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MULTIPLE CHOICE:
1.
2.
3.
231
232
4.
5.
6.
8.
10.
9.
233
234
ANSWER:
11.
12.
13.
15.
16.
235
236
17.
18.
20.
19.
237
22.
After issuing the audit report, the auditor may become aware
of information that would have affected the audit report had
it been known at the time. Given discovery of such
information, the auditor must take appropriate action. Which
of the following actions would be considered inappropriate
under these circumstances?
a.
Determine whether the information is reliable and
whether the facts existed at the date of the audit
report.
b.
Request the client to disclose, to financial statement
users, the newly discovered facts and their impact on
the financial statements.
c.
If the client refuses to inform third parties, the
auditor should notify the board of directors and
regulatory agencies having jurisdiction over the client
that the auditors' report can no longer be relied upon.
d.
Draft a revised audit report expressing a qualified or
adverse opinion, depending on the materiality of the
effect, and transmit the report to the stockholders.
ANSWER:
23.
238
c.
d.
ANSWER:
24.
25.
26.
c.
d.
ANSWER:
27.
29.
28.
239
240
30.
31.
32.
241
34.
35.
242
Unqualified opinion.
Disclaimer of opinion.
ANSWER:
36.
37.
38.
243
40.
41.
a.
b.
c.
d.
ANSWER:
42.
Restrictions on the
scope of the
audit
Yes
No
Yes
No
244
c.
d.
ANSWER:
43.
44.
45.
245
46.
47.
49.
Explicitly
Implicitly
Explicitly
Implicitly
48.
Explicitly
Implicitly
Implicitly
Explicitly
246
ANSWER:
50.
51.
52.
53.
54.
55.
COMPLETION:
56.
247
SCOPE
248
57.
58.
59.
INTRODUCTORY
63.
ADVERSE
62.
61.
SUBSEQUENT EVENT
60.
SCOPE, OPINION
EMPHASIS OF A MATTER
CONTINUING
65.
DISCLAIMER OF
66.
249
EMPHASIS OF A MATTER
MATCHING:
67. From the following types of audit reports, select the one
that best fits each of the listed situations. A given selection
may be used once, more than once, or not at all.
A.
B.
C.
D.
E.
F.
_____1.
_____2.
_____3.
250
_____4.
_____5.
_____6.
_____7.
_____8.
_____9.
E
A
A
251
C
B
F
D
F
F
A
PROBLEM/ESSAY
68. Jonathon Hershey, CPA, is the senior auditor for Web Stores,
Inc., a company that markets products on the Internet. The
current year-end is January 31, 2003. Last year's audit report
contained an explanatory paragraph because of doubt regarding the
ability of Web Stores to continue as a going concern. The
company had defaulted on two major loan agreements, and appeared
to be losing the race to develop a solid commercial presence on
the Internet. Since the date of last year's audit report,
however, company management has changed. A new advertising
campaign and innovative marketing techniques, have proven
successful. Creditors have agreed to major debt restructuring
agreements, and the client appears to be "out of the woods."
Required:
Assuming the company presents comparative financial
statements for 2003 and 2002, explain how the current audit
report, as it relates to 2002, will differ from the original
report on the 2002 statements. Do not draft an audit
report.
SOLUTION:
Last years audit report covering the year ended January 31,
2002, included a fourth paragraph following the opinion
paragraph. Explanatory in nature, this paragraph expressed the
auditors doubt as to the ability of Web Stores, Inc. to continue
as a going concern. Given the favorable developments during the
past year, the current report should omit the fourth paragraph.
69.
General Joes Wholesale Produce changed its method for
depreciating plant assets from historical cost straight-line to
replacement cost straight-line at the beginning of its fiscal
year ended March 31, 2003. Plant assets were also written up to
reflect replacement cost.
Required:
252
253