1. An adverse opinion is issued when the auditor believes::the overall financial statements are so materially misstated thatthey do not present fairly the financial position or results ofoperations and cash flows in conformity with GAAP.2. AICPA professional standards provide uniform wordingfor the auditor's report to enable users of the financialstatements understand the audit report.: True3. All of the following are conditions requiring a departurefrom a standard unqualified audit report except::Management decided not to allow the auditor to confirmsignificant accounts receivable, but the auditor obtainedsufficient appropriate evidence by examining subsequent cashreceipts.4. As a result of management's refusal to permit the auditorto physically examine inventory. The auditor mustdepart from the unqualified audit report because:: thescope of the audit has been restricted.5. Auditing standards require that the audit report must betitled and that the title must:: include the word"independent."6. An audit of historical financial statements mostcommonly includes the:: balance sheet, income statement,and the statement of cash flows.7. An auditor can express a qualified opinion due to a::Departure from GAAP and Lack of sufficient evidence; NOT fromlack of consistency8. Auditors of public company financial statements mustissue separate reports on internal control over financialreporting.: False9. Auditors should issue a disclaimer of opinion whenthere is a highly material client-imposed scoperestriction.: False10. The audit report date is the date the auditor completedaudit procedures in the field.: True11. The audit report date on a standard unqualified reportindicates:: the last day of the auditor's responsibility for thereview of significant events that occurred subsequent to the dateof the financial statements.12. Brown Co.'s financial statements adequately discloseuncertainties that concern future events, the outcome ofwhich are not reasonably estimable. The auditor'sreport should be a(n):: unqualified opinion.13. Changes in an estimate, such as a change in theestimated useful life of an asset for depreciationpurposes, affect consistency but not comparability, andtherefore require an explanatory paragraph in theaudit report.: False14. Changes of an accounting estimate requires the auditorto issue a modified unqualified audit report with aconsistency paragraph is inserted after the opinionparagraph.: False15. A combined report on financial statements and internalcontrol over financial reporting includes all but whichof the following types of paragraphs?: Descriptionparagraph16. A company has changed its method of inventoryvaluation from an unacceptable one to one inconformity with generally accepted accountingprinciples. The auditor's report on the financialstatements of the year of the change should include:: anexplanatory paragraph explaining the change.17. Conditions for Standard Unqualified Audit Report: 1)Include all financial statements 2) Sufficient appropriateevidence (best judgement, appropriate and reasonable, relevant,reliable) 3) Financial statements present in accordance with USGAAP 4) No circumstances require an explanatory paragraph orreport modification18. Consididaries: consolidate in consolidated financialstatements19. A CPA may wish to emphasize specific mattersregarding the financial statements even though anunqualified opinion will be issued. Normally, suchexplanatory information is:: included in a separateparagraph in the report.20. The date of the auditor's report is indicative of the lastday of the auditor's responsibility for the review ofsignificant events occurring after the balance sheetdate.: True21. Examples of unqualified opinions which containmodified wording (without adding an explanatoryparagraph) include:: the use of other auditors.22. The explanatory paragraph for a qualified opinionwould:: follow the scope paragraph.23. If an auditor performs an audit of a public company, thescope paragraph should make reference to whichstandards?: Standards issued by the PCAOB (U.S.).24. If the auditor lacks independence, a disclaimer ofopinion must be issued:: in all cases.25. If the balance sheet of a company is dated December 31,2011, the audit report is dated February 8, 2012, andboth are released on February 15, 2012, this indicatesthat the auditor has searched for subsequent eventsthat occurred up to:: February 8, 2012.26. The independent auditor must issue a qualified opinionwhen which of the financial(s) are missing?I. Balance SheetII. Income StatementIII. Statement of Cash Flows: III only27. The introductory paragraph of the standard auditreport performs which functions?I. State the CPA has performed an audit.II. Lists the financials being audited.III. States the financials are the responsibility of theauditor.: II and IIIAudit Ch 3Study online at quizlet.com/_tvqw728. The introductory paragraph of the standard auditreport states that the auditor is:: responsible for theopinion on the financial statements.29. The introductory paragraph of the standard auditreport states that the financial statements are:: theresponsibility of management.30. In which of the following circumstances would anauditor most likely express an adverse opinion?: Thefinancial statements are not in conformity with the FASBstatement on loss contingencies.31. In which situation would the auditor be choosingbetween "except for" qualified opinion and an adverseopinion?: Lack of full disclosure within the footnotes.32. Materiality is an essential consideration in determiningthe appropriate type of report under a given set ofcircumstances. Which of the following is not consideredan immaterial instance that would not cause thefinancials to become qualified?: A misstatement in property,plant and equipment affects a user's decision.33. Materiality is essential when an auditor considershis/her determination of the appropriate report for agiven set of circumstances.: True34. A modified unqualified auditor report arises when theauditor believes the financials are fairly stated but alsobelieves additional information should be provided.:True35. Most auditors believe that financial statements are"presented fairly" when the statements are inaccordance with GAAP, and that it is also necessary to::examine the substance of transactions and balances for possiblemisinformation.36. The most common case in which conditions beyond theclient's and auditor's control cause a scope restrictionis an engagement:: agreed upon after the client's balance sheetdate.37. PCAOB Auditing Standard No. 2 requires the audit ofinternal control over financial reporting to beintegrated with:: the audit of the financial statements.38. A pervasive exception is one that affects different partsof the financial statements.: True39. The phrase "auditing standards generally accepted inthe United States of America" can be found in theopinion paragraph of a standard, unqualified auditreport for a public company.: False40. The phrase "generally accepted accounting principles"can be found in the opinion paragraph of a standardunqualified report.: True41. The phrase "The audit is designed to obtain reasonableassurance about whether the statements are free ofmaterial misstatements" is included in the introductoryparagraph of an audit report.: False42. Reports Involving Other Auditors (modified wording):1) make no reference in the audit report 2) make reference in thereport 3) qualify the opinion (or disclaimer)43. Scope Limitation: aren't able to collect sufficient evidence44. The scope paragraph of the standard unqualified auditreport states that the audit is designed to:: obtainreasonable assurance whether the statements are free of materialmisstatement.45. Section 404(b) of the Sarbanes Oxley Act requires thatthe auditor of an issuer attest to management's reporton the efficiency of internal controls over financialreporting.: False46. The standard audit report refers to GAAS and GAAP inwhich paragraphs?: GAAS (Scope Only) GAAP (OpinionOnly)47. Unqualified Report with Explanatory (Add an extraparagraph 1-4): 1) Lack of consistent application of GAAP 2)Substantial doubt about going concern 3) Auditor agrees with adeparture from a promulgated principle 4) Emphasis of a matter(optional with the auditor)48. What type of audit opinion does the independentauditor issue when the following financial statementsare not presented?: Balance Sheet=Adverse; IncomeStatement=Adverse; Statement of Cash Flows= Qualified49. When a client has changed their method of valuinginventory from FIFO to LIFO and the change has amaterial effect on the financial statements. If theauditor does not concur with the appropriateness of thechange, the auditor should issue a(n):: qualified opinion.50. When a company's financial statements contain adeparture from GAAP with which the auditor concurs,the departure should be explained in:: an explanatoryparagraph that appears before the opinion paragraph51. When an auditor discovers a highly material GAAPviolation in the financial statements and the clientrefuses to correct it, the auditor should issue adisclaimer of opinion.: false52. When a pervasive scope limitation exists whichparagraphs will be included in the independentauditors report?: Introductory, Opinion and Explanatory;NOT scope53. When a qualified opinion is issued, an explanatoryparagraph is added immediately after the opinionparagraph to explain the nature of the qualification thataffects the opinion.: False54. When a qualified or adverse opinion is issued, thequalifying paragraph is inserted:: between the scope andopinion paragraphs.55. When comparing misstatements with a measurementbase, the auditor must consider the pervasiveness of themisstatement. Of the following examples, the mostpervasive misstatement is a(n):: understatement ofinventory.56. When other auditors are involved in the audit and theyqualify their portion of the audit, the principle auditormust decide if the amount in question is material to thefinancial statements as a whole.: True57. When the auditor cannot perform procedures and theamounts are so material that a disclaimer of opinion isrequired, the:: scope paragraph will be deleted.58. When the auditor determines the financial statementsare fairly stated and then determines that the auditorlacks independence, the auditor should issue:: adisclaimer of opinion.59. When the auditor evaluates the effect of a change inaccounting principle, the materiality of the changeshould be evaluated based on:: the current year.60. When the client fails to make adequate disclosure in thebody of the statements or in the related footnotes, it isthe responsibility of the auditor to:: present theinformation in the audit report and to issue a qualified or anadverse opinion.61. Which of the following are changes that affect thecomparability of financial statements but not theconsistency and therefore, do not have to be included inthe auditor's report?: Error corrections not involvingprinciples; Changes in accounting estimates; Variations in theformat and presentation of financial information62. Which of the following circumstances would not requiremore than one report modification in from thestandard unqualified independent auditor's report?:There is a scope limitation and the auditor's are not independent.63. Which of the following is least likely to cause uncertaintyabout the ability of an entity to continue as a goingconcern?: A potential lawasuit against the entity for a patentinfringement.64. Which of the following is not a cause for a modificationof the format for a standard unqualified auditor'sreport?: A departure from promulgated accounting principles.65. Which of the following is not explicitly stated in thestandard unqualified audit report?: The audit wasconducted in accordance with generally accepted accountingprinciples.66. Which of the following is true concerning financialstatements issued by a U.S. entity to the Securities andExchange Commission?: The United States only allows anauditor to perform an audit of financial statement of an entity inaccordance with GAAS if they are using International FinancialReporting Standards.67. Which of the following modifications of the auditor'sreport does not include an explanatory paragraph?: Aprinciple auditor accepts the work of another auditor.68. Which of the following requires recognition in theauditor's opinion as to consistency?: The change from thecost method to the equity method of accounting for investmentsin common stock.69. Which of the following scenarios does not result in aqualified opinion?: The auditor lacks independence withrespect to the audited entity.70. Which of the following statements are true?I. The introductory paragraph states that managementis responsible for the preparation and content of thefinancial statements.II. The scope paragraph states that the auditorevaluates the appropriateness of those accountingprinciples, estimates, and financial statementdisclosures.: I and II