CPA Auditing and Attestation

CPA Auditing and Attestation practice questions, page 38 of 41, with answer review and explanations.

Question 186

Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if:

  1. Hardy also audits Gold's complete financial statements.
  2. Gold's financial statements are prepared in conformity with GAAP.
  3. Hardy's report is available for distribution to Gold's other employees.
  4. Field owns controlling interest in Gold.

Question 187

Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor's report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is:

  1. Not appropriate because it may tend to overshadow the auditor's disclaimer of opinion.
  2. Not appropriate because the auditor is prohibited from reporting on only one basic financial statement.
  3. Appropriate provided the auditor's scope paragraph adequately describes the scope limitation.
  4. Appropriate provided the statement is in a separate paragraph preceding the disclaimer of opinion paragraph.

Question 188

When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should:

  1. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
  2. Not express an opinion on whether the statements are presented in conformity with the comprehensive basis of accounting used.
  3. Include an Explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.
  4. State that the basis of presentation is a comprehensive basis of accounting other than GAAP.

Question 189

A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entity's:

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Question 190

Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta's auditor, discovers that the statements are not suitably titled, Wall should:

  1. Disclose any reservations in an explanatory paragraph and qualify the opinion.
  2. Apply to the state insurance commission for an advisory opinion.
  3. Issue a special statutory basis report that clearly disclaims any opinion.
  4. Explain in the notes to the financial statements the terminology used. A