Under which of the following conditions can a disclaimer of opinion never be issued?a. The entity’s going-concern problems are highly material and pervasive.b. The entity does not allow the auditors access to evidence about important accounts.c. The auditors own stock in the entity.d. The auditors have determined that the entity uses the NIFO (next-in, first-out) inventorycosting method.

Under which of the following conditions can a disclaimer of opinion never be issued?a. The entity’s going-concern problems are highly material and pervasive.b. The entity does not allow the auditors access to evidence about important accounts.c. The auditors own stock in the entity.d. The auditors have determined that the entity uses the NIFO (next-in, first-out) inventorycosting method.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter15: Audit Reports On Financial Statements

Section: Chapter Questions

Problem 25MCQ

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A CPA conducts audit for ABC company. As a result of ABC management's refusal to permit the CPA to physically examine inventory, the CPA must depart from the unqualified audit report because: a.the scope of the audit has been restricted. b.the financial statements have not been prepared in accordance with GAAP c.the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. d.the financial statements have not been audited in accordance with GAAS.
Question 14 Under which of the following conditions can a disclaimer of opinion never be issued? The entity's going-concern problems are highly material and pervasive. The entity does not allow auditors access to evidence about important accounts. The auditors and the client have a disagreement over audit fees. The auditors determine that the entity uses an inventory costing method that is not GAAP.
As a result of management's refusal to permit the auditor to physically examine inventory, theauditor must depart from the unmodified opinion audit report because A. the scope of the audit has been restricted B. the scope of the audit has been restricted by circumstances beyond either the client's orauditor's control. C. the financial statements have not been audited in accordance with GAAS D. the financial statements have not been prepared in accordance with GAAP.
When a company's financial statements are audited, the principal element an auditor reviews is the reliability of the financial statement assertions. Which of the following audit objectives relate primarily to the financial report assertion of accuracy, valuation and allocation? Select one:a. Inventory listings are accurately compiled and the totals are properly included in the inventory accounts.b. Inventory quantities include all products, materials and supplies owned by the company that are in transit.c. Inventories exclude items billed to customers or owned by others. d. None of the above
Which of the following opinions would be issued if auditors believed that the entity’s financial statements were not presented in conformity with GAAP?a. Adverse opinion.b. Disclaimer of opinion.c. Qualified opinion.d. Unmodified opinion
For each of the following situations, describe how the auditors’ report on internal control over financial reporting would be modified from the standard, unqualified report. Do not write the actual reports.a. The auditors have identified a material weakness in the processing of sales transactions.b. Because a relatively short period of time has passed since a control weakness was remediated, the auditors do not believe that sufficient evidence can be obtained with respect to the operating effectiveness of the entity’s internal control over financial reporting.c. Component auditors have audited a significant component of the group financial statements, including internal control over financial reporting relating to that component. They did not find a material weakness in internal control, and the group auditor believes the component auditor’s work can be relied on.d. The auditors believe that the entity’s management has not adequately disclosed a material weakness in its internal…
Which of the following procedures is usually performed by the auditor to determine if obsolete inventory exists? a. Footing the inventory subsidiary ledger b. Analysis of inventory turnover and sales reports c. Sample the inventory reported by the client, examine the purchase date and receiving reports d. Confirmation of inventory with client’s customers Which statement is true? a. The incomplete recording of asset disposals understates the asset balance b. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well to lower the subsequent depreciation expenses c. Management never over-accrue impairments on machinery because it reduces the balance of assets d. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well because auditors will be more skeptic over the performance that is “too good to be true”
Which of the following is NOT among the conditions that give rise to a demand by external users for independent audits of financial statements? a. The users of the financial statement do not have a background knowledge about accounting and tax matters b. There is an issue of agency problem between the management and the stockholders of the company c. Reliance on unaudited financial information may have adverse economic consequences d. The users of financial statements cannot directly access the company’s books and records
If it is necessary to amend other information in a document containing audited financial statements and the entity refuses to make the amendment, the auditor would consider issuing * A. Qualified or disclaimer of opinion B. Qualified or adverse opinion C. Unmodified opinion with no additional statement pertaining to the other information opinion D. Unmodified opinion with a statement pertaining to the other information
An auditor must identify the relevant assertions about each significant financial statement account and disclosure and then gather evidence to conclude whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.a. In general, which accounts are most susceptible to overstatement? To understatement?b. Why do you think a company could permit asset accounts to be understated?c. Why do you think a company could permit liability accounts to be overstated?d. Which direction of misstatement is most likely: income overstatement or income understatement?
Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?a. Entity changed its estimated allowance for uncollectible accounts receivable.b. Entity corrected a prior mistake in accounting for interest capitalization. c. Entity sold one of its subsidiaries and consolidated six subsidiaries this year comparedto seven last year.d. Entity changed its inventory costing method from FIFO to LIFO
Noncompliance includes transactions entered by the entity’s employees and management in their personal capacity. The preliminary judgment or estimate about materiality represents the maximum amount by which a set of financial statements could be misstated and still not cause the auditor to believe that the decisions of reasonable users would be affected. Group of answer choices False, True True, False True, True False, False