Audit Test #1 Short Answer UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Materiality - CORRECT ANSWER - The magnitude of an omission or misstatement of
accounting information that, in light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the financial statements would have been influenced
or changed by the omission or misstatement.
Pervasive - CORRECT ANSWER - Misstatements or potential misstatements that are not
confined to specific elements, accounts, or items, or, if confined, they represent a substantial
portion of the financial statements, or they fundamentally undermine the reliability or usefulness
of the financial statements as a whole.
A misstatement is pervasive when:
- It affects multiple areas of the financial statements.
- It distorts the overall financial picture.
- It causes the auditor to doubt the integrity of the statements altogether.
Unqualified Audit Report - CORRECT ANSWER - Most common type of report
• Financial statements are free of material misstatements
• Auditor does not need to qualify opinion on fairness of financial statements
Qualified Opinion - CORRECT ANSWER - Issued when:
• Financial statements contain material misstatements
• Explains that financial statements are fairly presented except for identified misstatement
- If a misstatement is material but NOT pervasive, a qualified opinion may be issued.
Adverse Opinion - CORRECT ANSWER - Issued when:
• Misstatement is so material it pervasively affects financial statement interpretation
ACTUAL Exam Questions and CORRECT
Answers
Materiality - CORRECT ANSWER - The magnitude of an omission or misstatement of
accounting information that, in light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the financial statements would have been influenced
or changed by the omission or misstatement.
Pervasive - CORRECT ANSWER - Misstatements or potential misstatements that are not
confined to specific elements, accounts, or items, or, if confined, they represent a substantial
portion of the financial statements, or they fundamentally undermine the reliability or usefulness
of the financial statements as a whole.
A misstatement is pervasive when:
- It affects multiple areas of the financial statements.
- It distorts the overall financial picture.
- It causes the auditor to doubt the integrity of the statements altogether.
Unqualified Audit Report - CORRECT ANSWER - Most common type of report
• Financial statements are free of material misstatements
• Auditor does not need to qualify opinion on fairness of financial statements
Qualified Opinion - CORRECT ANSWER - Issued when:
• Financial statements contain material misstatements
• Explains that financial statements are fairly presented except for identified misstatement
- If a misstatement is material but NOT pervasive, a qualified opinion may be issued.
Adverse Opinion - CORRECT ANSWER - Issued when:
• Misstatement is so material it pervasively affects financial statement interpretation
