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An auditor may be required to or choose to restrict the use of an audit report.If an audit report is restricted as to use,it should contain


A) a "restricted use" paragraph
B) an "emphasis of a matter" paragraph
C) an "other matter" paragraph
D) "limited distribution" paragraph

E) C) and D)
F) A) and C)

Correct Answer

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The auditor makes the decision about which of the modifications is appropriate based on


A) the conclusiveness of the matter causing the modification,that is,whether the financial statements are materially misstated or whether the auditor is unable to gather sufficient appropriate evidence
B) the subject of the matter causing the modification on the financial statements
C) the pervasiveness of the matter causing the modification on the financial statements
D) the nature of the matter causing the modification,that is,whether the financial statements are materially misstated or whether the auditor is unable to gather sufficient appropriate evidence
E) the persuasiveness of the matter causing the modification that is,whether the financial statements are materially misstated or whether the auditor is unable to gather sufficient appropriate evidence
F) both A and B
G) both B and E
H) Both C and D

I) C) and D)
J) A) and F)

Correct Answer

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The auditor is required to communicate certain matters related to the audit to those charged with governance in the company.Which of the following items should be communicated to those charged with governance?


A) deficiencies identified in internal controls over the financial statements
B) other information in documents containing audited financial statements
C) agreements with management
D) consultation with other accountants
E) issues discussed with management after retention
F) both A and C
G) both B and D
H) both D and E

I) E) and G)
J) A) and H)

Correct Answer

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Circumstances where an "emphasis of a matter" paragraph may be necessary include


A) an uncertainty relating to the prior outcome of exceptional litigation or regulatory action
B) early application (where permitted) of a new accounting standard that has a pervasive effect on the financial statements in advance of its effective date
C) a major catastrophe that has had,or continues to have,a minor effect on the entity's financial position
D) insignificant transactions with related parties
E) unusually important subsequent events
F) both A and C
G) both B and E
H) both D and E

I) A) and B)
J) D) and E)

Correct Answer

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When the auditor issues a qualified opinion due to the inability to obtain sufficient appropriate evidence,the auditor should state in the opinion paragraph that,


A) except for the possible effects of the matters described in the basis for modification paragraph,the financial statements are presented fairly,in all material respects,in accordance with the applicable reporting framework
B) except for the probable effects of the matters described in the basis for modification paragraph,the financial statements are presented fairly,in all material respects,in accordance with the applicable reporting framework
C) except for the likely effects of the matters described in the basis for modification paragraph,the financial statements are presented fairly,in all material respects,in accordance with the applicable reporting framework
D) except for the unlikely effects of the matter described in the basis for modification paragraph,the financial statements are presented fairly,in all material respects,in accordance with the applicable reporting framework

E) B) and D)
F) A) and B)

Correct Answer

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Circumstances where an "other matter" paragraph may be necessary include


A) the paragraph is relevant to management's understanding of the audit
B) the paragraph is relevant to the user's understanding of the auditor's responsibilities or the auditor's report
C) the paragraph explains that the reporting is done on more than one set of financial statements
D) the paragraph explains that the reporting is done on more than one entity
E) the paragraph explains that the opinion pertains to more than one set of financial statements
F) both A and B
G) both B and C
H) both D and E

I) B) and F)
J) G) and H)

Correct Answer

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For public companies in the U.S. ,the audited financial statements will include which of the following reports?


A) a report that provides management's opinion on the effectiveness of internal control over financial reporting
B) a report that provides the auditor's opinion on the efficiency of internal control over financial reporting
C) a report that states whether the financial statements are materially misstated
D) a report that provides the auditor's opinion on the effectiveness of internal control over financial reporting
E) a report that states whether the financial statements are accurately stated
F) both A and B
G) both C and D
H) both D and E

I) C) and D)
J) B) and D)

Correct Answer

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Following an audit report identifying a material weakness in internal control over financial reporting,


A) the auditor must be hired to complete a mandatory engagement to determine if a material weakness has been corrected
B) the auditor should be hired to complete an engagement to determine if a material weakness has been corrected
C) the auditor may be hired to complete a voluntary engagement to determine if a material weakness has been corrected
D) the auditor should be hired to complete a voluntary engagement to determine if a material weakness has been corrected

E) C) and D)
F) A) and C)

Correct Answer

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The report on the effectiveness of internal control over financial reporting for companies filing reports with the SEC in the U.S.must include which of the following elements?


A) a statement that management is responsible for maintaining effective internal control over financial reporting and the auditor is responsible for assessing the effectiveness of the internal control
B) a statement that the auditor is responsible for expressing an opinion on the effectiveness of internal control over financial reporting based on his audit
C) a statement that the audit was conducted in accordance with the standards of the American Institute of Certified Public Accountants
D) a statement that the standards of the AICPA require that the auditor plan and perform the audit to obtain reasonable assurance about the effectiveness of internal controls over the financial reporting process
E) a statement that the auditor believes the audit provides a reasonable basis for his opinion
F) both A and C
G) both B and E
H) both D and E

I) B) and D)
J) C) and F)

Correct Answer

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Before the group engagement partner chooses to refer to the work of a component auditor he must obtain an understanding of the component auditor.This is done by determining


A) Whether the component auditor understands and will comply with the ethical requirements relevant to the group audit,and in particular whether the component auditor is competent
B) The component auditor's professional competence
C) The extent to which the component auditor will be able to be involved in the work of the group engagement partner
D) Whether the group engagement team will be able to obtain information affecting the consolidation process from a component auditor
E) Whether the group engagement team operates in a regulatory environment that actively oversees auditors
F) both A and C
G) both B and D
H) both D and E

I) A) and F)
J) D) and H)

Correct Answer

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The auditor issues a qualified opinion when


A) the auditor has sufficient appropriate audit evidence and concludes that the misstatements to the financial statements are material,but not pervasive
B) the auditor is unable to obtain sufficient appropriate evidence,but the auditor concludes that the possible effects of the misstatement could be both material and pervasive
C) the auditor is unable to obtain sufficient appropriate evidence,but the auditor concludes that the possible effects of the misstatement could be material,but not pervasive
D) the auditor has reasonable evidence to determine that the financial statements are not free from material misstatement
E) the auditor has sufficient evidence to determine that the financial statements are not free from material misstatement
F) both A and C
G) both B and E
H) both D and E

I) A) and G)
J) A) and C)

Correct Answer

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Circumstances where an "emphasis of a matter" paragraph may be necessary include


A) an uncertainty relating to the prior outcome of exceptional litigation or regulatory action
B) early application (where permitted) of a new accounting standard that has a pervasive effect on the financial statements in advance of its effective date
C) a major catastrophe that has had,or continues to have,a minor effect on the entity's financial position
D) significant transactions with related parties
E) unusually frequent subsequent events
F) both A and B
G) both B and D
H) both C and E

I) A) and H)
J) G) and H)

Correct Answer

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Management is responsible for


A) the accuracy and reliability of the financial statements in accordance with the applicable financial reporting framework
B) the existence and completeness of the financial statements in accordance with the applicable financial reporting framework
C) the valuation and relevancy of the financial statements in accordance with the applicable financial reporting framework
D) the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework

E) B) and D)
F) B) and C)

Correct Answer

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Two standards issued by the PCAOB (Auditing Standard No.4 and Auditing Standard No.5)provide guidance related to financial reporting.These standards apply to both public and private companies.

A) True
B) False

Correct Answer

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The report on the effectiveness of internal control over financial reporting for companies filing reports with the SEC in the U.S.must include which of the following elements?


A) a statement that management is responsible for maintaining effective internal control over financial reporting and the auditor is responsible for assessing the effectiveness of the internal control
B) a statement that the auditor is responsible for expressing an opinion on the effectiveness of internal control over financial reporting based on management's representations
C) a statement that the audit was conducted in accordance with the standards of the Public Companies Accounting Oversight Board (United States)
D) a statement that the standards of the AICPA require that the auditor plan and perform the audit to obtain reasonable assurance about the effectiveness of internal controls over the financial reporting process
E) a statement that the auditor believes the audit provides a reasonable basis for his opinion
F) both A and B
G) both C and E
H) both D and E

I) B) and C)
J) All of the above

Correct Answer

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The standard report on internal controls over the financial reporting process is modified by the auditor in which of the following circumstances?


A) Management's quarterly report on internal control is incomplete or improperly presented
B) There is a restriction on the scope of the engagement
C) The auditor decides to refer to the report of management for the auditor's own report
D) There is other information in management's annual report on internal control over financial reporting
E) Management's annual certification pursuant to Section 404 of the Sarbanes-Oxley Act is misstated
F) both A and C
G) both B and D
H) both D and E

I) B) and C)
J) B) and G)

Correct Answer

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The standard report on internal controls over the financial reporting process is modified by the auditor in which of the following circumstances?


A) Management's annual report on internal controls is incomplete or improperly presented
B) There is a restriction on the purpose of the engagement
C) The auditor decides to refer to the report of other auditors for the auditor's own report
D) There is other information in management's quarterly report on internal control over financial reporting
E) Management's annual certification pursuant to Section 404 of the Sarbanes-Oxley Act is misstated
F) both A and C
G) both B and E
H) both D and E

I) A) and G)
J) C) and H)

Correct Answer

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Which of the following describe an "other matter" paragraph in an audit report?


A) the paragraph is found before the opinion paragraph of the audit report
B) the paragraph indicates that the auditor's opinion is modified with respect to the matter emphasized
C) the paragraph is found after the opinion paragraph of the audit report
D) the paragraph is used when the auditor considers it necessary to communicate a matter other than those that are present or disclosed in the financial statements that the auditor believes is relevant to user's understanding of the audit,the auditor's responsibility,or the auditor's report
E) the paragraph indicates that the auditor's opinion is not modified with respect to the matter emphasized

F) A) and D)
G) B) and E)

Correct Answer

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The auditor has specific audit responsibilities when he issues an audit report on financial statements prepared in accordance with a financial reporting framework that is generally accepted in another country.These responsibilities apply only to audit reports issued on statements prepared in accordance with a financial reporting framework that has not been recognized by the council of the AICPA in the U.S.The financial reporting frameworks recognized in the U.S.include


A) the Cost Accounting Standards Board
B) the Financial Accounting Standards Board
C) the Governmental Accounting Standards Board
D) the American Accounting Standards Advisory Board
E) the International Reporting Standards Board
F) both A and B
G) both B and C
H) both D and E

I) G) and H)
J) A) and H)

Correct Answer

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If management annual report on internal controls is incomplete or improperly presented,the auditor should modify his report to include an explanatory paragraph describing his reasons for the determination that the report is incomplete or improperly presented.

A) True
B) False

Correct Answer

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