Auditing Final Exam Questions with Complete Solution 2023

Auditing Final Exam Questions with Complete Solution 2023. An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with Answer- PCAOB standards Which of the following provides authoritative guidance for the auditor of a nonpublic company? Answer- statements on Auditing Standards The Public Company Accounting Oversight Board has the duty to Answer- conduct investigations concerning registered public accounting firms Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing standards? Answer- the signature of the engagement partner The date of the CPA's opinion on the financial statements of the client should be the date of the Answer- completion of all important audit procedures If a principal auditor decides to refer in his or her report to the audit of another auditor, he or she is required to disclose the Answer- portion of the financial statements audited by the other auditor An entity changed from the straight-line method to the declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n) Answer- unmodified opinion When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in existence, the auditor should issue a(n) Answer- unmodified opinion with explanatory paragraph The auditor's report contains the following: "We did not audit the financial statements of EZ, Inc., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 27% and 29%, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ, Inc., is based solely on the report of the other auditors." These sentences Answer- indicate a division of responsibility As compared to an unmodified opinion, an opinion qualified due to a material departure from generally accepted accounting principles would Answer- indicate that, except for the problem noted, the financial statements are presented fairly An auditor who qualified an opinion because of an insufficiency of audit evidence should refer to the scope limitation in the Answer- auditor's responsibility paragraph: NO opinion paragraph: YES note to the financial statements: NO An adverse opinion and a disclaimer of opinion... Answer- indicate situations in which there are material departures from the standards What is the meaning of the rule that requires the auditor to be independent? Answerthe auditor must be without bias with respect to the client under audit Which of the following services can be offered to public company audit clients under SEC requirements and the SOX? Answer- tax planning not involving tax shelters An auditor strives to achieve independence in appearance to Answer- maintain public confidence in the profession In which one of the following situations would a CPA be in violation of the AICPA Code of Prof. Conduct in determining the audit fee? Answer- a fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan The AICPA Code of Prof. Conduct states that a CPA shall not disclose any confidential client information obtained in the course of a professional engagement except with the consent of the client. In which one of the following situations would disclosure by a CPA be in violation of the Code? Answer- disclosing confidential information to another accountant interested in purchasing the CPA's practice A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is Answer- prohibited under the AICPA rules of conduct The concept of materiality would be least important to an auditor when considering the Answer- effects of a direct financial interest in the client on the CPA's independence According to the profession's ethical standards, which of the following events may justify a departure from GAAP? I. New legislation II. Conflicting industry practices III. Evolution of a new form of business transaction Answer- I and III Which of the following is not a provision of the SOX of 2002? Answer- audit documentation must be maintained for 5 years In a common law action against an accountant, lack of privity is a viable defense if the plaintiff Answer- is the client's creditor who sues the accountant for negligence The 1136 Tenants case was important chiefly because of its emphasis on the legal liability of the CPA when associated with Answer- unaudited financial statements DMO Enterprises, Inc., engaged the accounting...Which of the following is most likely true? Answer- the accountants are entitled to collect their fee and are not liable for $187,000 Major, Major, & Sharpe, CPAs, are the auditors...In the ensuing lawsuit by the MacLain investors, Major will be able to avoid liability if Answer- it can prove due diligence in the audit of the financial statements of MacLain Donalds & Company, CPAs, audited...Which of the following is likely to be Donalds' best defense? Answer- they did not intentionally certify false financial statements Which is the true statement concerning an auditor's statutory legal liability? Answer- the auditor has a greater burden of defense under the Securities Act of 1933 than the Securities Exchange Act of 1934