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:
Answer(s): A
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:
Answer(s): B
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:
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 AnsweredIn 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 ATypes of Options
Answer(s): F
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 AnsweredIn 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 BReport Modifications
Answer(s): E
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.
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