MULTIPLE CHOICE QUESTIONS
1. Before reporting on the financial statements of a U.S. entity that have been prepared in conformity with another country’s accounting principles, an auditor practicing in the United States should:
a. Understand the accounting principles generally accepted in the other country.
b. Be certified by the appropriate auditing or accountancy board of the other country.
c. Notify management that the auditor is required to disclaim an opinion on the financial statements.
d. Receive a waiver from the auditor’s state board of accountancy to perform the engagement.
2. During a review of the financial statements of a nonpublic entity, an accountant becomes aware of the lack of adequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should:
a. Issue an adverse opinion.
b. Issue an “except for” qualified opinion.
c. Disclose this departure from GAAP in a separate paragraph of the report.
d. Express only limited assurance on the financial statement presentations.
3. Before issuing a report on the compilation of financial statements of a nonpublic entity, the accountant should:
a. Apply analytical procedures to selected financial data to discover any material misstatements.
b. Corroborate at least a sample of the assertions management has embodied in the financial statements.
c. Inquire of the client’s personnel whether the financial statements omit substantially all disclosures.
d. Read the financial statements to consider whether they are free from obvious material errors.
4. Laura Baker, CPA, was engaged to review the financial statements of Hall Company, a nonpublic entity. Evidence came to Baker’s attention that indicated substantial doubt regarding Hall’s ability to continue as a going concern. The principal conditions and events that caused the substantial doubt have been fully disclosed in the notes to Hall’s financial statements. Which of the following statements best describes Baker is reporting responsibility concerning this matter?
a. Baker is not required to modify the accountant’s review report.
b. Baker is not permitted to modify the accountant’s review report.
c. Baker should issue an accountant’s compilation report instead of a review report.
d. Baker should express a qualified opinion in the accountant’s review report.
5. Which of the following statements should be included in an accountant’s standard report based on the compilation of a nonpublic entity’s financial statements.
a. A compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data.
b. A compilation is limited to presenting in the form of financial statements information that is the representation of management.
c. A compilation is not designed to detect material modifications that should be made to the financial statements.
d. A compilation is substantially smaller in scope than an audit in accordance with GAAS.
6. When an accountant is engaged to compile a nonpublic entity’s financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are:
a. Not designed for those who are uninformed about the omitted disclosures
b. Prepared in conformity with a comprehensive basis of accounting other than GAAP
c. Not compiled in accordance with Statements on Standards for
Accounting and Review Services
d. Special-purpose financial statements those are not comparable to those of prior periods
7. An auditor’s report on financial statements prepared on the cash receipts and disbursements basis of accounting should include all of the following except:
a. A reference to the note to the financial statements that describes the cash receipts and disbursements basis of accounting
b. A statement that the cash receipts and disbursements basis of accounting is not a comprehensive basis of accounting
c. An opinion as to whether the financial statements are presented fairly in conformity with the cash receipts and disbursements basis of accounting
d. A statement that the audit was conducted in accordance with GAAS
8. The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether:
a. Material modifications should be made to conform to GAAP.
b. A reasonable basis exists for expressing an opinion regarding the financial statements that were previously audited.
c. Condensed financial statements or pro forma financial information should be included in a registration statement.
d. The financial statements are presented fairly in accordance with GAAP.