CPA Exam - AUD - Multiple Choice Latest Update

CPA Exam - AUD - Multiple Choice Latest Update

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A client decides not to make an auditor's proposed adjustments that collectively are not material, and wants the auditor to issue the report based on the unadjusted numbers.Which of the following statements is correct regarding the financial statement presentation?

• The financial statements do not conform with generally accepted accounting

principles (GAAP).

• The financial statements contain unadjusted misstatements that should result in a

qualified opinion.

• The financial statements are free from material misstatement, and no disclosure is

required in the notes to the financial statements.

• The financial statements are free from material misstatement, but disclosure of the

proposed adjustments is required in the notes to the financial statements. - CORRECT

ANSWER: c. The financial statements are free from material misstatement, and no

disclosure is required in the notes to the financial statements.

• Since the collective effect of the proposed adjustments is immaterial, an unmodified

opinion should be expressed as the FS are still presented fairly. In addition, footnote disclosure of proposed immaterial adjustments is not required.

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

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• Adverse opinion.
• Unmodified opinion.
• Disclaimer opinion.

d. Qualified opinion. - CORRECT ANSWER: a. Adverse opinion.

A CPA concludes that the unaudited financial statements on which the CPA is disclaiming an opinion are not in conformity with generally accepted accounting principles (GAAP) because management has failed to capitalize leases. The CPA suggests appropriate revisions to the financial statements, but management refuses to accept the CPA's suggestions. Under these circumstances, the CPA ordinarily would:

• Describe the nature of the departure from GAAP in the CPA's report and state the

effects on the financial statements, if practicable.

• Restrict the distribution of the CPA's report to management and the entity's board of

directors.

• Issue a qualified opinion or adverse opinion depending on the materiality of the

departure from GAAP.

• Express limited assurance that no other material modifications should be made to the

financial statements. - CORRECT ANSWER: a. Describe the nature of the departure

from GAAP in the CPA's report and state the effects on the financial statements, if practicable.

A CPA firm has decided to rely on the audit work performed by another audit firm. Which of the following procedures should the CPA firm perform when taking responsibility for the other firm's audit work?

• Reference the reliance on the other firm's work in a footnote disclosure to the

financial statements.

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• Review the other firm's audit workpapers and reperform a subset of audit resting to

validate the firm's conclusions.

• Obtain and attach a copy of the other firm's representation letter and audit report to

the opinion that the CPA firm issues.

• Reference the reliance on the other firm's work in the first paragraph of the opinion in

the audit report. - CORRECT ANSWER: b. Review the other firm's audit workpapers

and reperform a subset of audit resting to validate the firm's conclusions.

A CPA firm should adopt a system of quality control:

• Because it maximizes audit efficiency.

• Because it ensures that all audit engagements will be conducted in accordance with

generally accepted auditing standards.

• That encompasses human resource policies and practices.

• For all audit and attest services, but not necessarily for accounting and review

services. - CORRECT ANSWER: c. That encompasses human resource policies and

practices.

• A system of quality control should include human resource policies and practices, such

as recruitment and hiring, determining capabilities and competencies, assigning personnel to engagements, professional development, and performance evaluation, compensation, and advancement.

A CPA is permitted to accept a separate engagement (NOT in conjunction with an audit

of financial statements) to audit a entity's:

Schedule of accounts receivable 3 / 4

VS.Schedule of royalties

• Yes VS. No
• No VS. Yes
• No VS. No

d. Yes VS. Yes - CORRECT ANSWER: d. Yes VS. Yes

A CPA's report on audited financial statements under U.S. auditing standards would be

inappropriate if it referred to:

• Management's responsibility for the financial statements.

• The CPA's assessment of sampling risk factors.

• Evaluating the appropriateness of accounting policies used.

d. Significant estimates made by management. - CORRECT ANSWER: b. The CPA's

assessment of sampling risk factors.

A critical audit matter is a matter that was communicated or is required to be

communicated to the audit committee and:

• Requires a significantly larger sample size to test.

• Involves a particularly complex transition approved by management.

• Relates to accounts or disclosures that are immaterial to the financial statements.
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