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Unformatted text preview: the financial statements are presented fairly.
d. believes the financial statements are presented fairly “except for” a specific aspect of
c The necessity to issue a disclaimer of opinion may arise because of:
a. a severe limitation on the scope of the audit.
b. a lack of independence between the auditor and client.
c. either a or b.
d. neither a nor b. 29.
b When the auditor determines the financial statements are fairly stated and then determines that
the auditor lacks independence, the auditor should issue:
an adverse opinion.
a disclaimer of opinion.
either a qualified opinion or an adverse opinion.
either a qualified opinion or an unqualified opinion with modified wording. 30.
d If the auditor lacks independence, a disclaimer of opinion must be issued:
if the client requests it.
only if it is highly material.
only if it is material but not highly material.
in all cases. 31.
d Misstatements must be compared with some measurement base before a decision can be made
about materiality. A commonly accepted measurement base includes:
total assets. 1-134 c.
b working capital.
all of the above. When comparing misstatements with a measurement base, the auditor must consider the
pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement
understatement of inventory.
understatement of retained earnings caused by a miscalculation of dividends payable.
misclassification of notes payable as a long-term liability when it should be current.
misclassification of salary expense as a selling expense when it should be allocated
equally to both selling and administrative expense.
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 the likely effect
a. net income.
b. users of the financial statements.
c. the auditor’s exposure to lawsuits.
d. management’s future decisions. 34.
d Whenever there is a scope restriction, the appropriate response is to issue a(n):
a. disclaimer of opinion.
b. adverse opinion.
c. qualified opinion.
d. unqualified report, a qualification of scope and opinion, or a disclaimer, depending on
a Which of the following is least likely to cause uncertainty about the ability of an entity to
continue as a going concern?
a. A client’s lawsuit against another company which claims the other company has infringed
on its patent.
b. Loss of major customers.
c. Significant recurring operating losses.
d. Working capital deficiencies. 36.
d The client has presented all required financial statements with the exception of the statement of
cash flows. The auditor has completed the audit and is satisfied that all other statements are
presented fairly. The auditor:
a. may issue either an unqualified or a qualified opinion.
b. must issue an adverse opinion with “except for” in the opinion paragraph.
c. may issue an unqualified opinion.
d. must issue a qualified opinion with “except for” in the opinion paragraph. 37.
d When a disclaimer is issued because the auditor lacks independence:
a. no report title is included on the report.
b. a one-paragraph audit report is issued.
c. the only reason cited for issuing the disclaimer is the lack of independence.
d. all of the above are correct. 38.
d When a client has not applied GAAP consistently from the prior year to the current year, the
auditor does not concur with the appropriateness of the change, and the change in GAAP has a
material effect on the financial statements, the auditor should issue a(n):
b. adverse opinion.
c. unqualified opinion.
d. qualified opinion. 1-135 39.
c Which of the following is not a change that affects consistency and, therefore, does not require
an explanatory paragraph?
a. Change in accounting principle, such as a change from LIFO to FIFO.
b. Change in reporting entity, such as the inclusion of an additional company in combined
c. Change in an estimate, such as a decrease in the life of an asset for depreciation purposes.
d. Correction of errors by changing from non-GAAP to GAAP. 40.
c Items that materially affect the comparability of financial statements generally require
disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will
most likely issue:
an unqualified opinion.
a qualified opinion.
an adverse opinion. 41.
c Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably
estimated at the time the financial statements are issued. These matters are referred to as:
a. inestimable matters.
b. non sequiturs.
d. in-suspense matters. 42.
b When there is uncertainty about a company’s ability to continue as a going concer...
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- Fall '13