APPLIED AUDITING

ACTIVITY 10

Direction: Select the best answer

1. Due to material inadequacies in a client’s accounting records, the auditor

was not able to satisfy himself as to the fairness of the client’s financial
statements except for the cash balance. In this case, the auditor may
issue:
a. A disclaimer of opinion.
b. A disclaimer of opinion with a piecemeal opinion on cash.
c. An adverse opinion.
d. An adverse opinion with a piecemeal opinion on cash.

2. If the scope of the examination has been satisfactory for all items except
for one of material amount, the auditor should issue a (an)
a. Unqualified c. Qualified
b. Disclaimer d. Adverse

3.
by the client, the auditor generally issues which opinion?
a. Adverse. c. "Except for" opinion.
b. Qualified. d. Disclaimer.

4. In a case where the auditor cannot determine the amounts associated

with certain illegal acts committed by the auditee, he would most likely
a. Issue either a qualified opinion or a disclaimer of opinion.
b. Issue only an adverse opinion.
c. Issue either a qualified opinion or an adverse opinion.
d. Issue only a disclaimer of opinion.

5. If a CPA qualifies his audit report because of a scope limitation, he should:

a. Describe the scope limitation in the notes to the financial statements.
b. Describe the scope limitation in an explanatory paragraph in his audit
report.
c. Refer to the qualification in the scope and opinion paragraphs of his
audit report.
d. Describe the scope limitation in an explanatory paragraph in his
audit report and modify the scope and opinion paragraphs to
refer to the qualification.

6. A CPA was engaged to examine the books of accounts of CC Corporation

after the close of the corporation’s fiscal year. Upon completion of his
examination, the CPA is satisfied that the company’s financial statements
are presented fairly except that he is not satisfied that CC Corporation’s
inventory is fairly stated on balance sheet date. The amount of the
inventory is material. In this situation, the type of opinion that should be
rendered is a (an)

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APPLIED AUDITING

a. Unqualified c. Qualified
b. Disclaimer d. Adverse

7. In a case where an auditor observed that the accounting for a certain

material item is not in conformity with generally accepted accounting
principles, and that this fact is prominently disclosed in a footnote to the
financial statements, the auditor should
a. Express an unqualified opinion and insert a middle paragraph
emphasizing the matter by reference to the footnote.
b. Disclaim an opinion.
c. Not allow the accounting treatment for this item to affect the type of
opinion because the deviation from generally accepted accounting
principle was disclosed.
d. Qualify the opinion because of the deviation from generally
accepted accounting principles.

8. The auditor finds that the client's financial statements are not presented
fairly in conformity with GAAP. Opinion should be
a. Unqualified c. Qualified
b. Disclaimer d. Adverse

9. The auditor, if he believes that required disclosures of a significant nature

are omitted from the financial statements under examination, should
decide between issuing
a. A qualified opinion or an adverse opinion.
b. A disclaimer of opinion or a qualified opinion.
c. An adverse opinion or a disclaimer of opinion.
d. An unqualified opinion or a qualified opinion.

10. Failure of a company to disclose significant transactions with and

receivables from related parties may lead the auditor to issue:
a. An “except for” qualification because of a scope limitation.
b. An “except for” qualification because of inadequate disclosures.
c. A “subject to” qualification because of an uncertainty.
d. An unqualified opinion.

11. The CPA would issue an adverse auditor’s opinion instead of a qualified
opinion if
a. His exception to the fairness of presentation was so material that
qualified opinion was not justified.
b. He prepared the financial statements from the client’s records
without performing an audit.
c. The client limited the scope of his examination.
d. He did not confirm receivables or observe the taking of the physical
inventory.

12. A CPA, in an audit engagement where he lacks independence, should

a. Disclaim an opinion on the financial statements.
b. Issue a piecemeal opinion.
c. State the reason for his lack of independence in his auditor's report.

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APPLIED AUDITING

d. List all the generally accepted auditing procedures actually performed by

him in his auditor's report.

13. When reporting on comparative financial statements, when would an auditor

ordinarily change the previously issued opinion on the prior year’s
financial statements?
a. If the auditor is a predecessor auditor who has been requested by a
former client to reissue the previously issued report.
b. If the prior year’s opinion was unqualified and the opinion on the current
year’s financial statements is modified due to lack of consistency.
c. If the prior year’s financial statements are restated to conform with
GAAP.
d. If the prior year’s financial statements are restated following a pooling of
interests in the current year.

14. An independent auditor, who has not examined a company’s financial

statements for the preceding year but is doing so in the current year,
should, with respect to consistency
a. Report on the financial statements of the current year without referring to
consistency.
b. Consider the consistent application of principles within the year under
examination but not between the current and preceding year.
c. Adopt procedures, that are practicable and reasonable in the
circumstances to obtain assurance that the principles
employed are consistent between the current and preceding
period.
d. Rely on the report of the prior year’s auditors if such a report does not
take exception as to consistency.

15. It would not be appropriate to address an auditor's report to one of the

following:
a. The stockholders of a company whose financial statements you
have examined.
b. A third person, even if he is the client who engaged you to examine a
non-client corporation.
c. The president of the company whose financial statements you
examined.
d. The corporation whose financial statements you examined.

16. When an auditor issues his report, he generally dates the report as of:
a. The date of completion of his field work.
b. The date of the client’s financial statements
c. The date the client’s financial statements are filed with the Securities and
Exchange Commission.
d. The date the client’s financial statements are issued to its stockholders.

17. A corporation submitted its financial statement to the auditor on February

1, 2006. The auditor started the field work on February 8, 2006 and
completed such work in the client's office on March 30, 2006. The audit
report was finished on April 10, 2006. The audit report should be dated

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a. February 1, 2006. c. March 30, 2006.
b. February 8, 2006. d. April 10, 2006.

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APPLIED AUDITING

18. When an audit report covering financial statements for the year ended
December 31, 2005 is dated “March 3, 2006, except for Note 5, as to
which the date is March 31, 2006,” the responsibility of the auditor is:
a. Limited up to March 3, 2006.
b. Limited up to March 31, 2006.
c. Limited up to December 31, 2005.
d. Limited up to March 3, 2006, except for the event disclosed in Note
5,as to which his responsibility is up to March 31, 2006.

19. If upon his client’s request, an auditor furnished on March 31, 2006
additional copies of an audit report, which was dated March 1, 2006 and
initially released on March 15, 2006, the auditor:
a. Has a responsibility to perform additional subsequent events review up to
March 31, 2006.
b. Has no responsibility to perform additional subsequent events
review procedures after March 1, 2006.
c. Has a responsibility to perform additional subsequent events review
procedures up to March 15, 2006.
d. Has no responsibility to perform subsequent events review procedures up
to March 1, 2006.

20. A former auditor is requested by a client to re-issue a prior period report on

financial statements. Assuming all the necessary procedures have been
performed, the former auditor should
a. Cancel the old date of the report.
b. Retain the date of the previous report.
c. Use the date of reissuing the report.
d. Use both the old and the new date.

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