AT Exam
AT Exam
7. If comparative financial statements are presented and the present auditor has audited both years, the
auditor should:
11. An auditor’s opinion reads as follows: “In our opinion, except for the above-mentioned limitation on the scope
of our audit…” This is an example of a(n)
a. review opinion c. qualified opinion
b. emphasis on a matter d. unacceptable reporting practice
12. Eagle Company’s financial statements contain a departure from generally accepted accounting principles
because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should
express an opinion that is
a. Qualified and describe the departure in a separate paragraph.
b. Unqualified but not mention the departure in the auditor’s report.
c. Qualified or adverse, depending on materiality, and describe the departure in a separate paragraph.
d. Unqualified and describe the departure in a separate paragraph.
13. An auditor is unable to determine the amounts associated with illegal acts committed by a client. The auditor
would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion.
14. The objective of the consistency standard is to provide assurance that
a. There are no variations in the format and presentation of financial statements.
b. Substantially different transactions and events are not accounted for on an identical basis.
c. The auditor is consulted before material changes are made in the application of accounting principles.
d. The comparability of financial statements between periods is not materially affected by changes in
accounting principles without disclosure.
15. If management fails to provide adequate justification for a change from one generally accepted accounting
principle to another, the auditor should
a. Add an explanatory paragraph and express a qualified or an adverse opinion for lack of
conformity with generally accepted accounting principles.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate explanatory paragraph(s) but not modify the opinion paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are generally accepted.
16. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate explanatory paragraph and modify the
Introductory paragraph Scope paragraph Opinion paragraph
a. Yes No No
b. Yes Yes No
c. No Yes Yes
d. No No Yes
20. When management prepares financial statements on the basis of a going concern and the auditor believes
the company may not continue as a going concern, the auditor should issue a(n)
a. qualified opinion
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23. An auditor who concludes that an uncertainty is not adequately disclosed in the financial statements should
issue a:
a. Disclaimer of opinion. c. Special report.
b. Unqualified report with an explanatory paragraph. d. Qualified report.
24. An auditor may wish to emphasize a matter included in the financial statements by adding an explanatory
paragraph to the audit report. In this case the following paragraphs of the audit report should be modified:
25. In the case of a client imposed scope limitation, the auditor must consider issuing a:
a. Qualified opinion or disclaimer of opinion c. Disclaimer of opinion or adverse opinion
b. Qualified opinion or adverse opinion d. Disclaimer of opinion
26. Which of the following modifications of the standard auditor’s report does not require an explanatory
paragraph.
27. Pamela, CPA, was engaged to audit the financial statements of One Co. after its fiscal year had ended. The
timing of Pamela’s appointment as auditor and the start of field work made confirmation of accounts
receivable by direct communication with the debtors ineffective. However, Pamela applied other procedures
and was satisfied as to the reasonableness of the account balances. Pamela’s auditor’s report most likely
contained a(n)
a. Unqualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Qualified opinion because of a scope limitation.
d. Qualified opinion because of a departure from GAAS.
28. A limitation on the scope of an audit sufficient to preclude an unqualified opinion will always result when
management
a. Engages the auditor after the year-end physical inventory count is completed.
b. Fails to correct a material internal control weakness that had been identified during the prior year’s audit.
c. Refuses to furnish a management representation letter to the auditor.
d. Prevents the auditor from reviewing the working papers of the predecessor auditor.
29. When an auditor expresses an opinion other than unqualified opinion, a clear description of all substantive
reasons for the modification of the opinion should be included in the report. This explanation should be
presented:
a. As a separate paragraph that precedes the opinion paragraph of the audit report.
b. As a separate paragraph, preferably after the opinion paragraph, of the audit report.
c. In the opinion paragraph
d. As a separate paragraph in the notes to financial statements.
30. Where a limitation on the scope of the auditor’s work requires modification of an unqualified opinion, the
auditor’s report should describe the limitation and:
a. Indicate that the auditor is no longer responsible to his opinion.
b. Indicate the possible adjustments to the financial statements that might have been determined to
be necessary had the limitation not existed.
c. Refer the users to the particular note to financial statements that adequately discusses the limitation
d. Indicate that the auditor is not satisfied of the results of the alternative procedures that he had performed.
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31. What is the purpose of the following paragraph in a particular audit report:
“…We draw attention to note X in the financial statements which discusses that the company incurred
a net loss of P6.4 million during the year ended December 31, 2004 and as of that date, the
Company’s liabilities exceeded its total assets by P2,500,000...”
32. An explanatory paragraph following an opinion paragraph that describes an uncertainty follows:
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging
infringement of certain patent rights and claiming damages. Discovery proceedings are in progress.
The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for
any liability that may result upon adjudication has been made in the accompanying financial
statements.
33. If an amendment to other information in a document containing audited financial statements is necessary and
the entity refuses to make the amendment, the auditor would consider issuing:
34. When management does not amend the financial statements in circumstances where the auditor believes
they need to be amended and the auditor’s report has not been released to the entity, the auditor should
express
35. If subsequent to the issuance of the audited financial statements, the auditor becomes aware of material
misstatements in the financial statements that exist prior to the date of the audit report, the auditor should
QUIZZERS
1. Which of the following is not explicitly included in the opening paragraph of an audit report?
a. Identification of the financial statements that have been audited.
b. A statement by the auditor that the audit provides a reasonable basis for the opinion.
c. Statement that the financial statements are the responsibility of the entity’s management.
d. Statement that the responsibility of the auditor is to express an opinion on the financial statements
based on his audit.
2. A measure of uniformity in the form and content of the auditor’s report is desirable because
a. It helps the auditors avoid legal liability.
b. It helps the readers understand the report.
c. It helps the auditor identify the usual circumstances that are expected to occur.
d. It makes the auditors more informed of their responsibilities with respect to audit report.
4. If an auditor is certain an illegal act has a material effect on financial statements and the clients agrees to
adjust the statements accordingly, the auditor should:
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5. It exists when other information contradicts information contained in the audited financial
statements.
a. Material misstatement of fact c. Material inconsistency
b. Material error d. Material deviation
6. After issuing a report, a auditor has no longer obligation to make continuing inquiries or perform other
procedures concerning the audited financial statements, unless
a. Management of the entity requests the auditor to reissue the auditor’s report.
b. Information about an event that occurred after the end of fieldwork comes to the auditor’s attention.
c. Information, which existed at the report date and may affect the report, comes to the auditor’s
attention.
d. Final determinations or resolutions are made of contingencies that had been disclosed in the financial
statements.
7. Which of the following events occurring after the issuance of an auditor’s report most likely would cause the
auditor to make further inquiries about the previously issued financial statements?
a. A technological development that could affect the entity’s future ability to continue as a going concern.
b. The entity’s sale of a subsidiary that accounts for 30 percent of the entity’s consolidated sales.
c. The discovery of information regarding a contingency that existed before the financial statements
were issued.
d. The final resolution of a lawsuit explained in a separate paragraph of the auditor’s report
"Because of the inadequacies in the company's accounting records during the year ended June 30, 2005, it
was not practicable to extend our auditing procedures to the extent necessary to enable us to obtain certain
evidential matter as it relates to classification of certain items in the consolidated statements of operations."
This paragraph most likely describes
a. A material departure from GAAP requiring a qualified audit opinion.
b. An uncertainty that should not lead to a qualified opinion.
c. A material scope restriction requiring a qualification of the audit opinion.
d. A matter that the auditor wishes to emphasize and that does not lead to a qualified audit opinion.
10. The auditor issued a qualified opinion covering the financial statements of Client A for the year ended
December 31, 2004. The reason for the qualification was a departure from GAAP. In presenting comparative
statements for the years ended December 31, 2004 and 2005, the client revised the 2004 financial
statements to correct the previous departure from GAAP. The auditor's 2005 report on the 12/31/04 and
12/31/05 comparative financial statements will
a. Express unqualified opinions on both the 2004 and 2005 financial statements.
b. Express a qualified opinion on the 2004 financial statements and an unqualified opinion on the 2005
statements.
c. Retain the qualified opinion covering the 2004 statements, but add an explanatory paragraph describing
the correction of the prior departure from GAAP.
d. Render qualified audit opinions for both 2004 and 2005 financial statements given the 2005 carryover
effect of the 2004 error.
11. An auditor may reasonably issue an "except for" qualified opinion for
12. Soon after Boyd's audit report was issued, Boyd learned of certain related party transactions that occurred
during the year under audit. These transactions were not disclosed in the notes to the financial statements.
Boyd should
13. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that
the entity being reported on is a subsidiary of another business enterprise. The inclusion of this paragraph
d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
14. Which of the following best describes the auditor's responsibility for "other information" included in the annual
report to stockholders which contains financial statements and the auditor's report?
a. The auditor has no obligation to read the "other information."
b. The auditor has no obligation to corroborate the "other information," but should read the "other
information" to determine whether it is materially inconsistent with the financial statements.
c. The auditor should extend the examination to the extent necessary to verify the "other information."
d. The auditor must modify the auditor's report to state that the "other information is unaudited" or "not
covered by the auditor's report."
15. In which of the following circumstances would an auditor be most likely to express an adverse opinion?
a. The statements are not in conformity with the ASC Statements regarding the capitalization of
leases.
b. Information comes to the auditor's attention that raises substantial doubt about the entity's ability to
continue in existence.
c. The chief executive officer refuses the auditor access to minutes of board of directors' meetings.
d. Control tests show that the entity's internal control is so poor that the financial records cannot be relied
upon.
16. When a principal auditor decides to make reference to another auditor's examination, the principal auditor's
report should always indicate clearly, in the introductory, scope, and opinion paragraphs, the
a. Magnitude of the portion of the financial statements examined by the other auditor.
b. Division of responsibility.
c. Disclaimer of responsibility concerning the portion of the financial statements examined by the other
auditor.
d. Name of the other auditor.
17. The independent auditor refers to both GAAP and GAAS when writing the standard audit report. These terms
are mentioned as follows:
a b c d
18. Which of the following best describes the reference to the expression “taken as a whole” in the fourth
generally accepted auditing standard of reporting?
19. If an accounting change has no material effect on the financial statements in the current year but the change
is reasonably certain to have a material effect in later years, the change should be
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a. Treated as a consistency modification in the auditor’s report for the current year.
b. Disclosed in the notes to the financial statements of the current year.
c. Disclosed in the notes to the financial statements and referred to in the auditor’s report for the current
year.
d. Treated as a subsequent event.
20. An auditor’s standard report expressed an unqualified opinion and includes an explanatory paragraph that
emphasizes a matter included in the notes to the financial statements. The auditor’s report would be deficient
if the explanatory paragraph states that the entity
a. Is a component of a larger business enterprise.
b. Has changed form the completed contract method to the percentage of completion method to
account for long-term construction contracts.
c. Has had a significant subsequent event.
d. Has accounting reclassifications that enhance the comparability between years.
22. An auditor is confronted with an exception sufficiently material to warrant departing from the standard wording
of an unqualified report. If the exception relates to a departure from the generally accepted accounting
principles, the auditor must decide between a(n)
a. adverse opinion and an unqualified opinion
b. adverse opinion and a qualified opinion
c. adverse opinion and a disclaimer of opinion
d. disclaimer of opinion and a qualified opinion
23. An auditor had expressed a qualified opinion on the financial statements of a prior period because the client’s
financial statements departed from generally accepted accounting principles. The prior period statements are
restated in the current period to conform with generally accepted accounting principles. The auditor’s updated
report on the prior period statements should
a. express an unqualified opinion about the restated financial statements
b. be accompanied by the auditor’s original report on the prior period
c. bear the same date as the auditor’s original report on the prior period
d. qualify the opinion concerning the restated financial statements because of a change in accounting
principles
25. Because of inadequate records the auditor is uncertain as to whether property and equipment
is stated at cost. The auditor should issue a (n):
a. Qualified opinion c. Adverse opinion
b. Unqualified opinion d. Standard opinion
26. The auditor’s report contains a paragraph explaining that the entity changed from the straight-
line to the declining balance method of depreciation. The auditor expressed an:
a. Adverse opinion c. Qualified opinion
b. Unqualified opinion d. Disclaimer of opinion
27. The following circumstances result in a modified, but unqualified report, except:
a. Inconsistent application of accounting principles.
b. Emphasis of a related party transaction that is disclosed in a footnote.
c. Lack of disclosure of a restriction on payment of dividends.
d. Other auditors perform work for which the principal auditor does not assume responsibility.
28. Under which of the following sets of circumstances might an auditor disclaim an opinion?
a. The financial statements contain a departure from GAAP, the effect of which is material.
b. The principal auditor decides to make reference to the report of another auditor who audited a subsidiary.
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c. There has been a material change between periods in the method of the application of accounting
principles.
29. Which of the following description is not included in the scope paragraph of the auditor’s report?
a. Examining, on a test basis, evidence to support the financial statement amounts and disclosures.
b. Determining the accounting principles used in the preparation of the financial statements.
c. Assessing the significant estimates made by management in the preparation of the financial statement.
d. Evaluating the overall financial statement presentation.
30. Which of the following statements is best described in the scope paragraph of the independent auditor’s
report?
a. The audit was planned and performed to obtain reliable assurance about whether the financial statements
are free of material misstatements.
31. When there is an assessed substantial doubt about the ability of the entity to continue as a going concern and
such information is adequately disclosed in the notes to financial statements, the auditor should express a(n):
a. Standard unqualified opinion. c. Qualified opinion
b. Unqualified opinion with explanatory paragraph. d. Adverse opinion
32. If adequate disclosure is not made by the entity regarding substantial doubt about its ability to continue as a
going concern, the auditor should include in his report specific reference to the substantial doubt as to ability
of the company to continue as a going concern and should express:
33. Which of the following factors, by itself, would not cause uncertainty about the ability of a company to
continue as a going concern?
a. A significant net loss.
b. Inability to pay its obligations as they come due.
c. The occurrence of uninsured catastrophe.
d. Legal proceedings that might jeopardize the entity’s ability to operate.
34. If the auditor concludes that the fraud or error has a material effect on the financial statements
and has not been properly corrected in the financial statements, the auditor should issue a:
a. Unqualified opinion with explanatory paragraph. c. Qualified or disclaimer of opinion.
b. Qualified or adverse opinion. d. Adverse or disclaimer of opinion.
35. If the auditor is precluded by the entity from obtaining evidence to evaluate whether fraud or error that may be
material to the financial statements has, or is likely to have, occurred, the auditor should issue a (n):
36. In which of the following circumstances would an auditor usually choose between expressing a qualified
opinion or disclaiming an opinion?