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. The principal auditor makes reference in the audit report to the work of the
other auditor when the principal auditor is unable to review the other auditor's audit
documentation. This is because the principal auditor will be unable to be satisfied concerning
the work performed by the other auditor. Even though the other auditor has an excellent
reputation, the principal auditor must see the work to be able to assume responsibility for it.
Choice "a" is incorrect. When the principal auditor decides to assume responsibility for the work
of the other independent auditor, no reference is made to the work of the other auditor,
regardless of the type of audit report expressed. Choice "c" is incorrect. When the principal
auditor decides to assume responsibility for the work of the other independent auditor, no
reference is made to the work of the other auditor, regardless of the type of audit report
expressed. Choice "d" is incorrect. The principal auditor wil make reference in the audit report
to the work of the other auditor when the principal auditor is unable to review the other auditor's
audit documentation. This is because the principal auditor wil be unable to be satisfied
concerning the work performed by the other auditor. Even though the other auditor has an
excellent reputation, the principal auditor must see the work to be able to assume responsibility
for it.
QUESTION: 20
Cooper, CPA, believes there is substantial doubt about the ability of Zero Corp. to continue as a
going concern for a reasonable period of time. In evaluating Zero's plans for dealing with the
adverse effects of future conditions and events, Cooper most likely would consider, as a
mitigating factor, Zero's plans to:

A. Discuss with lenders the terms of all debt and loan agreements.
B. Strengthen internal controls over cash disbursements.
C. Purchase production facilities currently being leased from a related party.
D. Postpone expenditures for research and development projects.

Answer(s): B
Explanation:
Choice "d" is correct. When assessing management's plans for dealing with the adverse effects
of future conditions and events, mitigating factors would include:
1. The postponement of expenditures (including R&D),
2. Plans to dispose of assets,

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