Cisco
CompTIA
ISC
EC-Council
EXIN
Fortinet
ITIL
Juniper
Microsoft
VMware
Avaya
SAP
Google
NVIDIA
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk
ServiceNow
All Vendors
  2. Home
  3. Exams
  4. AICPA
  5. CPA-Auditing

AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 40 )

Updated On: 12-Feb-2026
Page 40 of 207
PDF with 1026 Questions

Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta's auditor, discovers that the statements are not suitably titled, Wall should:

  1. Disclose any reservations in an explanatory paragraph and qualify the opinion.
  2. Apply to the state insurance commission for an advisory opinion.
  3. Issue a special statutory basis report that clearly disclaims any opinion.
  4. Explain in the notes to the financial statements the terminology used.

Answer(s): A

Explanation:

Choice "a" is correct. Financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP that are not suitably titled require a qualified opinion with an explanatory paragraph.
Choice "b" is incorrect. The financial statements are not suitably titleD. The auditor does not need any advice from the insurance commission as to how the statements should be titled or as to how to handle the situation.
Choice "c" is incorrect. The auditor would not disclaim an opinion unless there is a scope limitation or independence problem.
Choice "d" is incorrect. The notes to the financial statements are communications from management, not from the auditor.



Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Green audited the financial statements in accordance with generally accepted auditing standards and concluded that the financial statements were fairly presented on the prescribed basis. Green should issue a:

  1. Qualified opinion.
  2. Standard three paragraph report with reference to footnote disclosure.
  3. Disclaimer of opinion.
  4. Special report.

Answer(s): D

Explanation:

Choice "d" is correct. A "special report" (unqualified) would be issued in an audit of financial statements prepared on an accounting basis prescribed by a regulatory agency solely for filing with that agency.
Special reports are also issued for:
1. Financial statements that are prepared in accordance with a comprehensive basis of accounting other than GAAP.
2. Specified elements, accounts or items of a financial statement.
3. Compliance with contractual or regulatory requirements related to audited financial statements.
4. Financial information presented in prescribed forms, or schedules that require a prescribed form of auditor's report.
Choices "a" and "c" are incorrect. The special report would be unqualified since Green concluded that the financial statements were fairly presented on the prescribed basis. Choice "b" is incorrect. The wording of the special report varies slightly from the auditor's standard three paragraph report, and includes an additional explanatory paragraph.



An auditor's report would be designated a special report when it is issued in connection with:

  1. Interim financial information of a publicly held company that is subject to a limited review.
  2. Compliance with aspects of regulatory requirements related to audited financial statements.
  3. Application of accounting principles to specified transactions.
  4. Limited use prospective financial statements such as a financial projection.

Answer(s): B

Explanation:

Choice "b" is correct. An auditor's report would be designated a special report when it is issued in connection with compliance with aspects of regulatory requirements related to audited financial statements.
Choice "a" is incorrect. A "review report" (not a "special report") should be issued in connection with a limited review of interim financial information of a publicly held company. Choice "c" is incorrect. Special reports are not issued in connection with the application of accounting principles to specified transactions.
Choice "d" is incorrect. An auditor may compile, examine, or apply agreed-upon procedures to limited use prospective financial statements (PFS) such as a financial projection, but this would not constitute a special report.



When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should:

  1. Explain why this basis of accounting is more useful for the readers of this entity's financial statements than GAAP.
  2. Refer to the note in the financial statements that describes management's responsibility for the financial statements.
  3. State that the basis of presentation is a comprehensive basis of accounting (OCBOA) other than GAAP.
  4. Include a separate explanatory paragraph that discusses the justification for, and the CPA's concurrence with, the departure from GAAP.

Answer(s): C

Explanation:

Choice "c" is correct. A report on other comprehensive basis of accounting ("OCBOA") financial statements should include an explanatory paragraph stating the basis, referring to the footnote that describes it, and indicating that it is a non-GAAP basis. Choice "a" is incorrect. A report on other comprehensive basis of accounting ("OCBOA") financial statements does not include an evaluation of the usefulness of the basis of accounting. Choice "b" is incorrect. A report on other comprehensive basis of accounting ("OCBOA") financial statements makes reference to the note in the financial statements that describes the accounting basis, not to a note describing management's responsibility. Choice "d" is incorrect. The separate explanatory paragraph states the basis, refers to the footnote describing it, and indicates that it is a non-GAAP basis. It does not discuss the justification for the non-GAAP basis, nor does the CPA indicate concurrence.



Which option best describes the level of assurance provided in the following special reports?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): A

Explanation:

Choice "a" is correct. Positive assurance is provided in all of the listed reports except "compliance with contractual or regulatory requirements related to audited financial statements." Negative assurance is provided in this report.
Choices "b", "c", and "d" are incorrect, based on the above Explanation.






Post your Comments and Discuss AICPA CPA-Auditing exam prep with other Community members:

Join the CPA-Auditing Discussion