Question 1

Under AICPA auditing standards, the primary auditor issuing the opinion on the financial statements is called the:

Accepted Answer

The answer of Under AICPA auditing standards, the primary auditor...

Question 2

Indicate which changes would require an explanatory paragraph in the audit report.

Accepted Answer

The answer of Indicate which changes would require an explanatory...

Question 3

When an auditor is trying to determine how changes can affect consistency and and/or comparability, he should keep in mind that:

Accepted Answer

According to the Generally Accepted Auditing Standards (GAAS), changes that affect consistency require an explanatory paragraph if they are material. Comparability changes may also require an explanatory paragraph if they are material, but not necessarily. A disclaimer of opinion is a serious consequence and is typically only issued if the financial statements are so materially misstated that the auditor cannot provide an opinion. Changes involving comparability or consistency should be disclosed in the footnotes, but material changes should also be addressed in the auditor's report.

Question 4

When a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:

Accepted Answer

When an auditor concurs with a departure from GAAP, it is explained in an explanatory paragraph after the opinion paragraph to clarify the nature and justification of the departure.

Question 5

All of the following would require an emphasis of matter paragraph except for:

Accepted Answer

An emphasis of matter paragraph is used by auditors to draw attention to matters that are appropriately presented or disclosed in the financial statements. The lack of auditor independence is a fundamental issue that would preclude the auditor from issuing an opinion on the financial statements, rather than leading to an emphasis of matter paragraph.

Question 6

Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit?

Accepted Answer

The answer of Which of the following is false concerning...

Question 7

A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles.The auditor's report on the financial statements of the year of the change should include:

Accepted Answer

The auditor's report should include an explanatory paragraph explaining the change in method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles.

Question 8

Which of the following modifications of the auditor's report does not include an explanatory paragraph?

Accepted Answer

When a principal auditor accepts the work of another auditor, a separate report is issued, but it does not include an explanatory paragraph. The other options mentioned in the question all require an explanatory paragraph in the audit report.

Question 9

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

Accepted Answer

Suing a competitor for a minor patent infringement is unlikely to cause uncertainty about the ability of an entity to continue as a going concern as it is a routine business activity and does not affect the financial viability of the entity. On the other hand, losing a major customer, significant recurring operating losses, and working capital deficiencies are all major red flags that can cast doubt on the entity's ability to continue operating as a going concern.

Question 10

All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for:

Accepted Answer

The answer of All of the following are causes for...

Question 11

Indicate which changes would require an explanatory paragraph in the audit report.

Accepted Answer

The answer of Indicate which changes would require an explanatory...

Question 12

When there is uncertainty about a company's ability to continue as a going concern, the auditor's concern is the possibility that the client may not be able to continue its operations or meet its obligations for a "reasonable period of time." For this purpose, a reasonable period of time is considered not to exceed:

Accepted Answer

According to the Generally Accepted Auditing Standards, a reasonable period of time for evaluating a company's ability to continue as a going concern is one year from the date of the financial statements. Therefore, option B is the correct choice. Option A and C are incorrect as they provide a shorter time frame, while option D provides a longer time frame.

Question 13

No reference is made in the auditor's report to other auditors who perform a portion of the audit when: I.The other auditor audited an immaterial portion of the audit.
II)The other auditor is well known or closely supervised by the principle auditor.
III)The principle auditor has thoroughly reviewed the work of the other auditor.

Accepted Answer

The answer of No reference is made in the auditor's...

Question 14

Indicate which changes would require an explanatory paragraph in the audit report.

Accepted Answer

The answer of Indicate which changes would require an explanatory...

Question 15

Which of the following requires recognition in the auditor's opinion as to consistency?

Accepted Answer

The change from the cost method to the equity method of accounting for investments in common stock requires recognition in the auditor's opinion as to consistency. This is because it is a change in accounting principle, which is considered a change in consistency. The other options are either corrections of errors or changes in estimates, which do not require recognition in the auditor's opinion as to consistency.

Question 16

William Gregory, CPA, is the principal auditor for a multi-national corporation.Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation.Gregory 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 his report on the consolidated financial statements, taken as a whole, Gregory:

Accepted Answer

Gregory may refer to the examination of the other auditor, but it is not required. The decision to refer to the other auditor's examination is at the discretion of the principal auditor, based on their assessment of the other auditor's independence, professional reputation, and the quality of their work. However, if Gregory does decide to refer to the other auditor's examination, he must clearly indicate the portion of the consolidated financial statements that were audited by the other auditor.

Question 17

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be: I.an unqualified opinion with an explanatory paragraph.
II)a disclaimer of opinion.

Accepted Answer

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be either an unqualified opinion with an explanatory paragraph or a disclaimer of opinion. Therefore, both options I and II are correct.

Question 18

Which of the following are changes that affect the comparability of financial statements but not the consistency and therefore, do not have to be included in the auditor's report?

Accepted Answer

Changes in accounting estimates and variations in the format and presentation of financial information affect comparability but not consistency.

Question 19

The term "explanatory paragraph" was replaced in the AICPA auditing standards with:

Accepted Answer

The AICPA auditing standards replaced the term "explanatory paragraph" with the "emphasis-of-matter paragraph" to communicate information that is relevant to the understanding of the financial statements but does not affect the auditor’s opinion. This paragraph is also used to highlight a significant uncertainty or other matter that is disclosed in the financial statements. The other options (A, C, and D) are not accurate replacements for the term "explanatory paragraph."

Question 20

Indicate which changes would require an explanatory paragraph in the audit report.

Accepted Answer

The answer of Indicate which changes would require an explanatory...

Quiz 3: Audit Reports

Under AICPA auditing standards, the primary auditor issuing the opinion on the financial statements is called the:

Indicate which changes would require an explanatory paragraph in the audit report.

When an auditor is trying to determine how changes can affect consistency and and/or comparability, he should keep in mind that:

When a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:

All of the following would require an emphasis of matter paragraph except for:

Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit?

A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles.The auditor's report on the financial statements of the year of the change should include:

Which of the following modifications of the auditor's report does not include an explanatory paragraph?

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for:

Indicate which changes would require an explanatory paragraph in the audit report.

Indicate which changes would require an explanatory paragraph in the audit report.

Which of the following requires recognition in the auditor's opinion as to consistency?

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be: I.an unqualified opinion with an explanatory paragraph. II) a disclaimer of opinion.

Which of the following are changes that affect the comparability of financial statements but not the consistency and therefore, do not have to be included in the auditor's report?

The term "explanatory paragraph" was replaced in the AICPA auditing standards with:

Indicate which changes would require an explanatory paragraph in the audit report.