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Free AICPA CPA-Auditing Exam Questions (page: 23)

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PDF with 1026 Questions

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
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 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): J

Explanation:

Choice "J" is the correct modification.
When assuming responsibility for another auditor's work, the principal auditor should issue the standard auditor's report without modification.



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
An entity issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe the statement of cash flows to be a useful financial statement.
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): A

Explanation:

Choice "A" is the correct opinion. Failure to include a statement of cash flows is a GAAP violation that requires an "except for" qualified opinion to 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
An entity issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe the statement of cash flows to be a useful financial statement.
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): C

Explanation:

Choice "C" is the correct modification. The circumstances should be described in an explanatory paragraph preceding the opinion paragraph and the opinion paragraph 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
An entity changes its depreciation method for production equipment from the straight-line to a units-of production method based on hours of utilization. The auditor concurs with the change although it has a material effect on the comparability of the entity's financial statements.
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.
When an accounting change is properly accounted for, 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
An entity changes its depreciation method for production equipment from the straight-line to a units-of production method based on hours of utilization. The auditor concurs with the change although it has a material effect on the comparability of the entity's financial statements.
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. Such changes 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
An entity is a defendant in a lawsuit alleging infringement of certain patent rights. However, the ultimate outcome of the litigation cannot be reasonably estimated by management. The auditor believes there is a reasonable possibility of a significantly material loss, but the lawsuit is adequately disclosed in the notes to the financial statements.
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. Since the uncertainty is adequately 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
An entity is a defendant in a lawsuit alleging infringement of certain patent rights. However, the ultimate outcome of the litigation cannot be reasonably estimated by management. The auditor believes there is a reasonable possibility of a significantly material loss, but the lawsuit is adequately disclosed in the notes to the financial statements.
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): J

Explanation:

Choice "J" is the correct modification. The standard auditor's report should be issued without modification.



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
An entity discloses in the notes to the financial statements certain lease obligations. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.
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): E

Explanation:

Choice "E" is the correct opinion. This is a GAAP departure. Either an "except for" qualified opinion (if the item is material) or an adverse opinion (if the item is very material) should be issued.



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