AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 1171:

  Green, CPA, is requested to render an opinion on the application of accounting principles by an entity that is audited by another CPA. Green may:

  A. Not accept such an engagement because to do so would be considered unethical.

  B. Not accept such an engagement because Green would lack the necessary information on which to base an opinion without conducting an audit.

  C. Accept the engagement but should form an independent opinion without consulting with the continuing CPA.

  D. Accept the engagement but should consult with the continuing CPA to ascertain all the available facts relevant to forming a professional judgment.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. A "reporting accountant" (an accountant in public practice who is requested to render

  an opinion on the application of GAAP by an entity audited by another CPA) may accept the engagement,

  but should consult with the "continuing CPA" to ascertain the available facts relevant to forming a

  professional judgment.

  Choices "a" and "b" are incorrect. A reporting CPA may accept an engagement to render an opinion on

  GAAP of an entity audited by another CPA. The reporting CPA should consult with the continuing CPA to

  obtain pertinent information.

  Choice "c" is incorrect. The reporting accountant should consult with the continuing accountant to ascertain

  all the available, relevant facts.

• Question 1172:

  The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whether:

  A. The information is useful for comparing a segment of one enterprise with a similar segment of another enterprise.

  B. Sufficient audit evidence has been obtained to allow the auditor to be associated with the segment information.

  C. A separate opinion on the segment information is necessary due to inconsistent application of accounting principles.

  D. The information is presented in conformity with the FASB Statement on segment information.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. The auditor's objective is to provide a reasonable basis for concluding whether

  segment information is presented in conformity with GAAP.

  Choice "a" is incorrect. The auditor is not required to see that segment information included is comparable

  to other enterprises.

  Choice "b" is incorrect. Sufficient audit evidence must be obtained to ensure that segment information is

  presented in accordance with GAAP, not to allow the auditor to be associated with such information.

  Choice "c" is incorrect. The inclusion of segment information is a GAAP requirement, and a separate

  opinion is not required.

• Question 1173:

  If management (of a governmental body) declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a(an):

  A. Adverse opinion.

  B. Qualified opinion with an explanatory paragraph.

  C. Unqualified opinion.

  D. Unqualified opinion with an additional explanatory paragraph.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. If management (of a governmental body) declines to present information required by

  the GASB, the auditor should issue an unqualified opinion with an additional explanatory paragraph.

  Choices "a", "b", and "c" are incorrect, per the above explanation.

• Question 1174:

  An auditor may report on condensed financial statements that are derived from complete audited financial statements if the:

  A. Auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects.

  B. Condensed financial statements are presented in comparative form with the prior year's condensed financial statements.

  C. Auditor describes the additional review procedures performed on the condensed financial statements.

  D. Condensed financial statements are distributed only to management and the board of directors.

  Correct Answer: A

  Explanation: Choice "a" is correct. When reporting on condensed financial statements that are derived from complete audited financial statements, the auditor should indicate in his report whether the information in the condensed financial statements is fairly stated in all material respects (in relation to the basic financial statements taken as a whole). Choices "b" and "d" are incorrect. There is no requirement that the condensed financial statements be presented in comparative form, or that they be distributed only to management and the board of directors (i.e., distribution is not restricted). Choice "c" is incorrect. The auditor would not perform or describe additional review procedures related to the condensed financial statements.

• Question 1175:

  When audited financial statements are presented in a client'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.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. The auditor should read the "other information" in a client's document containing

  audited FS to determine that it is consistent with the audited FS.

  Choice "a" is incorrect. Performing analytical procedures or any other procedure is not necessary.

  Choice "b" is incorrect. An explanatory paragraph is not required.

  Choice "c" is incorrect. The auditor has no obligation to perform any procedure to corroborate "other

  information" contained in a document such as an annual report.

• Question 1176:

  Which of the following best describes the auditor's reporting responsibility concerning information accompanying the basic financial statements in an auditor-submitted document?

  A. The auditor has no reporting responsibility concerning information accompanying the basic financial statements.

  B. The auditor should report on the information accompanying the basic financial statements only if the auditor participated in its preparation.

  C. The auditor should report on the information accompanying the basic financial statements only if the auditor did not participate in its preparation.

  D. The auditor should report on all the information included in the document.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. When an auditor submits a document containing audited financial statements to the

  client or others, the auditor has a responsibility to report on all the information included in the document.

  Choice "a" is incorrect. The auditor does have additional reporting responsibilities concerning information

  that accompanies the basic financial statements in an auditor-submitted document.

  Choice "b" is incorrect. The auditor has responsibility to report on any additional information regardless of

  whether the auditor participated in the preparation of the information.

  Choice "c" is incorrect. The auditor has reporting responsibilities regardless of whether the auditor

  participated in the preparation of the information.

• Question 1177:

  What is an auditor's responsibility for supplementary information which 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 determine that such information has not been omitted.

  C. The auditor should apply certain limited procedures to the required supplementary information, and report deficiencies in, or omissions of, such information.

  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.

  Correct Answer: C

  Explanation: Choice "c" is correct. For additional supplementary information required by the FASB, the auditor should apply certain limited procedures to the information, and report deficiencies in or omissions of such information. Choice "a" is incorrect. Required supplementary information is considered an essential part of financial reporting, and therefore certain limited procedures should be applied by the auditor. Choice "b" is incorrect. For additional supplementary information required by the FASB, the auditor should apply certain limited procedures to the information, and report deficiencies in or omissions of such information. Choice "d" is incorrect. Certain limited procedures should be applied to required supplementary information, but this information need not be audited.

• Question 1178:

  Investment and property schedules are presented for purposes of additional analysis in an auditor submitted document. The schedules are not required parts of the basic financial statements, but accompany the basic financial statements. When reporting on such additional information, the measurement of materiality is the:

  A. Same as that used in forming an opinion on the basic financial statements taken as a whole.

  B. Lesser of the individual schedule of investments or schedule of property taken by itself.

  C. Greater of the individual schedule of investments or schedule of property taken by itself.

  D. Combined total of both the individual schedules of investments and property taken as a whole.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. When reporting on additional information accompanying the audited financial

  statements, the measure of materiality would be the same as that used in forming an opinion on the

  financial statements taken as a whole.

  Choices "b", "c", and "d" are incorrect, based on the above explanation.

• Question 1179:

  In the standard report on condensed financial statements that are derived from a public entity's audited financial statements, a CPA should indicate that the:

  A. Condensed financial statements are prepared in conformity with another comprehensive basis of accounting.

  B. CPA has audited and expressed an opinion on the complete financial statements.

  C. Condensed financial statements are not fairly presented in all material respects.

  D. CPA expresses limited assurance that the financial statements conform with GAAP.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. The auditor's report on condensed statements derived from audited statements

  should indicate (1) that the CPA audited and expressed an opinion on the complete financial statements,

  (2) the date of the auditor's report on the complete financial statements, (3) the type of opinion expressed, and (4) whether, in the auditor's opinion, the information set forth in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it was derived. Choice "a" is incorrect. Condensed financial statements are not prepared in conformity with a comprehensive basis of accounting other than GAAP. Choice "c" is incorrect. The auditor's report on condensed financial statements does not indicate whether they are fairly presented in all material respects; rather, the report indicates whether they are fairly presented in relation to the complete financial statements. Choice "d" is incorrect. The auditor does not express an opinion (or provide any assurance) on whether condensed FS conform with GAAP; only whether such statements are fairly stated in relation to the complete FS.

• Question 1180:

  An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. The auditor believes that the financial statements do not require revision, but the client is unwilling to revise or eliminate the material inconsistency in the other information. Under these circumstances, what action would the auditor most likely take?

  A. Consider the situation closed because the other information is not in the audited financial statements.

  B. Issue an "except for" qualified opinion after discussing the matter with the client's audit committee.

  C. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph.

  D. Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency.

  Correct Answer: D

  Explanation: Choice "d" is correct. If the auditor discovers a material inconsistency in other information accompanying the audited financial statements, the financial statements do not require revision, and the client refuses to eliminate or revise the inconsistency, the auditor should consider 1) revising the report to include a separate paragraph describing the inconsistency, 2) withholding the report, or 3) withdrawing from the engagement. Choice "a" is incorrect. Even though the auditor has no responsibility to audit or otherwise corroborate other information accompanying the financial statements, the auditor has a responsibility to read the other information accompanying the financial statements for consistency and to identify any material misstatements of fact included therein. Choice "b" is incorrect. A qualified opinion is generally not warranted because the financial statements are fairly stated. Choice "c" is incorrect. A disclaimer of opinion is generally not warranted because there is no limitation on scope.