Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
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1 .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.
2 .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.
3 .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.
4 .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...
5 .In which of the following should an auditor's report refer to the lack of consistency when there is a change in accounting principle that is significant?
A An emphasis-of-matter paragraph following the opinion paragraph. B The opinion paragraph. C The introductory paragraph. D An emphasis-of-matter paragraph before the opinion paragraph.
7 .When there is a significant change in accounting principle, an auditor's report should refer to the lack of consistency in:
A The Opinion paragraph. B The Introductory paragraph. C In the Management's Responsibility paragraph. D An emphasis-of-matter paragraph following the Opinion paragraph.
8 .For a particular entity's financial statements to be presented fairly in conformity with the applicable financial reporting framework, it is not required that the principles selected:
A Be appropriate in the circumstances for the particular entity. B Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. C Present information in the financial statements that is classified and summarized in a reasonable manner. D Be applied on ...
9 .A limitation on the scope of an audit sufficient to preclude an unmodified opinion will usually result when management:
A Fails to correct a significant deficiency in internal control communicated to those charged with governance after the prior year's audit. B Does not provide the auditor with an engagement letter specifying the responsibilities of both the entity and the auditor. C Refuses to disclose in the notes ...
10 .In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:
A Specifically state that the financial statements are not comparable to the prior year due to an uncertainty. B Express a qualified opinion on the financial statements because of a client-imposed scope limitation. C Be unable to express an opinion on the current year's results of operations and cas...
