CPA Auditing and Attestation

CPA Auditing and Attestation practice questions, page 15 of 41, with answer review and explanations.

Question 71

Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any physical inventories. These inventories account for 40% of the entity's assets. Alternative auditing procedures cannot be applied due to the nature of the entity's records. Under these circumstances, the auditor should express a(an):

  1. Disclaimer of opinion.
  2. Qualified opinion.
  3. Adverse opinion.
  4. Unqualified opinion with an explanatory paragraph.

Question 72

Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

  1. Reading the minutes of meetings of the stockholders and the board of directors.
  2. Comparing the market value of property to amounts owed on the property.
  3. Reviewing lease agreements to determine whether leased assets should be capitalized.
  4. Inspecting title documents to verify whether any assets are pledged as collateral.

Question 73

Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

  1. Performing cutoff tests of sales transactions with customers with long-standing receivable balances.
  2. Evaluating the entity's procedures for identifying and recording related party transactions.
  3. Inspecting title documents to verify whether any real property is pledged as collateral.
  4. Inquiring of the entity's legal counsel about litigation, claims, and assessments.

Question 74

A CPA's standard report on audited financial statements would be inappropriate if it referred to:

  1. Management's responsibility for the financial statements.
  2. An assessment of the entity's accounting principles.
  3. Significant estimates made by management.
  4. The CPA's assessment of sampling risk factors.

Question 75

When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:

  1. The effects of the adverse financial conditions likely will cause a bankruptcy filing.
  2. Information about the entity's ability to continue as a going concern is not disclosed.
  3. Management has no plans to reduce or delay future expenditures.
  4. Negative trends and recurring operating losses appear to be irreversible.