CPA Test

CPA Test practice questions, page 4 of 13, with answer review and explanations.

Question 16

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

  1. The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures.
  2. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed.
  3. There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements.
  4. The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.

Question 17

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

  1. Significant related party transactions are pervasive.
  2. Usual trade credit from suppliers is denied.
  3. Arrearages in preferred stock dividends are paid.
  4. Restrictions on the disposal of principal assets are present.

Question 18

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

  1. Be unable to express an opinion on the current year's results of operations and cash flows.
  2. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
  3. Withdraw from the engagement and refuse to be associated with the financial statements.
  4. Specifically state that the financial statements are not comparable to the prior year due to an uncertainty.

Question 19

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? 1: Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements. 2: 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. 1 only.
  2. 2 only.
  3. Both 1 and 2.
  4. Neither 1 nor 2.

Question 20

Cooper, CPA, believes there is substantial doubt about the ability of Zero Corp. to continue as a going concern for a reasonable period of time. In evaluating Zero's plans for dealing with the adverse effects of future conditions and events, Cooper most likely would consider, as a mitigating factor, Zero's plans to:

  1. Discuss with lenders the terms of all debt and loan agreements.
  2. Strengthen internal controls over cash disbursements.
  3. Purchase production facilities currently being leased from a related party.
  4. Postpone expenditures for research and development projects.