ACCT 405 Exam 2 | Actual study |
Questions and verified Answers
Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended
December 31, Year 1. Park obtained sufficient appropriate audit evidence for all of Tech's financial
statement items except Tech's opening inventory. Due to inadequate financial records, Park could not
verify Tech's January 1, Year 1, inventory balances. Park's opinion on Tech's Year 1 financial statements
most likely will be:
Balance Sheet Income Statement
A. Disclaimer Adverse
B. Unmodified Disclaimer
C. Unmodified Adverse
D. Disclaimer Disclaimer - ANSW-Unmodified Disclaimer
A CPA who is associated with the financial statements of an issuer, but has not audited or reviewed such
statements, should
A. Issue a compilation report.
B. Insist that they be audited or reviewed before publication.
C. State these facts in the accompanying notes to the financial statements.
D. Read them to determine whether there are obvious material misstatements. - ANSW-Read them to
determine whether there are obvious material misstatements.
A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result
when management
A. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
B. Refuses to permit its lawyer to respond to the letter of audit inquiry.
C. Knows that confirmation of accounts receivable is not feasible.
D. Discloses material related party transactions in the notes to the financial statements. - ANSW-Refuses
to permit its lawyer to respond to the letter of audit inquiry.
A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result
when management
A. Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
B. Refuses to furnish a management representation letter to the auditor.
,C. Engages the auditor after the year-end physical inventory count is completed.
D. Fails to correct a material internal control weakness that had been identified during the prior year's
audit. - ANSW-Refuses to furnish a management representation letter to the auditor.
If an accountant concludes that unaudited financial statements of an issuer on which the accountant is
disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate
revision. If the client does not accept the accountant's suggestion, the accountant should
A. Refer to the appropriate revision and issue a modified report expressing limited assurance.
B. Express an adverse opinion and describe the appropriate revision in the report.
C. Describe the appropriate revision to the financial statements in the accountant's disclaimer of
opinion.
D. Accept the client's inaction because the statements are unaudited and the accountant has disclaimed
an opinion. - ANSW-Describe the appropriate revision to the financial statements in the accountant's
disclaimer of opinion.
When management will not permit inquiry of outside legal counsel, the audit report will ordinarily
contain a(n)
A. Unmodified opinion with a separate emphasis-of-matter paragraph.
B. Disclaimer of opinion.
C. "Subject to" qualified opinion.
D. "Except for" qualified opinion. - ANSW-Disclaimer of opinion.
If the auditor obtains satisfaction with respect to the accounts receivable balance by alternative
procedures because it is impracticable to confirm accounts receivable, the auditor's report should be
unmodified and could be expected to
A. Disclose in the opinion paragraph that confirmation of accounts receivable was impracticable.
B. Disclose that alternative procedures were used because of a management-imposed scope limitation.
C. Refer to a note that discloses the alternative procedures.
D. Not mention the alternative procedures. - ANSW-Not mention the alternative procedures.
Under which of the following circumstances might an auditor disclaim an opinion?
A. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions
concerning an uncertainty.
B. Material related party transactions are disclosed in the financial statements.
C. There has been a material change between periods in the method of application of accounting
principles.
D. The financial statements contain a material misstatement. - ANSW-The auditor is unable to obtain
sufficient appropriate evidence to support management's assertions concerning an uncertainty.
, Under which of the following circumstances would a disclaimer of opinion not be appropriate?
A. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.
B. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply
alternative procedures to verify their balances.
C. The auditor is unable to determine the amounts associated with fraud committed by the client's
management.
D. The financial statements fail to contain adequate disclosure concerning related party transactions. -
ANSW-The financial statements fail to contain adequate disclosure concerning related party
transactions.
If an issuer releases financial statements that purport to present its financial position and results of
operations but omits the statement of cash flows, the auditor ordinarily will express a(n)
A. Disclaimer of opinion.
B. Review report.
C. Unmodified opinion with a separate emphasis-of-matter paragraph.
D. Qualified opinion. - ANSW-Qualified opinion.
Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of
Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's
legal counsel, but neither would assist Morris in determining whether the amounts involved were
material to the financial statements or whether senior management was involved in the scheme. Under
these circumstances, Morris most likely should
A. Express an adverse opinion on the financial statements.
B. Disclaim an opinion on the financial statements.
C. Express an unmodified opinion with an other-matter paragraph.
D. Issue a special report regarding the illegal bribes. - ANSW-Disclaim an opinion on the financial
statements.
Restrictions imposed by management prohibit the observation of physical inventories, which account for
35% of all assets. The possible effects of the omission are material and pervasive. Alternative audit
procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all
other items in the financial statements. The auditor should express
A. An unmodified opinion with an emphasis-of-matter paragraph.
B. A qualified opinion.
C. A disclaimer of opinion.
D. An unmodified opinion with an explanation in the opinion paragraph. - ANSW-A disclaimer of opinion.
Billie J. King, CPA, was engaged to audit the financial statements of Newton Co. after its fiscal year had
ended. King neither observed the inventory count nor confirmed the receivables by direct
communication with debtors, but was satisfied concerning both after applying alternative procedures.
King's auditor's report most likely contained a(n)
Questions and verified Answers
Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended
December 31, Year 1. Park obtained sufficient appropriate audit evidence for all of Tech's financial
statement items except Tech's opening inventory. Due to inadequate financial records, Park could not
verify Tech's January 1, Year 1, inventory balances. Park's opinion on Tech's Year 1 financial statements
most likely will be:
Balance Sheet Income Statement
A. Disclaimer Adverse
B. Unmodified Disclaimer
C. Unmodified Adverse
D. Disclaimer Disclaimer - ANSW-Unmodified Disclaimer
A CPA who is associated with the financial statements of an issuer, but has not audited or reviewed such
statements, should
A. Issue a compilation report.
B. Insist that they be audited or reviewed before publication.
C. State these facts in the accompanying notes to the financial statements.
D. Read them to determine whether there are obvious material misstatements. - ANSW-Read them to
determine whether there are obvious material misstatements.
A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result
when management
A. Asks the auditor to report on the balance sheet and not on the other basic financial statements.
B. Refuses to permit its lawyer to respond to the letter of audit inquiry.
C. Knows that confirmation of accounts receivable is not feasible.
D. Discloses material related party transactions in the notes to the financial statements. - ANSW-Refuses
to permit its lawyer to respond to the letter of audit inquiry.
A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result
when management
A. Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
B. Refuses to furnish a management representation letter to the auditor.
,C. Engages the auditor after the year-end physical inventory count is completed.
D. Fails to correct a material internal control weakness that had been identified during the prior year's
audit. - ANSW-Refuses to furnish a management representation letter to the auditor.
If an accountant concludes that unaudited financial statements of an issuer on which the accountant is
disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate
revision. If the client does not accept the accountant's suggestion, the accountant should
A. Refer to the appropriate revision and issue a modified report expressing limited assurance.
B. Express an adverse opinion and describe the appropriate revision in the report.
C. Describe the appropriate revision to the financial statements in the accountant's disclaimer of
opinion.
D. Accept the client's inaction because the statements are unaudited and the accountant has disclaimed
an opinion. - ANSW-Describe the appropriate revision to the financial statements in the accountant's
disclaimer of opinion.
When management will not permit inquiry of outside legal counsel, the audit report will ordinarily
contain a(n)
A. Unmodified opinion with a separate emphasis-of-matter paragraph.
B. Disclaimer of opinion.
C. "Subject to" qualified opinion.
D. "Except for" qualified opinion. - ANSW-Disclaimer of opinion.
If the auditor obtains satisfaction with respect to the accounts receivable balance by alternative
procedures because it is impracticable to confirm accounts receivable, the auditor's report should be
unmodified and could be expected to
A. Disclose in the opinion paragraph that confirmation of accounts receivable was impracticable.
B. Disclose that alternative procedures were used because of a management-imposed scope limitation.
C. Refer to a note that discloses the alternative procedures.
D. Not mention the alternative procedures. - ANSW-Not mention the alternative procedures.
Under which of the following circumstances might an auditor disclaim an opinion?
A. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions
concerning an uncertainty.
B. Material related party transactions are disclosed in the financial statements.
C. There has been a material change between periods in the method of application of accounting
principles.
D. The financial statements contain a material misstatement. - ANSW-The auditor is unable to obtain
sufficient appropriate evidence to support management's assertions concerning an uncertainty.
, Under which of the following circumstances would a disclaimer of opinion not be appropriate?
A. The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.
B. The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply
alternative procedures to verify their balances.
C. The auditor is unable to determine the amounts associated with fraud committed by the client's
management.
D. The financial statements fail to contain adequate disclosure concerning related party transactions. -
ANSW-The financial statements fail to contain adequate disclosure concerning related party
transactions.
If an issuer releases financial statements that purport to present its financial position and results of
operations but omits the statement of cash flows, the auditor ordinarily will express a(n)
A. Disclaimer of opinion.
B. Review report.
C. Unmodified opinion with a separate emphasis-of-matter paragraph.
D. Qualified opinion. - ANSW-Qualified opinion.
Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of
Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's
legal counsel, but neither would assist Morris in determining whether the amounts involved were
material to the financial statements or whether senior management was involved in the scheme. Under
these circumstances, Morris most likely should
A. Express an adverse opinion on the financial statements.
B. Disclaim an opinion on the financial statements.
C. Express an unmodified opinion with an other-matter paragraph.
D. Issue a special report regarding the illegal bribes. - ANSW-Disclaim an opinion on the financial
statements.
Restrictions imposed by management prohibit the observation of physical inventories, which account for
35% of all assets. The possible effects of the omission are material and pervasive. Alternative audit
procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all
other items in the financial statements. The auditor should express
A. An unmodified opinion with an emphasis-of-matter paragraph.
B. A qualified opinion.
C. A disclaimer of opinion.
D. An unmodified opinion with an explanation in the opinion paragraph. - ANSW-A disclaimer of opinion.
Billie J. King, CPA, was engaged to audit the financial statements of Newton Co. after its fiscal year had
ended. King neither observed the inventory count nor confirmed the receivables by direct
communication with debtors, but was satisfied concerning both after applying alternative procedures.
King's auditor's report most likely contained a(n)
