CPA Auditing and Attestation

CPA Auditing and Attestation practice questions, page 25 of 41, with answer review and explanations.

Question 121

In its annual report to shareholders, Lake Co. included a separate management report that contained additional information. Lake's auditor is expressing an unqualified opinion on Lake's financial statements but has not been engaged to examine and report on this additional information. What is the auditor's responsibility concerning such a report?

  1. The auditor should add an explanatory paragraph to the report on the financial statements disclaiming an opinion on the additional information.
  2. The auditor has no obligation to read the management report or to verify the accuracy or appropriateness of its contents.
  3. The auditor should request Lake to place the management report in its annual report where it will not be misinterpreted to be the auditor's assertion.
  4. The auditor should read the management report and consider whether it contains a material misstatement of fact.

Question 122

An auditor is reporting on condensed financial statements for an annual period that are derived from the audited financial statements of a publicly-held entity. The auditor's opinion should indicate whether the information in the condensed financial statements is fairly stated in all material respects:

  1. In conformity with accounting principles generally accepted in the United States of America.
  2. In relation to the complete financial statements.
  3. In conformity with an other comprehensive basis of accounting.
  4. In relation to supplementary filings under federal security statutes. B

Question 123

An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances, the auditor should:

  1. Add an explanatory paragraph to the auditor's report that refers to the required supplementary information.
  2. State that the audit is not being performed in accordance with generally accepted auditing standards.
  3. Document in the working papers that the required supplementary information is presented, but should not apply any procedures to the information.
  4. Compare the required supplementary information for consistency with the audited financial statements.

Question 124

An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?

  1. Request that the client revise the letter of transmittal.
  2. Include an explanatory paragraph in the auditor's report.
  3. Consider withdrawing from the engagement.
  4. Request a client representation letter acknowledging the inconsistency.

Question 125

Pell, CPA, decides to serve as principal auditor in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell make reference to Smith's audit? I. Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements. II. Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity.

  1. I only.
  2. II only.
  3. Both I and II.
  4. Neither I nor II.