ACTG 677 Final Exam UPDATED
QUESTIONS AND CORRECT ANSWERS
The group engagement partner decides not to refer to the audit of a component auditor who audited a
subsidiary of the group auditor's client. After making inquiries about the component auditor's
professional reputation and independence, the group engagement partner most likely would
1. Add an emphasis-of-matter paragraph to the auditor's report indicating that the subsidiary's
financial statements are not material to the consolidated financial statements.
2. In the engagement letter that the group auditor assumes no responsibility for the component
auditor's work and opinion.
3. Obtain written permission from the component auditor to omit the reference in the group
engagement partner's audit report.
4. Contact the component auditor and review the audit programs and documentation pertaining to the
subsidiary. - CORRECT ANSWER 4. Contact the component auditor and review the audit
programs and documentation pertaining to the subsidiary.
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to
the situation in the
1. Auditor's responsibility section
2. Notes to the Financial statements
a. Yes Yes
b. Yes No
c. No Yes
d. No No - CORRECT ANSWER b. Yes No
- when a qualified opinion is issued due to lack of sufficient evidence, the lack of evidence should be
disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a
scope limitation, the scope paragraph should also be modified to refer to the limitation and to the
explanatory paragraph that discuss it.
An auditor was unable to obtain audited financial statements or other evidence supporting an entity's
investment in a foreign subsidiary. Between which of the following opinions should the entity's
auditor choose?
1. Qualified and disclaimer
2. Adverse and unmodified, with an emphasis-of-matter paragraph added
,3. Qualified and adverse
4. Disclaimer and unmodified with an emphasis-of-matter paragraph added - CORRECT
ANSWER 1. Qualified and disclaimer
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate paragraph and modify the
1. Introductory paragraph
2. Management responsibility paragraph
a. both 1 and 2
b. 1 only
c. 2 only
d. Neither 1 or 2 - CORRECT ANSWER d. Neither 1 or 2
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate basis of opinion and modify the
I. Intro paragraph
II. Management responsibility paragraph
III. Opinion paragraph
a. I only
b. I and II only
c. II and III only
d. III only - CORRECT ANSWER d. III only
When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a
separate paragraph why the audit did not comply with GAAS. The auditor should also
a. omit the opinion paragraph
b. modify the auditor's responsibility section and omit the opinion paragraph
c. do not modify the auditor's responsibility section or omit the opinion paragraph
, d. modify the auditor's responsibility section - CORRECT ANSWER d. modify the auditor's
responsibility section
If management has not justified that the alternative accounting principle is preferable to an accounting
principle previously used and the effect of the change in accounting principle is material to a
company's financial statements, the auditor should:
a. decide between a qualified opinion and an adverse opinion
b. decide between a qualified opinion and a disclaimer of opinion
c. Issue an unqualified with an explanatory paragraph
d. decide between a disclaimer of opinion and an adverse opinion - CORRECT ANSWER a.
decide between a qualified opinion and an adverse opinion
Which of the following procedures would be most likely to assist an auditor in identifying litigation,
claims, and assessments?
1. Apply ratio analysis on the current-year's liability accounts
2. Obtain a letter of representations from the client's underwriter of securities
3. Read the file of correspondence from taxing authorities
4. Inspect checks included with the client's cut-off bank statement - CORRECT ANSWER 3.
Read the file of correspondence from taxing authorities
A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be
limited to matters that are considered individually or collectively material to the client's financial
statements. Which parties should reach an understanding on the limits of materiality for this purpose?
1. The client's management and the lawyer
2. The lawyer and the auditor
3. The auditor and the client's management
4. The client's audit committee and the lawyer - CORRECT ANSWER 3. The auditor and the
client's management
The refusal of a client's attorney to provide information requested in an inquiry letter generally is
considered
QUESTIONS AND CORRECT ANSWERS
The group engagement partner decides not to refer to the audit of a component auditor who audited a
subsidiary of the group auditor's client. After making inquiries about the component auditor's
professional reputation and independence, the group engagement partner most likely would
1. Add an emphasis-of-matter paragraph to the auditor's report indicating that the subsidiary's
financial statements are not material to the consolidated financial statements.
2. In the engagement letter that the group auditor assumes no responsibility for the component
auditor's work and opinion.
3. Obtain written permission from the component auditor to omit the reference in the group
engagement partner's audit report.
4. Contact the component auditor and review the audit programs and documentation pertaining to the
subsidiary. - CORRECT ANSWER 4. Contact the component auditor and review the audit
programs and documentation pertaining to the subsidiary.
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to
the situation in the
1. Auditor's responsibility section
2. Notes to the Financial statements
a. Yes Yes
b. Yes No
c. No Yes
d. No No - CORRECT ANSWER b. Yes No
- when a qualified opinion is issued due to lack of sufficient evidence, the lack of evidence should be
disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a
scope limitation, the scope paragraph should also be modified to refer to the limitation and to the
explanatory paragraph that discuss it.
An auditor was unable to obtain audited financial statements or other evidence supporting an entity's
investment in a foreign subsidiary. Between which of the following opinions should the entity's
auditor choose?
1. Qualified and disclaimer
2. Adverse and unmodified, with an emphasis-of-matter paragraph added
,3. Qualified and adverse
4. Disclaimer and unmodified with an emphasis-of-matter paragraph added - CORRECT
ANSWER 1. Qualified and disclaimer
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate paragraph and modify the
1. Introductory paragraph
2. Management responsibility paragraph
a. both 1 and 2
b. 1 only
c. 2 only
d. Neither 1 or 2 - CORRECT ANSWER d. Neither 1 or 2
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the
nature of the omission in a separate basis of opinion and modify the
I. Intro paragraph
II. Management responsibility paragraph
III. Opinion paragraph
a. I only
b. I and II only
c. II and III only
d. III only - CORRECT ANSWER d. III only
When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a
separate paragraph why the audit did not comply with GAAS. The auditor should also
a. omit the opinion paragraph
b. modify the auditor's responsibility section and omit the opinion paragraph
c. do not modify the auditor's responsibility section or omit the opinion paragraph
, d. modify the auditor's responsibility section - CORRECT ANSWER d. modify the auditor's
responsibility section
If management has not justified that the alternative accounting principle is preferable to an accounting
principle previously used and the effect of the change in accounting principle is material to a
company's financial statements, the auditor should:
a. decide between a qualified opinion and an adverse opinion
b. decide between a qualified opinion and a disclaimer of opinion
c. Issue an unqualified with an explanatory paragraph
d. decide between a disclaimer of opinion and an adverse opinion - CORRECT ANSWER a.
decide between a qualified opinion and an adverse opinion
Which of the following procedures would be most likely to assist an auditor in identifying litigation,
claims, and assessments?
1. Apply ratio analysis on the current-year's liability accounts
2. Obtain a letter of representations from the client's underwriter of securities
3. Read the file of correspondence from taxing authorities
4. Inspect checks included with the client's cut-off bank statement - CORRECT ANSWER 3.
Read the file of correspondence from taxing authorities
A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be
limited to matters that are considered individually or collectively material to the client's financial
statements. Which parties should reach an understanding on the limits of materiality for this purpose?
1. The client's management and the lawyer
2. The lawyer and the auditor
3. The auditor and the client's management
4. The client's audit committee and the lawyer - CORRECT ANSWER 3. The auditor and the
client's management
The refusal of a client's attorney to provide information requested in an inquiry letter generally is
considered
