A true b false 101 easy a if an audit client has not

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Unformatted text preview: d accounting principles” can be found in the opinion paragraph of a standard unqualified report. a. True b. False 105. (Public) medium b Auditors of public company financial statements must issue separate reports on internal control over financial reporting. a. True b. False 106. medium b Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report. a. True b. False 107. medium b When an auditor decides that adherence to GAAP would result in misleading financial statements, the auditor has no choice but to issue a qualified audit report. a. True b. False 108. (Public) medium b The phrase “auditing standards generally accepted in the United States of America” can be found in the opinion paragraph of a standard, unqualified audit report for a public company. a. True b. False 109. medium b Auditors should issue a disclaimer of opinion when there is a highly material scope restriction caused by the client. a. True b. False 110. medium a Whenever an auditor issues a qualified report, he or she must use the term “except for” in the opinion paragraph. a. True b. False 111. medium b Whenever an auditor issues a qualified report, he or she must use the term “subject to” in the opinion paragraph. a. True b. False 112. medium b Whenever an auditor discovers a highly material GAAP violation in the financial statements that the client refuses to correct, the auditor should issue a disclaimer of opinion. a. True b. False 113. medium b When there is a scope limitation in an audit, the audit report will be unqualified, qualified scope and opinion, or adverse, depending on the materiality of the scope limitation. a. True b. False 1-159 114. medium b Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report. a. True b. False 115. medium b When a qualified opinion is issued, an explanatory paragraph is added immediately after the opinion paragraph to explain the nature of the qualification that affects the opinion. a. True b. False 116. medium a If an audit client has not consistently applied accounting principles, and the auditor does not concur with the appropriateness of the change, either an unqualified, a qualified, or an adverse opinion should be issued, depending on the materiality level involved. a. True b. False 117. medium a When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, the wording of the report should be modified in all three paragraphs. a. True b. False 118. medium b An auditor should issue a qualified opinion with an explanatory paragraph whenever there is a material uncertainty affecting the financial statements. a. True b. False 119. medium b The phrase “The audit is designed to obtain reasonable assurance about whether the statements are free of material misstatements” is included in the introductory paragraph of an audit report. a. True b. False 120. challenging b If an auditor is not independent and the auditor knows that the company has not followed GAAP, the auditor should immediately disclaim an opinion and not mention the departure from GAAP in the audit report. a. True b. False Chapter 9 Multiple-Choice Questions 1. easy a If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2: a. material. b. insignificant. c. significant. d. relevant. 2. easy The preliminary judgment about materiality is the amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users. 1-160 b a. b. c. d. minimum maximum mean average median average 3. easy d Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of: a. regulators. b. the audit firm’s managing partner. c. no one in particular. d. the client’s management. 4. easy c The FASB definition of materiality emphasizes what class of financial statement users? a. Regulators. b. Informed investors. c. Reasonable persons. d. Potential investors. 5. easy d When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as: a. the materiality range. b. the error range. c. tolerable materiality. d. tolerable misstatement. 6. easy c Why do auditors establish a preliminary judgment about materiality? a. To determine the appropriate level of audit experience required for the work. b. So that the client can know what records to make available to the auditor. c. To...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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