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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 32 )

Updated On: 12-Feb-2026
Page 32 of 207
PDF with 1026 Questions

Management of Hill Company has decided not to account for a material transaction in accordance with the provisions of an FASB Standard. In setting forth its reasons in a note to the financial statements, management has clearly demonstrated that due to unusual circumstances the financial statements presented in accordance with the FASB Standard would be misleading. The auditor's report should include a separate explanatory paragraph and contain a(an):

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

Answer(s): D

Explanation:

Choice "d" is correct. In unusual circumstances, where the literal application of accounting standards would make the FS misleading (e.g., new legislation or new business practices), the proper accounting treatment is that which will more fairly present the FS. In such a case, the auditor should express an unqualified opinion on the financial statements and include a separate explanatory paragraph.
Choice "a" is incorrect. Under the circumstances, the method of accounting selected by the client is justified. There is no need for an "except for" qualification. Choice "b" is incorrect. "Subject to" opinions are not acceptable under any circumstances. Choice "c" is incorrect. An adverse opinion is not appropriate since the financial statements as prepared by the client are fairly presented.



A former client requests a predecessor auditor to reissue an audit report on a prior period's financial statements. The financial statements are not restated and the report is not reviseD. What date(s) should the predecessor auditor use in the reissued report?

  1. The date of the prior-period report.
  2. The date of the client's request.
  3. The date of reissue.
  4. The dual-dates.

Answer(s): A

Explanation:

Choice "a" is correct. The date of the prior-period report should be used as long as the FS are not restated, the report is not revised, and no significant changes have occurred that would affect the prior FS.
Choices "b" and "c" are incorrect. Using the date of the client's request or the date of reissue would extend the auditor's responsibility to that date.
Choice "d" is incorrect. The auditor may dual date the report if a material subsequent event has occurred, but dual dating is not used for reissuing a report.



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.






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