# acct 242 exam 1 E, C & A

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1. Which of the following is the most logical reason for the use of sampling to answer a question of interest?
A. Sampling results in a time savings, particularly if the size of the population is large.
B. sampling restricts certain items from being selected
C. sampling allows more sophisticated measurement and evaluation techniques to be utlized
D. sampling provides a more accurate response to the question of interest
A. Sampling results in a time savings, particularly if the size of the population is large.
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2. Sampling risk has a(n) ___ relationship with sample size; that is, as the sampling risk increases, sample size ___.
A. direct; increases
B. direct; decreases
C. inverse; increases
D. inverse; decreases
D. inverse; decreases
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3. The precision interval is that range of values that has a ____ likelihood of containing the ___
A. one minus sampling risk; sample estimate
B. one minus sampling risk; true population
C. sampling risk; true population value
D. sampling risk; sample estimate
B. one minus sampling risk; true population
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4. A method of sample selection in which a series of contiguous units are selected is referred to as:
A. block selection
B. haphazard selection
C. systematic random selection
D. unrestricted randome selection
A. block selection
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5. Assume that you are interested in determining if the average weight of students in your class exceeds 140 lbs. Which of the following sets of conditions would expose you to sampling risk?
A. sample estimate = 135 lbs; true average 145 lbs
B. sample estimate = 130 lbs; true average = 139
C. sample estimate = 145 lbs; true average = 142
d. b and c above
A. sample estimate = 135 lbs; true average 145 lbs
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6. In which of the following situations would the use of sampling ordinarily be considered most appropriate?
A. The selection of a subset of items is a difficult and time consuming process
B. The population is comprised of a large number of relatively homogenous items
C. It is important that a very precise response is provided in answering the question of interest
D. The true population is comprised of a relatively small number of items
B. The population is comprised of a large number of relatively homogenous items
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7. Sampling ordinarily results in a sacrifice of ___ to gain ___.
A. efficiency; effectiveness
B. effectiveness; efficiency
C. validity; accuracy
D. accuracy; validity
B. effectiveness; efficiency
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8. Which of the following would not be an example of the application of sampling?
a. Examining a subset of students in a class to determine if the average age of a student is greater than some specified level
b. Examining a subset of passengers on an airplane to determine whether the average number of miles flown per year is greater than some specified level
c. Examining all members of a graduating class at a university to determine whether their average starting salary is greater than some specified level
d. Examining a subset of households in a neighborhood to determine if the average family size is greater than some specified level.
• c. Examining all members of a graduating class at a university to
• determine whether their average starting salary is greater than some
• specified level
9. If you were trying to randomly select 20 names from 2 pages in a local telephone directory (which contains approximately 250 names per page), which of the following approaches would be most illustrative of systematic random selections?
A. Identifying 20 random numbers and selecting the corresponding name from the telephone directory
B. Identifying a random starting point and selecting every 25th name for examination
C. Identifying the 1st 20 names on these 2 pages that have the letter "a" in the last name
D. Selecting the 1st and last 5 names on each of the 2 pages
B. Identifying a random starting point and selecting every 25th name for examination
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10. The precision interval is determined by adding and subtracting precision from the ____.
A. sampling risk
B. sample estimate
C. sample standard deviation
D. true population value
B. sample estimate
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11. Auditors consider statistical sampling to be characterized by the following:
A. representative sample selection and nonmathematical consideration of the results
B. carefully biased sample selection and mathematical calculation of the results
C. carfully biased sample selection and nonmathematical consideration of the results
D. representative sample selection and mathematical calculation of the results
D. representative sample selection and mathematical calculation of the results
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12. In which of the following scenarios would the use of sampling be most appropriate?
A. the costs associated with an incorrect decision are extremely high
B. the decision to be made is relatively critical
C. the population consists of a relatively small number of items
D. the need for precise information about the population is less important
D. the need for precise information about the population is less important
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13. The risk that the decision made based on the sample is different from the decision made based on the entire population is referred to as:
A. nonsampling risk
B. sampling risk
C. examination risk
D. audit risk
B. sampling risk
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14. Which of the following is not a method used by the auditor to control his or her exposure to sampling risk during an examination?
A. determining an appropriate sample size
B. ensuring that all items have an equal opportunity to be selected
C. evaluating sample results using a mathematical basis
D. performing the appropriate audit procedure
D. performing the appropriate audit procedure
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15. Which of the following is one of the advatages of nonstatistical sampling?
A. nonstatistical sampling ensures that samples are randomly selected
B. nonstatistical sampling is required by generall accepted auditing standards
C. nonstatistical sampling controls the auditor's exposure to sampling risk
D. nonstatistical sampling is typically less expensive than statistical sampling
D. nonstatistical sampling is typically less expensive than statistical sampling
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16. Selecting a sample using a series of random numbers to identify sample items is referred to as:
A. unrestricted random selection
B. block selection
C. haphazard selection
D. systematic random selection
A. unrestricted random selection
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17. If systematic selection is used with a starting point of 10, a population size of 100, and a desired sample size of 20, the first 3 items selected for examination would be:
A. 110, 210, 310
B. 10, 110, 210
C. 15, 20, 25
D. 10, 15, 20
D. 10, 15, 20
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18. A limitation of systematic random selection is that this mehtod:
A. has a relatively low likelihood of yielding a representative sample
B. may result in bypassing a number of items having similar characteristics
C. results in a larger sample size than other selection methods
D. cannot be used with statistical sampling plans
B. may result in bypassing a number of items having similar characteristics
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19. Which of the following are appropriately used for statistical sampling applications?
unrestircited random selection / block selection
A. no, no
B. yes, yes
C. no, yes
D. yes, no
D. yes, no
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20. Which of the following pairs of selection methods could appropriately be used in statistical sampling applications?
A. block selection, haphazard selection
B. unrestricted randome selection, systematic random selection
C. systmatic randome selection, haphazard selection
D. unrestricted random selection, block selection
B. unrestricted randome selection, systematic random selection
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21. The likelihood that an identified precision interval contains the true (but unknown) population value is the:
A. precision
B. sample risk
C. confidence
D. mean
C. confidence
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22. Which of the following statements is not true if the precision internval for a sampling risk of 10% ranges from 60 to 70?
A. A 90% probabilty exists that the true population value is less than 60 or greater than 70
B. the reliability is 90%
C. the precision is 5
D. A 10% probability exists that the true population value is less than 60 or greater than 70
A. A 90% probabilty exists that the true population value is less than 60 or greater than 70
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23. In audit sampling applications, sample risk is:
a. characteristic of statistical sampling applications but not of nonstatistical applications
b. the probabilty that the auditor will fail to recognize erroneous accounting in the client's documentation
c. the probabilty that accounting errors will arise in transactions and enter the accounting system
d. the probability that an auditor's conclusion based on a sample might be different from the conclusion based on an audit of the entire population
• d. the probability that an auditor's conclusion based on a sample might
• be different from the conclusion based on an audit of the entire
• population
24. The risk of incorrect acceptance in variables sampling and the risk of assessing control risk too low in attribute sampling both relate to:
A. evidence about assertions in financial statements
B. efficiency of an audit
C. control risk assessment decisions
D. effectiveness of an audit
D. effectiveness of an audit
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25. The type of sampling most frequently used by the auditor during his or her study of internal control is referred to as:
A. probability proportional to size sampling
B. variables sampling
C. attribute sampling
D. control sampling
C. attribute sampling
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26. Which of the following components of the audit risk model is most closely associated with attribute sampling?
A. control risk
B. inherent risk
C. audit risk
D. detection risk
A. control risk
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27. The auditor will choose to reduce his or her reliance on controls if the ____ is greater than the ____.
A. adjusted sample deviation rate; tolerable deviation rate
B. tolerable deviation rate; expected deviation rate
C. tolerable deviation rate; sample deviation rate
D. expected deviation rate; tolerable deviation rate
A. adjusted sample deviation rate; tolerable deviation rate
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28. An advantage of statistical sampling over nonstatistical sampling mehtods is that statistical methods:
A. can more easily convert the sample into a dual purpose test useful for substantive procedures
B. provide an objective basis for quantitatively evaluating sampling risk
C. eliminate the need to use judgement in determining appropriate sample sizes
D. afford greater assurance than a nonstatistical sample of equal size
B. provide an objective basis for quantitatively evaluating sampling risk
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29. The risk of incorrect rejection and the likelihood of assessing control risk too high relate to the:
A. efficiency of the audit
B. tolerable error
C. preliminary estimates of materiality
D. effectiveness of the audit
A. efficiency of the audit
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30. A lack of reasonable care that may be characterized by the failur of auditors to follow GAAS in the conduct of the audit is known as
A. constructive fraud
B. fraud
C. ordinary negligence
D. gross negligence
C. ordinary negligence
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31. Users of financial statements have a different perception concerning the nature of auditors' services the actual objective of an audit. This difference is known as
A. Insurance hypothesis
B. reasonable foreseeable third parties
C. expectatations gap
D. diverse liability perception
C. expectatations gap
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32. Individuals that believe they relied on misstated financial statements to make a decision and have lost money as a result will isse an action known as a
A. tort
B. securities litigation
C. breach of contract
D. constructive fraud
A. tort
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33. The Securities Act of 1933 and The Securities Exchange Act of 1934 contain
A. both of these
B. Civil liability provisions applicable to auditors
C. Criminal liability provisions applicable to auditors
D. neither of these
A. both of these
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34. Which of the following parties is known by name to auditors as the audit is conducted?
A. foreseen party
B. foreseeable party
C. general third party
D. primary beneficiary
D. primary beneficiary
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35. Which of the following would be auditors' most likely defense in an action brought under the Securities Exchange Act of 1934?
A. The investor did not suffer a loss based on the materially misstated financial statements
B. The investor did not have privity with the auditors
C. The financial statements were not filed with the Securities Exchange Comission
D. The auditors acted in good faith and were not aware of the materially misstated financial statements
D. The auditors acted in good faith and were not aware of the materially misstated financial statements
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36. Which of the following cases provides auditors with the broadest exposure for liability to third parties for ordinary negligence under common law?
B. Ultramares
C. Credit Alliance v Arthur Anderson
D. Fleet National Bank v Gloucester Co
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37. A "public company" subject to the periodic reporting requirements of the Securities Exchange Act of 1934 must file an annual report with the SEC known as the
A. Form 10-Q
B. Form 8-K
C. Regulation S-K
D. Form 10-K
D. Form 10-K
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38. The official name of the Sarbanes-Oxley Act is
A. The U.S. Executive and Director Liability Act of 2002
B. The U.S. Corporate Governance Act of 2002
C. The U.S. Public Company Reform and Investor Protection Act of 2002
D. The U.S. Fair Reporting Act of 2002
C. The U.S. Public Company Reform and Investor Protection Act of 2002
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39. Which of the following is not part of the Sarbanes-Oxley Act?
A. Increased penalties for mail and criminal violations of the Securities Exchange Act of 1934
B. An increased duty on the part of auditors to identify financial statment fraud
C. Increased penalties for destruction of records in federal investigations
D. A requirement that the CEO and CFO certify the financial statements
B. An increased duty on the part of auditors to identify financial statment fraud
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40. Auditors have greater liability under the Securities Act of 1933. Which of the following is the reason that this greater liability exists?
A. The plaintiff does not have to prove that damages were suffered
B. The plaintiff does not have to prove that the financial statements were misstated
C. The plaintiff does not have to prove that they relied on the financial statements
D. The auditor is liable for treble damages under the Securites Act of 1933
C. The plaintiff does not have to prove that they relied on the financial statements
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41. Which of the following cases provides auditors with the greatest exposure to liability to nonshareholder third parites under common law?
A. Ultramares Corp. v Touche
C. Escott v BarChris Construction Corp
D. Credit Alliance v Athur Andersen
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42. In order to prove fraud the plaintiff must prove the defendant acted
A. To benefit themselves
B. With scienter
C. In violation of the duty to perform
D. In violation of the AICPA Code of Conduct
B. With scienter
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43. The legal doctrine that states that a successful plaintiff can recover the full amount of damages from any defendant that has the ability to pay is called
A. complete liability
B. proportionate liability
C. joint and several liability
D. total liability
C. joint and several liability
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44. Actions initiated by the user of financial statements seeking damages because of auditor negligence or other inappropriate performance in auditing are called
A. malfeasances
B. breach of contract
C. torts
D. constructive fraud
C. torts
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45. Of the following:
W. A damage was suffered
X. A duty to perform was owed
Y. There was reliance on the information
Z. A loss was suffered due to the reliance
Which of these needs to be present to prove ordinary negligence under common law liability?
A. W X Y and Z
B. W X and Y
C. X Y and Z
D. W Y and Z
A. W X Y and Z
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46. Mike wants to assert a claim against auditors because he sold products on credit to MUT Company in reliance on MUT's financial statements, and MUT went bankrupt. For Mike to be successful he must be in a jurisdiction that allows lawsuits for negligence by
A. primary beneficiaries
B. parties that are in privity of the contract
C. constritory negligence
D. foreseen parties
D. foreseen parties
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47. As a direct response to Enron and WorldCom, Sarbanes - Oxley
A. all annual and quarterly financial information is required to be audited
B. prohibits CEOs from being chairman of the Board of Directors
C. Audit Committees to be made up entirely of individuals with accounting and auditing experience
D. requires CEOs and CFOs to certify financial statements and related disclosures
D. requires CEOs and CFOs to certify financial statements and related disclosures
(this multiple choice question has been scrambled)
48. The primary litigation reform contained in the Private Securities Litigation Reform Act is
A. privileged communications with clients
B. reduction in class action lawsuits
C. a limit on damage awards
D. proportionate liability
D. proportionate liability
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49. The SEC regulation that governs disclosures in annual reports is
A. Regulation S-K
B. Regulation S-X
C. Securities Act of 1933
B. Regulation S-X
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50. Which of the following assurance services is designed to assist senior citizens in making financial and living decisions?
A. PrimePlus
B. Retirement Plus
C. Performance View
D. SysTrust
A. PrimePlus
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51. The AICPA Special Committee on Assurance Services (SCAS) identified eight mega trends that can affect a CPAs business. Which of the following is one of these mega trends identified by the SCAS?
a. information technology
b. changes in corporate structure
c. changes in investment capital
d. all of the above
d. all of the above
52. A review of unaudited financial states consists of
A. conducting inquiry of management and documenting internal controls
B. performing analytical procdures and determining compliance with laws and regulations
C. conducting inquiry of manangement, performing analytical procedures, and obtaining a management representation letter
D. conducting internal control evaluation and obtaining a management representation letter
C. conducting inquiry of manangement, performing analytical procedures, and obtaining a management representation letter
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53. Which of the following statements is true concerning interim financial information?
a. an audit of interim financial information is required for SEC companies
b. the accountant needs to obtain sufficient knowledge of the entity's business and industry before undertaking an engagement on interim financial information
c. an accountant may not repot on financial information presented separately from audited financial statements
d. interim financial information may not be included as part of a note to the audited financial statements
• b. the accountant needs to obtain sufficient knowledge of the entity's
• business and industry before undertaking an engagement on interim
• financial information
54. According to SAS 50, Reports on the "Application of Accounting Principles", which of the following is NOT allowed when writing a repot in response to a request for consultation resulting the application of an accounting principle?
A. a statement that the report is for the sole use of specified parties
B. a statement that the entities management is responsible for proper accounting treatment in consultation with its own auditors
C. providing a written report on a hypothetical transaction
D. identification of the entity requesting the information
C. providing a written report on a hypothetical transaction
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55. Even though Sarbanes-Oxley only applies to publicly traded companies and organizations are requesting that public accounting firm attest to the effectiveness of their internal controls. Several conditions must be met before a public accounting firm can undertake such an engagement. Which of the following is NOT one of the necessary conditions?
A. management presents a written assertion about the effectiveness of its internal control
B. management evaluation of control is based on reasonable criteria
C. management's evaluation of control can be supported by internal audit review
D. management accepts responsbility for the effectiveness of its internal control
C. management's evaluation of control can be supported by internal audit review
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56. A compliation report should include all of the following except
A. a statement that the financial statements have not been audited or reviewed
B. a statement that the compilation has been performed in accordance with Statment of Standards for Accounting and Review Services
C. a statement that adequate discloser has been made concerning accounting policy and practice
D. a statement that the financial statements are the representation of management
C. a statement that adequate discloser has been made concerning accounting policy and practice
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57. Nonaudit clients sometimes engage public accounting firms to perform a specified set of audit procedures rather than a complete audit of the financial statements taken as a whole. This type of engagement is called a(n)
A. assurance service
B. compliance audit
C. agreed upon procedures engagement
D. individual account engagement
C. agreed upon procedures engagement
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58. Which of the following statements is true concerning a compliance audit?
A. materiality is difficult to measure in a compliance audit
B. a report on compliance can only include negative assurance
C. risks such as inherent risk, control risk, and detection risk are not appropriate in the planning and performance of a compliance audit
D. compliance audits are only performed by governmental auditors
A. materiality is difficult to measure in a compliance audit
(this multiple choice question has been scrambled)
59. An other business that executes or records transaction on behalf of a client is called a(n)
A. service organization
B. profit center
C. outsourcer
D. third party
A. service organization
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60. In providing assurance to clients, the CPA is building upon the characteristics of:
A. independence and due professional care
B. objectivity and integrity
C. knowledge of integrity
D. professionalism and trust
B. objectivity and integrity
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61. Bill is surfing the internet and finds a great pair of rollerblades at a really low price. Bill has never heard of the company on this website and is concerned that he may not receive the product he orders. Bill may be more willing to place an order with this company if:
A. the company provides a money back guarantee
B. the company provides its annual report and the report of the independent auditor on the website
C. only a partial payment is required prior to receiving the product
D. the site displays the Web Trust seal
D. the site displays the Web Trust seal
(this multiple choice question has been scrambled)
62. Which one of the following is NOT a principle of Trust Services?
A. confidentiality
B. security
C. privacy
D. authentication
D. authentication
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63. Practice in connection with unaudited historical cost financial statements is conducted by:
A. region- and local- size CPA firms
B. international accounting firms only
C. local size CPA firms only
D. all CPA firms
D. all CPA firms
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64. The offical Statements on Standards for Accounting and Review Services are applicable to practice with:
A. audited financial statements of nonpublic companies
B. audited financial statements of public companies
C. unaudited financial statements of public companies
D. unaudited financial statements of nonpublic companies
D. unaudited financial statements of nonpublic companies
(this multiple choice question has been scrambled)
65. A review service engagement for an accountant's association with unaudited financial statements involves:
A. more work than a compliation, and more work than an audit
B. more work than an audit, and more work than a compliation
C. less work than a compilation but more work than an audit
D. less work than an audit but more than a compilation
D. less work than an audit but more than a compilation
(this multiple choice question has been scrambled)
66. When an accountant is not independent, the following report can nevertheless be given:
A. compilation report
B. review report on unaudited financial statements
C. standard unqualified audit report
D. examination report on a forecast
A. compilation report
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67. An accountant is premitted to express "negative assurance" in which of the following types of reports?
A. compilation report on unaudited financial statements
B. review report on unaudited financial statements
C. standard unqualified audit report on audited financial statements
D. adverse opinion report on audited financial statements
B. review report on unaudited financial statements
(this multiple choice question has been scrambled)
68. When a company's financial statements in a review or compilation engagement contain a known material departure, acceptable to the CPA, from a FASB Statement on Financial Accounting Standards, the accountant's report can:
a. make no mention of the departure in a compilation report because it contains an explicit disclaimer of opinion
b. express the adverse conclusion: "The accompanying financial statements are not presented in conformity with generally accepted accounting practices
c. explain the departure as necessary to make the statements no misleading, then give the standard compilation report disclaimer
d. explain the departure as necessary to make the statements not misleading, then give the standard review report negative assurance
• d. explain the departure as necessary to make the statements not
• misleading, then give the standard review report negative assurance
69. When interim financial information is a note to annual financial statements, the standard audit report on the annual financial statements should:
A. contain an extra paragraph that gives negative assurance on the interim inforamation, if it has been review
B. not mention the interim information unless there is an exception the auditor needs to include in the report
C. contain an audit opinion paragraph the specifically mentions the interim financail information if it is not in conformity with GAAP
D. contain an extra explanatory paragraph if the interim information note is labeled "unaudited"
B. not mention the interim information unless there is an exception the auditor needs to include in the report
(this multiple choice question has been scrambled)

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 Author: wsrdpc ID: 43072 Filename: acct 242 exam 1 E, C & A Updated: 2010-12-01 04:26:57 Tags: account auditing assurance Folders: Description: acct 242 exam 1 E, C & A Show Answers:

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