departure from GAAP exists in an entity's financial
statements, which of the following phrases would most
likely be included in their report?
a. "Except for the effects of the matter described in the
Basis for Qualified Opinion Section of our report..."
b. "We were engaged to audit the accompanying
financial statements."
c. "As a result of the departures discussed in the Opinion
Section of our report..."
d. "Do not present fairly."
Answer:
d. "Do not present fairly."
Question:
3. Independent auditors must consider whether the entity
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, the
auditors would normally:
a. disclaim an opinion.
b. express an adverse opinion.
c. express an unmodified opinion with an additional
section describing the going-concern uncertainty.
d. qualify the opinion.
Answer:
c. express an unmodified opinion with an additional section describing the going-
concern uncertainty.
, Question:
4. When audited financial statements are presented in a
document containing other information, the auditors
should:
a. add an emphasis-of-matter paragraph describing the
other information to the auditors' report without
modifying the opinion on the financial statements.
b. perform inquiry and analytical procedures to ascertain
whether the other information is reasonable.
c. perform the appropriate substantive procedures to
corroborate the other information.
d. read the other information to determine that it is
consistent with the audited financial statements.
Answer:
d. read the other information to determine that it is consistent with the audited
financial statements.
Question:
5. An auditor assesses the risk of material misstatement
because it:
a. indicates to the auditor where inherent risk may be the
greatest.
b. affects the level of detection risk that the auditor may
accept.
c. provides assurance that the auditor's overall materiality
levels are appropriate.
d. is relevant to the auditor's understanding of the control
environment.
Answer:
b. affects the level of detection risk that the auditor may accept.
Question:
6. Inherent risk and control risk differ from detection risk in
which of the following ways?
a. Inherent risk and control risk exist independently of the
audit.
b. Inherent risk and control risk are controlled by the
auditor.
c. Inherent risk and control risk are calculated by the
client.
d. Inherent risk and control risk exist as a result of the
auditor's judgment about materiality.
Answer:
a. Inherent risk and control risk exist independently of the audit.
QUESTIONS AND CORRECT ANSWERS
Question:
1. A report that acknowledges reliance on the reports of
component auditors is a type of report modification
known as a(n)
a. division of responsibility.
b. expansion of scope.
c. qualification.
d. scope limitations.
Answer:
a. division of responsibility.
Question:
2. When auditors conclude that a material and pervasive
departure from GAAP exists in an entity's financial
statements, which of the following phrases would most
likely be included in their report?
a. "Except for the effects of the matter described in the
Basis for Qualified Opinion Section of our report..."
b. "We were engaged to audit the accompanying
financial statements."
c. "As a result of the departures discussed in the Opinion
Section of our report..."
d. "Do not present fairly."
Answer:
d. "Do not present fairly."
Question:
3. Independent auditors must consider whether the entity
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, the
auditors would normally:
a. disclaim an opinion.
b. express an adverse opinion.
c. express an unmodified opinion with an additional
section describing the going-concern uncertainty.
d. qualify the opinion.
Answer:
c. express an unmodified opinion with an additional section describing the going-
concern uncertainty.
, Question:
4. When audited financial statements are presented in a
document containing other information, the auditors
should:
a. add an emphasis-of-matter paragraph describing the
other information to the auditors' report without
modifying the opinion on the financial statements.
b. perform inquiry and analytical procedures to ascertain
whether the other information is reasonable.
c. perform the appropriate substantive procedures to
corroborate the other information.
d. read the other information to determine that it is
consistent with the audited financial statements.
Answer:
d. read the other information to determine that it is consistent with the audited
financial statements.
Question:
5. An auditor assesses the risk of material misstatement
because it:
a. indicates to the auditor where inherent risk may be the
greatest.
b. affects the level of detection risk that the auditor may
accept.
c. provides assurance that the auditor's overall materiality
levels are appropriate.
d. is relevant to the auditor's understanding of the control
environment.
Answer:
b. affects the level of detection risk that the auditor may accept.
Question:
6. Inherent risk and control risk differ from detection risk in
which of the following ways?
a. Inherent risk and control risk exist independently of the
audit.
b. Inherent risk and control risk are controlled by the
auditor.
c. Inherent risk and control risk are calculated by the
client.
d. Inherent risk and control risk exist as a result of the
auditor's judgment about materiality.
Answer:
a. Inherent risk and control risk exist independently of the audit.
