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Auditing: Multiple Choice Questions

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1. Which of the following pairs of accounts would an auditor most likely analyze on the same audit documentation?
A) Notes receivable and interest income.
B) Accrued interest receivable and accrued interest payable.
C) Notes payable and notes receivable.
D) Interest income and interest expense.

2. Reference in a principal auditor's report to the fact that part of the audit was performed by another auditor most likely would be an indication of
A) divided responsibility between the auditors who conducted the audits of the components of the overall financial statements.
B) lack of materiality of the portion of the financial statements audited by the other auditor.
C) principal auditor's recognition of the other auditor's competence, reputation, and professional certification.
D) different opinions the auditors are expressing on the components of the financial statements that each audited.

3. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph
A) is considered an "except for" qualification of the opinion.
B) violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
C) necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
D) is appropriate and would not otherwise affect the unqualified opinion.

4. When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should
A) refer to the change in an explanatory paragraph.
B) explicitly concur that the change is preferred.
C) not refer to consistency in the auditor's report.
D) refer to the change in the opinion paragraph.

5. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
A) Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence.
B) An auditor may draft an entity's financial statements based on information from management's accounting system.
C) The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor's responsibility.
D) n auditor's responsibilities for audited financial statements are not confined to the expression of the auditor's opinion.

6. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
A) Enable the CPA firm to attest to the reliability of the client
B) Satisfy the CPA firm's duty to the public concerning the acceptance of new clients
C) Minimize the likelihood of association with clients whose management lacks integrity
D) Anticipate before performing any field work whether an unqualified opinion can be expressed.

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Solution Preview

1. A) Notes receivable and interest income because the two are connected. A change in one will force a change in the other. The other pairs of accounts don't connect to each other.

2. A) divided responsibility between the auditors who conducted ...

Solution Summary

The solution includes a sentence or two in response to each question to provide better understanding of the audit reports and fair presentation.