Question

Consider the following statements:

       I. An Other Matter paragraph “… refers to something that has been appropriately

           presented or disclosed in the financial statements”.

      II. The new PCAOB audit report includes a section involving Critical Audit Matters.

      a. I is true;   II is true

      b. I is true;   II is false

      c. I is false; II is true

      d. I is false; II is false

2. Consider the following statements:

        I.   Inconsistent application of accounting principles (i.e. a change in accounting principle, which the

             auditor agrees is acceptable) would result in a unqualified audit opinion.

       II. For a change in accounting principles that management does justify to the auditor, the

            auditor will likely issue an unqualified audit opinion.

      a. I is true;   II is true

      b. I is true;   II is false

      c. I is false; II is true

      d. I is false; II is false

3. Consider the following statements:

        I. The failure of a client to include a Statement of Cash Flows will result in the issuance of a

            qualified opinion by the auditor.

       II. If the CPA firm is not independent of the entity being audited, the CPA firm is required to issue a

            [one-paragraph] disclaimer of opinion.

      a. I is true;   II is true

      b. I is true;   II is false

      c. I is false; II is true

    d. I is false; II is false

4. In which of the following instances would an auditor most likely issue a standard unqualified opinion

      WITHOUT an explanatory paragraph?

      a. Management disclosures are missing or inadequate.

      b. There is substantial doubt about the entity’s ability to continue as a going-concern.

      c. Due to staffing issues, the audit report was issued later than in previous years.

      d. There is an material deviation from GAAP related to capitalizing repairs.

      e. None of the above.

5. Which one of the following is an example of the contents of an opinion section found in an audit

       report?

      a. “We have audited …”

      b. “Nothing came to our attention…”

      c. “The financial statements referred to above present fairly …”

      d. “An audit includes examining, on a test basis …”

6. The auditors were not permitted to observe the taking of the client’s physical inventory,

      a significant portion of the company’s financial statements. What would this seem to involve?

      a. Lack of attitude

      b. Lack of consistency.

      c. Lack of evidence.

      d. Lack of independence.

7. An audit of the Flagler Company, a diamond mining company, brings to light the fact that its

      equipment has been marked up to the owners’ expectation of market values. Such a situation will

      most likely result in which type of report?

     a. Disclaimer.

      b. Review.

      c. Adverse.

      d. Unqualified, with explanatory paragraph.

8. In which of the following situations would an auditor originally choose between expressing a

      qualified opinion or an adverse opinion?

     a. The auditor did not observe the entity’s physical inventory and is unable to become satisfied

           about its balance by other auditing procedure

      b. Conditions that cause the auditor to have substantial doubt about the entity’s ability to continue

          as a going concern are inadequately disclosed.

      c. Both a and b.

      d. Neither a nor b.

9. Consider Special Reports. What type involves a “different basis of accounting”?

      a. Agreed-upon-procedures.

      b. Compliance Report.

      c. Special Purpose Framework.

      d. Specified Elements, Accounts.

Answer 1

As per the policy, since there are many number of questions, I am answering the first four questions:

1. I. Other matter paragraph is included in the audit report and contains matters other than reported or presented in financial statements which the auditor thinks the users should know. Hence, the statement " An Other Matter paragraph “… refers to something that has been appropriately presented or disclosed in the financial statements” is false.

II. The auditor must communicate in the PCAOB audit report the critical audit matters related to those presented in financial statements or state that there are no critical audit matters. Hence, the statement "The new PCAOB audit report includes a section involving Critical Audit Matters" is true.

Answer is c. I is false; II is true

2. Change in accounting principles whether the auditor thinks it is acceptable or whether the management justify to the auditor will likely issue an unqualified audit opinion. If the financial statements have been materially affected by the change in accounting principles, then the auditor must report it in an explanatory paragraph with the unqualified opinion. Hence, both the statements "Inconsistent application of accounting principles (i.e. a change in accounting principle, which the auditor agrees is acceptable) would result in a unqualified audit opinion." and " For a change in accounting principles that management does justify to the auditor, the auditor will likely issue an unqualified audit opinion." is true.

Answer is a. I is true;   II is true

3. I. If the company issues financial statements properly but omits statement of cash flows, then the auditor will express a qualified opinion in relation to omission. Hence, the statement," The failure of a client to include a Statement of Cash Flows will result in the issuance of a qualified opinion by the auditor." is true.

II. A disclaimer of opinion is issued in either of the two cases: auditor is not independent or conflict of interest. Hence, the statement," If the CPA firm is not independent of the entity being audited, the CPA firm is required to issue a [one-paragraph] disclaimer of opinion" is true.

Answer is a. I is true;   II is true

4. (c) is correct. An auditor is most likely to issue a standard unqualified opinion WITHOUT an explanatory paragraph if due to staffing issues, the audit report was issued later than in previous years.

(a) is incorrect. An auditor is most likely to issue a standard unqualified opinion WITH an explanatory paragraph if Management disclosures are missing or inadequate.

(b) is incorrect. An auditor is most likely to issue a standard unqualified opinion WITH an explanatory paragraph if there is substantial doubt about the entity’s ability to continue as a going-concern.

(d) is incorrect. An auditor is most likely to issue a standard unqualified opinion WITH an explanatory paragraph if there is an material deviation from GAAP related to capitalizing repairs.