Answer(s): B
Explanation:
Choice "b" is correct. A "disclaimer of opinion" must be issued when a CPA is "associated" with
FS of a publicly held entity, but has not audited or (interim) reviewed such FS. Choice "a" is
incorrect. A "compilation report" refers to a report related to a non-public entity. Choice "c" is
incorrect. There is no such thing as an "unaudited association report." Choice "d" is incorrect.
The auditor did not audit the FS, so he/she cannot issue an opinion on them.
QUESTION: 71
Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any
physical inventories. These inventories account for 40% of the entity's assets. Alternative
auditing procedures cannot be applied due to the nature of the entity's records. Under these
circumstances, the auditor should express a(an):

A. Disclaimer of opinion.
B. Qualified opinion.
C. Adverse opinion.
D. Unqualified opinion with an explanatory paragraph.

Answer(s): A
Explanation:
Choice "a" is correct. Since the auditor is unable to observe inventory or apply alternative audit
procedures, a scope limitation exists. Due to the significance of the inventory balance (40% of
total assets is quite material), a disclaimer of opinion (rather than simply a qualification) is
appropriate. Choice "b" is incorrect. Since the inventory balance is so material, a qualified
opinion is not sufficient in this case.
Choice "c" is incorrect. An adverse opinion is not an appropriate response to a scope limitation.
Choice "d" is incorrect. Since the scope limitation relates to a material balance, an unqualified
opinion is not appropriate.
QUESTION: 72
Which of the following audit procedures most likely would assist an auditor in identifying
conditions and events that may indicate substantial doubt about an entity's ability to continue as
a going concern?

A. Reading the minutes of meetings of the stockholders and the board of directors.
B. Comparing the market value of property to amounts owed on the property.
C. Reviewing lease agreements to determine whether leased assets should be capitalized.
D. Inspecting title documents to verify whether any assets are pledged as collateral.

Answer(s): A
Explanation:
Choice "a" is correct. The auditor should examine any evidence that appears contrary to the
basic principle of going concern. Reviewing the minutes from stockholder and board of director
meetings is one procedure that is used in this regard. Choice "b" is incorrect. Comparison of the
market value of property to amounts owed on the property determines its net value, but would
not necessarily indicate a going concern issue. Choice "c" is incorrect. Reviewing lease
agreements to determine whether leased assets should be capitalized is important in evaluating
the financial statements, but it would not provide evidence of going concern issues. Choice "d"

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