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Free AICPA CPA-Auditing Exam Questions (page: 15)

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PDF with 1026 Questions

Which of the following is true regarding the auditor's responsibility to report on information accompanying the basic financial statements in a client-prepared document?

  1. The auditor may report on information accompanying the basic financial statements in a clientprepared document only if he or she has been specifically engaged to do so.
  2. The auditor is required to express an opinion on whether information accompanying the basic financial statements in a client-prepared document is fairly stated in all material respects in relation to the financial statements taken as a whole.
  3. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include a description of the character of the audit work performed.
  4. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include an opinion on the information but should not describe the character of the audit work performed.

Answer(s): C

Explanation:

Choice "c" is correct. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include a description of both the character of the audit work performed and the degree of responsibility assumed. Choice "a" is incorrect. There is no requirement that the auditor be specifically engaged to report on such information. If auditing procedures have been applied to the information, the auditor is permitted to report thereon.
Choice "b" is incorrect. The auditor is permitted but not required to report on such information. Choice "d" is incorrect. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include an opinion on the information and a description of both the character of the audit work performed and the degree of responsibility assumed.



Which of the following reporting options is least likely with regard to supplementary information that is required by GAAP?

  1. The auditor's report on the financial statements makes no reference to the supplementary information.
  2. A disclaimer of opinion is issued on supplementary information that is not clearly distinguished from the financial statements and is not marked "unaudited."
  3. The auditor's report on the financial statements includes both an opinion on the supplementary information and a statement restricting the use of the report.
  4. The auditor's report on the financial statements includes an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

Answer(s): C

Explanation:

Choice "c" is correct. There is no requirement that the auditor's report on supplementary information required by GAAP be restricted.
Choice "a" is incorrect. An auditor is not required to audit supplementary information, and in such cases the auditor's report on the basic financial statements would not generally include a reference to such information.
Choice "b" is incorrect.
When supplementary information that is not clearly distinguished from the financial statements is not marked "unaudited," the auditor would generally issue a disclaimer on that information.
Choice "d" is incorrect.
When the auditor chooses to apply auditing procedures to the supplementary information, he or she may express an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.



When an auditor submits a document containing audited financial statements to a client, and those financial statements include supplementary information required by GAAP, the auditor may choose any of the following options, except:

  1. Express an opinion on the information, if he or she has been engaged to examine such information.
  2. Express negative assurance on the information, if review procedures have been appropriately performed.
  3. Report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied.
  4. Disclaim an opinion on the information.

Answer(s): B

Explanation:

Choice "b" is correct. The auditor would not perform a review or express negative assurance on supplementary information required by GAAP that is included in an auditor-submitted document. Choice "a" is incorrect. The auditor may express an opinion on the information, if he or she has been engaged to examine it.
Choice "c" is incorrect. The auditor may report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied. Choice "d" is incorrect. The auditor may disclaim an opinion on the information.



An auditor may report on condensed financial statements that are derived from complete financial statements if the:

  1. Condensed financial statements are distributed to stockholders along with the complete financial statements.
  2. Auditor describes the additional procedures performed on the condensed financial statements.
  3. Auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.
  4. Condensed financial statements are presented in comparative form with the prior year's condensed financial statements.

Answer(s): C

Explanation:

Choice "c" is correct. An auditor may report on condensed financial statements that are derived from financial statements that he or she has audited, indicating (1) that he or she has audited and expressed an opinion on the complete financial statements, (2) the date of the auditor's report, (3) the type of opinion expressed, and (4) that the information contained in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.
Choice "a" is incorrect. The condensed financial statements do not have to be distributed to the stockholders.
Choice "b" is incorrect. The audit report on condensed financial statements does not require that additional procedures be described.
Choice "d" is incorrect. Condensed financial statements do not need to be presented in comparative form with the prior year's financial statements.



An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should:

  1. Be limited to data derived from the audited financial statements.
  2. Be distributed only to senior management and the board of directors.
  3. State that the presentation is a comprehensive basis of accounting other than GAAP.
  4. Indicate that the data are not fairly stated in all material respects.

Answer(s): A

Explanation:

Choice "a" is correct. An auditor's report on selected information included in a client-prepared document containing audited financial statements should be limited to data derived from audited financial statements.
Choice "b" is incorrect. It is not necessary to limit distribution of such a report. Choice "c" is incorrect. Selected financial data is not an "other comprehensive basis of accounting." Choice "d" is incorrect. The auditor indicates whether the selected financial data is fairly stated, in all material respects, in relation to the financial statements from which it has been derived.



If information accompanying the basic financial statements in an auditor-submitted document has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in:

  1. Accordance with generally accepted auditing standards.
  2. Conformity with generally accepted accounting principles.
  3. All material respects in relation to the basic financial statements taken as a whole.
  4. Accordance with attestation standards expressing a conclusion about management's assertions.

Answer(s): C

Explanation:

Choice "c" is correct.
When an auditor submits a document that contains information in addition to the client's basic financial statements, and this information was subjected to auditing procedures, the auditor may include in the auditor's report an opinion that the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. This statement would follow the opinion paragraph in the standard report.
Choice "a" is incorrect. Information in an ASD is not stated in an auditor's report to be in accordance with GAAS. Instead, the auditor would state that the "information has been subjected to the auditing procedures applied in the audit of the basic financial statements..." Choice "b" is incorrect. The auditor would not state that ASD information was fairly stated in accordance with GAAP. The information in an ASD is in addition to that required by GAAP. Choice "d" is incorrect. Reports on ASD are not "attest engagements."



An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. The auditor believes that the financial statements do not require revision, but the client is unwilling to revise or eliminate the material inconsistency in the other information. Under these circumstances, what action would the auditor most likely take?

  1. Consider the situation closed because the other information is not in the audited financial statements.
  2. Issue an "except for" qualified opinion after discussing the matter with the client's audit committee.
  3. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph.
  4. Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency.

Answer(s): D

Explanation:

Choice "d" is correct. If the auditor discovers a material inconsistency in other information accompanying the audited financial statements, the financial statements do not require revision, and the client refuses to eliminate or revise the inconsistency, the auditor should consider 1) revising the report to include a separate paragraph describing the inconsistency, 2) withholding the report, or 3) withdrawing from the engagement.
Choice "a" is incorrect. Even though the auditor has no responsibility to audit or otherwise corroborate other information accompanying the financial statements, the auditor has a responsibility to read the other information accompanying the financial statements for consistency and to identify any material misstatements of fact included therein. Choice "b" is incorrect. A qualified opinion is generally not warranted because the financial statements are fairly stated.
Choice "c" is incorrect. A disclaimer of opinion is generally not warranted because there is no limitation on scope.



In the standard report on condensed financial statements that are derived from a public entity's audited financial statements, a CPA should indicate that the:

  1. Condensed financial statements are prepared in conformity with another comprehensive basis of accounting.
  2. CPA has audited and expressed an opinion on the complete financial statements.
  3. Condensed financial statements are not fairly presented in all material respects.
  4. CPA expresses limited assurance that the financial statements conform with GAAP.

Answer(s): B

Explanation:

Choice "b" is correct. The auditor's report on condensed statements derived from audited statements should indicate (1) that the CPA audited and expressed an opinion on the complete financial statements,
(2) the date of the auditor's report on the complete financial statements, (3) the type of opinion expressed, and (4) whether, in the auditor's opinion, the information set forth in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it was derived.
Choice "a" is incorrect. Condensed financial statements are not prepared in conformity with a comprehensive basis of accounting other than GAAP.
Choice "c" is incorrect. The auditor's report on condensed financial statements does not indicate whether they are fairly presented in all material respects; rather, the report indicates whether they are fairly presented in relation to the complete financial statements. Choice "d" is incorrect. The auditor does not express an opinion (or provide any assurance) on whether condensed FS conform with GAAP; only whether such statements are fairly stated in relation to the complete FS.



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