AUDIT REPORTING

Question 1
Commitments include all but which of the following?
Pension plans
Each of the above is a commitment
Agreements to lease facilities at set prices
Agreements to purchase raw materials

4.1 Auditing - 7. Audit Reporting (Average)

Question 2
The auditor commits a Type I error if:
The cost additional testing is greater than the expected benefit of risk reduction.
An unqualified report is issued when the financial statements are materially
misstated.
A qualified report is issued when the financial statements do not contain any
material misstatements.
The risk of a material misstatement exceeds the level of assurance.

4.1 Auditing - 7. Audit Reporting (Average)

Question 3
Which of the following is not one of the reasons that auditors provide only reasonable
assurance on the financial statements?
The auditor commonly examines a sample, rather than the entire population of
transactions
Fraudulently prepared financial statements are often difficult to detect
Auditors believe that reasonable assurance is sufficient in the vast majority of
cases
Accounting presentations contain complex estimates which involve uncertainty

4.1 Auditing - 7. Audit Reporting (Average)

Question 4
Summarized financial statements are reports derived from a complete set of financial
statements. The only difference is that summarized financial statements are condensed
and therefore show less detail compared to the financial statements from which they are
derived. Accordingly, the auditor should not report on summarized financial statements:
unless he/she has expressed an unqualified or qualified audit opinion on the
financial statements from which the summarized financial statements were derived.
unless he/she has expressed an unqualified audit opinion on the financial
statements from which the summarized financial statements were derived.
 If he/she has already expressed an audit opinion on the financial statements from
which the summarized financial statements were derived.
unless he/she has expressed an audit opinion on the financial statements
from which the summarized financial statements were derived.
4.1 Auditing - 7. Audit Reporting (Difficult)
Question 5
A management representation letter would ordinarily be dated:
Five days after the auditors report.
The same date as the auditors report.
Five days after the balance sheet date.
The same date as the balance sheet date.
4.1 Auditing - 7. Audit Reporting (Easy)
Question 6
The division of responsibility between the reporting company's management and the
auditor firm is set forth in the:
notes to the financial statements. opinion paragraph. introductory
paragraph. scope paragraph.
4.1 Auditing - 7. Audit Reporting (Average)
Question 7
The party responsible for assumptions identified in the preparation of prospective
financial statements is usually
The reporting accountant
A third-party lending institution
The client's management
The client's independent auditor

4.1 Auditing - 7. Audit Reporting (Average)

Question 8
What level of assurance does an accountant give on compilation report?
High
Low
None
Moderate

4.1 Auditing - 7. Audit Reporting (Average)

Question 9
The auditor should complete the assembly of the final audit file on a timely basis after
the date of the auditors report, which is ordinarily:
 60 days after the date of the audit report
120 days after the date of the audit report.
90 days after the date of the audit report
30 days after the date of the audit report
4.1 Auditing - 7. Audit Reporting (Difficult)
Question 10
Which of the following best describes the auditor's reporting responsibility for other
information included in the annual report to stockholders that contains financial
statements and the auditor's report?
The auditor should extend the examination to the extent necessary to verify the
other information.
The auditor has no obligation to corroborate the other information but should read it
to determine whether it is materially inconsistent with the financial statements.
The auditor must modify the auditor's report to state that the other information is
unaudited or not covered by the auditor's report.
The auditor has no obligation to read the other information.

4.1 Auditing - 7. Audit Reporting (Average)

Question 11
Which statement is incorrect regarding report on compliance with contractual
agreements?
Engagements to express an opinion as to an entitys compliance with contractual
agreements should be undertaken only when the overall aspects of compliance relate to
accounting and financial matters within the scope of the auditors professional
competence.
The auditor cannot be requested to report on an entitys compliance with
certain aspects of contractual agreements, such as bond indentures or loan
agreements.
When there are particular matters forming part of the engagement that are outside
the auditors expertise, the auditor would consider using the work of an expert.
The report should state whether, in the auditors opinion, the entity has complied
with the particular provisions of the agreement.

4.1 Auditing - 7. Audit Reporting (Difficult)

Question 12
One of the auditors primary concerns relative to presentation and disclosure-related
objectives is:
Completeness
Accuracy
 Occurrence
Existence

4.1 Auditing - 7. Audit Reporting (Easy)

Question 13
PSA 402 defines a service organization as one which executes transactions and
maintains elated accountability or records transactions and processes data (e.g. a
computerized information system service organization). When a client auditor uses a
report from the auditor of service organization, the client auditor:
Should refer the matter in a separate emphasis of matter paragraph of his audit
report.
Makes no reference in his audit report on the service organization.
Should refer the matter by modifying the scope, and opinion paragraphs of the
auditor's report.
Should attach the copy of the service organization's auditor's report to his audit
report.

4.1 Auditing - 7. Audit Reporting (Average)

Question 14
In which of the following types of audit reports can the explanatory paragraph go before
or after the opinion paragraph?
Change in accounting principle
Justified departure from GAAP
Going concern
Emphasis
4.1 Auditing - 7. Audit Reporting (Average)
Question 15
Auditors will generally send a standard inquiry letter to:
Those attorneys whom the client relies on for advice related to substantial legal
matters
Only those attorneys who have devoted substantial time to client matters during the
year
Every attorney that the client has been involved with in the current or
preceding year, plus any attorney the client engages on occasion
Only the attorney who represent the client in proceeding where the client is
defendant

4.1 Auditing - 7. Audit Reporting (Easy)

Question 16
The responsibility for identifying and deciding the appropriate accounting treatment for
contingent liabilities rests with a companys _____.
Legal counsel
Auditors
Management
Management and the auditors

4.1 Auditing - 7. Audit Reporting (Easy)

Question 17
A client company has issues that cause substantial doubt regarding the entity's ability to
continue as a going concern. If this is the only major audit issue, which type of opinion
will the auditor normally issue?
Unqualified with explanatory language Unqualified Qualified Adverse
4.1 Auditing - 7. Audit Reporting (Average)
Question 18
Government auditing often extends beyond examinations leading to the expression of
opinion on the fairness of financial statements and includes audits of efficiency,
economy, effectiveness and:
Evaluation Accuracy Internal control. Compliance
4.1 Auditing - 7. Audit Reporting (Easy)
Question 19
The auditors of SOWNA Sheets, Inc. are unable to obtain evidence regarding accounts
receivable which is a material balance. Instead, the auditors are able to satisfy
themselves with other alternative procedures relating to the SOWNA Sheets audit.
Which report will the auditors most likely issue in this situation?
Adverse Disclaimer Unqualified Qualified
4.1 Auditing - 7. Audit Reporting (Average)
Question 20
An auditor concludes that there is a material inconsistency in the other information in an
annual report to shareholders containing audited financial statements. If the auditor
concludes that the financial statements do not require revision, but the client refuses to
revise or eliminate the material inconsistency, the auditor may
Disclaim an opinion on the financial statements after explaining the material
inconsistency in a separate explanatory paragraph
Revise the auditor's report to include a separate paragraph describing the material
inconsistency
Consider the matter closed since the other information is in the audited financial
statements
Issue an "except for" qualified opinion after discussing the matter with the
client's board of directors
4.1 Auditing - 7. Audit Reporting (Average)
Question 21
The audit procedures for the subsequent events review can be divided into two
categories: (1) procedures normally integrated as a part of the verification of year-end
account balances, and (2) those performed specifically for the purpose of discovering
subsequent events. Which of the following procedures is in category 2?
Test the collectability of accounts receivable by reviewing subsequent period cash
receipts
Correspond with attorneys
Compare the subsequent-period purchase price of inventory with the recorded cost
as a test of lower-of-cost-or-market valuation
Subsequent period sales and purchases transactions are examined to determine
whether the cutoff is accurate

4.1 Auditing - 7. Audit Reporting (Average)

Question 22
Under which of the following conditions can a disclaimer of opinion never be given?
The client does not let the auditor have access to evidence about important
accounts.
Going concern problems are overwhelming the company
. The auditor owns stock in the client corporation.
The auditor has found that the client has used the Last-In, First-Out (LIFO)
inventory costing method.
4.1 Auditing - 7. Audit Reporting (Difficult)
Question 23
When financial statements of prior period are presented on a comparative basis with
financial statements of the current period, the continuing auditor is responsible for
Updating the report on the previous financial statements regardless of the
opinion previously issued.
Updating the report on the previous financial statements only if there has not been a
change in the opinion
Updating the report on the previous financial statements only if the previous report
was qualified and the reasons for the qualification no longer exist.
Expressing dual dated opinions.

4.1 Auditing - 7. Audit Reporting (Average)

Question 24
A CPA firm is auditing the 2017 financial statements of XYZ Services Inc. The partner of
the audit firm finished her review of the audit results on March 3, 2018, and the financial
statements were issued one week later. The evidence included only one subsequent
event, which was the audited details of the issuance of common shares, on February
15, 2018. When should the audit report be dated?
March 3, 2018 February 15, 2018 December 31, 2017 March 13, 2018
4.1 Auditing - 7. Audit Reporting (Average)
Question 25
The auditor is required to complete the administrative process of assembling the final
audit file on a timely basis after the date of the auditor's report. The time limit within
which to complete the assembly of the audit file is ordinarily
Not more than 60 days after the date of the auditor's report.
Not more than 90 days after the end of the entity's reporting period.
Not more than 60 days after the date of the entity's financial statements are
authorized for issue.
Not more than 30 days after the date of the auditor's report.

4.1 Auditing - 7. Audit Reporting (Average)

Question 26
A CPA may wish to emphasize specific matters regarding the financial statements even
though an unqualified opinion will be issued. Normally, such explanatory information is:
Included in the introductory paragraph
Included in the opinion paragraph
Included in a separate paragraph in the report
Included in the scope paragraph

4.1 Auditing - 7. Audit Reporting (Easy)

Question 27
This terms refers to financial information that is prepared and presented in accordance
with an applicable financial reporting framework and comprises either a complete or a
condensed set of financial statements for a period that is shorter than the entitys
financial year.
Historical financial information
. Prospective financial information
. Truncated financial information.
Interim financial information.
4.1 Auditing - 7. Audit Reporting (Difficult)
Question 28
Which of the following material events occurring subsequent to the reporting date would
require an adjustment to the financial statements before they are issued?
Major purchase of a business, in excess of the recorded liability.
Loss of a plant as a result of flood.
 Settlement of long-term debt using ordinary shares.
Settlement of litigation, in excess of the recorded liability.

4.1 Auditing - 7. Audit Reporting (Average)

Question 29
Which is usually included in the engagement letter?
The projected type of opinion on the FS to be audited (No); Name of the client
personnel responsible for supplying auditor with information (No)
The projected type of opinion on the FS to be audited (Yes); Name of the client
personnel responsible for supplying auditor with information (No)
The projected type of opinion on the FS to be audited (No); Name of the client
personnel responsible for supplying auditor with information (Yes)
The projected type of opinion on the FS to be audited (Yes); Name of the client
personnel responsible for supplying auditor with information (Yes)

4.1 Auditing - 7. Audit Reporting (Average)

Question 30
Representations by management:
Can be a substitute for other audit evidence that the auditor could reasonably
expect to be available.
Should be in writing when they pertain to matters material to the financial
statements when other sufficient appropriate audit evidence cannot reasonably
be expected to exist.
Need not be documented if they comprise mainly oral discussions with
management.
May take the form of a representation letter from management, a letter from the
auditor outlining the auditors procedures, duly acknowledged and confirmed by
management, or relevant minutes of meetings of the board of directors.
4.1 Auditing - 7. Audit Reporting (Difficult)