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21.     Statements on Auditing Standards require that a report be issued whenever a CPA firm
medium     a.     performs an audit.
     b.     is engaged to perform any services of any nature.
     c.     does SEC-regulated work.
     d.     is associated with financial statements.
22.     A CPA firm is “associated with the financial statements”
medium     a.     only when it does a financial audit.
     b.     only when it does attestation services, such as a review or an audit.
     c.     even if a CPA firm only assists a client in preparing financial statements, but does not perform an audit.
     d.     if it performs any services at all for the client.
medium     Conditions requiring a departure from an unqualified audit report include all, but which of the following?

     a.     Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed.
     b.     Management has determined that fixed assets should be reported in the balance sheet at their replacement values rather than historical costs. The auditors do not concur.
     c.     The audit partner’s dependent child received a gift of 100 shares of a client’s stock for her birthday from a grandparent.
     d.     Management has decided to not allow the auditor to confirm significant accounts receivable, but the auditor examined subsequent cash receipts related to the accounts in question.
medium     The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those statements are
     a.     the responsibility of the auditor.
     b.     the responsibility of management.
     c.     the joint responsibility of management and the auditor.
     d.     none of the above.
25. (Public)     PCAOB Auditing Standard No. 2 requires the audit of internal control to be integrated with:
medium     a.     the audit of the financial statements.
     b.     the quarterly review of financial information.
     c.     the review of annual financial statements.
     d.     none of the above.
     The audit report indicates that (1) management is responsible for the content of the financial statements and (2) the auditor is responsible for evaluating the appropriateness of the accounting principles chosen by management. Which paragraph contains those statements?
     a.     Both are in the introductory paragraph.
     b.     Both are in the scope paragraph.
     c.     Both are in the opinion paragraph.
     d.     None of the above is true.
27.     Which of the following is not a true statement?
medium     a.     The opinion paragraph is directly related to the first and fourth reporting standards.
     b.     The auditor is required to state a conclusion about whether the company followed generally accepted accounting principles.
     c.     The opinion paragraph may follow any form deemed appropriate by the auditor.
     d.     The auditor is required to state an opinion about the financial statements taken as a whole.
     If the balance sheet of a privately-held company is dated December 31, 2005, the audit report is dated March 6, 2006, and both are released on March 15, 2006, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to
     a.     December 31, 2005.
     b.     March 6, 2006.
     c.     March 15, 2006.
     d.     none of these.
29.     The necessity to issue a disclaimer of opinion may arise because of
medium     a.     a severe limitation on the scope of the audit examination.
     b.     a non-independent relationship between auditor and client.
     c.     either a or b above.
     d.     none of the above.
30.     Both disclaimers and adverse opinions are used
medium     a.     only when the condition is highly material.
     b.     whether the condition is material or not.
     c.     regardless of the auditor’s independence.
     d.     regardless of client’s choice of a non-GAAP accounting method.
medium     The least severe type of report for disclosing departures from generally accepted accounting principles is the
     a.     qualified opinion.
     b.     disclaimer of opinion.
     c.     adverse opinion.
     d.     report on unaudited financial statements.
32. (Public)
medium     A combined report on financial statements and internal control over financial reporting includes all but which of the following types of paragraphs?
     a.     Inherent limitations paragraph.
     b.     Description paragraph.
     c.     Opinion paragraph.
     d.     Each of the above is included.
33.     Whenever an auditor issues a qualified opinion, the implication is that the auditor
medium     a.     does not know if the statements are presented fairly.
     b.     does not believe the statements are presented fairly.
     c.     is satisfied that the statements are presented fairly.
     d.     is satisfied that the statements are presented fairly “except for” a specific aspect of them.
34.     Audit report language may be modified for which of the following conditions?
medium     a.     Lack of consistent application of generally accepted accounting principles.
     b.     Substantial doubt about going concern.
     c.     Reports involving other auditors.
     d.     Emphasis of a matter.

medium     When the client’s financial statements are misstated by a highly material amount, the auditor should issue
     a.     an adverse opinion.
     b.     a disclaimer of opinion.
     c.     either a qualified opinion or an adverse opinion, depending on which conditions exist.
     d.     either a qualified opinion or an unqualified opinion with modified wording, depending on which conditions exist.
36.     If the auditor is determined to lack independence, a disclaimer of opinion must be issued
medium     a.     if the client requests it.
     b.     only if it is highly material.
     c.     only if it is material but not highly material.
     d.     in all cases.
     Misstatements must be compared with some measurement base before a decision can be made about the materiality of the failure to follow GAAP. A commonly accepted measurement base would be
     a.     net income.
     b.     total assets.
     c.     working capital.
     d.     all of the above.
medium     When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. An example of a pervasive misstatement would be
     a.     an understatement of inventory, caused by miscounting.
     b.     an understatement of retained earnings, caused by a miscalculation of dividends payable.
     c.     a misclassification of notes payable as a long-term liability when it should be current.
     d.     a misclassification of salary expense as a selling expense when it should be allocated equally to both selling and administrative expense.
medium     The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing lawsuit, the auditor must estimate
     a.     its likely effect on net income.
     b.     its likely effect on users of the financial statements.
     c.     its likely effect on the auditor’s exposure to lawsuits.
     d.     its likely effect on management’s future decisions.
medium     Of the two major categories of scope restrictions, (1) those caused by client and (2) those caused by conditions beyond the control of either client or auditor, the effect on the auditor’s report
     a.     is the same for either.
     b.     is more serious for 1 than for 2.
     c.     is more serious for 2 than for 1.
     d.     is negligible.

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