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Free AICPA CPA-Auditing Exam Questions (page: 12)

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PDF with 1026 Questions

Before reissuing the prior year's auditor's report on the financial statements of a former client, the predecessor auditor should obtain letters of representation from the:

  1. Former client's management and the board of directors.
  2. Former client's attorney and management.
  3. Former client's board of directors and the successor auditor.
  4. Successor auditor and the former client's management.

Answer(s): D

Explanation:

Choice "d" is correct. Before reissuing the prior year's auditor's report on the financial statements of a former client, the auditor should 1) read the financial statements of the current period, 2) compare the prior-period information that the auditor reported on with the financial statements to be presented for comparative purposes, 3) obtain a letter of representation from the successor auditor, and 4) obtain a letter of representation from the former client's management. The representation letter from the successor auditor will state whether the successor's audit revealed any issues of a material nature that might affect the previous financial statements. The representation letter from the former client's management will indicate whether its previous representations are still accurate and whether there have been any subsequent events affecting the previous financial statements. Choices "a", "b", and "c" are incorrect. The predecessor does not request representation letters from the former client's board of directors or attorney.



In May X4, an auditor reissues the auditor's report on the X2 financial statements at a continuing client's request. The X2 financial statements are not restated and the auditor does not revise the wording of the report. The auditor should:

  1. Dual date the reissued report.
  2. Use the release date of the reissued report.
  3. Use the original report date on the reissued report.
  4. Use the current-period auditor's report date on the reissued report.

Answer(s): C

Explanation:

Choice "c" is correct. If the auditor reissues the audit report at the client's request, the auditor should use the original report date on the reissued report. Use of a subsequent date implies that the auditor has done additional work.
Choice "a" is incorrect. Use of a date subsequent to the original report date implies that the auditor has performed work subsequent to that date.
Choice "b" is incorrect. Use of a date subsequent to the original report date implies that the auditor has performed work subsequent to that date.
Choice "d" is incorrect. Use of a date subsequent to the original report date implies that the auditor has performed work subsequent to that date.



An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should:

  1. Be accompanied by the auditor's original report on the prior year's financial statements.
  2. Continue to express a qualified opinion on the prior year's financial statements.
  3. Make no reference to the type of opinion expressed on the prior year's financial statements.
  4. Express an unqualified opinion on the restated financial statements of the prior year.

Answer(s): D

Explanation:

Choice "d" is correct. If an auditor has previously qualified his or her opinion on financial statements of a prior period, and the prior period statements are restated to conform with GAAP, the auditor should express an unqualified opinion on the restated financial statements. In addition, the auditor would state the substantive reasons for the change in opinion in an explanatory paragraph preceding the opinion paragraph.
Choice "a" is incorrect. The original report would not be presented. Choice "b" is incorrect. The auditor would change the opinion on the restated financial statements from that previously issued.
Choice "c" is incorrect. The auditor would state the substantive reasons for the change in opinion in an explanatory paragraph preceding the opinion paragraph.



Comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should:

  1. Indicate the substantive reasons for the qualification in the predecessor auditor's opinion.
  2. Request the client to reissue the predecessor's report on the prior year's statements.
  3. Issue an updated comparative audit report indicating the division of responsibility.
  4. Express an opinion only on the current year's statements and make no reference to the prior year's statements.

Answer(s): A

Explanation:

Choice "a" is correct. If the financial statements of a prior period have been audited by a predecessor auditor whose report is not presented, the successor auditor should indicate in the introductory paragraph of the audit report (1) that the financial statements of the prior period were audited by another auditor, (2) the type of report issued, and (3) if the report was other than standard, the substantive reasons therefor.
Choice "b" is incorrect. The predecessor auditor, not the client, may reissue the previous year's audit report.
Choice "c" is incorrect. An audit report would indicate a division of responsibility when the principal auditor's opinion is based in part on the report of another auditor. Choice "d" is incorrect. If the prior year's financial statements are issued, the previous year's audit opinion must also be disclosed.



An auditor has previously expressed a qualified opinion on the financial statements of a prior period because of a departure from generally accepted accounting principles. The prior-period financial statements are restated in the current period to conform with generally accepted accounting principles.
The auditor's updated report on the prior-period financial statements should:

  1. Express an unqualified opinion concerning the restated financial statements.
  2. Be accompanied by the original auditor's report on the prior period.
  3. Bear the same date as the original auditor's report on the prior period.
  4. Qualify the opinion concerning the restated financial statements because of a change in accounting principle.

Answer(s): A

Explanation:

Choice "a" is correct.
When prior-period financial statements are restated in the current period to conform with GAAP, the auditor's updated report on the prior-period financial statements should express an unqualified opinion concerning the restated financial statements. Choice "b" is incorrect. The original auditor's report on the prior period should not be presented. Choice "c" is incorrect. The original report date is used only if the original report is reissued unchanged.
Choice "d" is incorrect. A change in accounting principle that is properly accounted for does not result in a qualified opinion.
Events Occurring After Year-end



Which of the following statements is not true regarding the auditor's responsibility for subsequent events?

  1. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted.
  2. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date of the auditor's report.
  3. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date on which sufficient appropriate audit evidence has been obtained.
  4. The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.

Answer(s): A

Explanation:

Choice "a" is correct. The auditor has no active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted. The auditor's active responsibility stops on the date of the auditor's report. Choice "b" is incorrect. The auditor does have an active responsibility to make continuing inquiries between the date of the financial statements and the date of the auditor's report. Choice "c" is incorrect. The auditor does have an active responsibility to make continuing inquiries between the date of the financial statements and the date on which sufficient appropriate audit evidence has been obtained.
Choice "d" is incorrect. The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.



Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

  1. Confirming a sample of material accounts receivable established after year-end.
  2. Comparing the financial statements being reported on with those of the prior period.
  3. Investigating personnel changes in the accounting department occurring after year-end.
  4. Inquiring as to whether any unusual adjustments were made after year-end.

Answer(s): D

Explanation:

Choice "d" is correct. An auditor would most likely inquire as to whether any unusual adjustments were made after year-end that would require adjustment to and/or disclosure in the year-end financial statements.
Choice "a" is incorrect. Obtaining evidence about A/R that were established after year-end would not provide the auditor with information about subsequent events, since any information about these A/R would not require adjustment to or disclosure in the prior year financial statements. Choice "b" is incorrect. Comparing the financial statements being reported on with those of the prior period is not a very good source of subsequent event information. Choice "c" is incorrect. Changes in accounting personnel at any time would probably not result in any subsequent event financial statement adjustment or disclosure.



Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

  1. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
  2. A contingency is resolved that had been disclosed in the audited financial statements.
  3. New information is discovered concerning undisclosed lease transactions of the audited period.
  4. A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

Answer(s): C

Explanation:

Choice "c" is correct. The question addresses the subsequent discovery of facts that may have existed at the balance sheet date. Such events will often require an adjustment to the financial statements. An example is new information discovered about undisclosed lease transactions of the audited period. As a result, the auditor should make further inquiry to determine whether the information is reliable and whether the facts existed at the date of the report. Choice "a" is incorrect. The natural disaster is an example of a subsequent event occurring after the date of the auditor's report that the auditor has no obligation to investigate. Choice "b" is incorrect. The resolution of a disclosed contingency is an example of a subsequent event occurring after the date of the auditor's report that the auditor has no obligation to investigate.
Choice "d" is incorrect. Sale of a subsidiary occurring after the date of the auditor's report is an example of a subsequent event that the auditor has no obligation to investigate.



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