CPA Auditing and Attestation (AUD) : Audit Reports

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

varsity tutors app store varsity tutors android store

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept

Example Questions

Example Question #1 : Audit Reports

Which statement is true regarding a compilation report?

Possible Answers:

Requires the auditor to be independent

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

Requires an assessment of the internal control environment

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 #2 : 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:

As an adverse opinion

In emphasis of matter paragraph within the unqualified report

A note to the financial statements

With a disclaimer of opinion

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 a disclaimer of opinion based on the misstatement

Issue and adverse opinion based on the material misstatement

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

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:

Earnings forecasts by investors are met

The terminology used in the financial statements is appropriate

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

Accounting estimates made by management are reasonable

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 #5 : Audit Reports

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:

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

The type of users expected to rely on the financial statements

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

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 Reports

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:

AR-C

GAGAS

PCAOB

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.

Example Question #1 : Professional Standards

John Rich is a CPA auditor with Biggs, CPA. Rich is an avid investor and has a rather larger portfolio. Rich has a 6% stake in Sigma Corp a public company client of Biggs. Rich is not on the Sigma account but notified the partners of his investment. Because of Rich’s investment:

Possible Answers:

independence is impaired

independence is not impaired if disclosed.

independence is not impaired.

independence is not impaired because Rich does not work on the Sigma account.

Correct answer:

independence is impaired

Explanation:

Under this scenario, independence is impaired when according to PCAOB ET 101 “During the period of the professional engagement, a partner or professional employee of the firm, his or her immediate family, or any group of such persons acting together owned more than 5 percent of a client’s outstanding equity securities or other ownership interests.”

Example Question #2 : Professional Standards

Issuers of public company financial statements are governed by:

Possible Answers:

AICPA

SEC

GOA

APB

Correct answer:

SEC

Explanation:

Issuers of public company financial statements are governed by the Securities Exchange Commission under audit standards as promulgated by the PCAOB.

Example Question #2 : Professional Standards

The following roles fall under the FROR:

Possible Answers:

Information Systems Director

Staff Accountant

Chief Financial Officer

Marketing Director

Correct answer:

Chief Financial Officer

Explanation:

The Financial Reporting Oversight Role as defined by Rule 3501 of the PCAOB:  “The term "financial reporting oversight role" means a role in which a person is in a position to or does exercise influence over the contents of the financial statements or anyone who prepares them, such as when the person is a member of the board of directors or similar management or governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.”

Example Question #9 : Audit Reports

An auditor of a non-issuer must conduct the audit in accordance with A) ASB Standards B) PCAOB Standards

Possible Answers:

B

Both

Neither

A

Correct answer:

A

Explanation:

An auditor of a non-issuer must conduct the audit in accordance with ASB Standards.

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept
Learning Tools by Varsity Tutors