Question

1. Auditors communicate the results of an audit in an audit report. Of the four categories of audit reports, which one indicates that while the auditor believes the financial statements are fairly presented, very material departures from GAAP, and the scope of the audit may have been substantially restricted?

a)Adverse or disclaimer

b)Qualified

c)Standard unqualified

d)Unqualified with explanatory paragraph

2. When communicating the purpose of internal controls, it is important to note that internal controls

a)can be one hundred percent effective

b)can never be completely effective

c)are the sole responsibility of the auditor

d)are optional for public companies yet required for private companies

3.To emphasize the importance of professional conduct, CPA's can be liable for audits performed under

a)Common law

b)Statutory law

c)Theory of liability law

d)Both common and statutory law

Answer 1

1. Option A. Adverse or disclaimer. If the auditor concludes that the departures from GAAP are so significant that the financial statements as a whole are not fairly stated, an adverse opinion must be issued. A disclaimer of opinion arises when the restriction is so material that the auditor is not able to give an opinion.

2. Option B. can never be completely effective. Internal Controls can never be completely effective because of limitations of internal controls such as Collusion, Human Error, Management override, Missing segregation of duties.

3. Option D. Both common and statutory law. An auditor can be found liable either under the common law or a statutory law liability.