28 Questions
What are the interrelated components of internal control?
Control environment, risk assessment, control activities, information and communication systems, and monitoring
In an audit of financial statements, what is the auditor's primary consideration regarding a control?
Provides adequate safeguards over access to assets
What does effective internal control do?
Eliminates risk and potential loss to the organization
Which statement about internal control is correct?
Properly maintained internal controls reasonably assure that collusion among employees cannot occur
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.
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.
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.
Under what circumstances can an auditor express a qualified opinion?
When accounting principles at variance with generally accepted principles are used.
In what situation should an auditor disclaim an opinion?
When there is uncertainty due to significant limitations in scope.
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.
What is the primary purpose of internal control procedures?
Providing assurance that management's authorization is followed
Why does the auditor consider internal control procedures?
To assess control risk
What is the purpose of documenting the auditor's review of internal control?
Ensuring conformity of accounting records with GAAP
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
Which aspect is NOT a secondary purpose of the auditor's consideration of internal control?
Maintenance of records in accordance with company policies
In what way do internal control procedures provide assurance?
By restricting access to assets as per management authorization
When should the auditor date the report?
As of the date the financial statements are signed or approved by management
Which situation will usually result in a modified report but not affect the auditor’s opinion?
Emphasis of a matter
In extreme cases with significant uncertainties, what type of opinion may the auditor express?
Qualified or adverse opinion
Which statement is incorrect regarding comparatives?
Comparatives are not required in financial reporting
What will NOT affect an auditor’s opinion?
Emphasis of a matter in the financial statements
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
In which paragraph should a successor auditor refer to a predecessor auditor's report?
Opening paragraph
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
What type of opinion would an auditor express if an entity changed from straight-line to declining balance method of depreciation?
Qualified opinion
Which circumstance does NOT result in a modified but unqualified report?
Other auditors performing work not assumed responsibility for
Under which circumstance might an auditor disclaim an opinion?
Principal auditor references another auditor for a subsidiary report
When would an auditor issue a disclaimer of opinion?
Significant uncertainties that prevent the auditor from expressing an opinion
Test your knowledge on accounting principles and auditors' opinions with this quiz. Questions cover topics such as comparability of financial statements, changes in accounting principles, and the auditor's response to inadequate justification.
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