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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 6 )

Updated On: 9-Feb-2026
Page 6 of 207
PDF with 1026 Questions

Which of the following statements is a basic element of the auditor's standard report?

  1. The disclosures provide reasonable assurance that the financial statements are free of material misstatement.
  2. The auditor evaluated the overall internal control.
  3. An audit includes assessing significant estimates made by management.
  4. The financial statements are consistent with those of the prior period.

Answer(s): C

Explanation:

Choice "c" is correct. The auditor's standard audit report includes a statement that "An audit includes assessing...significant estimates made by management..." Choice "a" is incorrect. The standard audit report does not state that disclosures provide reasonable assurance that the financial statements are free of material misstatement. The correct statement is:
"...standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement." Choice "b" is incorrect. The standard audit report does not state that the auditor evaluated the overall internal control. The correct statement is "An audit includes...evaluating the overall financial statement presentation." Internal control is not mentioned in the standard audit report. Choice "d" is incorrect. The standard audit report does not state "The financial statements are consistent with those of the prior period." According to the second standard of reporting, consistency is implicitly reported. Only if there is an inconsistency is an explicit statement included.



An auditor may not issue a qualified opinion when:

  1. An accounting principle at variance with GAAP is used.
  2. The auditor lacks independence with respect to the audited entity.
  3. A scope limitation prevents the auditor from completing an important audit procedure.
  4. The auditor's report refers to the work of a specialist.

Answer(s): B

Explanation:

Choice "b" is correct. If the auditor lacks independence with respect to an audit client, the auditor must disclaim an opinion on the financial statements. A qualified opinion is not an option. Choice "a" is incorrect. A departure from GAAP (which is not sufficiently material to warrant an adverse opinion) may justify a qualification of the auditor's report. Choice "c" is incorrect. A scope limitation may result in a qualified opinion or a disclaimer of opinion. Choice "d" is incorrect. The auditor's report may make reference to the use of a specialist only if the specialist's findings result in a change to the auditor's report, such as a qualified opinion.



An auditor most likely would express an unqualified opinion and would not add explanatory language to the report if the auditor:

  1. Wishes to emphasize that the entity had significant transactions with related parties.
  2. Concurs with the entity's change in its method of computing depreciation.
  3. Discovers that supplementary information required by FASB has been omitted.
  4. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.

Answer(s): D

Explanation:

Choice "d" is correct. An auditor most likely would express an unqualified opinion and would not add explanatory language to the report if the auditor believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed. Choice "a" is incorrect. Emphasis of a matter, such as the existence of significant transactions with related parties, may result in an additional explanatory paragraph appended to an otherwise unqualified opinion.
Choice "b" is incorrect. A change in accounting principle does result in an additional explanatory paragraph appended to an otherwise unqualified opinion. Choice "c" is incorrect. Omission of supplemental information required by GAAP does result in an additional explanatory paragraph appended to an otherwise unqualified opinion.



An auditor would express an unqualified opinion with an explanatory paragraph added to the auditor's report for:

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

Answer(s): D

Explanation:

Choice "d" is correct. An unjustified accounting change may cause the auditor to issue a qualified or adverse opinion. A material weakness must be reported to management and those charged with governance, but would not be disclosed in an explanatory paragraph appended to an otherwise unqualified opinion.
Choices "a", "b", and "c" are incorrect, as per the above Explanation.



Digit Co. uses the FIFO method of costing for its international subsidiary's inventory and LIFO for its domestic inventory. Under these circumstances, the auditor's report on Digit's financial statements should express an:

  1. Unqualified opinion.
  2. Opinion qualified because of a lack of consistency.
  3. Opinion qualified because of a departure from GAAP.
  4. Adverse opinion.

Answer(s): A

Explanation:

Choice "a" is correct. GAAP allows a company to use different methods for costing different inventories as long as the methods are disclosed. Thus, the audit report would be unqualified; there is no departure from GAAP.
Choice "b" is incorrect. The consistency standard refers to changes in application of accounting practices between periods, affecting the comparability of financial statements. There is no indication Digit made any change in methods.
Choice "c" is incorrect. Use of different methods for costing inventory is permissible under GAAP, and would not result in a qualification of the auditor's report. Choice "d" is incorrect. Use of different methods for costing inventory is permissible under GAAP, and would not result in an adverse report.






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