inappropriately prepared, or the auditor was unable to satisfactorily complete required
procedures). Choice "b" is incorrect. An audit can and should be performed in accordance with
generally accepted auditing standards even when required supplementary information is
presented. Choice "c" is incorrect. The auditor should perform certain limited procedures on
supplementary information accompanying the financial statements.
QUESTION: 124
An auditor reads the letter of transmittal accompanying a county's comprehensive annual
financial report and identifies a material inconsistency with the financial statements. The auditor
determines that the financial statements do not require revision. Which of the following actions
should the auditor take?

A. Request that the client revise the letter of transmittal.
B. Include an explanatory paragraph in the auditor's report.
C. Consider withdrawing from the engagement.
D. Request a client representation letter acknowledging the inconsistency.

Answer(s): A
Explanation:
Choice "a" is correct. When information accompanies audited financial statements in a client-
prepared document, the auditor is required to read the information. If such information is
materially inconsistent with the financial statements and the financial statements do not require
revision, the auditor should request that the information (in this case the letter of transmittal) be
revised. Choice "b" is incorrect. The auditor would only revise the report to include discussion of
the material inconsistency if the client were unwil ing to revise the transmittal letter
appropriately. Choice "c" is incorrect. The auditor would only consider withdrawing from the
engagement if the client were unwil ing to revise the transmittal letter appropriately. Choice "d"
is incorrect. The auditor would not request a client representation letter acknowledging the
inconsistency, as correction (and not simply acknowledgment) of the error is desired.
QUESTION: 125
Pell, CPA, decides to serve as principal auditor in the audit of the financial statements of Tech
Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should
Pell make reference to Smith's audit?

I). Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but
expresses a qualified opinion on Tech's financial statements.
II). Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that
Smith has an excellent reputation for professional competence and integrity.

A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

Answer(s): B
Explanation:
Choice "b" is correct. II only. If Pell is unable to review Smith's audit documentation, but
inquiries indicate that Smith has an excellent reputation for professional competence and

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