CPA Auditing and Attestation (AUD) : Audit Opinions

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

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Example Questions

Example Question #1 : Audit Reports

Which statement is true regarding a compilation report?

Possible Answers:

The accountant is required to comply with AR C 60 General Principles

Requires an assessment of the internal control environment

Requires the auditor to be independent

Provides assurance that the financial statements are fairly presented

Correct answer:

The accountant is required to comply with AR C 60 General Principles

Explanation:

AR-C Section 60 of the identifies “General Principles for Engagements Performed in Accordance with Statements on Standards for Accounting and Review Services.  Compilation Engagements are required to comply with this section.

Example Question #1 : Audit Reports

Alfa Inc. operates a chain of restaurants in highly populated tourist destinations in the southern United States. Because of recent events, beyond the control of management, it is likely that Alfa will not survive the year. The auditors should report Alfas situation as

Possible Answers:

In emphasis of matter paragraph within the unqualified report

With a disclaimer of opinion

As an adverse opinion

A note to the financial statements

Correct answer:

In emphasis of matter paragraph within the unqualified report

Explanation:

An emphasis of matter paragraph is used to support the auditor’s judgment concerning an event that needs to be highlighted.  An emphasis of matter paragraph is required when the auditor has doubts about the entity's ongoing concern.

Example Question #3 : Audit Reports

In the course of auditing Litmus, Inc., the auditors have uncovered a scheme by management to overvalue inventory in order to adhere to bond covenants. The firm approached management and indicated the practice would stop; however, they did not want to correct this year’s financial statements. The auditor should:

Possible Answers:

Correct the company financial statements and issue an unqualified opinion

Issue the unqualified opinion with the promise that the company will correct the practice next year.

Issue and adverse opinion based on the material misstatement

Issue a disclaimer of opinion based on the misstatement

Correct answer:

Issue and adverse opinion based on the material misstatement

Explanation:

According to AU-C Section 75:  “ The auditor should express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.”

Example Question #4 : Audit Reports

In the formation of a financial statement opinion, the auditor would least likely evaluate whether:

Possible Answers:

The terminology used in the financial statements is appropriate

Earnings forecasts by investors are met

Accounting estimates made by management are reasonable

Financial statements provide adequate disclosures to enable intended users to understand the effect of material events and transactions

Correct answer:

Earnings forecasts by investors are met

Explanation:

When forming an audit opinion of financial statements, the auditor is least likely to evaluate whether earnings forecasts made by investors are met.

Example Question #1 : Audit Opinions

Of the following factors, which should most influence an auditor’s decision to modify the audit opinion of an issuer’s financial statements?

Possible Answers:

Uncertainties related to management’s estimates as of the reporting date that are adequately disclosed in the financial statements

The type of users expected to rely on the financial statements

Whether the auditor’s opinion is based in part on the report of another auditor

The effect of a misstatement on the financial statements taken as a whole

Correct answer:

The effect of a misstatement on the financial statements taken as a whole

Explanation:

The effect of a misstatement on the financial statements taken as a whole should most likely influence an auditor’s decision to modify the audit opinion.

Example Question #6 : Audit Opinions

John Ryan, CPA needs to research guidance for the engagement of his client. The client is a private unaudited non-issuer and wants a compilation completed. In which of the following sections of various literature sources would John find relevant guidance?

Possible Answers:

GAGAS

PCAOB

AR-C

ET

Correct answer:

AR-C

Explanation:

AR-C is a section of the AICPA's guidance on SSARS. As this engagement is a compilation for an unaudited non-issuer, it would be considered SSARS.

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