1. A CPA firm has carried out an audit of the Gillespie Corporation. The CPA has
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Question
1. A CPA firm has carried out an audit of the Gillespie Corporation. The CPA has uncovered a material misstatement in the inventory balance. However, the CPA does not feel that this problem is so serious as to eliminate the credibility of the financial statements taken as a whole. What wording will be used to begin the opinion paragraph of the audit report?
A. In our opinion, except for adjustments, if any, that might have been found…
B. The scope of our work was not sufficient…
C. In our opinion, except for the effects of…
D. Because of the effects of…
2. When an auditor issues a standard unmodified audit report, the implication is that the auditor:
A. Believes the financial statements are presented fairly in conformity with U.S. GAAP.
B. Does not know if the financial statements are presented fairly in conformity with U.S. GAAP.
C. Believes the financial statements are presented fairly in conformity with U.S. GAAP except for a specific aspect of them.
D. Does not believe the financial statements are presented fairly in conformity with U.S. GAAP.
3. A CPA's standard report on audited financial statements would be inappropriate if it referred to
A. Management's responsibilities for the financial statements.
B. An assessment of the entity's accounting principles.
C. The significant estimates made by management.
D. The CPA's assessment of sampling risk factors.
4. The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those statements are:
A. The responsibility of management.
B. The responsibility of the auditor.
C. The joint responsibility of the auditor and management.
4. None of the above.
5. Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
A. Comparing the financial statements being reported on with those of the prior period.
B. Confirming a sample of material accounts receivable established after year end.
C. Inquiring as to whether any unusual adjustments were made after year end.
D. Investigating personnel changes in the accounting department occurring after year end.
6. The date of the management representation letter should be
A. The same date as the latest interim financial information.
B. The same date as the latest bank reconciliation.
C. No earlier than the auditor's report.
D. No earlier than the balance sheet.
7. The audit step most likely to reveal the existence of contingent liabilities is
A. A review of vouchers paid during the month following the year-end
B. Mortgage-note confirmation
C. Accounts payable confirmations
D. An inquiry directed to legal counsel
8. The Form 10-K filed by management of a public company includes a section on management’s discussion and analysis (MD&A) in addition to the annual financial statements. Which of the following best describes the auditor’s responsibility for the MD&A information?
A. The auditor must perform sufficient appropriate audit procedures to opine on the MD&A information.
B. The auditor has no responsibilities related to the MD&A disclosures.
C. The auditor must read the MD&A information to determine if there is any material inconsistency with the audited financial statements.
D. The auditor must provide a disclaimer of opinion related to the MD&A information.
Explanation / Answer
1. A CPA firm has carried out an audit of the Gillespie Corporation. The CPA has uncovered a material misstatement in the inventory balance. However, the CPA does not feel that this problem is so serious as to eliminate the credibility of the financial statements taken as a whole. What wording will be used to begin the opinion paragraph of the audit report?
A. In our opinion, except for adjustments, if any, that might have been found…
2. When an auditor issues a standard unmodified audit report, the implication is that the auditor:
A. Believes the financial statements are presented fairly in conformity with U.S. GAAP.
3. A CPA's standard report on audited financial statements would be inappropriate if it referred to
D. The CPA's assessment of sampling risk factors.
4. The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those statements are:
4. None of the above.
The auditor's standard report states that the financial statements present fairly, in all material respects, an entity's financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. This conclusion may be expressed only when the auditor has formed such an opinion on the basis of an audit performed in accordance with generally accepted auditing standards.
5. Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
A. Comparing the financial statements being reported on with those of the prior period.
6. The date of the management representation letter should be
C. No earlier than the auditor's report.
7. The audit step most likely to reveal the existence of contingent liabilities is
D. An inquiry directed to legal counsel
8. The Form 10-K filed by management of a public company includes a section on management’s discussion and analysis (MD&A) in addition to the annual financial statements. Which of the following best describes the auditor’s responsibility for the MD&A information?
A. The auditor must perform sufficient appropriate audit procedures to opine on the MD&A information.
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