acct 241 ch 12

  1. In his letter to Stockholders in the annual report, True Fax's president states that this year was the most profitable year in the company's history. Actually, the company did better profit wise last year according to the audited financial statements. What type of opinion should the auditors issue?

    A. an unqualified opinion with an emplasis on a matter paragraph noting the inconsistency
  2. The auditors conclude that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically mentions
    managments plans/ going concern

    C. no/yes
  3. Auditors may express a qualified opinion because of
    departure from GAAP/Lack of consistency/ scope limitation

    D. yes/no/yes
  4. In which of the following situations would auditors ordinarily express an unquaified audit opinion with an explanatory paragraph?

    A. the auditors wish to emplasize that the entity had lost a significant customer
  5. The principal auditors decide not to take responsibility for the work of other auditors CPA who audited a wholly owned subsidiary of the principal auditors' client. The total assets and revenues of the subsidiary represent 27% and 28% of the related consolidated totals. What type of opinion should the principal auditors issue?

    C. unqualified opinion
  6. The opinion paragraph of the auditors' report states: "In our opinion, with the exception of the effects of not observing inventory in one of the client's Siberian wareshouses, as discussed in the preceding paragraph, the financial statements present fairly, in all material respects..." This paragraph expresses a(n)

    B. qualified opinion
  7. In which of the following circumstances would auditors be most likely to express an adverse opinion?

    B. the financial statements are not in conformity with the FASB Statements regarding the valuation of marketable securities
  8. Auditors were unable to obtain sufficient appropriate evidence concerning certain transactions because of a fire destroyed all the company's records. Given these circumstance, auditors would choose between a(n)

    D. disclaimer of opinion and a qualified opinion
  9. Auditors who are reporting on financial statements that contain a material departure from GAAP should include a separate explanatroy paragraph and

    B. express a qualified or adverse opinion
  10. When auditors mention consistency in their report, a reader of the financial statements may infer

    B. that GAAP have been not consistently observed in the current period in relation to the preceding period
  11. The Some of the GAAS reporting standards require certain statements in all audit reports ("explicit") and others require statements only under certain conditions ("implicit" basis). Which combinations shown below correctly describes these features of the reporting standards
    standards - GAAP/Consistency/Disclosure/Report

    A. explicit/implicit/implicit/explicit
  12. A CPA finds that the client has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the CPA would choose between which reporting options?

    C. qualified opinion or adverse opinion
  13. An auditory has found that the client is suffering financial difficulty and the going concern status is seriously in doubt. Even though the client has placed adequate disclosures in the financial statements, the CPA must choose between which of the following audit report alternatives?

    D. unqualified report with a going concern explanatory paragraph or disclaimer of opinion
  14. Which of these situations would require an auditor to append an explanatory paragraph about consistency to an otherwise unqualified audit report?

    D. client changed its inventory costing method from FIFO to LIFO
  15. Wolfe became the new auditor for Royal Corporation, succeeding Mason, who audited the financial statements last year. Wolfe needs to repot on Royal's comaprative financial statements and should write in this report an explanation about another auditor having audited the prior year

    A. describing the prior audit and the opinion but not naming Mason as the predecessor auditor
  16. When other independent auditors are involved in the current audit of parts of the client's business, the principal auditor can write an audit report that (2 answers):

    B. mentions the other auditor, describes the extent of the other auditor's work, and gives an unqualified opinion

    b. does not mention the other auditor and gives an unqualified opinion in a standard unqualified report
  17. An "emphasis of a matter" paragraph inserted in a standard audit repot causes the report to be characterized as a(n):

    B. unqualified opinion report
  18. Under which of the following conditions can a disclaimer of opinion never be given?

    C. the auditor has found that the client has used the NIFO (next in, first out) inventory costing method
  19. Where will you find an auditor's own responsibility for expressing the opinion on financial statements?

    D. stated explicitly in the introductory paragraph of the standard unqualified report
  20. Company A hired Sampson & Delila, CPAs to audit the financial statements of Company B and deliver the audit report to Megabank. Which is the client?

    B. Company A
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acct 241 ch 12
acct 241 ch 12