CPA Auditing and Attestation

CPA Auditing and Attestation practice questions, page 11 of 41, with answer review and explanations.

Question 51

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 52

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.

Question 53

A limitation on the scope of an audit sufficient to preclude an unqualified opinion will usually result when management:

  1. Is unable to obtain audited financial statements supporting the entity's investment in a foreign subsidiary.
  2. Refuses to disclose in the notes to the financial statements related party transactions authorized by the Board of Directors.
  3. Does not provide the auditor with an engagement letter specifying the responsibilities of both the entity and the auditor.
  4. Fails to correct a significant deficiency in internal control communicated to those charged with governance after the prior year's audit. A

Question 54

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

  1. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
  2. The financial statements fail to disclose information that is required by generally accepted accounting principles.
  3. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
  4. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

Question 55

When an auditor expresses an adverse opinion, the opinion paragraph should include:

  1. The principal effects of the departure from generally accepted accounting principles.
  2. A direct reference to a separate paragraph disclosing the basis for the opinion.
  3. The substantive reasons for the financial statements being misleading.
  4. A description of the uncertainty or scope limitation that prevents an unqualified opinion.