Multiple Choice Questions
1. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
a. Preparing financial statements that fairly present a company's financial posi tion, results of operations, and cash flows without the expertise of an indepen dent auditor is difficult.
b. Management has the responsibility to seek available aid in the appraisal of the financial information shown in its financial statements.
c. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
d. Seeing that all shareholders receive an independent report on management's stewardship in managing the affairs of the business is a customary courtesy.

2. How are management's responsibilities and the auditor's responsibility represented in the standard auditor's report?

3. The securities of Ralph Corporation are listed on a regional stock exchange registered with the Securities and Exchange Commission (SEC). Ralph's man agement engages a CPA to perform an independent audit of the company's financial statements. The primary objective of this audit is to provide assurance to the
a. Regional stock exchange.
b. Board of directors of Ralph Corporation.
c. SEC.
d. Investors in Ralph securities.

4. When the financial statements contain a departure from generally accepted accounting principles, the effect of which is material, the auditor should
a. Qualify the opinion and explain the effect of the departure from GAAP in a separate paragraph.
b. Qualify the opinion and describe the departure from GAAP within the opinion paragraph.
c. Disclaim an opinion and explain the effect of the departure from GAAP in a separate paragraph.
d. Disclaim an opinion and describe the departure from GAAP within the opinion paragraph.

5. The objective of the consistency standard is to provide assurance that
a. There are no variations in the format and presentation of financial statements.
b. Substantially different transactions and events are not accounted for on an identical basis.
c. The auditor is consulted before material changes are made in the application of accounting principles.
d. The comparability of financial statements between periods is not materially affected by changes in accounting principles without disclosure.

6. The following explanatory paragraph was included in the auditor's report to indicate a lack of consistency:
As discussed in note T to the financial statements, the company changed its method of computing depreciation in 2001.
How should the auditors report on this matter if they concurred with the change?

7. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the

8. In which of the following situations will an auditor ordinarily choose between expressing a qualified opinion or 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 the financial reporting framework.
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.

9. 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 a qualification of the opinion.
b. Violates generally accepted auditing standards if this information is already disclosed in notes 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 negate the unqualified opinion.

10. An auditor may not express a qualified opinion when
a. A scope limitation prevents the auditor from completing an important audit procedure.
b. The auditor's report refers to the work of a specialist.
c. An accounting principle at variance with generally accepted accounting principles is used.
d. The auditor lacks independence with respect to the audited entity.

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Management's Auditor's Responsibility Responsibility a. Explicitly Explicitly b. Implicitly Implcitly Explicitly Implicitly c. Implicitly d. Explicitly Type of Opinion Location of Explanatory Paragraph a. Unqualified Before opinion paragraph b. Unqualified After opinion paragraph c. Qualified Before opinion paragraph d. Qualified Aer opinion paragraph Introductory Scop Opinion Paragraph Paragraph Paragraph No Yes Yes No Yes Yes No No Yes Yes No