CPA Test

CPA Test practice questions, page 10 of 13, with answer review and explanations.

Question 46

An entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(an):

  1. "Except for" qualified opinion.
  2. Explanatory paragraph.
  3. Unqualified opinion.
  4. Consistency modification.

Question 47

If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(an):

  1. Disclaimer of opinion.
  2. Qualified opinion.
  3. Review report.
  4. Unqualified opinion with a separate explanatory paragraph.

Question 48

In which of the following circumstances would an auditor most likely add an explanatory paragraph to the standard report while not affecting the auditor's unqualified opinion?

  1. The auditor is asked to report on the balance sheet, but not on the other basic financial statements.
  2. There is substantial doubt about the entity's ability to continue as a going concern.
  3. Management's estimates of the effects of future events are unreasonable.
  4. Certain transactions cannot be tested because of management's records retention policy.

Question 49

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and:

  1. Explain why the change is justified under generally accepted accounting principles.
  2. Describe the cumulative effect of the change on the audited financial statements.
  3. State the auditor's explicit concurrence with or opposition to the change.
  4. Refer to the financial statement note that discusses the change in detail.

Question 50

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of fieldwork made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(an):

  1. Unqualified opinion.
  2. Unqualified opinion with an explanatory paragraph.
  3. Qualified opinion due to a scope limitation.
  4. Qualified opinion due to a departure from generally accepted auditing standards.