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Free AICPA CPA-Auditing Exam Questions (page: 22)

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PDF with 1026 Questions

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor:

  1. May accept the engagement because such engagements merely involve limited reporting objectives.
  2. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary.
  3. Should refuse the engagement because there is a client-imposed scope limitation.
  4. Should refuse the engagement in accordance with generally accepted auditing standards.

Answer(s): A

Explanation:

Choice "a" is correct. The auditor may accept the engagement because there is no scope limitation, merely a limited reporting objective. It is acceptable to give an opinion on one FS and not report on the other FS, if the scope is not limited.
Choices "b" and "c" are incorrect. The client is not imposing any audit scope limitations. Choice "d" is incorrect. A limited reporting objective is not a departure from GAAS.



If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be:

  1. Treated as a consistency modification in the auditor's report for the current year.
  2. Disclosed in the notes to the financial statements of the current year.
  3. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year.
  4. Treated as a subsequent event.

Answer(s): B

Explanation:

Choice "b" is correct. If an accounting change does not have a material effect on the FS of the current year, it will be disclosed in the notes to the FS for the current year, but no modification of the auditor's report is necessary.
Choices "a" and "c" are incorrect. If the change in accounting principle were material for the current year, it would be treated as a consistency modification in the auditor's report for the current year. Since there is no material effect in the current year, no modification to the auditor's report is required.
Choice "d" is incorrect. A change in accounting principle is not a "subsequent event."



To exercise due professional care an auditor should:

  1. Critically review the judgment exercised by those assisting in the audit.
  2. Examine all available corroborating evidence supporting management's assertions.
  3. Design the audit to detect all instances of illegal acts.
  4. Attain the proper balance of professional experience and formal education.

Answer(s): A

Explanation:

Choice "a" is correct. To exercise due professional care, an auditor should critically review the judgment exercised by those assisting in the audit.
Choice "b" is incorrect. An auditor examines some (but not all) available corroborating evidence supporting management's assertions. Examination of all evidence would not be feasible. Choice "c" is incorrect. An auditor has a reasonable responsibility to design the audit to detect material instances of illegal acts, errors, and irregularities. It would not be feasible to design an audit to detect all instances of illegal acts.
Choice "d" is incorrect. "Due professional care" pertains to the performance of the audit and the preparation of the report. The training standard relates to the balance of professional experience and formal education of those performing the audit.



This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A may be selected once, more than once, or not at all.
Assume:
· The auditor is independent.
· The auditor previously expressed an unqualified opinion on the prior year's financial statements. · Only single-year (not comparative) statements are presented for the current year. · The conditions for an unqualified opinion exist unless contradicted in the factual situations. · The conditions stated in the factual situations are material. · No report modifications are to be made except in response to the factual situation.
Item to Be Answered
In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained.
List A
Types of Options

  1. An "except for" qualified opinion.
  2. An unqualified opinion.
  3. An adverse opinion.
  4. A disclaimer of opinion.
  5. Either an "except for" qualified opinion or an adverse opinion.
  6. Either a disclaimer of opinion or an "except for" qualified opinion.
  7. Either an adverse opinion or a disclaimer of opinion.

Answer(s): F

Explanation:

Choice "F" is the correct opinion. This is a scope limitation. Either a disclaimer of opinion (if the item is very material) or an "except for" qualified opinion (if the item is material) should be issued.



This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all.
Assume:
· The auditor is independent.
· The auditor previously expressed an unqualified opinion on the prior year's financial statements. · Only single-year (not comparative) statements are presented for the current year. · The conditions for an unqualified opinion exist unless contradicted in the factual situations. · The conditions stated in the factual situations are material. · No report modifications are to be made except in response to the factual situation.
Item to Be Answered
In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained.
List B
Report Modifications

  1. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
  2. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
  3. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph.
  4. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph.
  5. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
  6. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
  7. Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
  8. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
  9. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
  10. Issue the standard auditor's report without modification.

Answer(s): E

Explanation:

Choice "E" is the correct modification. The situation calls for a qualified opinion or a disclaimer of opinion, but none of the choices adequately describes a disclaimer. Therefore, a qualified opinion is the best answer. The circumstances should be described in an explanatory paragraph preceding the opinion paragraph and the scope and opinion paragraphs should be modified.



This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A may be selected once, more than once, or not at all.
Assume:
· The auditor is independent.
· The auditor previously expressed an unqualified opinion on the prior year's financial statements. · Only single-year (not comparative) statements are presented for the current year. · The conditions for an unqualified opinion exist unless contradicted in the factual situations. · The conditions stated in the factual situations are material. · No report modifications are to be made except in response to the factual situation.
Item to Be Answered
Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate.

List A
Types of Options

  1. An "except for" qualified opinion.
  2. An unqualified opinion.
  3. An adverse opinion.
  4. A disclaimer of opinion.
  5. Either an "except for" qualified opinion or an adverse opinion.
  6. Either a disclaimer of opinion or an "except for" qualified opinion.
  7. Either an adverse opinion or a disclaimer of opinion.

Answer(s): B

Explanation:

Choice "B" is the correct opinion. In a going concern situation that is properly disclosed, an unqualified opinion should be issued.



This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all.
Assume:
· The auditor is independent.
· The auditor previously expressed an unqualified opinion on the prior year's financial statements. · Only single-year (not comparative) statements are presented for the current year. · The conditions for an unqualified opinion exist unless contradicted in the factual situations. · The conditions stated in the factual situations are material. · No report modifications are to be made except in response to the factual situation.
Item to Be Answered
Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate.
List B
Report Modifications

  1. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
  2. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
  3. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph.
  4. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph.
  5. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
  6. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
  7. Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
  8. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
  9. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
  10. Issue the standard auditor's report without modification.

Answer(s): B

Explanation:

Choice "B" is the correct modification. The circumstances should be described in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.



This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A may be selected once, more than once, or not at all.
Assume:
· The auditor is independent.
· The auditor previously expressed an unqualified opinion on the prior year's financial statements. · Only single-year (not comparative) statements are presented for the current year. · The conditions for an unqualified opinion exist unless contradicted in the factual situations. · The conditions stated in the factual situations are material. · No report modifications are to be made except in response to the factual situation.
Item to Be Answered
A principal auditor decides to take responsibility for the work of another CPA who audited a wholly- owned subsidiary of the entity and issued an unqualified opinion. The total assets and revenues of the subsidiary represent 17% and 18%, respectively, of the total assets and revenues of the entity being audited.
List A
Types of Options

  1. An "except for" qualified opinion.
  2. An unqualified opinion.
  3. An adverse opinion.
  4. A disclaimer of opinion.
  5. Either an "except for" qualified opinion or an adverse opinion.
  6. Either a disclaimer of opinion or an "except for" qualified opinion.
  7. Either an adverse opinion or a disclaimer of opinion.

Answer(s): B

Explanation:

Choice "B" is the correct opinion. An unqualified opinion should be issued.



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