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Free AICPA CPA-Auditing Exam Questions

When a qualified opinion results from a limitation on the scope of the audit, the situation should be described in an explanatory paragraph:

  1. Preceding the opinion paragraph and referred to only in the scope paragraph of the auditor's report.
  2. Following the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.
  3. Following the opinion paragraph and referred to only in the scope paragraph of the auditor's report.
  4. Preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.

Answer(s): D

Explanation:

Choice "d" is correct.
When a qualified opinion results from a limitation of scope, it should be described in an explanatory paragraph preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.
Choices "a", "b", and "c" are incorrect, as they do not comply with the rule above.



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):

  1. "Except for" qualified opinion.
  2. Disclaimer of opinion.
  3. Unqualified opinion with a separate explanatory paragraph.
  4. Unqualified opinion with an Explanation in the scope paragraph.

Answer(s): B

Explanation:

Choice "b" is correct. Restrictions of scope imposed on the audit of such a large (35%) asset would require a disclaimer of opinion.
Choices "a" and "c" are incorrect. The asset not audited is too large for a qualified opinion and much too large for an unqualified opinion.
Choice "d" is incorrect. Explanatory language does not get inserted into the scope paragraph, nor is an unqualified opinion appropriate.



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(an):

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): D

Explanation:

Choice "d" is correct. Yes - No.
If an auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern and that the entity's disclosures are adequate, then the audit report may be either:
- Unqualified with explanatory paragraph, or
- Disclaimed.
(Generally, an unqualified opinion is issued, but the auditor is not prohibited from choosing to issue a disclaimer.)
Choice "a" is incorrect. An "except for" qualified opinion would be appropriate if the entity's disclosures were inadequate.
Choice "b" is incorrect.
While an unqualified opinion is generally issued, the auditor is not prohibited from choosing to issue a disclaimer; for example, in areas involving a high degree of uncertainty.
Choice "c" is incorrect, per Explanation above.



An auditor should disclose the substantive reasons for expressing an adverse opinion in an explanatory paragraph:

  1. Preceding the scope paragraph.
  2. Preceding the opinion paragraph.
  3. Following the opinion paragraph.
  4. Within the notes to the financial statements.

Answer(s): B

Explanation:

Choice "b" is correct. The auditor should disclose the substantive reasons for expressing an adverse opinion in a separate explanatory paragraph preceding the opinion paragraph. Choice "a" is incorrect. There are no circumstances where an explanatory paragraph precedes the scope paragraph.
Choice "c" is incorrect. The explanatory paragraph follows the opinion paragraph when there is a change in accounting principle or when there is doubt as to going concern. Choice "d" is incorrect. The auditor cannot include an explanatory paragraph in the financial statements, which are the responsibility of management.



When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparative financial statements, the auditor should express a qualified opinion:

  1. Only in the year of the accounting principle change.
  2. Each year that the financial statements initially reflecting the change are presented.
  3. Each year until management changes back to the accounting principle formerly used.
  4. Only if the change is to an accounting principle that is not generally accepted.

Answer(s): B

Explanation:

Choice "b" is correct.
When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparative FS, the auditor should express a qualified opinion each year that the FS initially reflecting the change are presented. Choices "a", "c", and "d" are incorrect, per the rule stated above.



When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an):

  1. Compilation report.
  2. Disclaimer of opinion.
  3. Unaudited association report.
  4. Qualified opinion.

Answer(s): B

Explanation:

Choice "b" is correct. A "disclaimer of opinion" must be issued when a CPA is "associated" with FS of a publicly held entity, but has not audited or (interim) reviewed such FS. Choice "a" is incorrect. A "compilation report" refers to a report related to a non-public entity. Choice "c" is incorrect. There is no such thing as an "unaudited association report." Choice "d" is incorrect. The auditor did not audit the FS, so he/she cannot issue an opinion on them.



Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any physical inventories. These inventories account for 40% of the entity's assets. Alternative auditing procedures cannot be applied due to the nature of the entity's records. Under these circumstances, the auditor should express a(an):

  1. Disclaimer of opinion.
  2. Qualified opinion.
  3. Adverse opinion.
  4. Unqualified opinion with an explanatory paragraph.

Answer(s): A

Explanation:

Choice "a" is correct. Since the auditor is unable to observe inventory or apply alternative audit procedures, a scope limitation exists. Due to the significance of the inventory balance (40% of total assets is quite material), a disclaimer of opinion (rather than simply a qualification) is appropriate. Choice "b" is incorrect. Since the inventory balance is so material, a qualified opinion is not sufficient in this case.
Choice "c" is incorrect. An adverse opinion is not an appropriate response to a scope limitation. Choice "d" is incorrect. Since the scope limitation relates to a material balance, an unqualified opinion is not appropriate.



Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

  1. Reading the minutes of meetings of the stockholders and the board of directors.
  2. Comparing the market value of property to amounts owed on the property.
  3. Reviewing lease agreements to determine whether leased assets should be capitalized.
  4. Inspecting title documents to verify whether any assets are pledged as collateral.

Answer(s): A

Explanation:

Choice "a" is correct. The auditor should examine any evidence that appears contrary to the basic principle of going concern. Reviewing the minutes from stockholder and board of director meetings is one procedure that is used in this regard.
Choice "b" is incorrect. Comparison of the market value of property to amounts owed on the property determines its net value, but would not necessarily indicate a going concern issue. Choice "c" is incorrect. Reviewing lease agreements to determine whether leased assets should be capitalized is important in evaluating the financial statements, but it would not provide evidence of going concern issues.
Choice "d" is incorrect. Inspecting title documents to verify whether any assets are pledged as collateral provides information regarding presentation and disclosure, but would not provide evidence of going concern issues.



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