Auditing Sample Exam PDF

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Summary

The third general standard states that due care is to be exercised in the performance of an audit, and should be interpreted to mean that an auditor who undertakes an engagement assumes a duty to perform a. With reasonable diligence and without fault or error. b. As a professional who will assume re...

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The third general standard states that due care is to be exercised in the performance of an audit, and should be interpreted to mean that an auditor who undertakes an engagement assumes a duty to perform a. With reasonable diligence and without fault or error. b. As a professional who will assume responsibility for losses consequent upon error of judgment. c. To the satisfaction of the client and third parties. d. As a professional possessing the degree of skill commonly possessed by others in the field. (AICPA ADAPTED)

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The first standard of field work, which states that the work is to be adequately planned and assistants, if any, are to be properly supervised, recognizes that a. Early appointment of the auditor is advantageous both to the auditor and to the client. b. Acceptance of an audit engagement after the case of the client's fiscal year is generally not permissible. c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion. d. Performance of substantial parts of the engagement is necessary at interim dates. (AICPA ADAPTED)

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In connection with the third generally accepted auditing standard of field work, an auditor examines corroborating evidential matter that includes all of the following except a. Client accounting manuals. b. Written client representations. c. Vendor invoice. d. Minutes of board meetings.

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Which of the following underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting? a. The elements of materiality and risk. b. The element of internal control. c. The element of corroborating evidence. d. The element of reasonable assurance. (AICPA ADAPTED)

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The fourth generally accepted auditing standard of reporting requires an auditor to render a report whenever an auditor's name is associated with financial statements. The overall purpose of the fourth standard of reporting is to require that reports a. Assure that the auditor is independent with respect to the financial statements audited.

b. c. d.

State that the audit has been conducted in accordance with generally accepted auditing standards. Indicate the character of the engagement and the degree of responsibility assumed by the auditor. Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period audited. (AICPA ADAPTED)

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The auditor's judgment concerning the overall fairness of the presentation of financial positions, results of operations and cash flows is applied within the framework of a. Quality control. b. Generally accepted auditing standards that include the concept of materiality. c. The auditor's evaluation of the audited company's internal controls. d. Generally accepted accounting principles.

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The concept of materiality would be least important to an auditor in determining a. Transactions that should be reviewed. b. The need for disclosing a particular transaction or event. c. The extent of audit work planned for particular accounts. d. The effects of an auditor's direct financial interest in a client.

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The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development that provide reasonable assurance that all entry-level personnel a. Prepare working papers that are standardized in form and content. b. Have the knowledge required to enable them to fulfill responsibilities assigned. c. Will advance within the organization. d. Develop specialties in specific areas of public accounting. In pursuing its quality control objectives with respect to assigning personnel to engagements, a public accounting firm may use policies and procedures such as a. Rotating employees from assignment to assignment on a random basis to aid in the staff training effort. b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available. c. Allowing staff to select the assignments of their choice to promote better client relationships. d. Assigning a number of employees to each engagement in excess of the number required so as not to overburden the staff and

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interfere with the quality of the audit work performed. (AICPA ADAPTED)

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1.

A public accounting firm studies its personnel advancement experience to determine whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to a. Generally accepted auditing standards. b. Attestation standards. c. Supervision and review. d. Quality control standards . Which of the following statements best describes the primary purpose of Statements on Auditing Standards? a. Guides intended to set forth auditing procedures that are applicable to a variety of situations. b. Outlines intended to narrow the areas of inconsistency and divergence of auditor opinion. c. Authoritative statements, enforced through the code of professional conduct, and intended to limit the degree of auditor judgment. d. Interpretations intended to clarify the meaning of generally accepted auditing standards. (AICPA ADAPTED)

An auditor's report contains the following: We did not audit the financial statements of B Company, a consolidated subsidiary, which statements reflect total assets and revenues constituting 20 percent and 22 percent, respectively, of the related consolidated totals. These statements were audited by other auditors, whose report has been furnished to us, and our opinion insofar as it relates to the amounts included for B Company, is based solely upon the report of the other auditors. These sentences a. Disclaim an opinion. b. Qualify the opinion. c. Divide responsibility. d. Should not be part of the audit report. (AICPA ADAPTED) 2. In which of the following situations would the auditor appropriately issue a standard unqualified report with no explanatory paragraph concerning consistency?

a.

b. c. d.

A change in the method of accounting for specific subsidiaries that comprise the group of companies for which consolidated statements are presented. A change from an accounting principle that is not generally accepted to one that is generally accepted. A change in the percentage used to calculate the provision for warranty expense. Correction of mistake in the application of a generally accepted accounting principle. (AICPA ADAPTED)

3. When financial statements are presented that are not in conformity with generally accepted accounting principles, an auditor may issue a(n) Qualified Opinion Adverse Opinion a. Yes No b. Yes Yes c. No Yes d. No No

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Chapter 3 4. The management of a client company believes that the statement of cash flow is not a useful document and refuses to include one in the annual report to stockholders. As a result, the auditor's opinion should be a. Qualified due to inadequate disclosure. b. Qualified due to a scope limitation. c. Adverse d. Unqualified. 5. An auditor would issue an adverse opinion if a. The audit was begun by other independent auditors who withdrew from the engagement. b. A qualified opinion cannot be given because the auditor lacks independence. c. The restriction on the scope of the audit was significant. d. The statements taken as a whole do not fairly present the financial position, results of operations, and cash flows of the company. (AICPA ADAPTED)

6. The fourth reporting standard requires that the auditor's report contain either an expression of opinion regarding the financial statements taken as a whole or an assertion that an opinion cannot be expressed. The objective of the fourth standard is to prevent a. An auditor from reporting on one basic financial statement and not the others. b. An auditor from expressing different opinions on each of the basic financial statements. c. Management from reducing its responsibility for the basic financial statements. d. Misinterpretations about the degree of responsibility the auditor assumes. (AICPA ADAPTED) 7. An auditor's opinion read as follows: "In our opinion, except for the above-mentioned limitation on the scope of our audit.." This is an example of a(n) a. Review opinion. b. Emphasis on matter. c. Qualified opinion. d. Unacceptable reporting practice. (AICPA ADAPTED)

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Chapter 3

8. An auditor's report includes a statement that "the financial statements do not present fairly the financial position 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 for accounting other than GAAP. b. Restricted for use by management. c. Misleading. d. Condensed. (AICPA ADAPTED) 9. If the auditor believes there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n) a. Qualified opinion.

b. Adverse opinion. c. Unqualified opinion. d. Disclaimer of opinion. 10.

If an accounting change has no material effect on the financial statements in the current year but the change is reasonably certain to have a material effect in later years, the change should be a. Treated as a consistency modification in the auditor's report for the current year. b. Disclosed in the notes to the financial statements of the current year. c. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. d. Treated as a subsequent event. (AICPA ADAPTED)

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When comparative financial statements are presented, the fourth reporting standard, which refers to financial statements "taken as a whole", should be considered to apply to the financial statements of the a. Periods presented plus one preceding period. b. Current period only. c. Current period and those of the other periods presented. d. Current and immediately preceding period only. (AICPA ADAPTED)

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12.

An auditor's standard report expressed an unqualified opinion and includes an explanatory paragraph that emphasizes a matter included in the notes to the financial statements. The auditor's report would be deficient if the explanatory paragraph states that the entity a. Is a component at a larger business enterprise. b. Has changed from the completed contract method to the percentage of completion method to account for long term construction contracts. c. Has had a significant subsequent event. d. Has accounting reclassifications that enhance the comparability between years. (AICPA ADAPTED)

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c.

Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in, first-out method to value the other half. Assuming the auditor is satisfied in all other respects, under these circumstances the auditor will issue a(n) a. Opinion modified due to inconsistency. b. Unqualified opinion with an explanatory middle paragraph. Qualified or adverse opinion, depending on materiality. d. Unqualified opinion. (AICPA ADAPTED)

14.

Under which of the following sets of circumstances might an auditor disclaim an opinion? a. The financial statements contain a departure from GAAP, the effect of which is material. b. The principal auditor decides to make reference to the report of another auditor who audited a subsidiary. c. There has been a material change between periods in the method of the application of accounting principles. d. There were significant limitations on the scope of the audit.

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An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that the entity being reported on is a subsidiary of another business enterprise. The inclusion of this paragraph a. Is appropriate and would not negate the unqualified opinion. b. Is a qualification. c. Is a violation of generally accepted reporting standards if this information is disclosed in footnotes to the financial statements. d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."

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Chapter 3 16.

In which of the following circumstances would an adverse opinion be appropriate? a. The auditor is not independent with respect to the enterprise being audited. b. An uncertainty prevents the issuance of an unqualified report. c. The statements are not in conformity with authoritative statements regarding accounting for pension plans. d. A client imposed scope limitation prevents the auditor from complying with generally accepted auditing standards.

17.

An audit report should be dated as of the

a. b. c. d.

Date the report is delivered to the entity audited. Date of the last day of fieldwork. Balance sheet date of the latest period reported on. Date a letter of audit inquiry is received from the entity's attorney of record.

18.

An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end client. A significant subsequent event occurred on February 22, 2002. In this case, which of the following report dates would not be appropriate? a. February 10, 2002. b. February 10, except Note 1, February 22, 2002. c. February 22, 2002. d. December 31, 2001.

19.

Which of the following statements indicates a qualified opinion? a. The financial statements do not present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP. b. The auditor does not express an opinion on the financial statements. c. The financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP. d. Except for the effects of a matter, the financial statements present fairly in all material respects the financial position, results of operations, and cash flows in conformity with GAAP.

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Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's Ability to continue as a Going Concern," an independent auditor is responsible for a. Predicting whether the entity will be in business one year from the balance sheet date. b. Evaluating whether there is substantial doubt about the entity's ability to continue as a going concern. c. Weighing mitigating factors against contrary information about the entity's ability to continue as a going concern. d. Reporting the entity's ability to continue as a going concern to senior management and to the board of directors.

21.

Does an auditor make the following representations explicitly or implicitly in a standard audit report on comparative financial statements? Accounting Application of Examination of Evidence Accounting Principles on a Test Basis ----------------------------------------------a. Explicitly Explicitly b. Implicitly Implicitly c. Implicitly Explicitly d. Explicitly Implicitly

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an auditor is unable to determine the amounts associated with illegal acts committed by a client. The auditor would most likely issue a. Either a qualified opinion or a disclaimer of opinion. b. An adverse opinion. c. Either a qualified opinion or an adverse opinion. d. A disclaimer of opinion. (AICPA ADAPTED)

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A principal auditor is satisfied both with the independence and professional reputation of another auditor who audited a subsidiary, but wants to share responsibility with the other auditor in the audit report. The principal auditor should a. Modify the scope and opinion paragraphs of the report. b. Modify the introductory and opinion paragraph of the report. c. Not modify the report except for including in explanatory paragraph. d. Modify the opinion paragraph of the report. (AICPA ADAPTED)

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An auditor may issue a qualified opinion for

a. b. c. d.

Inadequate Disclosure ---------Yes Yes No No

Scope Limitation ---------Yes No Yes No

25.

An explanatory paragraph following an opinion paragraph describes an uncertainty as follows: As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements. What type of opinion should the auditor express in this circumstance? a. Unqualified c. Disclaimer b. Qualified d. Adverse (AICPA ADAPTED)

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An auditor's report that refers to a accepted accounting principles includes opinion, with the foregoing explanation, referred to above present fairly...." This a. Adverse opinion. b. Qualified opinion. c. Unqualified opinion with an explanatory d. Example of inappropriate reporting.

departure form generally the language. "In our the financial statements is a(n)

paragraph (AICPA ADAPTED)

27.

When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n) a. Qualified opinion. b. Unqualified opinion with an explanatory paragraph. c. Disclaimer of opinion. d. Adverse opinion. (AICPA ADAPTED)

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An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern. If the entity's disclosures about continued existence are adequate, the audit report may include A Disclaimer of Opinion A Qualified Opinion ---------------------------------------a. Yes Yes b. No No c. No Yes

d.

Yes

No

29.

Keller, CPA, was about to issue an unqualified opinion on the financial statements of Lupton Television Broadcasting company when a letter was received from Lupton's independent counsel. The letter stated that the Federal Communications Commission has notified Lupton that its broadcasting license will not be renewed because of alleged irregularities in its broadcasting practices. Lupton cannot continue to operate without the license. Keller has also learned that Lupton and its independent counsel plan to take all necessary legal action to retain the license. The letter from independent counsel, however, states that a favorable outcome of any legal action is highly uncertain. On the basis of this information, what action should Keller take? a. Issue an unqualified opinion, with an explanatory paragraph that describes the matter giving rise to the uncertainty. b. Issue an unqualified opinion if full disclosure is made of the matter in a note to the financial statements. c. Issue an adverse opinion and disclose all reasons why. d. Issue a piecemeal opinion with full disclosure made of the license dispute in a note to the financial statements. (AICPA ADAPTED)

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If the auditor believes that required disclosures are omitted from the financial statements, the auditor should decide between issuing a(n) a. Qualified opinion or an adverse opinion. b. Disclaimer of opinion or a qualified opinion. c. Adverse opinion or a disclaimer of opinion. d. Unqualified opinion or a qualified opinion.

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An auditor's report on comparative financial statements should be dated as of the date the a. Report is issued. b. Auditor's field work is completed. c. Fiscal year ends. d. Last subsequent event occurred. (AICPA ADAPTED) -8Chapter 3

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