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Free AICPA CPA-Auditing Exam Questions (page: 9)

Page 9 of 130
PDF with 1026 Questions

Green, CPA, concludes that there is substantial doubt about JKL Co.'s ability to continue as a going concern. If JKL's financial statements adequately disclose its financial difficulties, Green's auditor's report should:

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

Answer(s): A

Explanation:

Choice "a" is correct. "Yes - Yes - Yes."
When a CPA concludes that there is substantial doubt about an entity's ability to continue as a going concern and the entity adequately discloses its financial difficulties, an unqualified opinion is appropriate.
An explanatory paragraph (following the opinion paragraph) should be used to highlight the situation.
This paragraph should include the phrases "substantial doubt" and "going concern." Choices "b", "c", and "d" are incorrect, per above.



An auditor may reasonably issue an "except for" qualified opinion for a(an):

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

Answer(s): C

Explanation:

Choice "c" is correct. Yes - Yes.
An "except for" qualified opinion is expressed when the "exceptions to GAAP" are not material enough to warrant an adverse opinion, or when scope restrictions are not material enough to warrant a disclaimer.
Choices "a", "b", and "d" are incorrect, per rule above.



The following explanatory paragraph was included in an auditor's report to indicate a lack of consistency:
"As discussed in note T to the financial statements, the company changed its method of computing depreciation in X0."
How should the auditor report on this matter if the auditor concurred with the change? Type of Location of opinion explanatory paragraph

  1. Unqualified Before opinion paragraph
  2. Unqualified After opinion paragraph
  3. Qualified Before opinion paragraph
  4. Qualified After opinion paragraph

Answer(s): B

Explanation:

Choice "b" is correct. If the auditor concurred with the change, a lack of consistency in applying GAAP would result in an unqualified opinion with an explanatory paragraph following the opinion paragraph.
Choice "c" is incorrect. If the change in accounting principle is not accounted for properly, then a qualified opinion would be appropriate and the explanatory paragraph would appear before the opinion paragraph.
Choices "a" and "d" are incorrect, per the above rules.



How does an auditor make the following representations when issuing the standard auditor's report on comparative financial statements?

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

Answer(s): D

Explanation:

Choice "d" is correct. Explicitly - Implicitly.
The auditor explicitly states in the scope paragraph of his opinion: "an audit includes examining, on a test basis, evidence supporting..."
Consistency is implied in the auditor's standard report. Choices "a", "b", and "c" are incorrect, as per above Explanation.



An auditor was unable to obtain sufficient appropriate audit evidence concerning certain transactions due to an inadequacy in the entity's accounting records. The auditor would choose between issuing a(an):

  1. Qualified opinion and an unqualified opinion with an explanatory paragraph.
  2. Unqualified opinion with an explanatory paragraph and an adverse opinion.
  3. Adverse opinion and a disclaimer of opinion.
  4. Disclaimer of opinion and a qualified opinion.

Answer(s): D

Explanation:

Choice "d" is correct. Client-imposed restrictions of scope such as those caused by inadequate records would cause the auditor to choose between issuing a disclaimer of opinion and a qualified opinion.
Choice "a" is incorrect. An unqualified opinion would only be justified if the transactions in question were not material, but in such situations, no explanatory paragraph would be required. Choices "b" and "c" are incorrect. An adverse opinion pertains to GAAP and would not be used for reporting restrictions of scope.



In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity?

  1. The other auditor was retained by the principal auditor and the work was performed under the principal auditor's guidance and control.
  2. The principal auditor finds it impracticable to review the other auditor's work or otherwise be satisfied as to the other auditor's work.
  3. The financial statements audited by the other auditor are material to the consolidated financial statements covered by the principal auditor's opinion.
  4. The principal auditor is unable to be satisfied as to the independence and professional reputation of the other auditor.

Answer(s): A

Explanation:

Choice "a" is correct.
When the principal auditor assumes responsibility for the other auditor's work, the principal auditor would not mention the other auditor in his audit report (opinion). The principal auditor would generally assume responsibility after reviewing the audit documentation of the other auditor and performing supplemental audit tests, or by reputation, e.g., if the other auditor is a correspondent (foreign) firm in which the principal auditor has developed confidence. Choices "b" and "c" are incorrect.
When the principal auditor finds it impractical to review the other auditor's work, or when the FS audited by the other auditor are material, it is more likely that the principal auditor will divide responsibility and make reference to the other auditor. Choice "d" is incorrect. The principal auditor should always make inquiries regarding the independence and professional reputation of the other auditor. Inability to become satisfied in this regard would constitute a scope limitation, resulting in a qualified opinion or disclaimer of opinion. In either of these scenarios, it is likely that the other auditor would be mentioned within an explanatory paragraph.



In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?

  1. The auditor wishes to emphasize that the entity had significant related party transactions.
  2. The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion.
  3. The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows.
  4. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.

Answer(s): B

Explanation:

Choice "b" is correct. An auditor would generally issue an unqualified audit opinion without an explanatory paragraph when the auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion. The auditor would modify his/her report (all three paragraphs), but would not add an explanatory paragraph. Choices "a" and "d" are incorrect. An auditor ordinarily would issue an unqualified opinion with an explanatory paragraph if he or she wishes to emphasize that the entity had significant related party transactions, or if the auditor has substantial doubt about the entity's ability to continue as a going concern (even if the circumstances are fully disclosed in the financial statements). Choice "c" is incorrect. If the entity issues financial statements that present financial position and results of operations but omit the statement of cash flows, the opinion will be qualified.



When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented and the auditor concurs with the change, the auditor should:

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

Answer(s): A

Explanation:

Choice "a" is correct. No - No - Yes.
When a change in accounting principle materially affects the comparability of the comparative FS, the auditor should refer to the change in an explanatory paragraph following the unqualified opinion paragraph.
Choices "b" and "c" are incorrect. The auditor's concurrence with a change in GAAP is implicit, not explicit.
Choice "d" is incorrect. An unqualified opinion should be issued, not an "except for" qualified opinion.



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