cpa audit review ch 16 review 2

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cpa audit review ch 16 review 2
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2014-10-18 22:54:05
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cpa audit review ch 16 review 2
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  1. The auditor’s opinion refers to U.S. generally accepted accounting principles (U.S. GAAP). Which of the following best describes U.S. GAAP?  

    The interpretations of accounting rules and procedures by certified public accountants on audit engagements.  

    The guidelines set forth by various governmental agencies that derive their authority from Congress.

    The pronouncements of the Financial Accounting Standards Board.

    Principles issued by bodies designated by the Council of the AICPA.
    Principles issued by bodies designated by the Council of the AICPA.  

    GAAP are issued by bodies designated by the AICPA Council in accordance with Rules of Conduct 202 and 203. For nongovernmental financial accounting purposes, these standards setters include the FASB for U.S. GAAP and the International Accounting Standards Board (IASB) for international financial reporting standards. Moreover, pronouncements of the SEC must be followed by registrants.
  2. When financial statements audited by the independent auditor contain notes that are captioned “unaudited” or “not covered by the auditor’s report,” the auditor  

    Must refer to these notes in the auditor’s report.  

    May refer to these notes in the auditor’s report.

    Has no responsibility with respect to information contained in these notes.

    Is precluded from referring to these notes in the auditor’s report.
    May refer to these notes in the auditor’s report.  

    If information included in the basic statements is (1) not required by the applicable reporting framework, (2) not necessary for fair presentation, and (3) clearly differentiated from the statements, the information may be identified as “unaudited” or “not covered by the auditor’s report” (AU-C 700). If the auditor wishes to draw attention to such a matter that is appropriately presented or disclosed, (s)he may include an emphasis-of-matter paragraph in the auditor’s report (AU-C 705). If (1) the information constitutes other information, (2) the information is materially inconsistent with the audited statements, and (3) management has not revised the information after a request by the auditor, the auditor should (1) include an other-matter paragraph in the report, (2) withhold the report, or (3) withdraw from the engagement. If the information contains a material misstatement of fact that management refuses to correct, the auditor should take further appropriate action (AU-C 720).
  3. In which of the following circumstances would an auditor not express an unmodified opinion?  

    The auditor is unable to obtain audited financial statements of a long-term investee.

    Quarterly financial data required by the SEC have been omitted.  

    There has been a material change between periods in accounting principles.

    The auditor wishes to emphasize an unusually important subsequent event.
    The auditor is unable to obtain audited financial statements of a long-term investee.  

    A qualified opinion may be based on a lack of sufficient appropriate evidence. Some common scope limitations relate to the inability to observe inventory, confirm accounts receivable, or obtain audited statements of a long-term investee.
  4. Under which of the following circumstances would an auditor’s expression of an unmodified opinion for a nonissuer be inappropriate?  

    The financial statements are prepared on the entity’s income tax basis.  

    Analytical procedures indicate that many year-end account balances are not comparable with the prior year’s balances.  

    The auditor is unable to obtain the audited financial statements of a significant subsidiary.

    There are significant deficiencies in the design and operation of the entity’s internal control.
    The auditor is unable to obtain the audited financial statements of a significant subsidiary.  

    An auditor’s inability to obtain sufficient appropriate evidence may arise from, among other things, circumstances related to the nature or timing of the auditor’s work. An example is an inability, not resulting from a management-imposed limitation, to obtain audited financial statements of a long-term investee. If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness (AU-C 705).
  5. When an auditor expresses an adverse opinion, the matter resulting in the modification should be described in a paragraph  

    Preceding the opinion paragraph.

    Following the opinion paragraph.  

    Preceding the auditor’s responsibility section.

    Within the notes to the financial statements.
    When an auditor expresses an adverse opinion, the matter resulting in the modification should be described in a paragraph Preceding the opinion paragraph.  

    When an adverse opinion is expressed, the opinion paragraph should refer to a basis for adverse opinion paragraph that precedes the opinion paragraph. This paragraph describes the matter resulting in the modification (AU-C 705).
  6. For a particular entity’s financial statements to be presented fairly, it is not required that  

    The information be comparable and understandable.  

    Accounting policies be applied on a basis consistent with those followed in the prior year.

    Significant accounting policies be disclosed.

    The accounting policies be appropriate.
    Accounting policies be applied on a basis consistent with those followed in the prior year.  

    A lack of consistency does not preclude fair presentation in accordance with the applicable reporting framework.

    For example, if the entity voluntarily changes from one accounting principle in accordance with the framework to another and the auditor concurs with the change, an emphasis-of-matter paragraph is required to be included in the auditor’s report.

    But the financial statements will be in accordance with the framework.
  7. Which of the following phrases will an auditor most likely include in the auditor’s report when expressing a qualified opinion because of inadequate disclosure?  

    Does not present fairly in all material respects.  

    With the foregoing explanation of these omitted disclosures.

    Subject to the departure from generally accepted accounting principles, as described above.

    Except for the omission of the information.
    Except for the omission of the information.  

    A report qualified for inadequate disclosure includes a basis for qualified opinion paragraph preceding the opinion paragraph. The opinion paragraph states, “In our opinion, except for the omission of information described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly . . .”
  8. Under which of the following circumstances may audited financial statements contain a note that is labeled “unaudited,” disclosing an event occurring after the balance sheet date?  

    When the subsequent event requires adjustment of the financial statements.

    When the event occurs after the date of the related financial statements.  

    When audit procedures with respect to the event were not performed by the auditor.

    When the event occurs after the date of the auditor’s original report.
    When the event occurs after the date of the auditor’s original report.  

    .To prevent the financial statements from being misleading, management may disclose an event that arose after the date of the auditor’s report. If the event is included in a separate note labeled as unaudited [e.g., a note captioned as “Event (Unaudited) Subsequent to the Date of the Independent Auditor’s Report”], the auditor need not perform any procedures on the note. Moreover, the auditor’s report should have the same date as the original report (AU-C 560).
  9. An auditor’s decision concerning whether to dual date the audit report is based upon the auditor’s willingness to  

    Extend auditing procedures.  

    Accept responsibility for subsequent events.

    Assume responsibility for events subsequent to the issuance of the auditor’s report.

    Permit inclusion of a note captioned “event (unaudited) subsequent to the date of the auditor’s report.”
    Extend auditing procedures.  

    .When a subsequent event disclosed in the financial statements occurs after the date of the auditor’s report but before the release of the auditor’s report, the auditor may use dual dating. (S)he may date the report as of the original report date except for the matters affected by the subsequent event, which would be assigned the appropriate later date. In that case, the auditor’s responsibility for events after the original report date would be limited to the specific event. If the auditor is willing to accept responsibility to the later date and accordingly extends subsequent events procedures to that date, the auditor may choose the later date as the date for the entire report.

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