7. An audit of the Flagler Company, a diamond mining company, brings to light the fact that its

equipment has been marked up to the owners expectation of market values. Such a situation will

most likely result in which type of report?

a. Disclaimer.

b. Review.

c. Adverse.

d. Unqualified, with explanatory paragraph.

8. In which of the following instances would an auditor NOT issue a disclaimer of opinion?

a. The auditors are not invited to the taking of the periodic inventory at yearend.

b. There are significant misstatements in the financial statements.

c. There is a significant limitation on the scope of the engagement.

d. There is insufficient evidence for the auditor to form an opinion on the fairness of the financial

statements.

9. When might an auditor modify the introductory paragraph and replace the scope paragraph with an

explanatory paragraph? The ANSWER is A.

a. When a pervasive scope limitation exists.

b. When there is substantial doubt about going-concern.

c. When the auditor lacks independence.

d. When there is an emphasis of a matter.