CPA Auditing and Attestation

CPA Auditing and Attestation practice questions, page 33 of 41, with answer review and explanations.

Question 161

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor:

  1. May accept the engagement because such engagements merely involve limited reporting objectives.
  2. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary.
  3. Should refuse the engagement because there is a client-imposed scope limitation.
  4. Should refuse the engagement in accordance with generally accepted auditing standards. A

Question 162

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be:

  1. Treated as a consistency modification in the auditor's report for the current year.
  2. Disclosed in the notes to the financial statements of the current year.
  3. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year.
  4. Treated as a subsequent event.

Question 163

To exercise due professional care an auditor should:

  1. Critically review the judgment exercised by those assisting in the audit.
  2. Examine all available corroborating evidence supporting management's assertions.
  3. Design the audit to detect all instances of illegal acts.
  4. Attain the proper balance of professional experience and formal education.

Question 164

This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A may be selected once, more than once, or not at all. Assume: "¢ The auditor is independent. "¢ The auditor previously expressed an unqualified opinion on the prior year's financial statements. "¢ Only single-year (not comparative) statements are presented for the current year. "¢ The conditions for an unqualified opinion exist unless contradicted in the factual situations. "¢ The conditions stated in the factual situations are material. "¢ No report modifications are to be made except in response to the factual situation. Item to Be Answered - In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained. List A - Types of Options -

  1. An "except for" qualified opinion.
  2. An unqualified opinion.
  3. An adverse opinion.
  4. A disclaimer of opinion.
  5. Either an "except for" qualified opinion or an adverse opinion.
  6. Either a disclaimer of opinion or an "except for" qualified opinion.
  7. Either an adverse opinion or a disclaimer of opinion.

Question 165

This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all. Assume: "¢ The auditor is independent. "¢ The auditor previously expressed an unqualified opinion on the prior year's financial statements. "¢ Only single-year (not comparative) statements are presented for the current year. "¢ The conditions for an unqualified opinion exist unless contradicted in the factual situations. "¢ The conditions stated in the factual situations are material. "¢ No report modifications are to be made except in response to the factual situation. Item to Be Answered - In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained. List B - Report Modifications -

  1. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
  2. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
  3. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph.
  4. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph.
  5. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
  6. Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
  7. Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
  8. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
  9. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
  10. Issue the standard auditor's report without modification.