Question 1

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to
A)inform the reader that disclosure is not adequate,and to issue an adverse opinion.
B)inform the reader that disclosure is not adequate,and to issue a qualified opinion.
C)present the information in the audit report and issue an unqualified or qualified opinion.
D)present the information in the audit report and to issue a qualified or an adverse opinion.

Accepted Answer

When the client fails to make adequate disclosure, it is the responsibility of the auditor to present the information in the audit report and issue a qualified or an adverse opinion depending on the materiality and pervasiveness of the lack of disclosure. Therefore, option D is the best choice as it includes both options based on the severity of the issue.

Question 2

There are three conditions necessitating a departure from an unqualified audit report.Name,discuss and state the appropriate audit report for each of these three conditions.

Accepted Answer

The answer of There are three conditions necessitating a departure...

Question 3

Whenever an auditor issues a qualified report,he or she must use the term "except for " in the opinion paragraph.

Accepted Answer

This is true as per the Generally Accepted Auditing Standards (GAAS). Whenever an auditor issues a qualified report, they must use the phrase "except for" in the opinion paragraph to indicate the specific limitation that led to the qualification.

Question 4

The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the
A)auditor is not appointed until after the client's year-end.
B)client won't allow the auditor to confirm receivables for fear of offending its customers.
C)auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries.
D)client is going through Chapter 11 bankruptcy.

Accepted Answer

When an auditor is appointed after the client's year-end, certain auditing procedures that should ideally be performed at or before year-end (such as observing inventory counts) cannot be carried out, leading to a scope restriction that is beyond the control of both the client and the auditor.

Question 5

If the phrase "except for" is present in the opinion paragraph of the audit report,the auditor has issued a(n)
A)adverse opinion.
B)disclaimer of opinion.
C)unqualified opinion.
D)qualified opinion.

Accepted Answer

The phrase "except for" is typically used in a qualified opinion to indicate that there is a limitation to the scope of the audit or that there is a material misstatement in the financial statements that has been corrected, with the exception of the specific matter mentioned.

Question 6

When the auditor determines that the financial statements are fairly stated,but there is a nonindependent relationship between the auditor and the client,the auditor should issue
A)an adverse opinion.
B)a disclaimer of opinion.
C)either a qualified opinion or an adverse opinion.
D)either a qualified opinion or an unqualified opinion with modified wording.

Accepted Answer

A disclaimer of opinion is issued when the auditor is not able to form an opinion on the financial statements, which can be due to a lack of independence or other significant uncertainties.

Question 7

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor determines the financial statements include...

Question 8

A qualified opinion can be issued for which of the following?
I. When a limitation on the scope of the audit has occurred
II. When the auditor lacks independence
III. When generally accepted accounting principles have not been used
A)I and II
B)I and III
C)II and III
D)I,II and III

Accepted Answer

A qualified opinion can be issued when there has been a limitation on the scope of the audit or when generally accepted accounting principles have not been used. Lack of independence will result in a disclaimer of opinion or an adverse opinion, not a qualified opinion. Therefore, only options I and III are appropriate for a qualified opinion.

Question 9

If the auditor lacks independence,a disclaimer of opinion must be issued
A)if the client requests it.
B)only if it is highly material.
C)only if it is material but not pervasive.
D)in all cases.

Accepted Answer

According to auditing standards, if an auditor lacks independence, a disclaimer of opinion must always be issued. This is because independence is a fundamental principle of auditing that ensures the reliability and credibility of the audit opinion. Therefore, in all cases where independence is lacking, a disclaimer of opinion is required.

Question 10

In which of the following circumstances would an auditor most likely express an adverse opinion?
A)The CEO refuses to let the auditor have access to the board of director meeting minutes.
B)The financial statements are not in conformity with the FASB statement on loss contingencies.
C)Information comes to the auditor's attention that raises substantial doubt about the ability for the client to continue as a going concern.
D)Tests of controls show that the internal control structure is so poor that the auditor has to assess control risk at the maximum.

Accepted Answer

An adverse opinion is expressed when the financial statements materially depart from accounting standards and are not fairly presented. In this case, not conforming to the FASB statement on loss contingencies would be a basis for an adverse opinion because it indicates that the financial statements do not accurately reflect the company's financial position according to generally accepted accounting principles (GAAP).

Question 11

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.If the client refuses to properly disclose the item,the auditor will most likely issue
A)a disclaimer.
B)an unqualified opinion.
C)a qualified opinion.
D)an adverse opinion.

Accepted Answer

A qualified opinion is issued when the financial statements present the entity's financial position, results of operations, and cash flows in conformity with generally accepted accounting principles, except for the effects of a material matter about which there is a disagreement or a limitation on the scope of the audit. If a client refuses to disclose information that materially affects the comparability of financial statements, the auditor may issue a qualified opinion due to the lack of adequate disclosure.

Question 12

Whenever the client imposes restrictions on the scope of the audit,the auditor should be concerned that management may be trying to prevent discovery of misstatements.In such cases,the auditor will likely issue a
A)disclaimer of opinion in all cases.
B)qualification of both scope and opinion in all cases.
C)disclaimer of opinion whenever materiality is in question.
D)qualification of both scope and opinion whenever materiality is in question.

Accepted Answer

When a client imposes restrictions on the scope of the audit, it raises concerns about the potential for undiscovered misstatements. If these restrictions affect the auditor's ability to obtain sufficient appropriate audit evidence, especially regarding material aspects of the financial statements, the auditor may issue a disclaimer of opinion. This is because the auditor cannot conclude on the overall fairness of the financial statements due to the scope limitation.

Question 13

Which of the following statements is True?
I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty.
II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.
A)I only
B)II only
C)I and II
D)Neither I nor II

Accepted Answer

A disclaimer of opinion is not automatically required for material uncertainty or going concern issues; the auditor assesses the situation and may issue a qualified opinion or an adverse opinion depending on the circumstances.

Question 14

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?
A)The auditor lacks independence.
B)A client-imposed scope limitation
C)A circumstance-imposed scope limitation
D)Lack of full disclosure within the footnotes

Accepted Answer

The answer of In which situation would the auditor be...

Question 15

An adverse opinion is issued when the auditor believes
A)some parts of the financial statements are materially misstated or misleading.
B)the financial statements would be found to be materially misstated if an investigation were performed.
C)the auditor is not independent.
D)the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Accepted Answer

An adverse opinion is issued when the auditor believes that the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. This is the most severe type of opinion that an auditor can issue.

Question 16

A qualified opinion audit report is issued when all auditing conditions have been met,no significant misstatements have been discovered,and it is the auditor's opinion that the financial statements are fairly stated in accordance with GAAP.

Accepted Answer

A qualified opinion audit report is actually issued when there are limitations in the scope of the audit or there is a departure from GAAP, but it is not significant enough to warrant an adverse opinion.

Question 17

Which of the following scenarios does not result in a qualified opinion?
A)A scope limitation prevents the auditor from completing an important audit procedure.
B)Circumstances exist that prevent the auditor from conducting a complete audit.
C)The auditor lacks independence with respect to the audited entity.
D)An accounting principle at variance with GAAP is used.

Accepted Answer

A qualified opinion can be issued when there is a scope limitation or a departure from GAAP that is not pervasive. However, lack of independence with respect to the audited entity would result in a disclaimer of opinion, which is a more severe form of audit opinion.

Question 18

Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction.

Accepted Answer

When auditors are restricted by the client in terms of the scope of work they can perform, it can limit their ability to obtain sufficient and appropriate audit evidence. This can result in a disclaimer of opinion, which means that the auditor is unable to express an opinion on the financial statements due to the scope limitation. The disclaimer of opinion highlights the restriction placed on the auditor's work and the potential impact it may have had on their opinion.

Question 19

When analyzing the various types of opinions that the auditor can issue,
A)an adverse opinion must contain the phrase "except for" in the opinion paragraph.
B)an adverse opinion can only be issued when there is a lack of knowledge by the auditor.
C)a disclaimer of opinion can be issued for material or immaterial misstatements.
D)a qualified opinion report can be used only when the auditor concludes that the overall financial statements are fairly stated.

Accepted Answer

The answer of When analyzing the various types of opinions...

Question 20

An auditor can express a qualified opinion due to a
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor can express a qualified opinion...

Quiz 3: Audit Reports

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes,it is the responsibility of the auditor to

There are three conditions necessitating a departure from an unqualified audit report.Name,discuss and state the appropriate audit report for each of these three conditions.

Whenever an auditor issues a qualified report,he or she must use the term "except for " in the opinion paragraph.

The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the

If the phrase "except for" is present in the opinion paragraph of the audit report,the auditor has issued a(n)

When the auditor determines that the financial statements are fairly stated,but there is a nonindependent relationship between the auditor and the client,the auditor should issue

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?

A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred II. When the auditor lacks independence III. When generally accepted accounting principles have not been used

If the auditor lacks independence,a disclaimer of opinion must be issued

In which of the following circumstances would an auditor most likely express an adverse opinion?

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.If the client refuses to properly disclose the item,the auditor will most likely issue

Whenever the client imposes restrictions on the scope of the audit,the auditor should be concerned that management may be trying to prevent discovery of misstatements.In such cases,the auditor will likely issue a

Which of the following statements is True? I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?

An adverse opinion is issued when the auditor believes

A qualified opinion audit report is issued when all auditing conditions have been met,no significant misstatements have been discovered,and it is the auditor's opinion that the financial statements are fairly stated in accordance with GAAP.

Which of the following scenarios does not result in a qualified opinion?

Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction.

When analyzing the various types of opinions that the auditor can issue,

An auditor can express a qualified opinion due to a