Question 1

Green, CPA, was engaged to audit the financial statements of Essex Corporation after its fiscal year had ended. The timing of Green's appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtors impracticable. Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(n) ________.
A) unqualified opinion
B) unqualified opinion with an explanatory paragraph
C) qualified opinion due to a scope limitation
D) qualified opinion due to a departure from generally accepted auditing standards

Accepted Answer

Since Green was satisfied with the reasonableness of the account balances even without direct confirmation, it is likely that the remaining audit procedures were sufficient to support an unqualified opinion. Therefore, there were no qualifications or exceptions found in the financial statements presented by Essex Corporation.

Question 2

An auditor will issue an adverse opinion when ________.
A) a severe scope limitation has been imposed by the client
B) a violation of GAAP is sufficiently material that a qualified opinion is not justified
C) a qualified opinion cannot be rendered because the auditor lacks independence
D) the company's ability to continue as a going concern is subject to substantial doubt

Accepted Answer

An adverse opinion is issued when the violation of GAAP is sufficiently material that a qualified opinion is not justified. A severe scope limitation would result in a disclaimer of opinion, lack of independence would result in a withdrawal from the engagement, and a going concern issue would result in a qualified or an explanatory paragraph in the auditor's report.

Question 3

An auditor most likely would issue a disclaimer of opinion because of ________.
A) inadequate disclosure of material information
B) the omission of the statement of cash flows
C) a material departure from generally accepted accounting principles
D) management's refusal to furnish written representations

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence, which can occur if management refuses to provide written representations.

Question 4

An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client. The auditor believed that an adjustment should be made to the financial statements. What should the opinion paragraph of the audit report express?
A) An unqualified opinion.
B) An "except for" opinion citing a departure from generally accepted accounting principles.
C) An "except for" opinion citing a scope limitation.
D) A disclaimer of opinion.

Accepted Answer

An "except for" opinion citing a departure from generally accepted accounting principles is the appropriate opinion in this situation where the auditor and the client have a difference of opinion over an adjustment to the financial statements. The opinion should indicate that the financial statements are fairly presented except for the specific area where the adjustment was not made in accordance with generally accepted accounting principles.

Question 5

Without the public accountant's knowledge or consent, the enterprise indicates that the public accountant (PA) was involved with information issued by the enterprise. Which of the following statements is true?
A) The PA has no responsibilities with respect to the information.
B) The PA should issue an opinion on the information.
C) The PA is not associated with the information.
D) The PA is associated with the information.

Accepted Answer

When an enterprise indicates that a public accountant was involved with information issued by the enterprise without the accountant's knowledge or consent, the accountant is considered to be associated with the information. This association can imply a level of endorsement or reliability attributed to the information due to the perceived involvement of the accountant, regardless of the accountant's actual consent or knowledge.

Question 6

CPA has been engaged to audit the financial statements of Marchano Ltd., a manufacturer of toys. Several individuals are suing the company because of a toy that injured children. The company has not disclosed the lawsuit in its financial statements. What type of audit report should be issued?
A) Adverse.
B) A GAAP qualification.
C) A scope qualification.
D) Disclaimer or denial

Accepted Answer

A GAAP qualification is appropriate because the company has failed to disclose significant information in its financial statements, which is a departure from Generally Accepted Accounting Principles (GAAP). Disclosure of lawsuits is required under GAAP, and failure to do so affects the financial statement's completeness and reliability.

Question 7

Many users interpret audit reports based on the number of paragraphs. In a standard audit report on financial statements, how many paragraphs are there?
A) Three paragraphs.
B) Four paragraphs.
C) Five paragraphs.
D) Six paragraphs.

Accepted Answer

The answer of Many users interpret audit reports based on...

Question 8

Which level of assurance is provided by a public accountant as a result of an audit?
A) Complete assurance.
B) Moderate assurance.
C) Negative assurance.
D) Positive assurance.

Accepted Answer

An audit provides positive assurance, meaning the auditor expresses an opinion on whether the financial statements are presented fairly in all material respects.

Question 9

A disclaimer of opinion generally indicates ________.
A) the auditor is very uncertain with respect to an item and cannot form an opinion on the fairness of presentation of the financial statements as a whole
B) because of a lack of evidence, the auditor is uncertain with respect to an isolated 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) the auditor has observed a departure from generally accepted accounting principles that has a material effect upon the fairness of presentation of financial statements but the departure is not material enough to justify a qualified opinion
D) the auditor has observed a departure from generally accepted accounting principles that is so material that a qualified opinion is not justified

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence or is unable to form an opinion on the fairness of presentation of the financial statements as a whole. It indicates high levels of uncertainty, and that the auditor is not able to express an opinion on the financial statements.

Question 10

If financial statements contain a very material departure from GAAP such that the financial statements are virtually useless, the auditor can render a(an) ________.
A) qualified "except for" opinion with reference to the departure
B) adverse opinion with scope limitation reference
C) adverse opinion with reference to the departure
D) disclaimer of opinion

Accepted Answer

If financial statements contain a very material departure from GAAP such that the financial statements are virtually useless, the auditor can render an adverse opinion with reference to the departure. This means that the auditor believes the financial statements are materially misstated and, therefore, cannot be relied upon by users. A disclaimer of opinion would only be issued if the auditor was unable to obtain sufficient evidence to form an opinion, which is not the case here. A qualified "except for" opinion and an adverse opinion with scope limitation reference would also not be appropriate in this situation.

Question 11

Under which of the following circumstances does an accountant become associated with a financial report?
A) The accountant works for the enterprise that issues the report.
B) The accountant sits on the board of directors of the enterprise that issues the report.
C) The enterprise indicates that the accountant audited or reviewed the information included in the report.
D) The report does not mention that the accountant prepared or performed other services with respect to the information.

Accepted Answer

An accountant becomes associated with a financial report if the enterprise indicates that the accountant audited or reviewed the information included in the report. This is because the accountant's involvement in auditing or reviewing the information lends credibility to the report.

Question 12

In which of the following circumstances is a public accountant (PA) considered associated with a company's financial information?
A) The PA is a former employee of the company and prepared the statements.
B) Financial statements are reproduced on the PA's letterhead.
C) The PA is engaged by the company's auditors to do limited procedures in a remote location.
D) The PA is married to the company's Chief Financial Officer.

Accepted Answer

If financial statements are reproduced on the PA's letterhead, it gives the impression that the PA is associated with the company's financial information, even if they were not directly involved in preparing or auditing the statements.

Question 13

"The company has not made an allowance for bad debts for an account deemed uncollectible in the amount of $250,000 as of the year ended December 31, 2016." is an example of a ________.
A) GAAP change requiring a qualified opinion
B) scope limitation
C) departure from GAAP
D) report with a disclaimer of opinion

Accepted Answer

This statement indicates a departure from GAAP (Generally Accepted Accounting Principles) as the company has not made an allowance for bad debts for an account deemed uncollectible. GAAP requires companies to make such allowances to reflect a more accurate picture of their financial position.

Question 14

A holding company has decided to carry its wholly owned subsidiary companies on the balance sheet using the equity method. The type of audit report required is ________.
A) unqualified
B) qualified
C) adverse
D) disclaimer

Accepted Answer

The equity method is not appropriate for a parent company to use in accounting for its wholly owned subsidiaries in its consolidated financial statements. The correct method is consolidation, not the equity method. Using the incorrect accounting method would lead to a misrepresentation of the financial position and performance of the group, which is a departure from Generally Accepted Accounting Principles (GAAP), leading to an adverse opinion.

Question 15

What is the best description of the basis on which an auditor issues his or her report on financial statements?
A) Reporting standards.
B) Sufficiency and appropriateness of evidence.
C) Application of GAAP.
D) Integrity of management.

Accepted Answer

The basis on which an auditor issues his or her report on financial statements is the sufficiency and appropriateness of evidence. The auditor must obtain enough evidence to support his or her opinion on the financial statements. This evidence must be appropriate, relevant, and reliable. The auditor also evaluates whether the evidence is sufficient to support the opinion. If the evidence is insufficient, the auditor must take steps to obtain additional evidence.

Question 16

In which of the following circumstances is an auditor most likely to express an adverse opinion?
A) The chief executive officer refuses the auditor access to minutes of board of directors' meetings.
B) Tests of controls show that the entity's internal control system is so poor that it cannot be relied upon.
C) The financial statements are not in accordance with the CPA Canada Handbook regarding the capitalization of leases.
D) Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue as a going concern.

Accepted Answer

An adverse opinion is issued when financial statements are materially misstated and do not conform to accounting standards, such as the CPA Canada Handbook.

Question 17

Which level of assurance requires a public accountant (PA) to gather the most evidence?
A) Audit.
B) Review.
C) Examination.
D) Compilation.

Accepted Answer

The audit level of assurance requires the public accountant to gather the most evidence as it involves obtaining a high level of assurance on the financial statements through performing extensive testing of transactions, balances, and disclosures. This involves obtaining evidence from several sources, such as physical inspection, inquiries with third parties, and analysis of supporting documentation.

Question 18

Restrictions imposed by a client prohibited the observation of physical inventories that account for 35% of total assets. Alternative audit procedures for inventory were not feasible, although the auditor was able to obtain satisfactory evidence for all other items in the financial statements. The auditor should express ________.
A) an "except for" qualified opinion referring to a departure from generally accepted accounting principles
B) a disclaimer of opinion
C) an unqualified opinion with a separate explanatory paragraph
D) an unqualified opinion with an explanation in the scope paragraph

Accepted Answer

Since the auditor was unable to obtain satisfactory evidence for a significant portion of total assets and alternative audit procedures were not feasible, a disclaimer of opinion is the appropriate choice. This indicates that the auditor is unable to express an opinion on the financial statements as a whole.

Question 19

Levels of assurance refer to ________.
A) the nature of the work performed and the conclusions auditors can render about financial statements
B) generally accepted auditing standards
C) qualifications, modifications, and expansions
D) changes in the language of the audit report

Accepted Answer

Levels of assurance refer to the degree of confidence that can be placed on the conclusions auditors can render about financial statements based on the nature and extent of their work performed. It is directly related to the level of risk associated with the financial statements.

Question 20

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?
A) The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
B) The financial statements fail to disclose information that is required by generally accepted accounting principles.
C) The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
D) Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

Accepted Answer

The answer of In which of the following situations would...

Quiz 4: Reports on Audited Financial Statements

An auditor will issue an adverse opinion when ________.

An auditor most likely would issue a disclaimer of opinion because of ________.

An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client. The auditor believed that an adjustment should be made to the financial statements. What should the opinion paragraph of the audit report express?

Without the public accountant's knowledge or consent, the enterprise indicates that the public accountant (PA) was involved with information issued by the enterprise. Which of the following statements is true?

CPA has been engaged to audit the financial statements of Marchano Ltd., a manufacturer of toys. Several individuals are suing the company because of a toy that injured children. The company has not disclosed the lawsuit in its financial statements. What type of audit report should be issued?

Many users interpret audit reports based on the number of paragraphs. In a standard audit report on financial statements, how many paragraphs are there?

Which level of assurance is provided by a public accountant as a result of an audit?

A disclaimer of opinion generally indicates ________.

If financial statements contain a very material departure from GAAP such that the financial statements are virtually useless, the auditor can render a(an) ________.

Under which of the following circumstances does an accountant become associated with a financial report?

In which of the following circumstances is a public accountant (PA) considered associated with a company's financial information?

"The company has not made an allowance for bad debts for an account deemed uncollectible in the amount of $250,000 as of the year ended December 31, 2016." is an example of a ________.

A holding company has decided to carry its wholly owned subsidiary companies on the balance sheet using the equity method. The type of audit report required is ________.

What is the best description of the basis on which an auditor issues his or her report on financial statements?

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

Which level of assurance requires a public accountant (PA) to gather the most evidence?

Levels of assurance refer to ________.

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?