36 terms

Aud HW Ch.1

The phrase "Generally accepted accounting principles" is an accounting term that: 1.) includes broad guidelines of general application but not detailed practices and procedures 2.) Encompasses the conventions, rules and procedures necessary to define accepted accounting practice at a particular time.
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of: 1.)objective judgement 2.) professional skepticism
The auditor standard report should include reference to the US as the country of origin of: 1.) GAAS 2.) GAAP
T/F situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? 1.) conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed
1. In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles btw the current and prior yr, as well as the amounts of assets or liabilities at the beginning of the current yr. this was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:
a. Be unable to express an opinion on the current yr's results of operating and cash flows
b. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
2. An auditor would express an unqualified opinion with an explanatory paragraph added to the auditor's report for
a. An unjustified accounting change
b. A material weakness in internal control
c. Neither a or b
3. Under which of the following circumstances would a disclaimer of opinion not be appropriate?
a. The auditor is unable to determine the amounts associated with an employee fraud scheme.
b. Management does not provide reasonable justification for a change in acct principles.
4. When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond:
a. Reading the financial statements for obvious material misstatements
5. March, CPA is engaged by Monday Corp., a client, to audit the financial statements of Wall corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor report would usually be address to:
a. Monday Corp, the client that engaged March
b. Both Monday Corp and 1st Federal bank
6. When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should:
a. Refer to the change in the opinion paragraph
b. Not refer to consistency in the auditor's report
7. When single-yr financial statements are presented, an auditor ordinarily would express an unqualified opinion in an unmodified report if the
a. Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of prior yr.
b. Prior year's financial statements were audited by another CPA whose report, which expressed an unqualified opinion, is not present.
8. Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended Dec 31, 20x3. Park obtained sufficient audit evidence for all of Tech's financial statements items except Tech's opening inventory. Due to in adequate financial records, Park could not verify Tech's Jan 1, 20x3, inventory balances. Park's opinion on Tech's 20x3 financial statements most likely will be disclaimer or unqualified to
a. Balance sheet
b. Income statement
B/S-unqualified; IS-Disclaimer
9. An auditor decides to issue a qualified opinon on an entity's financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to:
a. A client-imposed scope limitation
b. The possible effects on the financial statements
10. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the:
a. Introductory paragraph
b. Scope paragraph
c. Neither
11. If a publicly held company issues financial statements that purport to present its financial position and results of operating but omits the statement of cash flows, the auditor ordinarily will express a(an):
a. Unqualified opinion
b. Qualified opinion
12. When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. The paragraph should identify the nature of the change and:
a. Explain why the change is justified under GAAP
b. Refer to the financial statement note that discusses the change in detail
13. In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?
a. The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion
b. The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows...
14. When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented and the auditor concurs with the change, the auditor should concur explicitly with the change? T/F
15. Restrictions imposed by a client prohibit the observation of physical inventories, which account for 35% of all assets. 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 issue a(an):
a. Qualified opinion
b. Disclaimer of opinion
16. 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 entity's disclosures concerning this matter are adequate, the audit report may include
a. Disclaimer of opinion
b. Qualified opinion
c. Qualified opinion
17. When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparative financials statements, the auditor should express a qualified opinon:
a. Each yr that the financial statements initially reflecting the change are presented
b. Each yr until management changes back to the accounting principle formerly used.
18. A CPA concludes that the unaudited financial statements on which the CPA is disclaiming an opinion are not in conformity with generally accepted accounting principles (GAAP) because management has failed to capitalize leases. The CPA suggests appropriate revisions to the financial statements, but management refuses to accept the CPA's suggestions. Under these circumstances, the CPA ordinarily would:
a. Issue a qualified opinion or adverse opinion depending on the materiality of the departure from GAAP
b. Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable.
19. Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?
a. Inquire about payroll checks that were recorded before year-end but cashed after year-end.
b. Investigate changes in long-term debt occurring after year-end
20. Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next
a. Request that mgmt disclose the newly discovered information by issuing revised financial stmts
b. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
21. Wilson, CPA, obtained sufficient appropriate audit evidence to render an opinion on Abco's December 31, Year 1, financial statements on march 6, Year 2. A subsequent event requiring adjustment to the Year 1 financial statements occurred on April 10, Year 2, and came to Wilson's attention on April 24, Year 2. If the adjustment is made without disclosure of the event, Wilson's report ordinarily should be dated
a. March 6, Year 2
b. April 24, Yr 2
c. Using dual dating
22. An auditor concludes that a substantive auditing procedure considered necessary during the prior period's audit was omitted. Which of the following factors would most likely caused the auditor promptly to apply the omitted procedures.
a. There are no alternative procedures available to provide the same evidence as the omitted procedure
b. The omission of the procedure impairs the auditor's present ability to support the previously expressed opinion.
23. On 29 Brown, CPA, expressed an unqualified opinion on the financial statements of Web Co. On oct 9, during a peer review of Brown's practice, the reviewer informed Brown that engagement personnel failed to perform a search for subsequent events for the Web engagement. Brown should first:
a. request Web's permission to perform substantive procedures that would provide a satisfactory basis for the opinion
b. inquire of Web whether there are persons currently relying on the FS
c. assess the importance of the omitted procedures to Brown's present ability to support the opinion.
24. After issuing an auditor's report, an auditor has no obligation to make continuing inquiries concerning audited financial statements unless:
a. Information that existed at the report date and may affect the report comes to the auditor's attention
b. An event occurs just after the auditor's report was issued that affects the entity's ability to continue as a going conern
25. Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the auditor's independence?
a. A sibling's loan to a director of a client
b. A spouse's employment with a client
26. Under the ethical standards of the profession, which of the following investments in a client is not considered to be a direct financial interest?
a. An investment held through a nonclient regulated mutual funds
b. An investment held through a nonclient investment club
c. An investment held in a blind trust
d. An investment by the trustee of a trust
27. According to the standards of the profession, which of the following activities may be required in exercising due care?
a. Consulting with experts
b. Obtaining specialty accreditation
28. According to the profession's ethical standards, a CPA would be considered independent in which of the following instances?
a. A CPA owns an office building and the mortgage on the building is guaranteed by a client
b. The CPA belongs to a country club client in which membership requires the acquisition of pro rata share of equity
29. Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?
a. Client's general counsel
b. Advisor to a client's board of trustees
30. Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. which of the following circumstances impairs kar's independence?
a. Kar owns stock in a corporation that Fort's 401(K) plan also invests in.
b. Kar's sibling is an internal auditor employed part-time by Fort
31. In which of the following situations is there a violation of client confidentiality under the AICPA Code of Prof Conduct?
a. A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim against the member.
b. A member whose practice is primarily bankruptcy discloses a client's name
32. Which of the following is a correct statement about the circumstances under which a CPA firm may or may not disclose the names of its clients without the clients' express permission?
a. A CPA firm may not disclose this info because the identity of its clients is confidential info
b. A CPA firm may disclose the info unless disclosure would suggest that the client may be experiencing financial difficulties