In an engagement to express an opinion on one or more specified elements, accounts, or items of a financial statement, the auditor

In an engagement to express an opinion on one or more specified elements, accounts, or items of a financial statement, the auditor can generally audit only those specified elements and not the entire set of financial statements. However, the auditor is required to audit the entire set of financial statements if the elements specified include 

A. Net Income.
B. Stockholders' Equity.
C. Net Income and Stockholders' Equity.
D. Assets.


Answer: Net Income and Stockholders' Equity.

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion and expressing an adverse opinion? 

A. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
B. The financial statements fail to disclose information that is required by generally accepted accounting principles.
C. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
D. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.


Answer: The financial statements fail to disclose information that is required by generally accepted accounting principles.

What is one reason hashing algorithms are helpful in encryption?

a. They allow the key to be longer so there are more possibilities for the key
b. They make it so the output of the algorithm can help uniquely identify the input
c. They can be used with any type of input
d. They make it so the input of the algorithm cannot be easily identified from the output


Answer: d. They make it so the input of the algorithm cannot be easily identified from the output

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records. Cravens has observed the current inventory but has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance, which is not auditable, is a material factor in the determination of cost of goods sold for the current year. Cravens will probably 

A. Decline the engagement.
B. Express an unqualified/unmodified opinion on the balance sheet and income statement except for inventory.
C. Issue a disclaimer of opinion.
D. Issue an adverse opinion.


Answer: Issue a disclaimer of opinion.

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented for a public company and the auditor concurs with the change, the auditor should

A. A.
B. B.
C. C.
D. D.


Answer: A

In the first audit of an entity, because of the entity's record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would 

A. Be unable to express an opinion on the current year's results of operations and cash flows.
B. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
C. Withdraw from the engagement and refuse to be associated with the financial statements.
D. Specifically state that the financial statements are not comparable to the prior year because of an uncertainty.


Answer: Be unable to express an opinion on the current year's results of operations and cash flows.

When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item

When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item. However, the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's 

A. Net income.
B. Retained earnings.
C. Assets.
D. Working capital.


Answer: Net income

A scope limitation sufficient to preclude an unqualified opinion always will result when management 

A. Prevents the auditor from reviewing the working papers of the predecessor auditor.
B. Engages the auditor after the year-end physical inventory is completed.
C. Requests that certain material accounts receivable not be confirmed.
D. Refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.


Answer: Refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.

A special report related to compliance with contractual provisions provides 

A. Positive assurance.
B. Negative assurance.
C. No assurance.
D. None of these.


Answer: Negative assurance.

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditor may 

A. Issue an "except for" qualified opinion after discussing the matter with the entity's board of directors.
B. Consider the matter closed since the other information is not in the audited financial statements.
C. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory/emphasis-of-matter paragraph.
D. Revise the auditor's report to include a separate explanatory/emphasis-of- matter paragraph describing the material inconsistency.


Answer: Revise the auditor's report to include a separate explanatory/emphasis-of- matter paragraph describing the material inconsistency.

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except: 

A. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
B. An opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting.
C. Reference to the note to the financial statements that describes the basis of presentation.
D. A statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles.


Answer: An opinion as to whether the basis of accounting used is appropriate under the circumstances.

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements? 

A. First standard.
B. Second standard.
C. Third standard.
D. Fourth standard.


Answer: First standard.

What is an auditor's responsibility for supplementary information, such as segment information, that is outside the basic financial statements

What is an auditor's responsibility for supplementary information, such as segment information, that is outside the basic financial statements, but required by the FASB? 

A. The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.
B. The auditor's only responsibility for required supplementary information is to assist in preparing the supplementary information.
C. The auditor is required to read the other information and consider whether such information is consistent with the information in the financial statements.
D. The auditor should apply tests of details of transactions and balances to the required supplementary information and report any material misstatements in such information.


Answer: The auditor is required to read the other information and consider whether such information is consistent with the information in the financial statements.

An engagement to express an opinion on a system of internal control will generally 

A. Only require those procedures already applied in assessing control risk during a financial statement audit.
B. Increase the reliability of the financial statements that have already been audited.
C. Be more extensive in scope than the assessment of control risk made during a financial statement audit.
D. Be more limited in scope than the assessment of control risk made during a financial statement audit.


Answer: Be more extensive in scope than the assessment of control risk made during a financial statement audit.

When audited financial statements are presented in an entity's document containing other information, the auditor should 

A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B. Add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements.
C. Perform the appropriate substantive auditing procedures to corroborate the other information.
D. Read the other information to determine that it is consistent with the audited financial statements.


Answer: Read the other information to determine that it is consistent with the audited financial statements.

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in an entity's annual report except: 

A. The auditor is under no obligation to perform audit procedures on this other information.
B. The auditor must consider whether the other information is consistent with the information contained in the audited financial statements.
C. The auditor must request that material inconsistencies be corrected.
D. The auditor must perform audit procedures on this other information.


Answer: The auditor must perform audit procedures on this other information.

When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should 

A. Be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.
B. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
C. Not express an opinion on whether the statements are presented in conformity with the basis of accounting used.
D. Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.


Answer: Be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to 

A. Indicate in the auditor's report that the "other financial information" is unaudited.
B. Consider whether the "other financial information" is accurate by performing a limited review.
C. Obtain written representations from management as to the material accuracy of the "other financial information."
D. Read and consider the manner of presentation of the "other financial information."


Answer: Read and consider the manner of presentation of the "other financial information."

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

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

A. Has an obligation to perform auditing procedures to corroborate the other information.
B. Is required to issue an "except for" qualified opinion if the other information has a material misstatement of fact.
C. Should read the other information to consider whether it is inconsistent with the audited financial statements.
D. Has no responsibility for the other information because it is not part of the basic financial statements.


Answer: Should read the other information to consider whether it is inconsistent with the audited financial statements.

In a lease that is appropriately recorded as a direct-financing lease by the lessor, the unearned income

a. should be amortized over the period of the lease using the effective interest method.
b. should be amortized over the period of the lease using the straight-line method.
c. does not arise.
d. should be recognized at the lease's expiration.


Answer: should be amortized over the period of the lease using the effective interest method

An auditor may reasonably issue an "except for" qualified opinion for 

A. A scope limitation or an unjustified accounting change.
B. A scope limitation, but not an unjustified accounting change.
C. An unjustified accounting change, but not a scope limitation.
D. Neither an unjustified accounting change nor a scope limitation.


Answer: A scope limitation or an unjustified accounting change.