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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 31 )

Updated On: 12-Feb-2026
Page 31 of 207
PDF with 1026 Questions

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by the:

  1. Lack of sufficient evidence.
  2. Inability to estimate the amount of loss.
  3. Entity's lack of experience with such litigation.
  4. Lack of insurance coverage for possible losses from such litigation.

Answer(s): A

Explanation:

Choice "a" is correct. Lack of sufficient evidence to support management's assertions would most likely cause an auditor to issue a qualified or disclaimer of opinion. Choice "b" is incorrect. As long as it is fully disclosed, an inability to estimate the amount of loss from a future event (outcome of pending legislation) would most likely result in an unqualified opinion. Choices "c" and "d" are incorrect. Neither a lack of experience nor a lack of insurance coverage would impact the auditor's report.



It is not appropriate to refer a reader of an auditor's report to a financial statement footnote for details concerning:

  1. Subsequent events.
  2. The pro forma effects of a business combination.
  3. Sale of a discontinued operation.
  4. The results of confirmation of receivables.

Answer(s): D

Explanation:

Choice "d" is correct. Details concerning the results of audit procedures (such as the results of confirmation of receivables) generally do not appear in the footnotes. Choice "a" is incorrect. Subsequent events may be discussed in an explanatory paragraph of the auditor's report, which would also refer to the related footnote. Choice "b" is incorrect. The pro forma effects of a business combination may be included in an explanatory paragraph of the auditor's report, which would also refer to the related footnote. Choice "c" is incorrect. Sale of a discontinued operation may be discussed in an explanatory paragraph of the auditor's report, which would also refer to the related footnote.



Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris should:

  1. Express an unqualified opinion with a separate explanatory paragraph.
  2. Disclaim an opinion on the financial statements.
  3. Express an adverse opinion on the financial statements.
  4. Issue a special report regarding the illegal bribes.

Answer(s): B

Explanation:

Choice "b" is correct. Since the CPA could not determine whether the suspected illegal bribes were material to the financial statements, or whether senior management was involved in the scheme, Morris should disclaim an opinion on the financial statements. Choice "a" is incorrect. An unqualified opinion with a separate explanatory paragraph is not appropriate if suspected material illegal bribes cannot be disproven. Choice "c" is incorrect. An adverse opinion is inappropriate since the suspected material illegal bribes have not been proven, nor has any material effect on the financial statements been determined. Choice "d" is incorrect. Special reports are not issued regarding illegal bribes.



The first general standard requires that an audit of financial statements is to be performed by a person or persons having:

  1. Seasoned judgment in varying degrees of supervision and review.
  2. Adequate technical training and proficiency.
  3. Knowledge of the standards of fieldwork and reporting.
  4. Independence with respect to the financial statements and supplementary disclosures.

Answer(s): B

Explanation:

Choice "b" is correct. The "first" general standard states that the auditor must have adequate technical training and proficiency to perform the audit. Comment: It is important to memorize the 10 auditing standards. Choices "a", "c", and "d" are incorrect, as they do not represent a requirement of the first general standard of reporting.



An auditor's report that refers to the use of an accounting principle at variance with generally accepted accounting principles contains the words, "In our opinion, with the foregoing Explanation: , the financial statements referred to above present fairly...." This is considered an:

  1. Adverse opinion.
  2. "Except for" qualified opinion.
  3. Unqualified opinion with an explanatory paragraph.
  4. Example of inappropriate reporting.

Answer(s): D

Explanation:

Choice "d" is correct. "In our opinion, with the foregoing , the FS referred to above present fairly" is an example of inappropriate reporting.
When an auditor's report refers to the use of an accounting principle at variance with GAAP, the words, "in our opinion, except for the effects of the matters discussed in the preceding paragraph, the FS referred to above present fairly,..." should be used.
Choice "a" is incorrect. An adverse opinion would include the phrase, "...do not present fairly..." Choice "b" is incorrect. A qualified opinion would include the phrase, "In our opinion, except for the [problem] discussed in the preceding paragraph,..."
Choice "c" is incorrect. An unqualified opinion would not include the phrase "with the foregoing " in an explanatory paragraph.






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