MULTIPLE CHOICE QUESTIONS
1. In which of the following circumstances would an auditor be most likely to express an adverse opinion.
a. Information comes to the auditor’s attention that raises substantial doubt about the entity’s ability to continue as a going concern.
b. The chief executive officer refuses the auditor access to minutes of board of directors’ meetings.
c. Tests of controls show that the entity’s internal control structure is so poor that it cannot be relied on.
d. The financial statements are not in conformity with FASB statements regarding the capitalization of leases.
2. Tech Company has an uncertainty due to pending litigation. The auditor’s decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by the:
a. Lack of sufficient evidence
b. Inability to estimate the amount of loss
c. Entity’s lack of experience with such litigation
d. Adequancy of the disclosures
3. In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?
a. The auditor wishes to emphasize that the entity had significant related-party transactions.
b. The auditor decides to refer to the report of another auditor as a basis, in part, for the auditor’s opinion.
c. The entity issues financial statements that present financial position and results of operations but omits the statement of cash flows.
d. The auditor has substantial doubt about the entity’s ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.
4. Comparative financial statements include the prior-year statements that were audited by a predecessor auditor whose report is not presented. If the predecessor’s report were unqualified, the successor should:
a. Express an opinion on the current-year statements alone and do not refer to the prior-year statements.
b. Indicate in the auditor’s report that the predecessor auditor expressed an unqualified opinion.
c. Obtain a letter of representation from the predecessor concerning any matters that might affect the successor’s opinion.
d. Request that the predecessor auditor reissue the prior-year report.
5. Eagle Company’s financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is:
a. Unqualified, but not mention the departure in the auditor’s report
b. Unqualified, and describe the departure in a separate paragraph
c. Qualified, and describe the departure in a separate paragraph
d. Qualified or adverse, depending on materiality, and describe the departure in a separate paragraph
6. Tread Corp. accounts for the effect of a material accounting change prospectively when the inclusion of the cumulative effect of the change is required in the current year. The auditor would choose a (an):
a. Qualified opinion or a disclaimer of opinion
b. Disclaimer of opinion or an unqualified opinion with an explanatory paragraph
c. Unqualified opinion with an explanatory paragraph or an adverse opinion
d. Qualified opinion or adverse opinion
7. In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion?
a. Departure from GAAP
b. Inadequate disclosure of accounting policies
c. Inability to obtain sufficient competent evidential matter
d. Unreasonable justification for a change in accounting principle
8. The auditor of a public company believes there is a material weakness in the client’s internal controls over financial reporting. Which of the following is true?
a. Such a weakness will require an adverse opinion of the financial statements.
b. The auditor should express an adverse opinion on internal controls only if they resulted in a material misstatement in the financial statements.
c. The auditor should express an adverse opinion on the internal controls even though no material misstatements were found in the financial statements.
d. The auditor is not required to express an opinion on internal controls.