When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:
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1 .An auditor's report contains the following sentences:We did not audit the financial statements of JK Co., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 17 percent and 19 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for JK Co., is based solely on the report of the other auditors.These sentences:
A Qualify the opinion. B Are an improper form of reporting. C Disclaim an opinion. D Divide responsibility.
2 .Digit Co. uses the FIFO method of costing for its international subsidiary's inventory and LIFO for its domestic inventory. Under these circumstances, the auditor's report on Digit's financial statements should express an:
A Opinion qualified because of a departure from GAAP. B Adverse opinion. C Opinion qualified because of a lack of consistency. D Unmodified opinion.
3 .Mead, CPA, had substantial doubt about Tech Co.'s ability to continue as a going concern when reporting on Tech's audited financial statements for the year ended June 30, Year 4. That doubt has been removed in Year 5. What is Mead's reporting responsibility if Tech is presenting its financial statements for the year ended June 30, Year 5, on a comparative basis with those of Year 4?
A A different emphasis-of-matter paragraph describing Mead's reasons for the removal of doubt should be included. B The emphasis-of-matter paragraph included in the Year 4 auditor's report should not be repeated. C The emphasis-of-matter paragraph included in the Year 4 auditor's report should be re...
4 .When single-year financial statements are presented, an auditor ordinarily would express an unmodified opinion with no emphasis of matter or other matter paragraph if the:
A Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented. B Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of the prior year. C Entity declines to present...
5 .Davis, CPA, believes there is substantial doubt about the ability of Hill Co. to continue as a going concern for a reasonable period of time. In evaluating Hill's plans for dealing with the adverse effects of future conditions and events, Davis most likely would consider, as a mitigating factor, Hill's plans to:
A Accumulate treasury stock at prices favorable to Hill's historic price range. B Accelerate research and development projects related to future products. C Purchase equipment and production facilities currently being leased. D Negotiate reductions in required dividends being paid on preferred stock...
7 .A CPA firm is completing the fieldwork for an audit of Swenson Co. for the current year ended December 31. The manager in charge of the audit is performing the final steps in the evidence accumulation phase of the audit and notes that there have been several changes in Swenson during the year under audit. Which of the following items would indicate there could be substantial doubt about Swenson's ability to continue as a going concern for a reasonable period of time?
A Cash infusion by a venture capital firm. B A lack of significant contracts with new customers. C Term debt refinanced with a new bank. D Recurring working capital shortages.
8 .An auditor believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to:
A Accelerate expenditures for research and development projects. B Issue stock options to key executives. C Operate at increased levels of production. D Extend the due dates of existing loans.
9 .An auditor believes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to:
A Pay cash dividends that are in arrears to the preferred stockholders. B Purchase production facilities currently being leased from a third party. C Increase the useful lives of plant assets for depreciation purposes. D Postpone expenditures to upgrade its information technology system.
10 .Which of the following is true?
A The auditor may issue an unmodified opinion when a material departure from GAAP exists. B When an auditor includes a paragraph after the opinion paragraph emphasizing a significant related party transaction, the opinion would be considered a qualified opinion. C When a material accounting change h...
