Issuing stock options does not fall into any of these categories and would not be considered a
mitigating factor. Choice "d" is incorrect. Mitigating factors in a going concern situation include
plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay
expenditures, or plans to increase ownership equity. Accelerating the due date of an existing
mortgage would increase expenditures, and therefore would not be a mitigating factor.
QUESTION: 77
Which of the following is true regarding the standard audit report for an issuer?

A. Reference should be made in the scope paragraph to both PCAOB standards and generally
accepted auditing standards.
B. PCAOB standards should not be mentioned at al , although their use is implied in the
standard auditor's report.
C. Reference should be made in the scope paragraph to PCAOB standards, and in the opinion
paragraph to generally accepted accounting principles.
D. Reference may be made in the scope paragraph to either PCAOB standards or generally
accepted auditing standards.

Answer(s): C
Explanation:
Choice "c" is correct. An auditor reporting on the audit of financial statements of an issuer
should indicate in the scope paragraph that the engagement was conducted in accordance with
PCAOB standards, and should refer to GAAP in the opinion paragraph. Choice "a" is incorrect.
An auditor reporting on the audit of financial statements of a nonissuer may (but is not required
to) refer to both PCAOB standards and generally accepted auditing standards in the scope
paragraph. Audit reports for audits of issuers refer only to PCAOB standards in the scope
paragraph. Choice "b" is incorrect. An auditor reporting on the audit of financial statements of an
issuer should indicate in the scope paragraph that the engagement was conducted in
accordance with PCAOB standards. This is an explicit statement in the report; it is not implied or
assumed. Choice "d" is incorrect. An auditor reporting on the audit of financial statements of an
issuer should indicate in the scope paragraph that the engagement was conducted in
accordance with PCAOB standards. Referring to generally accepted auditing standards instead
is not an option, as audits of issuers must follow PCAOB standards.
QUESTION: 78
Under which of the following circumstances would an auditor's expression of an unqualified
opinion be inappropriate?

A. The auditor is unable to obtain the audited financial statements of a significant subsidiary.
B. The financial statements are prepared on the entity's income tax basis.
C. There are significant deficiencies in the design and operation of the entity's internal control.
D. Analytical procedures indicate that many year-end account balances are not comparable with
the prior year's balances.

Answer(s): A
Explanation:
Choice "a" is correct. If the auditor is unable to obtain the audited financial statements of a
significant subsidiary, a scope limitation exists. Assuming the effect is material, the auditor
would issue either a qualified opinion or a disclaimer of opinion. Choice "b" is incorrect.

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