Professional Documents
Culture Documents
1. To become a Certified Public Accountant (CPA), anindividual must pass the Uniform CPA
Examination and
a. Demonstrate his or her independence.
b. Comply with state education and experience requirements.
c. Obtain employment with a public accounting firm.
d. Become a member of the AICPA.
2. Which of the following statements is an example of an assertion made by management in an entity's
financial statements?
a. The financial statements were prepared in an unbiased manner.
b. Reported inventory balances reflect all related transactions for the period.
c. Reported accounts receivable do not include any uncollectible accounts.
d. The scope of the auditors' investigation was not limited in any way by management.
3. Statements on Auditing Standards
a. Relate to the filing requirements and enforcement activities of the SEC.
b. Describe procedures to be applied in specific areas of audit activity to eliminate
inconsistencies in audit practice.
c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function.
d. Interpret standards that provide guidelines or measures of quality for an independent audit.
4. The primary purpose of an independent financial statement audit is to
a. Provide a basis for assessing management's performance.
b. Comply with state and federal regulatory requirements.
c. Assure management that the financial statements are
unbiased and free from material error.
d. Provide users with an unbiased opinion about the fairness of information reported in the
financial statements.
(AICPA ADAPTED)
5. Independent auditing can best be described as a
a. Branch of accounting.
b. Discipline that attests to the results of accounting and other operations and data.
c. Professional activity that measures and communicates financial and business data.
d. Regulatory function that prevents the issuance of improper financial information.
6. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any fraudulent activity has been corrected.
(AICPA ADAPTED)
4. The management of a client company believes that the statement of cash flow is not a useful document
and refuses to include one in the annual report to stockholders. As a result, the auditor's
opinion should be
a. Qualified due to inadequate disclosure.
b. Qualified due to a scope limitation.
c. Adverse
d. Unqualified.
5. An auditor would issue an adverse opinion if
a. The audit was begun by other independent auditors who withdrew from the engagement.
b. A qualified opinion cannot be given because the auditor lacks independence.
c. The restriction on the scope of the audit was significant.
d. The statements taken as a whole do not fairly present the financial position, results of
operations, and cash flows of the company.(AICPA ADAPTED)
6. The fourth reporting standard requires that the auditor's report contain either an expression of opinion
regarding the financial statements taken as a whole or an assertion that an opinion cannot be
expressed. The objective of the fourth standard is to prevent
a. An auditor from reporting on one basic financial statement and not the others.
b. An auditor from expressing different opinions on each of the basic financial statements.
c. Management from reducing its responsibility for the basic financial statements.
d. Misinterpretations about the degree of responsibility the auditor assumes. (AICPA
ADAPTED)
7. An auditor's opinion read as follows: "In our opinion, except for the above-mentioned limitation on the
scope of our audit.." This is an example of a(n)
a. Review opinion.
b. Emphasis on matter.
c. Qualified opinion.
d. Unacceptable reporting practice.
(AICPA ADAPTED)
8. An auditor's report includes a statement that "the financial statements do not present fairly the financial
position in conformity with generally accepted accounting principles." This auditor's report
was probably issued in connection with financial statements that were
a. Prepared on a comprehensive basis for accounting other than GAAP.
b. Restricted for use by management.
c. Misleading.
d. Condensed. (AICPA ADAPTED)
9. If the auditor believes there is minimal likelihood that resolution of an uncertainty will have a material
effect on the financial statements, the auditor would issue a(n)
a. Qualified opinion.
b. Adverse opinion.
c. Unqualified opinion.
d. Disclaimer of opinion.
10. If an accounting change has no material effect on the financial statements in the current year but the
change is reasonably certain to have a material effect in laer years, the change should be
a. Treated as a consistency modification in the auditor's report for the current year.
b. Disclosed in the notes to the financial statements of the current year.
c. Disclosed in the notes to the financial statements and referred to in the auditor's report for
the current year.
d. Treated as a subsequent event. (AICPA ADAPTED)
11. When comparative financial statements are presented, the fourth reporting standard, which refers to
financial statements "taken as a whole", should be considered to apply to the financial
statements of the
a. Periods presented plus one preceding period.
b. Current period only.
c. Current period and those of the other periods presented.
d. Current and immediately preceding period only.
12. An auditor's standard report expressed an unqualified opinion and includes an explanatory paragraph
that emphasizes a matter included in the notes to the financial statements. The auditor's report would be
deficient if the explanatory paragraph states that the entity
a. Is a component at a larger business enterprise.
b. Has changed from the completed contract method to the percentage of completion method
to account for long term construction contracts.
c. Has had a significant subsequent event.
d. Has accounting reclassifications that enhance the comparability between years. (AICPA
ADAPTED)
13. Raider, Inc. uses the last-in, first-out method to value half of its inventory and the first-in, first-out
method to value the other half. Assuming the auditor is satisfied in all other respects, under these
circumstances the auditor will issue a(n)
a. Opinion modified due to inconsistency.
b. Unqualified opinion with an explanatory middle paragraph.
c. Qualified or adverse opinion, depending on materiality.
d. Unqualified opinion. (AICPA ADAPTED)
14. Under which of the following sets of circumstances might an auditor disclaim an opinion?
a. The financial statements contain a departure from GAAP, the effect of which is material.
b. The principal auditor decides to make reference to the report of another auditor who audited
a subsidiary.
c. There has been a material change between periods in the method of the application of
accounting principles.
d. There were significant limitations on the scope of the audit.
15. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize
that the entity being reported on is a subsidiary of another business enterprise. The inclusion
of this paragraph
a. Is appropriate and would not negate the unqualified opinion.
b. Is a qualification.
c. Is a violation of generally accepted reporting standards if this information is disclosed in
footnotes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing
explanation."
16. In which of the following circumstances would an adverse opinion be appropriate?
a. The auditor is not independent with respect to the enterprise being audited.
b. An uncertainty prevents the issuance of an unqualified report.
c. The statements are not in conformity with authoritative statements regarding accounting for
pension plans.
d. A client imposed scope limitation prevents the auditor from complying with generally
accepted auditing standards.
17. An audit report should be dated as of the
a. Date the report is delivered to the entity audited.
b. Date of the last day of fieldwork.
c. Balance sheet date of the latest period reported on.
d. Date a letter of audit inquiry is received from the entity's attorney of record.
18. An auditor completed field work on February 10, 2002 for a December 31, 2001 year-end client. A
significant subsequent event occurred on February 22, 2002. In this case, which of the
following report dates would not be appropriate?
a. February 10, 2002.
b. February 10, except Note 1, February 22, 2002.
c. February 22, 2002.
d. December 31, 2001.
19. Which of the following statements indicates a qualified opinion?
a. The financial statements do not present fairly in all material respects the financial position,
results of operations, and cash flows in conformity with GAAP.
b. The auditor does not express an opinion on the financial statements.
c. The financial statements present fairly in all material respects the financial position, results
of operations, and cash flows in conformity with GAAP.
d. Except for the effects of a matter, the financial statements present fairly in all material
respects the financial position, results of operations, and cash flows in conformity with
GAAP.
20. Under Statement on Auditing Standards No. 59, "The Auditor's consideration of an Entity's Ability to
continue as a Going Concern," an independent auditor is responsible for
a. Predicting whether the entity will be in business one year from the balance sheet date.
b. Evaluating whether there is substantial doubt about the entity's ability to continue as a going
concern.
c. Weighing mitigating factors against contrary information about the entity's ability to
continue as a going concern.
d. Reporting the entity's ability to continue as a going concern to senior management and to
the board of directors.
21. Does an auditor make the following representations explicitly or implicitly in a standard audit report
on comparative financial statements?
Accounting Application of Examination of Evidence
Accounting Principles on a Test Basis
------------------------- -----------------------
a. Explicitly Explicitly
b. Implicitly Implicitly
c. Implicitly Explicitly
d. Explicitly Implicitly
22. an auditor is unable to determine the amounts associated with illegal acts committed by a client. The
auditor would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion. (AICPA ADAPTED)
23. A principal auditor is satisfied both with the independence and professional reputation of another
auditor who audited a subsidiary, but wants to share responsibility with the other auditor in the
audit report. The principal auditor should
a. Modify the scope and opinion paragraphs of the report.
b. Modify the introductory and opinion paragraph of the
report.
c. Not modify the report except for including in explanatory paragraph.
d. Modify the opinion paragraph of the report.
(AICPA ADAPTED)
24. An auditor may issue a qualified opinion for
Inadequate Scope
Disclosure Limitation
---------- ----------
a. Yes Yes
b. Yes No
c. No Yes
d. No No
25. An explanatory paragraph following an opinion paragraph describes an uncertainty as follows:
As discussed in Note X to the financial statements, the company is a defendant in a
lawsuit alleging infringement of certain patent rights and claiming damages. Discovery
proceedings are in progress. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result upon adjudication has
been made in the accompanying financial statements.
What type of opinion should the auditor express in this circumstance?
a. Unqualified c. Disclaimer
b. Qualified d. Adverse
(AICPA ADAPTED)
26. An auditor's report that refers to a departure form generally accepted accounting principles includes
the language. "In our opinion, with the foregoing explanation, the financial statements referred
to above present fairly...." This is a(n)
a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph
d. Example of inappropriate reporting.
(AICPA ADAPTED)
27. When management prepares financial statements on the basis of a going concern and the auditor
believes the company may not continue as a going concern, the auditor should issue a(n)
a. Qualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Disclaimer of opinion.
d. Adverse opinion. (AICPA ADAPTED)
28. An auditor concludes that there is substantial doubt about an entity's ability to continue as a going
concern. If the entity's disclosures about continued existence are adequate, the audit report
may include
A Disclaimer of Opinion A qualifed Opinion
----------------------- ------------------
a. Yes Yes
b. No No
c. No Yes
d. Yes No
29. Keller, CPA, was about to issue an unqualified opinion on the financial statements of Lupton
Television Broadcasting company when a letter was received from Lupton's independent
counsel. The letter stated that the Federal Communications Commission has notified Lupton
that its broadcasting license will not be renewed because of alleged irregularities in its
broadcasting practices. Lupton cannot continue to operate without the license. Keller has also
learned that Lupton and its independent counsel plan to take all necessary legal action to retain
the license. The letter from independent counsel, however, states that a favorable outcome of
any legal action is highly uncertain. On the basis of this information, what action should
Keller take?
a. Issue an unqualified opinion, with an explanatory paragraph that describes the matter giving
rise to the uncertainty.
b. Issue an unqualified opinion if full disclosure is made of the matter in a note to the financial
statements.
c. Issue an adverse opinion and disclose all reasons why.
d. Issue a piecemeal opinion with full disclosure made of the license dispute in a note to the
financial statements. (AICPA ADAPTED)
30. If the auditor believes that required disclosures are omitted from the financial statements, the auditor
should decide between issuing a(n)
a. Qualified opinion or an adverse opinion.
b. Disclaimer of opinion or a qualified opinion.
c. Adverse opinion or a disclaimer of opinion.
d. Unqualified opinion or a qualified opinion.
31. An auditor's report on comparative financial statements should be dated as of the date the
a. Report is issued.
b. Auditor's field work is completed.
c. Fiscal year ends.
d. Last subsequent event occurred. (AICPA ADAPTED)
32. An auditor is confronted with an exception sufficiently material to warrant departing from the
standard wording of an unqualified report. If the exception relates to a departure from generally accepted
accounting principles, the auditor must decide between a(n)
a. Adverse opinion and an unqualified opinion.
b. Adverse opinion and a qualified opinion.
c. Adverse opinion and a disclaimer of opinion.
d. Disclaimer of opinion and a qualified opinion. (AICPA ADAPTED)
33. An auditor had expressed a qualified opinion on the financial statements of a prior period because of
the client's financial statements departed from generally accepted accounting principles. The prior-period
statements are restated in the current period to conform with generally accepted accounting
principles. The auditor's updated report on the prio-period statements should
a. Express an unqualified opinion about the restated financial statements.
b. Be accompanied by the auditor's original report on the prior period.
c. Bear the same date as the auditor's original report on the prior period.
d. Qualify the opinion concerning the restated financial statements because of a change in
accounting principles. (AICPA ADAPTED)