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61.
medium
     Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned about the possibility that management is trying to prevent discovery of misstated information. In such cases, the AICPA has encouraged
     a.     a disclaimer of opinion, in all cases.
     b.     a qualification of both scope and opinion, in all cases.
     c.     a disclaimer of opinion, whenever materiality is in question.
     d.     a qualification of both scope and opinion, whenever materiality is in question.
     
62.
medium     CPAs issue several types of “special audit reports.” Which of the following circumstances would not require the issuance of a special audit report?
     a.     The client’s financial statements are prepared using the cash basis.
     b.     The client’s financial statements are prepared using the accrual basis.
     c.     The CPA has been retained to audit only the current assets.
     d.     The CPA has been retained to review the internal control system, not the financial statements.
     
63.     Which of the following is not a primary category of attestation report?
challenging     a.     Compilation report.
     b.     Review report.
     c.     Audit report.
     d.     Special audit report based on a basis of accounting other than generally accepted accounting principles.
     
64.
challenging     Most auditors believe that financial statements are “presented fairly” when the statements are in accordance with generally accepted accounting principles, and that it is also necessary to
     a.     determine that they are not in violation of FASB statements.
     b.     examine the substance of transactions and balances for possible misinformation.
     c.     review the statements using the accounting principles promulgated by the Securities and Exchange Commission.
     d.     assure investors that the net income reported this year will be equaled or exceeded in the future.
     
65.     In which of the following situations would the auditor most likely issue an unqualified report?
challenging     a.     The client valued ending inventory by using the replacement cost method.
     b.     The client valued ending inventory by using the Next-In-First-Out (NIFO) method.
     c.     The client valued ending inventory at selling price rather than historical cost.
     d.     The client valued ending inventory by using the First-In-First-Out (FIFO) method but showed the replacement cost of inventory in the Notes to the Financial Statements.
     
66.     Which of the following statements is true?
challenging
     a.     The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty.
     b.     The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.
     c.     The auditor is required to issue a disclaimer of opinion for a material uncertainty and for a going concern problem.
     d.     The auditor has the option, but is not required, to issue a disclaimer of opinion for a material uncertainty or for a going concern problem.
     

67.     A qualified report cannot take the form of a qualification of
challenging     a.     the opinion alone.
     b.     the scope alone.
     c.     both the scope and opinion.
     d.     all of the above.
     
68.     The use of a qualification of the opinion alone is restricted to those situations in which the
challenging     a.     scope of the auditor’s examination has been restricted.
     b.     financial statements have not been prepared in accordance with generally accepted accounting principles (GAAP).
     c.     auditor is not independent.
     d.     auditor was hired to do a “review” or “compilation.”
     
69.
challenging     The primary concern(s) in assessing materiality when a client has failed to follow GAAP include(s)
     a.     the total dollar error in the accounts involved, compared with some base.
     b.     the nature of the item.
     c.     the qualitative nature of the item.
     d.     all of the above.
     
70.
challenging     The most common case in which conditions beyond the client’s and auditor’s control cause a scope restriction is an engagement
     a.     agreed upon after the client’s balance sheet date.
     b.     where the client won’t allow the auditor to confirm receivables for fear of offending its customers.
     c.     where the auditor doesn’t have enough staff to satisfactorily audit all of the client’s foreign subsidiaries.
     d.     where the client is going through Chapter 11 bankruptcy.
     
71.
challenging     When the auditor cannot perform procedures and the amounts are so material that a disclaimer of opinion rather than a qualified opinion is required,
     a.     the opinion paragraph will state “does not present fairly.”
     b.     the opinion paragraph will state “presents fairly.”
     c.     the scope paragraph will be unchanged from the standard unqualified opinion.
     d.     the scope paragraph will be deleted.
     
72.
challenging     When the misstatements are so material or pervasive that an adverse opinion is required, the scope paragraph would
     a.     be qualified.
     b.     still be unqualified.
     c.     be deleted.
     d.     be expanded to identify the additional procedures which the auditor performed.
     
73.
challenging     When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to
     a.     inform the reader that disclosure is not adequate, and to issue a qualified or an adverse opinion.
     b.     inform the reader that disclosure is not adequate, and to issue an unqualified or qualified opinion.
     c.     present the information in the audit report and issue an unqualified or qualified opinion.
     d.     present the information in the audit report and to issue a qualified or an adverse opinion.
     

74.
challenging     The “unqualified report with explanatory paragraph” and the “unqualified report with modified wording”
     a.     arise as a result of an incomplete audit.
     b.     arise when the financial statements are not quite “presented fairly.”
     c.     meet the criteria of a complete audit with satisfactory results.
     d.     meet the criteria of a complete audit but with unsatisfactory results.
     
75.
challenging     Which of the following is not a cause of an explanatory paragraph or modified wording to be added to the standard unqualified report?
     a.     Emphasis of a matter.
     b.     Reports involving other auditors.
     c.     Auditor disagrees with client’s departure from GAAP.
     d.     Lack of consistent application of GAAP.
     
76.
challenging     Which of the following is not one of the principal CPA firm’s alternatives when issuing a report if a different CPA firm performed part of the audit?
     a.     Issue a joint report signed by both CPA firms.
     b.     Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion.
     c.     Make reference to the other auditor in the report by using modified wording. (A shared opinion or report.)
     d.     A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor.
     
77.     Which of the following statements is not true?
challenging     a.      A one-paragraph report is generally used when the auditor is not independent.
     b.     A three-paragraph report ordinarily indicates there are no exceptions in the audit.
     c.     More than three paragraphs in the report indicates there must be some type of qualification in the audit report.
     d.     An unqualified opinion with modified wording has three paragraphs.
     
78.
challenging
     Grant Company’s financial statements adequately disclose uncertainties that concern future events, the outcome of which are not reasonably estimable. The auditor’s report should include a(an)
     a.     unqualified opinion.
     b.     “subject to” qualified opinion.
     c.     “except for” qualified opinion.
     d.     adverse opinion
     
79.     Which of the following requires recognition in the auditor’s opinion as to consistency?
challenging
     a.     The correction of an error in the prior year’s financial statements resulting from a mathematical mistake in capitalizing interest.
     b.     A change in the estimate of provisions for warranty costs.
     c.     The change from the cost method to the equity method of accounting for investments in common stock.
     d.     A change in depreciation method which has no effect on current year’s financial statements but is certain to affect future years.
     

80.
challenging
     When an auditor encounters a situation involving more than one of the conditions requiring a departure from a standard unqualified report, the auditor should modify his or her opinion for each condition unless one has the effect of neutralizing the others. In which of the following situations would the auditor not include more than one modification in the report?
a.     There is a material scope limitation, and the auditor is not independent.
b.     There is a material GAAP violation, and the auditor is not independent.
c.     There is a material scope limitation, and there is substantial doubt about the company’s ability to continue as a going concern.
d.     There is a substantial doubt about the company’s ability to continue as a going concern, and information about the causes of the uncertainties is not adequately disclosed in a footnote.


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