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In which of the following circumstances would auditors most likely add an explanatory paragraph to the standard report without modifying the opinion on the entity's financial statements?


A) The auditors are asked to report on the balance sheet, but not on the other basic financial statements.
B) There is substantial doubt about the entity's ability to continue as a going concern.
C) Management's estimates of the effects of future events on the entity's financial condition, results of operations, and cash flows are unreasonable.
D) Certain transactions cannot be tested because of management's records retention policy.

E) A) and B)
F) All of the above

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Which of the following statements is not included in the Basis for Opinion section of the standard report on the entity's financial statements?


A) "The critical audit matter communicated is a matter arising from the current period audit…"
B) "We are a public accounting firm registered with the Public Company Accounting Oversight Board…"
C) "Our audit included evaluating the accounting principles used and significant estimates made by management..."
D) "We conducted our audit in accordance with the standards of the PCAOB."

E) A) and B)
F) A) and C)

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Which of the following would not be communicated to users in the auditors' report on an entity's financial statements and related disclosures?


A) Whether the financial statements are presented in accordance with GAAP, or another applicable financial reporting framework.
B) Unusual aspects of the audit examination, such as the involvement of component auditors in the audit of group financial statements.
C) Specific details regarding the audit examination, such as the materiality threshold used to identify material misstatements.
D) Other matters affecting the client, such as substantial doubt about the entity's ability to continue as a going concern.

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

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Situations in which auditors provide additional copies of a previously issued report or grant entities permission to use a previously issued report in a document containing financial statements after its original date are known as


A) additional use reports.
B) reissued reports.
C) subsequent use reports.
D) updated reports.

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

Correct Answer

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In which of the following circumstances may auditors issue the standard report on the entity's financial statements?


A) The entity changed accounting principles having an immaterial effect on the entity's financial position, results of operations, and cash flows.
B) The auditors wish to emphasize a matter regarding the financial statements.
C) The auditors reference component auditors who examined a subsidiary of group financial statements.
D) The auditors have not been able to audit a substantial portion of the balance sheet because of a circumstance-imposed scope limitation.

E) A) and B)
F) B) and C)

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If financial statements contain a material but non-pervasive departure from generally accepted accounting principles, the auditors should render a(n)


A) Qualified opinion with reference to departure.
B) adverse opinion with scope limitation reference.
C) adverse opinion with reference to departure.
D) disclaimer of opinion.

E) All of the above
F) A) and C)

Correct Answer

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Situations in which auditors provide additional copies of a previously issued report or grant entities permission to use a previously issued report in a document containing financial statements after its original date are known as


A) additional use reports.
B) reissued reports.
C) subsequent use reports.
D) updated reports.

E) A) and D)
F) All of the above

Correct Answer

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Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of


A) involvement of component auditors in the audit of the group financial statements.
B) the portion of the group statements audited by the component auditors not being considered material.
C) group auditors' recognition of the component auditors' competence, reputation, and professional certification.
D) different opinions the auditors are expressing on the components of the financial statements that each audited.

E) B) and C)
F) All of the above

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When reporting on comparative financial statements, auditors ordinarily should modify their previously expressed opinion on the prior years' financial statements if the


A) prior years' financial statements are restated to conform with generally accepted accounting principles.
B) auditors were predecessor auditors who have been requested by a former client to reissue the previous report.
C) prior years' opinions were unqualified and the opinion on the current year's financial statements is modified due to a lack of consistency.
D) prior years' financial statements are restated following an acquisition in the current year.

E) A) and C)
F) None of the above

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Which of the following situations would require auditors to add an other-matter paragraph to their report on comparative financial statements?


A) An unmodified opinion is issued in the current year while a qualified opinion was issued in prior years.
B) A qualified opinion is issued in the current year because of a scope limitation; because this limitation was not encountered in prior years, the opinion issued in those years was unmodified.
C) The updated opinion issued on prior years' financial statements differs from the opinion originally issued on those financial statements.
D) The auditors' unmodified opinion issued on prior years' financial statements is still considered to be appropriate.

E) A) and B)
F) All of the above

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When audited financial statements are presented in a document containing other information, the auditors should


A) perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B) add an emphasis-of-matter paragraph describing the other information to the auditors' report without modifying the opinion on the financial statements.
C) perform the appropriate substantive procedures to corroborate the other information.
D) read the other information to determine that it is consistent with the audited financial statements.

E) None of the above
F) All of the above

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When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the Auditor’s Responsibilities forNotes to thethe Audit of the FinancialFinancialStatements SectionStatements\begin{array}{lcc}& \text {Auditor's Responsibilities for}& \text {Notes to the}\\& \text {the Audit of the Financial}& \text {Financial}\\& \text {Statements Section}& \text {Statements}\end{array} A.  Yes  Yes \begin{array}{lcc}&&&&& \text { Yes } &&&&&&&& \text { Yes } \\\end{array} B.  Yes  No \begin{array}{lcc}&&&&& \text { Yes } &&&&&&&& \text { No } \\\end{array} C.  No  Yes \begin{array}{lcc} &&&&& \text { No } &&&&&&&& \text { Yes } \\\end{array} D.  No  No \begin{array}{lcc} &&&&& \text { No } &&&&&&&& \text { No }\end{array}


A) Option A
B) Option B
C) Option C
D) Option D

E) None of the above
F) B) and C)

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Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure?


A) "Subject to the departure from generally accepted accounting principles, as described below."
B) "Except for the effects of [XXX] as discussed in the Basis for Opinion section…"
C) "Except for the effects of [XXX] as discussed in the following paragraph…"
D) "Does not present fairly in all material respects."

E) B) and D)
F) None of the above

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Hart, CPA, is auditing the year 2 financial statements of Kell Co. Previously, Hart audited Kell's year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include an explanatory paragraph in the year 2 report because comparative financial statements are being presented for year 2 and year 1. This paragraph should indicate the


A) substantive reasons for the prior year's qualification.
B) reason that Hart continued to provide audit services, despite the previous scope limitation.
C) consistency of application of accounting principles between year 2 and year 1.
D) restriction on the distribution of the report.

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

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What is the auditors' responsibility for reporting on other information accompanying financial statements?


A) Because this information is not a fundamental part of the financial statements, the auditors have no reporting responsibility with respect to this information.
B) Auditors are required to report on the consistency of other information with the audited financial statements.
C) Auditors are required to provide reasonable assurance with respect to whether the other information is presented in accordance with generally accepted accounting principles.
D) Auditors are required to express an opinion on whether the other information is presented in accordance with generally accepted accounting principles.

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

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When a circumstance-imposed scope limitation has a material but not pervasive effect on the sufficiency of the auditors' evidence, the auditors' report will


A) modify the Opinion Section and Basis for Opinion Section.
B) modify the Opinion Section and Auditor's Responsibilities for the Audit of the Financial Statements Section.
C) modify the Opinion Section, Basis for Opinion Section, and Auditor's Responsibilities for the Audit of the Financial Statements Section.
D) modify the Opinion Section and Basis for Opinion Section and omit the Auditor's Responsibilities for the Audit of the Financial Statements Section.

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

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Carson, LLP, audited Best Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, Carson gave Best permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for Carson's responsibility on the reissued report?


A) December 31, Year 1.
B) March 1, Year 2.
C) December 31, Year 2.
D) February 15, Year 3.

E) All of the above
F) None of the above

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The auditors conclude that an entity's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the overall materiality and pervasiveness of the effect of this illegal act on the financial statements, the auditors should express either a(n)


A) adverse opinion or a disclaimer of opinion.
B) qualified opinion or an adverse opinion.
C) disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph.
D) unmodified opinion with a separate emphasis-of-matter paragraph or a qualified opinion.

E) All of the above
F) A) and D)

Correct Answer

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When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the condensed financial statements is


A) complete with respect to disclosures required by the SEC.
B) fairly stated, in all material respects, in accordance with generally accepted accounting principles.
C) consistent, in all material respects, with the prior years' condensed financial statements.
D) fairly stated, in all material respects, in relation to the complete financial statements.

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

Correct Answer

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Auditors are required to reference consistency in their report when there are changes in


A) accounting estimates.
B) the format of the Statement of Cash Flows.
C) the classification of financial statement amounts.
D) accounting principles.

E) A) and B)
F) A) and C)

Correct Answer

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