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Free AICPA CPA-Auditing Exam Questions (page: 19)

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An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report. The auditor's responsibility for events occurring subsequent to the original date was:

  1. Extended to subsequent events occurring through the date of reissuance of the report.
  2. Extended to include all events occurring since the original date of the auditor's report.
  3. Limited to the specific event referenced.
  4. Limited to include only events occurring up to the date of the last subsequent event referenced.

Answer(s): C

Explanation:

Choice "c" is correct.
When an auditor issues a report that is dual dated for a subsequent event occurring after the original date of the auditor's report, the auditor's responsibility for events occurring subsequent to the original date of the auditor's report is limited to the specific event referenced.
Choices "a", "b", and "d" are incorrect. The auditor takes responsibility for only the specific event noted in the dual dating and for no other event occurring subsequent to the original date of the auditor's report.



An auditor most likely would issue a disclaimer of opinion because of:

  1. Inadequate disclosure of material information.
  2. The omission of the statement of cash flows.
  3. A material departure from generally accepted accounting principles.
  4. Management's refusal to furnish written representations.

Answer(s): D

Explanation:

Choice "d" is correct. Management's refusal to furnish written representations is a significant client imposed restriction on the scope of an audit, ordinarily warranting a disclaimer of opinion. Choice "a" is incorrect. Inadequate disclosure would result in a qualified or adverse opinion. Choice "b" is incorrect. A qualified report would be appropriate when a "statement of cash flows" is omitted and the scope of the audit is not restricted.
Choice "c" is incorrect. A departure from GAAP would result in either a qualified or adverse opinion, depending on materiality.



When an auditor qualifies an opinion because of the inability to confirm accounts receivable by direct communication with debtors, the wording of the opinion paragraph of the auditor's report should indicate that the qualification pertains to the:

  1. Limitation on the auditor's scope.
  2. Possible effects on the financial statements.
  3. Lack of sufficient appropriate audit evidence.
  4. Departure from generally accepted auditing standards.

Answer(s): B

Explanation:

Choice "b" is correct.
When an auditor qualifies his or her opinion because of a scope limitation, such as the inability to confirm A/R, the wording in the opinion paragraph should indicate that the qualification pertains to the possible effects on the FS and not to the scope limitation itself. The opinion paragraph should not refer to the scope limitation itself, the lack of evidence, or the departure from GAAS.

Choices "a", "c", and "d" are incorrect, based on the above Explanation.



The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

  1. Ability to expand operations into new product lines in the future.
  2. Feasibility of plans to purchase leased equipment at less than market value.
  3. Marketability of assets that management plans to sell.
  4. Committed arrangements to convert preferred stock to long-term debt.

Answer(s): C

Explanation:

Choice "c" is correct. The adverse effects of events causing an auditor to believe there is a substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the marketability of assets that management plans to sell. By providing evidence that there is a ready market for assets that could be converted to cash, management has demonstrated that the company could remain in operation for a longer period of time, thereby mitigating the need for an explanatory paragraph describing the matter. Choices "a", "b", and "d" are incorrect. Evidence regarding the ability to expand operations into new product lines in the future, the feasibility of plans to purchase leased equipment at less than market value, or committed arrangements to convert preferred stock to long-term debt would not be sufficient to mitigate doubts about an entity's ability to continue as a going concern, unless it could also be demonstrated that the events would provide adequate cash flow to fund operations for at least the next year.



An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following opinions should the entity's auditor choose?

  1. Adverse and unqualified with an explanatory paragraph added.
  2. Disclaimer and unqualified with an explanatory paragraph added.
  3. Qualified and adverse.
  4. Qualified and disclaimer.

Answer(s): D

Explanation:

Choice "d" is correct.
When an auditor is unable to obtain audited financial statements or other evidence supporting an entity's investment in a subsidiary (foreign or domestic), the auditor should issue a qualified or disclaimer of opinion depending on the materiality of the investment in the subsidiary.
Choices "a", "b", and "c" are incorrect. An adverse opinion is only issued when the FS are not presented fairly in conformity with GAAP, and an unqualified opinion with an explanatory paragraph is not appropriate for a scope limitation.



Which of the following standards requires a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

  1. Proficiency.
  2. Audit risk.
  3. Inspection.
  4. Due care.

Answer(s): D

Explanation:

Choice "d" is correct. The third general standard is: "The auditor must exercise due professional care in the planning and performance of the audit and the preparation of the report." This standard is interpreted to require a critical review of the work performed and the judgment exercised at every level of supervision.
Choice "a" is incorrect. Proficiency relates to the first general standard (technical training and proficiency of an auditor).
Choice "b" is incorrect. Audit risk and materiality underlie the application of all the standards of fieldwork and reporting, but are not standards themselves. Choice "c" is incorrect. Inspection pertains to the audit evidence standard, which is the third standard of fieldwork.



Six months after issuing an unqualified opinion on audited financial statements, an auditor discovered that the engagement personnel failed to confirm several of the client's material accounts receivable balances.
The auditor should first:

  1. Request the permission of the client to undertake the confirmation of accounts receivable.
  2. Perform alternative procedures to provide a satisfactory basis for the unqualified opinion.
  3. Assess the importance of the omitted procedures to the auditor's ability to support the previously expressed opinion.
  4. Inquire whether there are persons currently relying, or likely to rely, on the unqualified opinion.

Answer(s): C

Explanation:

Choice "c" is correct.
When an auditor discovers the omission of an audit procedure related to a previously issued report, the auditor should first assess the importance of the omitted procedure to the auditor's ability to support the previously expressed opinion. Choice "a" is incorrect. The auditor would request the permission of the client to undertake the confirmation of accounts receivable only after determining that the procedure was necessary to support the previously expressed opinion and no other alternative procedure had been performed. Choice "b" is incorrect. Alternative procedures would be performed only after the auditor determined that the procedure was necessary to support the previously expressed opinion. Choice "d" is incorrect. The auditor needs to be able to support (or revise) the previously issued opinion regardless of whether or not there are persons currently relying on it.



Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

  1. Review the cut-off bank statements for the period after the year-end.
  2. Inquire of the client's legal counsel concerning litigation.
  3. Investigate significant deficiencies in internal control previously communicated to the client.
  4. Analyze related party transactions to discover possible irregularities.

Answer(s): B

Explanation:

Choice "b" is correct. An auditor would most likely obtain a letter from the entity's legal counsel describing any pending litigation, unasserted claims, or loss contingencies, to obtain evidence that might impact the year-end financial statements.
Choice "a" is incorrect. Reviewing cut-off bank statements for the period after year-end generally is performed to evaluate the year-end cash balance, not to identify subsequent events. Choice "c" is incorrect. Investigating significant deficiencies in internal control previously communicated to the client would be a procedure performed as part of the planning process and would provide the auditor with information regarding the internal control structure, not subsequent events.
Choice "d" is incorrect. Analyzing related party transactions to discover possible irregularities generally is performed to evaluate financial statement disclosure, not to identify subsequent events.



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