Accounting Principles and Auditors' Opinions Quiz

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What are the interrelated components of internal control?

Risk assessment, backup facilities, responsibility accounting and natural laws

Legal environment of the firm, management philosophy, and organizational structure

Organizational structure, management philosophy, and planning

Control environment, risk assessment, control activities, information and communication systems, and monitoring (correct)

In an audit of financial statements, what is the auditor's primary consideration regarding a control?

Affects management’s financial statement assertions

Reflects management’s philosophy and operating style

Enhances management’s decision-making processes

Provides adequate safeguards over access to assets (correct)

What does effective internal control do?

Eliminates risk and potential loss to the organization (correct)

Reduces the need for management to review exception reports on a day-to-day basis

Is unaffected by changing circumstances and conditions encountered by the organization

Cannot be circumvented by management

Which statement about internal control is correct?

Properly maintained internal controls reasonably assure that collusion among employees cannot occur Signup and view all the answers

If management fails to provide adequate justification for a change in accounting principles, what should the auditor do?

Add an explanatory paragraph and express a qualified or an adverse opinion for lack of conformity with generally accepted accounting principles. Signup and view all the answers

What should an auditor do when qualifying an opinion due to inadequate disclosure?

Describe the nature of the omission in a separate explanatory paragraph and modify the Opinion paragraph. Signup and view all the answers

Can an auditor express a qualified opinion when a scope limitation prevents completing an important audit procedure?

No, because a scope limitation is a significant restriction on the audit process. Signup and view all the answers

Under what circumstances can an auditor express a qualified opinion?

When accounting principles at variance with generally accepted principles are used. Signup and view all the answers

In what situation should an auditor disclaim an opinion?

When there is uncertainty due to significant limitations in scope. Signup and view all the answers

What action should the auditor take if management lacks independence with respect to the audited entity?

Express a qualified or adverse opinion to reflect lack of independence. Signup and view all the answers

What is the primary purpose of internal control procedures?

Providing assurance that management's authorization is followed Signup and view all the answers

Why does the auditor consider internal control procedures?

To assess control risk Signup and view all the answers

What is the purpose of documenting the auditor's review of internal control?

Ensuring conformity of accounting records with GAAP Signup and view all the answers

Why is consideration of internal control during an audit usually not sufficient to express an opinion on entity controls?

Weaknesses in the system may go unnoticed during the audit engagement Signup and view all the answers

Which aspect is NOT a secondary purpose of the auditor's consideration of internal control?

Maintenance of records in accordance with company policies Signup and view all the answers

In what way do internal control procedures provide assurance?

By restricting access to assets as per management authorization Signup and view all the answers

When should the auditor date the report?

As of the date the financial statements are signed or approved by management Signup and view all the answers

Which situation will usually result in a modified report but not affect the auditor’s opinion?

Emphasis of a matter Signup and view all the answers

In extreme cases with significant uncertainties, what type of opinion may the auditor express?

Qualified or adverse opinion Signup and view all the answers

Which statement is incorrect regarding comparatives?

Comparatives are not required in financial reporting Signup and view all the answers

What will NOT affect an auditor’s opinion?

Emphasis of a matter in the financial statements Signup and view all the answers

Why is it important for the auditor to not date the report earlier than the date the financial statements are signed or approved by management?

To ensure that all events up to the financial statements' date are considered Signup and view all the answers

In which paragraph should a successor auditor refer to a predecessor auditor's report?

Opening paragraph Signup and view all the answers

If the auditor is uncertain about the cost of property and equipment due to inadequate records, what type of opinion should be issued?

Qualified opinion Signup and view all the answers

What type of opinion would an auditor express if an entity changed from straight-line to declining balance method of depreciation?

Qualified opinion Signup and view all the answers

Which circumstance does NOT result in a modified but unqualified report?

Other auditors performing work not assumed responsibility for Signup and view all the answers

Under which circumstance might an auditor disclaim an opinion?

Principal auditor references another auditor for a subsidiary report Signup and view all the answers

When would an auditor issue a disclaimer of opinion?

Significant uncertainties that prevent the auditor from expressing an opinion Signup and view all the answers