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Free AICPA CPA-Auditing Exam Questions (page: 21)

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PDF with 1026 Questions

Does an auditor make the following representations explicitly or implicitly when issuing the standard auditor's report on comparative financial statements?

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

Answer(s): C

Explanation:

Choice "c" is correct. Implicitly - Explicitly.
When issuing the standard auditor's report on comparative FS, an auditor implicitly represents consistent application of GAAP, but explicitly states, "An audit includes examining, on a test basis, evidence supporting . . ."
(Again, it is essential that you memorize the "auditor's standard report.") Choices "a", "b", and "d" are incorrect, based on the above Explanation.



An auditor may issue a qualified opinion under which of the following circumstances?

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

Answer(s): A

Explanation:

Choice "a" is correct. Yes - Yes.
An auditor may issue a qualified opinion (or a disclaimer, depending on materiality) when there is a lack of sufficient appropriate audit evidence, or when there are restrictions on the scope of the audit. Choices "b", "c", and "d" are incorrect, as explained above.



Grant Company's financial statements adequately disclose uncertainties that concern future events, the outcome of which are not susceptible of reasonable estimation. The auditor's report should include a (an):

  1. Unqualified opinion.
  2. "Subject to" qualified opinion.
  3. "Except for" qualified opinion.
  4. Adverse opinion.

Answer(s): A

Explanation:

Choice "a" is correct. The auditor should issue an "unqualified opinion" when management adequately discloses future events, the outcome of which are not susceptible of reasonable estimation. No reference to the uncertainty need be made in the auditor's opinion. Choice "b" is incorrect. "Subject to" qualified opinions are not permitted. Choice "c" is incorrect. An "except for" qualified opinion would not be used as there is adequate disclosure and there are no scope limitations.
Choice "d" is incorrect. An adverse opinion would not be used because the FS are presented "fairly" in conformity with GAAP.



How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

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

Answer(s): A

Explanation:

Choice "a" is correct. The responsibility of the auditor and the responsibility of management are stated explicitly in the introductory paragraph of the standard auditor's report. Choices "b", "c", and "d" are incorrect, as explained above.



When there is a significant change in accounting principle, an auditor's report should refer to the lack of consistency in:

  1. The scope paragraph.
  2. An explanatory paragraph between the second paragraph and the opinion paragraph.
  3. The opinion paragraph.
  4. An explanatory paragraph following the opinion paragraph.

Answer(s): D

Explanation:

Choice "d" is correct.
When there is a significant change in accounting principle, the auditor's report should refer to the lack of consistency in an explanatory paragraph following the opinion paragraph. The explanatory paragraph should identify the change and refer to the note in the FS that discusses the change in detail. The auditor's concurrence with the change in GAAP is implicit, unless he or she takes exception.
Choice "a" is incorrect. Lack of consistency is not a scope limitation. Choice "b" is incorrect. An explanatory paragraph is often inserted between the second paragraph and opinion paragraph. However, where a change is accounted for in accordance with GAAP, the explanatory paragraph should follow the unqualified opinion paragraph. Choice "c" is incorrect. The lack of consistency would not be disclosed in an opinion paragraph unless the auditor does not concur and wishes to qualify the opinion. In such case an explanatory paragraph would precede the opinion paragraph and the opinion paragraph would be qualified.



When a principal auditor decides to make reference to another auditor's examination, the principal auditor's report should always indicate clearly, in the introductory, scope, and opinion paragraphs, the:

  1. Magnitude of the portion of the financial statements examined by the other auditor.
  2. Disclaimer of responsibility concerning the portion of the financial statements examined by the other auditor.
  3. Name of the other auditor.
  4. Division of responsibility.

Answer(s): D

Explanation:

Choice "d" is correct. Reference to the division of responsibility should be made in the introductory, scope and opinion paragraphs of the principal auditor's report. Choice "a" is incorrect. The magnitude of the portion of the FS examined by the other auditor appears only in the introductory paragraph.
Choice "b" is incorrect. The principal auditor is not disclaiming responsibility, just dividing it. Choice "c" is incorrect. The name of the other auditor is generally not mentioned, but may be mentioned with permission and if the other auditor's report is also presented. (Watch out for exclusive words such as "always" or "never.")



Information accompanying the basic financial statements in an auditor-submitted document should not include:

  1. An analysis of inventory by location.
  2. A statement that the allowance for doubtful accounts is adequate.
  3. A statement that the depreciable life of a new asset is 20 years.
  4. An analysis of revenue by product line.

Answer(s): B

Explanation:

Choice "b" is correct. A statement that the "allowance for doubtful accounts is adequate" is generally not included in information accompanying the basic FS in an auditor-submitted document (ASD) because it expresses an opinion rather than providing details or Explanations. Choices "a", "c", and "d" are incorrect, because the following information, which contains additional details or Explanations, may accompany the basic FS in an ASD:
A . An analysis of inventory by location.
C . Depreciable lives of assets.
D . An analysis of revenue by product line.



For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected:

  1. Be appropriate in the circumstances for the particular entity.
  2. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits.
  3. Present information in the financial statements that is classified and summarized in a reasonable manner.
  4. Be applied on a basis consistent with those followed in the prior year.

Answer(s): D

Explanation:

Choice "d" is correct. For a particular entity's FS to be presented fairly in conformity with GAAP, it is not required that the principles selected be applied on a basis consistent with those followed in the prior year, merely that any changes in accounting principle be properly accounted for and disclosed. Choice "a" is incorrect. The principles selected must be appropriate in the circumstances for the particular entity.
Choice "b" is incorrect. The principles selected must reflect transactions in a manner that present the FS within a range of acceptable limits.
Choice "c" is incorrect. The principles selected must present information in the FS that is classified and summarized in a reasonable manner.



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