management has demonstrated that the company could remain in operation for a longer period
of time, thereby mitigating the need for an explanatory paragraph describing the matter. Choices
"a", "b", and "d" are incorrect. Evidence regarding the ability to expand operations into new
product lines in the future, the feasibility of plans to purchase leased equipment at less than
market value, or committed arrangements to convert preferred stock to long-term debt would not
be sufficient to mitigate doubts about an entity's ability to continue as a going concern, unless it
could also be demonstrated that the events would provide adequate cash flow to fund
operations for at least the next year.
QUESTION: 141
An auditor was unable to obtain audited financial statements or other evidence supporting an
entity's investment in a foreign subsidiary. Between which of the following opinions should the
entity's auditor choose?

A. Adverse and unqualified with an explanatory paragraph added.
B. Disclaimer and unqualified with an explanatory paragraph added.
C. Qualified and adverse.
D. Qualified and disclaimer.

Answer(s): D
Explanation:
Choice "d" is correct. When an auditor is unable to obtain audited financial statements or other
evidence supporting an entity's investment in a subsidiary (foreign or domestic), the auditor
should issue a qualified or disclaimer of opinion depending on the materiality of the investment
in the subsidiary. Choices "a", "b", and "c" are incorrect. An adverse opinion is only issued when
the FS are not presented fairly in conformity with GAAP, and an unqualified opinion with an
explanatory paragraph is not appropriate for a scope limitation.
QUESTION: 142
Which of the following standards requires a critical review of the work done and the judgment
exercised by those assisting in an audit at every level of supervision?

A. Proficiency.
B. Audit risk.
C. Inspection.
D. Due care.

Answer(s): D
Explanation:
Choice "d" is correct. The third general standard is: "The auditor must exercise due professional
care in the planning and performance of the audit and the preparation of the report." This
standard is interpreted to require a critical review of the work performed and the judgment
exercised at every level of supervision. Choice "a" is incorrect. Proficiency relates to the first
general standard (technical training and proficiency of an auditor). Choice "b" is incorrect. Audit
risk and materiality underlie the application of all the standards of fieldwork and reporting, but
are not standards themselves. Choice "c" is incorrect. Inspection pertains to the audit evidence
standard, which is the third standard of fieldwork.

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