3. Plans to borrow money or restructure debt,
4. Plans to increase ownership equity (sell stock).
Choice "a" is incorrect. Discussions with lenders regarding terms would not be a mitigating
factor. Actual agreements regarding restructuring of debt or amendments to covenants would be
required. Choice "b" is incorrect. Strengthening internal controls over cash would not qualify as
a management tactic to address going concern issues.
Choice "c" is incorrect. Purchasing facilities which are currently being leased would only further
decrease cash flow.
QUESTION: 21
Which of the following statements is a basic element of the auditor's standard report?

A. The disclosures provide reasonable assurance that the financial statements are free of
material misstatement.
B. The auditor evaluated the overall internal control.
C. An audit includes assessing significant estimates made by management.
D. The financial statements are consistent with those of the prior period.

Answer(s): C
Explanation:
Choice "c" is correct. The auditor's standard audit report includes a statement that "An audit
includes assessing...significant estimates made by management..." Choice "a" is incorrect. The
standard audit report does not state that disclosures provide reasonable assurance that the
financial statements are free of material misstatement. The correct statement is: "...standards
require that we plan and perform the audit to obtain reasonable assurance that the financial
statements are free of material misstatement." Choice "b" is incorrect. The standard audit report
does not state that the auditor evaluated the overall internal control. The correct statement is
"An audit includes...evaluating the overall financial statement presentation." Internal control is
not mentioned in the standard audit report. Choice "d" is incorrect. The standard audit report
does not state "The financial statements are consistent with those of the prior period." According
to the second standard of reporting, consistency is implicitly reported. Only if there is an
inconsistency is an explicit statement included.
QUESTION: 22
An auditor may not issue a qualified opinion when:

A. An accounting principle at variance with GAAP is used.
B. The auditor lacks independence with respect to the audited entity.
C. A scope limitation prevents the auditor from completing an important audit procedure.
D. The auditor's report refers to the work of a specialist.

Answer(s): B
Explanation:
Choice "b" is correct. If the auditor lacks independence with respect to an audit client, the
auditor must disclaim an opinion on the financial statements. A qualified opinion is not an option.
Choice "a" is incorrect. A departure from GAAP (which is not sufficiently material to warrant an
adverse opinion) may justify a qualification of the auditor's report. Choice "c" is incorrect. A
scope limitation may result in a qualified opinion or a disclaimer of opinion. Choice "d" is
incorrect. The auditor's report may make reference to the use of a specialist only if the

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