AUD

AUD practice questions, page 10 of 41, with answer review and explanations.

Question 46

In which of the following circumstances would an auditor most likely add an explanatory paragraph to the standard report while not affecting the auditor's unqualified opinion?

  1. The auditor is asked to report on the balance sheet, but not on the other basic financial statements.
  2. There is substantial doubt about the entity's ability to continue as a going concern.
  3. Management's estimates of the effects of future events are unreasonable.
  4. Certain transactions cannot be tested because of management's records retention policy.

Question 47

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and:

  1. Explain why the change is justified under generally accepted accounting principles.
  2. Describe the cumulative effect of the change on the audited financial statements.
  3. State the auditor's explicit concurrence with or opposition to the change.
  4. Refer to the financial statement note that discusses the change in detail.

Question 48

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of fieldwork made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(an):

  1. Unqualified opinion.
  2. Unqualified opinion with an explanatory paragraph.
  3. Qualified opinion due to a scope limitation.
  4. Qualified opinion due to a departure from generally accepted auditing standards.

Question 49

Davis, CPA, believes there is substantial doubt about the ability of Hill Co. to continue as a going concern for a reasonable period of time. In evaluating Hill's plans for dealing with the adverse effects of future conditions and events, Davis most likely would consider, as a mitigating factor, Hill's plans to:

  1. Accelerate research and development projects related to future products.
  2. Accumulate treasury stock at prices favorable to Hill's historic price range.
  3. Purchase equipment and production facilities currently being leased.
  4. Negotiate reductions in required dividends being paid on preferred stock.

Question 50

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:

  1. Issues an unqualified opinion on the consolidated financial statements.
  2. Learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.
  3. Is unable to review the audit programs and audit documentation of the other CPA.
  4. Is satisfied as to the independence and professional reputation of the other CPA.