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HTML clipboard CPA MULTIPLE CHOICE QUESTIONS - Reporting
1. Thomas, CPA, is the principal auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Thomas is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's examination. With respect to Thomas' report on the financial statements, taken as a whole, Thomas
a. Must not refer to the examination of the other auditor.
b. Must refer to the examination of the other auditor.
c. May refer to the examination of the other auditor.
d. May refer to the examination of the other auditor, in which case Thomas must include in the auditor's report on the consolidated financial statements a qualified opinion with respect to the examination of the other auditor.
2. What is the objective of the reporting standard relating to consistency?
a. To give assurance that adequate disclosure will be made so that there will be comparability between companies in the same industry.
b. To give assurance that all comparability of F/S between periods has not been materially affected by changes in accounting principles without disclosure.
c. To give assurance that the comparability of financial statements between periods has not been materially affected by any change.
d. To give assurance only that the same accounting principles have been applied to all similar transactions within each period.
3. Which of the following best describes the reference to the expression "taken as a whole" in the fourth generally accepted audit standard of reporting?
a. It applies equally to a complete set of financial statements and to each individual financial statement.
b. It applies only to a complete set of financial statements.
c. It applies equally to each item in each financial statement.
d. It applies equally to each material item in each financial statement.
4. The opinion paragraph of a CPA's report begins: "In our opinion, based upon our audit and the report of other auditors, the accompanying consolidated balance sheet and consolidated statements of income and retained earnings and cash flows present fairly.... " This is
a. A partial disclaimer of opinion.
b. An unqualified opinion.
c. An piecemeal opinion.
d. A qualified opinion.
5. The management of a client company believes that the statement of cash flows is not a useful document and refuses to include one in the annual report to stockholders. As a result of this circumstances, the auditor's opinion should be
a. Qualified due to inadequate disclosure.
b. Qualified due to a scope limitation.
c. Adverse.
d. Unqualified.
6. A note to the financial statements of the First Security Bank indicates that all of the records relating to the bank's business operations are stored on magnetic discs and that there are no emergency back-up systems or duplicate discs stored since the First Security Bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, one would expect the auditor's report to express
a. A disclaimer of opinion.
b. An unqualified opinion with an explanatory paragraph.
c. An unqualified opinion.
d. A qualified opinion.
7. If the auditor believes that required disclosures of a significant nature are omitted from the financial statements under examination, the auditor should decide between issuing
a. Qualified opinion or an adverse opinion.
b. A disclaimer of opinion or a qualified opinion.
c. An adverse opinion or a disclaimer of opinion.
d. An unqualified opinion or a qualified opinion.
8. An opinion as to the "fairness" of financial statement presentation in accordance with generally accepted accounting principles is based on several judgments made by the auditor. One such judgment is whether the accounting principles used
a. Have general acceptance.
b. Are promulgated by the AICPA Auditing Standards Board.
c. Are the most conservative of those available for use.
d. Emphasize the legal form of transactions.
9. When the report of a principal auditor makes reference to the audit by another auditor, the other auditor may be named if express permission to do so is given and if
a. The report of the principal auditor names the other auditor in both the introductory and opinion paragraphs.
b. The principal auditor accepts responsibility for the work of the other auditor.
c. The report of the other auditor is presented together with the report of the principal auditor.
d. The other auditor is not an associate or correspondent firm whose work is done at the request of the principal auditor.
10. An auditor's opinion reads as follows: "In our opinion, except for the above-mentioned scope limitation..." This is an example of a (an)
a. Review opinion.
b. Emphasis of a matter.
c. Qualified opinion.
d. Unacceptable reporting practice.
NOTE: This wording bases the exception on the restriction, when it should be based on the effects on the F/S. Should have read "Except for adjustments needed if we had been able to observe inventory."
11. An auditor's report includes a statement that, "the financial statements do not present fairly the financial position, results of operations or changes in cash flow in conformity with generally accepted accounting principles." This auditor's report was probably issued in connection with financial statements that were
a. Prepared on a comprehensive basis of accounting other than GAAP.
b. Restricted for use by management.
c. Misleading.
d. Condensed.
12. When a client will not make essential corporate minutes available to the auditor, the audit report will probably contain a(an)
a. Unqualified opinion.
b. Adverse opinion.
c. Qualified opinion.
d. Disclaimer of opinion.
13. The auditor who wishes to point out that the entity has significant transactions with related parties should disclose this fact in
a. An explanatory paragraph to the auditor's report.
b. An explanatory footnote to the financial statements.
c. The body of the financial statements.
d. The "Summary of significant accounting policies" section of the financial statements.
14. When the principal auditor decides to make reference to the other auditor's audit, the principal auditor's report should always indicate clearly, in both the introductory and opinion paragraphs, the
a. Magnitude of the portion of the financial statements audited by the other auditor.
b. Name of the other auditor.
c. Division of responsibility.
d. Disclaimer of responsibility with respect to the portion of the financial statements audited by the other auditor.
15. The CPA's reporting responsibilities are not met by attaching an explanation of the circumstances and a disclaimer of opinion to financial statements if the CPA
a. Has neither confirmed receivables nor observed the taking of the physical inventory.
b. Believes that the financial statements are false or misleading.
c. Is uncertain about the outcome of a material contingency.
d. Has not performed sufficient auditing procedures to express an opinion.
16. The use of an adverse opinion generally indicates
a. Uncertainty with respect to an item that is so material that the auditor cannot form an opinion on the fairness of presentation of the financial statements as a whole.
b. Uncertainty with respect to an item that is material, but not so material that the auditor cannot form an opinion on the fairness of the financial statements taken as a whole.
c. A violation of generally accepted accounting principles that has material effect on the fairness of presentation of the financial statements, but is not so material that a qualified opinion is not unjustified.
d. A violation of generally accepted accounting principles that is so material that a qualified opinion is not justified.
17. Footnotes to financial statements should not be used to
a. Describe the nature and effect of a change in accounting principles.
b. Identify substantial differences between book and tax income.
c. Correct an improper financial statement presentation.
d. Indicate basis for valuing assets.
18.The use of a disclaimer of opinion might indicate that the auditor
a. Is so uncertain with respect to an item that the auditor cannot form an opinion on the fairness of presentation of the financial statements as a whole.
b. Is uncertain with respect to an item that is material, but not so material that the auditor cannot form an opinion on the fairness of presentation of the financial statements as a whole.
c. Has observed a violation of generally accepted accounting principles that has a material effect on the fairness of presentation of financial statements, but not so material that a qualified report is unjustified.
d. Has observed a violation of generally accepted accounting principles that is so material that a qualified opinion is not justified.
19. Limitation on the scope of the audit may require the auditor to issue a qualified opinion or to disclaim an opinion. Which of the following would usually be a limitation on the scope of the audit?
a. The unavailability of sufficient competent evidential matter.
b. The engagement of the auditor to report on only one basic F/S.
c. The audit of a subsidiary's F/S by an auditor other than the one who audits and reports on the consolidated F/S.
d. The engagement of the auditor after year-end.
20. Clark, CPA, wishes to express an opinion that the financial statements of Smith Co. are presented in conformity with generally accepted accounting principles; however, the financial statements contain a departure from APB No. 5.
a. Under any circumstances, Clark would be in violation of the Code of Professional Ethics if he were to issue such an opinion.
b. Clark should disclaim an opinion.
c. Clark may issue the opinion he desires if he can demonstrate that due to unusual circumstances the financial statements of Smith Co. would otherwise have been misleading.
d. This specific situation is not covered by the rules established by the Code of Professional Ethics.
21. Addison Corporation is required to but does not wish to prepare and issue a statement of cash flows along with its other basic financial statements. Under these circumstances the independent auditor's report on the Addison financial statements should include
a. A qualified opinion with an explanatory paragraph explaining that the company declined to present the required statement.
b. An unqualified opinion with an accurate and complete statement of cash flows prepared by the auditor and included in the auditor's report.
c. An adverse opinion stating that the financial statements, taken as a whole, are not fairly presented because of the omission of the required statement.
d. A disclaimer of opinion with a separate explanatory paragraph stating why the company declined to present the required statement.
22. The opinion paragraph of a CPA's report begins: "In our opinion, based upon our audit and the report of the other auditors, the accompanying consolidated balance sheet and consolidated statements of income and retained earnings and cash flows present fairly...." This is
a. A disclaimer of opinion.
b. An unqualified opinion.
c. A "split" opinion.
d. A qualified opinion.
23. When a principal auditor decides to make reference to the audit of another auditor, the principal auditor's report should clearly indicate the
a. Principal auditor's qualification on the overall fairness of the financial statements, taken as a whole, subject to the work and report of the other auditor.
b. Procedures that were performed by the other auditor in connection with the other auditor's audit.
c. Division of responsibility between that portion of the F/S covered by the audit of the principal auditor and that covered by the audit of the other auditor.
d. Procedures that were performed by the principal auditor to obtain satisfaction as to the reasonableness of the audit of the other auditor.
24. Jackson, CPA, is the principal auditor for the Jones Corporation. He requests another CPA to perform the audit of a subsidiary corporation which is located in a distant state. Jackson has satisfied himself as to the independence, professional reputation, and conduct of the examination of the other auditor. What reference, if any, must Jackson make to the work of the other CPA assuming that he is willing to accept responsibility for his work?
a. He should indicate the extent of the other auditor's work in the scope paragraph of his report and state in the opinion paragraph that he accepts full responsibility for the work.
b. He need not make any reference to the audit or report of the other CPA.
c. He should make certain that the report of the other CPA accompanies his own.
d. He should indicate the extent of the other auditor's work in the scope paragraph of his report, but he need not make any reference to it in the opinion paragraph.
25. Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor, whose report is not presented. If the predecessor auditor's report was other than a standard report, the successor auditor must
a. Express an opinion on the current year statements alone and make no reference to the prior year statements.
b. Issue a standard comparative audit report indicating the division of responsibility.
c. Obtain written approval from the predecessor auditor to include the prior year's financial statements.
d. Disclose the reasons for any modification of the predecessor auditor's report.
26. When auditing a public entity's financial statements that include segment information, the auditor should
a. Make certain the segment info is labeled unaudited and determine that the information is consistent with the audited information.
b. Make certain the segment information is labeled unaudited and perform only analytical procedures on the segment information.
c. Audit the segment information and, if the information is adequate and in conformity with GAAP, do not make reference to the segment information in the auditor's report.
d. Audit the segment information and, if the information is adequate and in conformity with GAAP, refer to the segment information in the auditor's report.
27. The auditors did not observe the taking of beginning physical inventory and were unable to satisfy themselves as to the inventory by means of other auditing procedures. Assuming no other scope limitations or reporting problems, the auditor could issue an unqualified opinion on the current year's financial statements with respect to
a. All of the financial statements.
b. The statement of cash flows.
c. The income statement.
d. The balance sheet.
28. After properly communicating with the predecessor auditor, Seal & Co. , CPA's, accepted the engagement to audit Mass Company's annual financial statements. Mass desires that comparative statements from years audited by the predecessor be presented in the annual report. The predecessor auditor's report will not be presented. What effect would inclusion of such comparative F/S have on the audit report of Seal?
a. Seal should make no reference to the report of the predecessor auditor in the introductory or scope paragraph.
b. Seal should make reference to the report of the predecessor auditor in both the scope and opinion paragraphs.
c. Seal should make reference to the report of the predecessor auditor in the opinion paragraph only.
d. Seal should make reference to the report of the predecessor auditor in the introductory paragraph.
29. If an auditor has not gathered sufficient evidential matter to support the management assertions that are embodied in the financial statements, the auditor may either issue a(an)
a. Disclaimer of opinion or qualified opinion.
b. Adverse opinion or disclaimer of opinion.
c. Adverse opinion or qualified opinion.
d. Disclaimer of opinion or adverse qualified opinion.
30. Restrictions imposed by the client, Rex company, prohibit the confirmation of accounts receivable by direct communication with debtors. These receivables account for 30% of all assets and alternate audit procedures can not be applied, although the independent auditor was able to examine satisfactory evidence for all other items in the financial statements. The independent auditor should issue a(an)
a. Disclaimer of opinion.
b. Adverse opinion.
c. Qualified opinion.
d. Partial disclaimer of opinion.
31. A public entity that is required to present information on the effects of changing prices pursuant to FASB Statement No. 33 does not present the effects of changing prices in its annual report. The auditors have decided to issue the standard scope paragraph and include a separate paragraph in the auditor's report that will call attention to the omission of the effects of changing prices required by the FASB. Assuming no other problems exists, the auditors, should express a(an)
a. Unqualified/with opinion
b. Qualified opinion.
c. Adverse opinion.
d. Partial disclaimer of opinion.
32. Doe, an independent auditor, was engaged to audit the financial statements of Ally Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Doe, and accounts receivable were not confirmed by direct communication with debtors, Doe was able to gain satisfaction by applying alternate auditing procedures. Doe's report will probably contain
a. A standard unqualified opinion.
b. An unqualified opinion and a separate explanatory paragraph.
c. Either a qualified opinion or a disclaimer of opinion.
d. A partial disclaimer of opinion.
33. The independent auditor has concluded that a substantial doubt remains about a client's ability to continue in existence, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a (an)
a. Unqualified opinion with appropriate reference to a separate explanatory paragraph.
b. Qualified opinion because of the scope limitations.
c. Disclaimer of opinion
d. Adverse opinion
34. Which of the following situations is not considered by the consistency reporting standard?
a. A change in the specific subsidiaries that comprise the group of companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that is generally accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a change in GAAP.
35. When financial statements are presented that are not in conformity with general accepted accounting principles an auditor may issue a (an)
Qualified Disclaimer of
opinion opinion
a. Yes No
b. Yes Yes
c. No Yes
d. No No |
