Results

Alvin Baterna

85% 34 01:36:38
Out of 40 points Time for this attempt

Your Answers:
1 0 / 1 point

The standard audit report includes all of the following except

Introductory paragraph

Correct Answer: Basis for modified opinion paragraph

Auditors responsibility

Basis for modified opinion paragraph

Opinion paragraph

2 0 / 1 point

An auditor determines the financial statements include a material departure from GAAP.  Which
type of opinion may be issued? 

Disclaimer

Disclaimer or Adverse

Qualified or Adverse

Qualified

Correct Answer Qualified or Adverse

 Correct Answer: Qualified or Adverse

3 1 / 1 point

Which of the following events most likely would indicate the existence of related parties?

Granting stock options to key executives at favorable prices.

Selling real estate at a price significantly different from appraised value.

High turnover of senior management and members of the board of directors.

Failure to correct internal control weaknesses on a timely basis.

4 1 / 1 point

When comparing misstatements with a measurement base, the auditor must consider the
pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is
a(n):

misclassification of notes payable as a long-term liability when it should be current.

understatement of inventory.

misclassification of salary expense as a selling expense when it should be allocated equally to

both selling and administrative expense.

understatement of retained earnings caused by a miscalculation of dividends payable.

5 1 / 1 point

When the auditor determines the financial statements are fairly stated and then determines that
the auditor lacks independence, the auditor should issue:

either a qualified opinion or an adverse opinion.

a disclaimer of opinion.

either a qualified opinion or an unqualified opinion with modified wording.

an adverse opinion.

6 0 / 1 point
 Which of the following conditions or events most likely would cause an auditor to have substantial
doubt about an entity’s ability to continue as a going concern?

Research and development projects are postponed

Stock dividends replace annual cash dividends

Cash flows from operating activities are negative

Correct Answer: Stock dividends replace annual cash dividends

Significant related party transactions are pervasive

7 1 / 1 point

The written representations shall be in the form of a representation letter addressed to the

Entity’s chief executive officer

Entity’s chief financial officer

Entity’s management

Auditor

8 0 / 1 point

What type of opinion is most appropriate when management does not provide written
representations about its responsibility for the preparation of the financial statements?

Unmodified opinion

Adverse opinion

Correct Answer: Disclaimer of opinion

Disclaimer of opinion

Qualified opinion

9 1 / 1 point

Which of the following steps should an auditor perform first to determine the existence of related
parties?

Examine invoices, contracts, and purchasing orders.

 Review the company’s business structure.

Review proxy and other materials filed with the SEC.

Request a list of related parties from management.

10 1 / 1 point

Under PSA 580 (Written Representations), the auditor is required to obtain audit evidence that
management
I. Has fulfilled its responsibility for the fair presentation of the financial statements in accordance
with applicable financial reporting framework
II. Has provided the auditor with all relevant information and access as agreed in the terms of the
audit engagement
 

II only

Neither I nor II

I only

Both I and II

11 1 / 1 point

The purpose of a management representation letter is to reduce

An auditor’s responsibility to detect material misstatements only to the extent that the letter
is relied on

Audit risk to an aggregate level of misstatement that could be considered material

The possibility of a misunderstanding concerning management’s responsibility for the

financial statements

The scope of an auditor’s procedures concerning related party transactions and subsequent
events

12 1 / 1 point

Which of the following audit procedures is most likely to assist an auditor in identifying related
party transactions?

Inspecting communications with law firms for evidence of unreported contingent liabilities.
 Sending second requests for unanswered positive confirmations of accounts receivable.

Reviewing accounting records for nonrecurring transactions recognized near the

balance sheet date.

Retesting ineffective controls previously reported to the audit committee.

13 1 / 1 point

Which of the following statements best describes the auditor’s responsibility concerning the
appropriateness of the going concern assumption in the preparation of the financial statements?

The auditor’s responsibility is to predict future events or conditions that may cause the entity
to cease to continue as a going concern.

The auditor’s responsibility is to give a guarantee in the audit report that the entity has the
ability to continue as a going concern.

The auditor’s responsibility is to make a specific assessment of the entity’s ability to continue
as a going concern.

The auditor’s responsibility is to consider the appropriateness of management’s use of

the going concern assumption and consider whether there are material uncertainties
about the entity’s ability to continue as a going concern that need to be disclosed in
the financial statements.

14 1 / 1 point

Which of the following auditing procedures most likely would assist an auditor in identifying
related party transactions?

Sending second requests for unanswered positive confirmations of accounts receivable.

Reviewing accounting records for nonrecurring transactions recognized near the

balance sheet date.

Retesting ineffective internal controls previously reported to those charged with governance.

Inspecting communications with law firms for evidence of unreported contingent liabilities.

15 1 / 1 point

As a result of management’s refusal to permit the auditor to physically examine inventory, the
auditor has not accumulated sufficient appropriate evidence to conclude whether financial
statements are stated in accordance with GAAP. The auditor must depart from the unqualified
audit report because:

the scope of the audit has been restricted by circumstances beyond either the client’s or
 auditor’s control.

the financial statements have not been prepared in accordance with GAAP.

the auditor has lost independence.

the scope of the audit has been restricted.

16 1 / 1 point

The date of the written representation shall be

Before the entity’s financial statements are issued

As near as practicable to, but not after the date of the auditor’s report on the financial
statements

After the date of approval of the entity’s financial statements

After the date of the auditor’s report

17 1 / 1 point

If a misstatement is immaterial to the financial statements of the entity for the current period, but
is expected to have a material effect in future periods, it is appropriate to issue a(n):

disclaimer of opinion.

unqualified opinion.

qualified opinion.

adverse opinion.

18 1 / 1 point

Whenever there is a scope restriction, the appropriate response is to issue a(n):

adverse opinion.

disclaimer of opinion.

unqualified report, a qualification of scope and opinion, or a disclaimer, depending on

materiality.

qualified opinion.
19 1 / 1 point

If the balance sheet of a company is dated December 31, 2019, the audit report is dated February
8, 2020, and both are released on February 15, 2020, this indicates that the auditor has searched
for subsequent events that occurred up to:

December 31, 2019

January 1, 2020

February 8, 2020

February 15, 2020

20 1 / 1 point

When there is uncertainty about a company’s ability to continue as a going concern, the auditor’s
concern is the possibility that the client may not be able to continue its operations or meet its
obligations for a “reasonable period of time.” For this purpose, a reasonable period of  time is
considered not to exceed:

one year from the date of the audit report.

six months from the date of the financial statements.

six months from the date of the audit report.

one year from the date of the financial statements.

21 1 / 1 point

The following statements are ordinarily included in a management representation letter, except

The financial statements are free of material misstatements, including omissions

There have been no irregularities involving management or employees who have a significant
role in internal control or that could have a material effect on the financial statements

The completeness and availability of minutes of stockholders’ and directors’ meeting

Sufficient appropriate audit evidence has been made available to permit the
expression of an unmodified opinion

22 1 / 1 point
 Whenever an auditor issues a qualified opinion, the implication is that the auditor:

believes the financial statements are presented fairly.

does not believe the financial statements are presented fairly.

believes the financial statements are presented fairly “except for” a specific aspect of
them.

does not know if the financial statements are presented fairly.

23 1 / 1 point

Which of the following events least likely would indicate the existence of related party
transactions?

Making a loan with no scheduled date for the funds to be repaid.

Maintaining compensating balance arrangements for the benefit of principal stockholders.

Borrowing funds at an interest rate significantly below prevailing market rates.

Writing off obsolete inventory to net realizable value just before year end.

24 1 / 1 point

The purpose of the introductory paragraph in the standard unqualified report is:

to identify that the type of opinion issued is unqualified.to indicate the CPA followed
applicable audit standards

to identify the financial statements audited and the dates and time periods covered by
the report.

to indicate all the financial statements are in accordance with GAAP.

to indicate the CPA followed applicable audit standards.

25 1 / 1 point

A written representation from a clients management that among other matters, acknowledges
responsibility for the  fair presentation of the financial statement should normally be signed by the

Chief financial officer and  chair of the board of directors

Chief executive officer and the chief financial officer

 Chief of the committee of the board of directors

Chief executive officer, chair of the board and client's lawyer

26 1 / 1 point

When determining whether an exception is “highly material,” the extent to which the exception
affects different elements of the financial statements must be considered. This concept is called:

financial analysis.

materiality.

ratio analysis.

pervasiveness.

27 0 / 1 point

Which of the following procedures would most likely be performed in connection with a review of
subsequent events?

Test of shipping cut offs 

Vouching of subsequent payments of accounts payable

Correct Reading of minutes of meeting of stockholders and board of directors up to the date of the
Answer: audit report

Review of cut off bank statements

Reading of minutes of meeting of stockholders and board of directors up to the date of the
audit report

28 1 / 1 point

Which of the following conditions or events most likely would cause an auditor to have doubt
about an entity’s ability to continue as a going concern?

Cash flow from operating activities are negative

Significant related party transactions are pervasive

Research and development projects are postponed

Stock dividends replace annual cash dividends

29 1 / 1 point

When an auditor concludes that there is substantial doubt about a continuing audit client’s ability
to continue as a going concern for a reasonable period of time, the auditor’s responsibility is to

Reissue the prior year’s auditor’s report and add an emphasis of matter paragraph that
specifically refers to “substantial doubt” and “going concern”.

Consider the adequacy of disclosure about the client’s possible inability to continue as
a going concern

Report to the client’s audit committee that management’s accounting estimates may need to
be adjusted.

Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on
the financial statements.

30 1 / 1 point

Which of the following auditing procedures most likely would assist an auditor in identifying
related party transactions?

Performing analytical procedures for indications of possible financial difficulties.

Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.

Vouching accounting records for recurring transactions recorded just after the balance sheet
date.

Reviewing confirmations of loans receivable and payable for indications of guarantees.

31 1 / 1 point

After determining that a related party transaction has, in fact, occurred, an auditor should:

Obtain an understanding of the business purpose of the transaction.

Substantiate that the transaction was consummated on terms equivalent to an arm’s-length

transaction.

Add a separate paragraph to the auditor’s standard report to explain the transaction.

Perform analytical procedures to verify whether similar transactions occurred, but were not
recorded.

32 1 / 1 point
32 1 / 1 point

A management representation letter would ordinarily be dated as of the

Date a letter of audit inquiry is received from the entity’s attorney of record

Date of audit report 

Date the report is delivered to the entity audited

Balance sheet date of the last period reported on

33 1 / 1 point

An adverse opinion is issued when the auditor believes:

the auditor is not independent.

the overall financial statements are so materially misstated that they do not present
fairly the financial position or results of operations and cash flows in conformity with
GAAP.

some parts of the financial statements are materially misstated or misleading.

the financial statements would be found to be materially misstated if an investigation were

performed.

34 1 / 1 point

An auditor’s report includes a separate paragraph in an otherwise unmodified reported to

emphasize that the entity being reported on had significant transactions with related parties. The
inclusion of this separate paragraph

Is considered "except for" qualification of the opinion

Is appropriate and would not negate the unqualified opinion

Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing
explanation"

Violates the PSA's if this information is already disclosed in notes to financial statements

35 1 / 1 point

The audit report date on a standard unqualified report indicates:

the last day of the fiscal period.

 the date on which the financial statements were filed with the Securities and Exchange
Commission.

the last date on which users may institute a lawsuit against either client or auditor.

the last day of the auditor’s responsibility for the review of significant events that
occurred subsequent to the date of the financial statements.

36 1 / 1 point

When auditing related party transactions, an auditor places primarily emphasis on:

Verifying the valuation of the related party transactions.

Confirming the existence of the related parties.

Ascertaining the rights and obligations of the related parties.

Evaluating the disclosure of the related party transactions.

37 1 / 1 point

Auditing standards require that the audit report must be titled and that the title must:

indicate the type of audit opinion issued.

indicate if the auditor is a CPA.

include the word “independent.”

indicate if the auditor is a proprietorship, partnership, or incorporated.

38 1 / 1 point

Which of the following is least likely to cause uncertainty about the ability of an entity to continue
as a going concern?

Loss of major customers.

A client’s lawsuit against another company which claims the other company has
infringed on its patent.

Working capital deficiencies.

Significant recurring operating losses.

39 0 / 1 point

The introductory paragraph of the standard audit report states that the financial statements are:

the responsibility of the auditor.

none of the above.

the responsibility of management.

Correct Answer: none of the above.

the joint responsibility of management and the auditor.

40 1 / 1 point

Which of the following procedures most likely could assist an auditor in identifying related party
transactions?

Scanning the accounting records for recurring transactions.

Performing tests of controls concerning the segregation of duties.

Evaluating the reasonableness of management’s accounting estimates.

Reviewing confirmations of compensating balance arrangements.