Auditing and Attestation 1
Class Questions
1. CPA-02304
The fourth standard of reporting requires the auditor's report to contain either an expression of opinion
regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be
expressed. The objective of the fourth standard is to prevent:
a. An auditor from expressing different opinions on each of the basic financial statements.
b. Restrictions on the scope of the audit, whether imposed by the client or by the inability to obtain
evidence.
c. Misinterpretations regarding the degree of responsibility the auditor is assuming.
d. An auditor from reporting on one basic financial statement and not the others.
CPA-02304
Choice "c" is correct. The objective of the fourth reporting standard is to prevent any misinterpretation of
the degree of responsibility the auditor assumes when his or her name is associated with financial
statements.
Choice "a" is incorrect. The auditor may express different opinions on each of the basic financial
statements.
Choice "b" is incorrect. While the fourth reporting standard may deter deliberate limitation of scope by the
client, this is not its objective.
Choice "d" is incorrect. An auditor may express an opinion on one financial statement, such as a balance
sheet, and not on other related financial statements, as long as the auditor's procedures have not been
restricted.
2. CPA-02370
The auditor's standard report should include reference to the United States as the country of origin of:
I. The accounting principles used to prepare the financial statements.
II. The auditing standards the auditor followed in performing the audit.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-02370
Choice "c" is correct. The auditor's standard report should include reference to the United States as the
country of origin of both the accounting principles used to prepare the financial statements and the
auditing standards the auditor followed in performing the audit.
Choice "a" is incorrect, since the auditor's standard report should include reference to the country of origin
of the auditing standards the auditor followed in performing the audit.
Choice "b" is incorrect, since the auditor's standard report should include reference to the country of origin
of the accounting principles used to prepare the financial statements.
Choice "d" is incorrect, since the auditor's standard report should include reference to the country of origin
of both the accounting principles used to prepare the financial statements and the auditing standards the
auditor followed in performing the audit.
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Auditing and Attestation 1
Class Questions
3. CPA-02302
Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co., but not on the
statements of income, retained earnings, or cash flows. Harris will have access to all information
underlying the basic financial statements. Under these circumstances, Harris may:
a. Not accept the engagement because it would constitute a violation of the profession's ethical
standards.
b. Not accept the engagement because it would be tantamount to rendering a piecemeal opinion.
c. Accept the engagement because such engagements merely involve limited reporting objectives.
d. Accept the engagement but should disclaim an opinion because of an inability to apply the
procedures considered necessary.
CPA-02302
Choice "c" is correct. An auditor may express an opinion on one financial statement, such as a balance
sheet, and not on other related financial statements, provided that the auditor's procedures and access to
all information underlying the basic financial statements have not been restricted. This is simply an
engagement with limited reporting objectives.
Choice "a" is incorrect. Compliance with this request would not violate any ethical standards of the
profession.
Choice "b" is incorrect. A "piecemeal" opinion, which is prohibited, is one in which different opinions are
issued on enough different elements in the same financial statement as to constitute a "major portion" of
the financial statements.
Choice "d" is incorrect. As long as the auditor's scope has not been limited, the auditor may report on
only one financial statement.
4. CPA-02787
Management believes and the auditor is satisfied that a material loss probably will occur when pending
litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of
the potential loss, but fully discloses the situation in the notes to the financial statements. If management
does not make an accrual in the financial statements, the auditor should express a(an):
a.
b.
c.
d.
Qualified opinion due to a scope limitation.
Qualified opinion due to a departure from GAAP.
Unqualified opinion with an explanatory paragraph.
Unqualified opinion in a standard auditor's report.
CPA-02787
Choice "d" is correct. If a contingent liability is probable, but not estimable, and it is disclosed in the
footnotes, the auditor issues an unqualified audit report without an explanatory paragraph.
Choice "a" is incorrect. When a contingent liability is probable, but not estimable, it should be disclosed in
the footnotes. A qualified opinion due to a scope limitation would result if the sufficient audit evidence
exists, but is not available to the auditor (possibly due to client imposed restrictions).
Choice "b" is incorrect. A qualified opinion due to a departure from GAAP would be issued if the client did
not disclose the contingent liability in the footnotes to the financial statements.
Choice "c" is incorrect. If a contingent liability is probable, but not estimable, and it is disclosed in the
footnotes, the auditor issues an unqualified audit report without an explanatory paragraph.
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Auditing and Attestation 1
Class Questions
5. CPA-02483
The introductory paragraph of an auditor's report contains the following sentences:
We did not audit the financial statements of EZ Inc., a wholly-owned subsidiary, which statements reflect
total assets and revenues constituting 27 percent and 29 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 EZ Inc., is based solely on the report
of the other auditors.
These sentences:
a.
b.
c.
d.
Indicate a division of responsibility.
Assume responsibility for the other auditor.
Require a departure from an unqualified opinion.
Are an improper form of reporting.
CPA-02483
Choice "a" is correct. The paragraph presented is the proper form of disclosure when another auditor
performs a substantial portion of the audit. When the principal auditor makes reference to the audit of
another auditor, the report should indicate clearly (in all three paragraphs) the division of responsibility
between the portion of the financial statements covered by each audit.
Choice "b" is incorrect. By making the disclosure that another auditor performed part of the audit, the
auditor explicitly does not assume responsibility for the other auditor's work. If the disclosure is omitted,
then the auditor implicitly does assume responsibility for the other auditor's work.
Choice "c" is incorrect. Reference in the report of the principal auditor to the fact that part of the audit was
performed by another auditor is not a qualification of the opinion. It is simply an indication of the divided
responsibility between the auditors who conducted the audits of various components of the overall
financial statements.
Choice "d" is incorrect. The paragraph presented is the proper form of disclosure when another auditor
performs a substantial portion of the audit.
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Auditing and Attestation 1
Class Questions
6. CPA-02544
A principal auditor decides not to refer to the audit of another CPA who audited a subsidiary of the
principal auditor's client. After making inquiries about the other CPA's professional reputation and
independence, the principal auditor most likely would:
a. Add an explanatory paragraph to the auditor's report indicating that the subsidiary's financial
statements are not material to the consolidated financial statements.
b. Document in the engagement letter that the principal auditor assumes no responsibility for the other
CPA's work and opinion.
c. Obtain written permission from the other CPA to omit the reference in the principal auditor's report.
d. Contact the other CPA and review the audit programs and audit documentation pertaining to the
subsidiary.
CPA-02544
Choice "d" is correct. When the principal auditor decides not to make reference to the audit of the other
auditor, in addition to satisfying himself or herself as to the other auditor's professional reputation and
independence, he or she should visit the other auditor, discuss the audit procedures, and/or review the
audit programs and audit documentation of the other auditor.
Choice "a" is incorrect. The principal auditor may decide not to make reference to the other auditor even
when the portion of the financial statements audited by the other auditor is material. When the auditor
takes this position, he or she should not state in his report that part of the audit was made by another
auditor.
Choice "b" is incorrect. The principal auditor's decision not to assume responsibility for the other auditor's
work need not be included in the engagement letter.
Choice "c" is incorrect. The principal auditor does not need permission from the other auditor to assume
responsibility. Permission is needed only if the principal auditor decides to divide responsibility and would
like to refer to the other auditor by name.
7. CPA-02764
When financial statements contain a departure from GAAP because, due to unusual circumstances, the
statements would otherwise be misleading, the auditor should explain the unusual circumstances in a
separate paragraph and express an opinion that is:
a.
b.
c.
d.
Unqualified.
Qualified.
Adverse.
Qualified or adverse, depending on materiality.
CPA-02764
Choice "a" is correct. When circumstances indicate that financial presentation in accordance with GAAP
would be misleading, a departure from GAAP is permissible. In such cases, the auditor should disclose
the departure in an explanatory paragraph, but may issue an unqualified opinion on the financial
statements.
Choices "b", "c", and "d" are incorrect. The auditor's opinion need not be qualified or adverse since the
financial statements are presented fairly.
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Auditing and Attestation 1
Class Questions
8. CPA-02389
An auditor concludes that there is substantial doubt about an entity's ability to continue as a going
concern for a reasonable period of time. If the entity's financial statements adequately disclose its
financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically
uses the phrase(s):
a.
b.
c.
d.
"Reasonable period
of time, not to exceed
one year"
Yes
Yes
No
No
"Going concern"
Yes
No
Yes
No
CPA-02389
Choice "c" is correct. The auditor has a responsibility to evaluate whether there is substantial doubt about
the entity's ability to continue as a going concern for a reasonable period of time, not to exceed one year.
If the auditor concludes that there is substantial doubt, the auditor should include an explanatory
paragraph following the opinion paragraph and should include the terms, "substantial doubt" and "going
concern." The time period is not mentioned in the audit report.
Choices "a", "b", and "d" are incorrect, as explained above.
9. CPA-02417
For which of the following events would an auditor issue a report that omits any reference to consistency?
a. A change in the method of accounting for inventories.
b. A change from an accounting principle that is not generally accepted to one that is generally
accepted.
c. A change in the useful life used to calculate the provision for depreciation expense.
d. Management's lack of reasonable justification for a change in accounting principle.
CPA-02417
Choice "c" is correct. A change in accounting estimate (such as a change in the useful life of a
depreciable asset) is accounted for prospectively and does not affect the comparability of financial
statements between periods. Since the auditor's standard report implies that consistency exists, no
modification to the report is necessary.
Choices "a", "b", and "d" are incorrect. Assuming their effects are material, changes in accounting
principle result in the addition of an explanatory paragraph (following the opinion paragraph) in the
auditor's report. Such a consistency modification is required even if the previous accounting principle was
not GAAP and even if management lacks reasonable justification for the change. (Note: A lack of
reasonable justification for the change may also give rise to a report modification based on a departure
from GAAP.)
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Auditing and Attestation 1
Class Questions
10. CPA-02469
Which of the following phrases would an auditor most likely include in the auditor's report when
expressing a qualified opinion because of inadequate disclosure?
a.
b.
c.
d.
Subject to the departure from generally accepted accounting principles, as described above.
With the foregoing explanation of these omitted disclosures.
Except for the omission of the information discussed in the preceding paragraph.
Does not present fairly in all material respects.
CPA-02469
Choice "c" is correct. The only phrase acceptable in a qualified opinion is "except for." In the presence of
inadequate disclosure, the auditor's opinion would state "In our opinion, except for the omission of the
information discussed in the preceding paragraph,..."
Choice "a" is incorrect. "Subject to" opinions are not used.
Choice "b" is incorrect. In the presence of inadequate disclosure, the auditor's opinion would state
"except for..." The phrase "with the foregoing explanation" is expressly prohibited.
Choice "d" is incorrect. The statement, "does not present fairly," would be used for an adverse opinion,
not for a qualified opinion.
11. CPA-02539
An auditor concludes that a client's illegal act, which has a material effect on the financial statements, has
not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial
statements, the auditor should express either a(an):
a.
b.
c.
d.
Adverse opinion or a disclaimer of opinion.
Qualified opinion or an adverse opinion.
Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph.
Unqualified opinion with a separate explanatory paragraph or a qualified opinion.
CPA-02539
Choice "b" is correct. If the financial statements, including accompanying notes, fail to disclose
information that is required by generally accepted accounting principles, the auditor should express a
qualified or adverse opinion.
Choice "a" is incorrect. A disclaimer of opinion is not an appropriate report for inadequate disclosure or a
GAAP departure.
Choice "c" is incorrect. A disclaimer of opinion or an unqualified opinion with an explanatory paragraph
are not appropriate for a client with a material undisclosed item or GAAP departure.
Choice "d" is incorrect. An unqualified opinion with an explanatory paragraph is not appropriate for a
client with a material undisclosed item or GAAP departure.
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Auditing and Attestation 1
Class Questions
12. CPA-02376
A scope limitation sufficient to preclude an unqualified opinion always will result when management:
a.
b.
c.
d.
Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
Engages the auditor after the year-end physical inventory is completed.
Requests that certain material accounts receivable not be confirmed.
Refuses to acknowledge its responsibility for the fair presentation of the financial statements in
conformity with GAAP.
CPA-02376
Choice "d" is correct. The introductory paragraph of the standard unqualified report includes a statement
that the financial statements are the responsibility of the company's management. Management's refusal
to accept responsibility for the fair presentation of the financial statements therefore precludes issuance
of this standard report.
Choices "a", "b", and "c" are incorrect, as there are generally alternative procedures the auditor can
perform to accomplish his or her goals.
13. CPA-02834
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the
situation in the:
a.
b.
c.
d.
Opening (introductory)
paragraph
No
Yes
Yes
No
Scope
paragraph
No
No
Yes
Yes
CPA-02834
Choice "d" is correct. When a qualified opinion results from a lack of audit evidence, the situation should
be described in an explanatory paragraph preceding the opinion paragraph, and referred to in both the
scope and opinion paragraphs.
Choices "a", "b", and "c" are incorrect, per the above explanation.
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Auditing and Attestation 1
Class Questions
14. CPA-02452
Under which of the following circumstances would a disclaimer of opinion not be appropriate?
a. The auditor is unable to determine the amounts associated with an employee fraud scheme.
b. Management does not provide reasonable justification for a change in accounting principles.
c. The client refuses to permit the auditor to confirm certain accounts receivable or apply alternative
procedures to verify their balances.
d. The chief executive officer is unwilling to sign the management representation letter.
CPA-02452
Choice "b" is correct. A disclaimer of opinion means that the auditor was unable to obtain sufficient
appropriate audit evidence to provide a reasonable basis for an opinion, thus, NO opinion is expressed.
An unjustified accounting change is a GAAP departure that may result in a qualified or adverse opinion,
not a disclaimer.
Choice "a" is incorrect. Inability to determine amounts associated with an employee fraud scheme is a
scope limitation that may result in a disclaimer of opinion.
Choice "c" is incorrect. Refusal by the client to permit the auditor to confirm accounts receivable is a
scope limitation and may result in a disclaimer of opinion.
Choice "d" is incorrect. Refusal of management to sign a management representation letter casts doubt
on the audit evidence gathered and automatically constitutes a limit on scope that would likely result in a
disclaimer of opinion.
15. CPA-03040
When reporting on comparative financial statements, an auditor ordinarily should change the previously
issued opinion on the prior-year's financial statements if the:
a. Prior year's financial statements are restated to conform with generally accepted accounting
principles.
b. Auditor is a predecessor auditor who has been requested by a former client to reissue the previously
issued report.
c. Prior year's opinion was unqualified and the opinion on the current year's financial statements is
modified due to a lack of consistency.
d. Prior year's financial statements are restated following a pooling of interests in the current year.
CPA-03040
Choice "a" is correct. If, during the current audit, auditors become aware of circumstances or events that
affect the financial statements of a prior period, they should consider such matters when updating the
report on the financial statements of the prior period. For example, if auditors have previously qualified
their opinion or expressed an adverse opinion on financial statements of a prior period because of a
departure from generally accepted accounting principles, and the prior period financial statements are
restated in the current period to conform with generally accepted accounting principles, the auditor's
updated report on the financial statements of the prior period should indicate that the statements have
been restated and should express an unqualified opinion with respect to the restated financial statements.
Choice "b" is incorrect. The predecessor auditor generally would not change a previously issued opinion
when reissuing the audit report.
Choice "c" is incorrect. A difference of opinions between periods would not result in the auditor changing
the opinion on a previously issued audit report.
Choice "d" is incorrect. Restatement of financial statements following a pooling of interests affects
comparability of the financial statements, but would not result in a change in opinion from the audit report
previously issued.
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Auditing and Attestation 1
Class Questions
16. CPA-04614
Comparative financial statements include the prior year's statements that were audited by a predecessor
auditor whose report is not presented. If the predecessor's report was unqualified, the successor should:
a. Add an explanatory paragraph that expresses only limited assurance concerning the fair presentation
of the prior year's financial statements.
b. Express an opinion only on the current year's financial statements and make no reference to the prior
year's financial statements.
c. Indicate in the auditor's report that the predecessor auditor expressed an unqualified opinion on the
prior year's financial statements.
d. Obtain a letter of representations from the predecessor auditor concerning any matters that might
affect the successor's opinion.
CPA-04614
Choice "c" is correct. When a successor auditor does not present the predecessor auditor's report, the
successor should indicate in the introductory paragraph that the predecessor auditor expressed an
unqualified opinion on the prior year's financial statements.
Choice "a" is incorrect. No assurance is provided regarding the fair presentation of the prior year's
financial statements.
Choice "b" is incorrect. The auditor does make reference to the prior year's financial statements,
indicating in the introductory paragraph that the predecessor auditor expressed an unqualified opinion on
the prior year's financial statements.
Choice "d" is incorrect. There is no requirement that the successor obtain a letter of representation from
the predecessor auditor, although the reverse may be true (the predecessor should obtain a letter of
representation from the successor if the previous report is to be reissued.)
17. CPA-04612
As of August 13, a CPA had obtained sufficient appropriate audit evidence with respect to fieldwork on an
engagement to audit financial statements for the year ended June 30. On August 27, an event came to
the CPA's attention that should be disclosed in the notes to the financial statements. The event was
properly disclosed by the entity, but the CPA decided not to dual date the auditor's report and dated the
report August 27. Under these circumstances, the CPA was taking responsibility for:
a. All subsequent events that occurred through August 27.
b. Only the specific subsequent event disclosed by the entity.
c. All subsequent events that occurred through August 13 and the specific subsequent event disclosed
by the entity.
d. Only the subsequent events that occurred through August 13.
CPA-04612
Choice "a" is correct. If the auditor chooses to use the later date for the report, this extends his/her
responsibility for all subsequent events to this later date.
Choice "b" is incorrect. Dating the report August 27 means that the auditor is taking responsibility for all
subsequent events through August 27.
Choice "c" is incorrect. Dating the report August 27 means that the auditor is taking responsibility for all
subsequent events through August 27. If the auditor wishes to be responsible for all subsequent events
through August 13 and only the one specific event after that date, he/she would need to dual date the
report.
Choice "d" is incorrect. Dating the report August 27 means that the auditor is taking responsibility for all
subsequent events through August 27.
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Auditing and Attestation 1
Class Questions
18. CPA-03107
On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial
statements for the year ended January 31. On March 2, the CPA learned that on February 11, the entity
incurred a material loss on an uncollectible trade receivable as a result of the deteriorating financial
condition of the entity's principal customer that led to the customer's bankruptcy. Management then
refused to adjust the financial statements for this subsequent event. The CPA determined that the
information is reliable and that there are creditors currently relying on the financial statements. The
CPA's next course of action most likely would be to:
a. Notify the entity's creditors that the financial statements and the related auditor's report should no
longer be relied on.
b. Notify each member of the entity's board of directors about management's refusal to adjust the
financial statements.
c. Issue revised financial statements and distribute them to each creditor known to be relying on the
financial statements.
d. Issue a revised auditor's report and distribute it to each creditor known to be relying on the financial
statements.
CPA-03107
Choice "b" is correct. Since the material loss affects the audit report and there are creditors relying on the
financial statements, the client properly should adjust the financial statements. Since they are refusing to
do so, the auditor would most likely notify the board of directors of the situation in an attempt to
encourage the adjustment.
Choice "a" is incorrect. The auditor would only notify the creditors if the board of directors was unable to
facilitate the proper adjustment.
Choice "c" is incorrect. The auditor cannot issue revised financial statements; only the client can do that.
Choice "d" is incorrect. If the board of directors is unable to facilitate the proper adjustment, the auditor
would no longer allow the audit report to be associated with the financial statements, but the auditor
would not issue a revised report.
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Auditing and Attestation 1
Class Questions
19. CPA-04611
An auditor concludes that a substantive auditing procedure considered necessary during the prior year's
audit was omitted and there are persons currently relying on the auditor's report. The auditor most likely
would promptly apply the omitted procedure if:
a. A substantive approach to identified risks at the relevant level was used.
b. The auditor's working papers will be subject to postissuance review in connection with a peer review
program.
c. The results of other procedures that were applied tend to compensate for the one omitted.
d. The omission of the procedure impairs the auditor's present ability to support the previously
expressed opinion.
CPA-04611
Choice "d" is correct. If the omitted audit procedures impair the auditor's ability to support the previously
issued opinion, the auditor should promptly undertake to apply the omitted procedures (or alternative
procedures).
Choice "a" is incorrect. The auditor's specific approach to identified risks at the relevant assertion level is
not relevant in evaluating whether an omitted audit procedure should be applied. This determination
should be based on whether the omission of the procedure impairs the auditor's ability to support the
opinion.
Choice "b" is incorrect. Whether or not the working papers are subject to postissuance review in
connection with a peer review program is not relevant in evaluating whether an omitted audit procedure
should be applied. Sufficient evidence to support the opinion is necessary regardless of whether or not
there will be a peer review.
Choice "c" is incorrect. If the results of other procedures that were applied tended to compensate for the
one omitted, there would be adequate support for the audit opinion, and the omitted procedure would not
need to be applied.
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Auditing and Attestation 1
Class Questions
20. CPA-04617
What is an auditor's responsibility for supplementary information, such as the disclosure of pension
information, which is outside the basic financial statements but required by the GASB?
a. The auditor should apply substantive tests of transactions to the supplementary information and verify
its conformity with the GASB requirement.
b. The auditor should apply certain limited procedures to the supplementary information and report
deficiencies in, or omissions of, such information.
c. The auditor's only responsibility for the supplementary information is to determine that such
information has not been omitted.
d. The auditor has no responsibility for such supplementary information as long as it is outside the basic
financial statements.
CPA-04617
Choice "b" is correct. The auditor should perform limited procedures on supplementary information
accompanying the financial statements. In addition, the auditor's report on the financial statements
should be expanded if required supplementary information is omitted or is not presented in compliance
with the applicable requirements.
Choice "a" is incorrect. The auditor is not required to audit supplementary information.
Choice "c" is incorrect. The auditor is required to perform certain limited procedures with respect to
supplementary information.
Choice "d" is incorrect. The auditor is responsible for performing certain limited procedures on
supplementary information and for expanding his/her report if such information is omitted or is not
presented in compliance with the applicable requirements.
21. CPA-03173
What is an auditor's reporting responsibility concerning information accompanying the basic financial
statements in an auditor-submitted document?
a. The auditor should report on all the accompanying information included in the document.
b. The auditor should report on the accompanying information only if the auditor participated in its
preparation.
c. The auditor should report on the accompanying information only if the auditor did not participate in its
preparation.
d. The auditor should report on the accompanying information only if it contains obvious material
misstatements.
CPA-03173
Choice "a" is correct. When the auditor submits a document containing audited financial statements to a
client or others, the auditor has a responsibility to report on all the information included in the document.
Choice "b" is incorrect. If the auditor submits the document, the auditor has a responsibility to report on
all the information included therein, regardless of whether or not the auditor participated in its preparation.
Choice "c" is incorrect. If the auditor submits the document, the auditor has a responsibility to report on
all the information included therein, regardless of whether or not the auditor participated in its preparation.
Choice "d" is incorrect. If the auditor submits the document, the auditor has a responsibility to report on
all the information included therein, regardless of whether or not the document contains obvious material
misstatements.
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Auditing and Attestation 1
Class Questions
22. CPA-02714
In connection with a proposal to obtain a new audit client, a CPA in public practice is asked to prepare a
report on the application of accounting principles to a specific transaction. The CPA's report should
include a statement that:
a. The engagement was performed in accordance with Statements on Standards for Accounting and
Review Services.
b. Responsibility for the proper accounting treatment rests with the preparers of the financial statements.
c. The evaluation of the application of accounting principles is hypothetical and may not be used for
opinion-shopping.
d. The guidance is provided for management's use only and may not be communicated to the prior or
continuing auditor.
CPA-02714
Choice "b" is correct. When reporting on the application of accounting principles to a specific transaction,
the CPA should include in his or her report a statement that the preparers of the financial statements, who
should consult with their continuing accountants, bear the ultimate responsibility for proper accounting
treatment.
Choice "a" is incorrect. The report should state that the engagement was performed in accordance with
"AICPA Standards," not SSARS.
Choice "c" is incorrect. The report does not make reference to "opinion-shopping," nor does it state that
the evaluation is hypothetical.
Choice "d" is incorrect. The report's use is restricted to "specified parties," which may include parties
other than management (e.g., the board of directors). Also, the preparers of the financial statements and
the reporting accountant should consult with the entity's continuing accountant.
23. CPA-04630
A U.S. entity prepares its financial statements in conformity with accounting principles generally accepted
in another country. These financial statements will be included in the consolidated financial statements of
its non-U.S. parent. Before reporting on the financial statements of the U.S. entity, the auditor practicing
in the U.S. should:
a. Notify management of the U.S. entity that the auditor is required to disclaim an opinion on the
financial statements.
b. Receive a waiver to report on the U.S. entity from the appropriate accountancy authority in the other
country.
c. Obtain written representations from management of the U.S. entity regarding the purpose and uses of
the financial statements.
d. Communicate with the auditor of the non-U.S. parent regarding the level of assurance to be provided.
CPA-04630
Choice "c" is correct. The report options for financial statements prepared for use in a foreign country
depend upon the intended distribution. The auditor should therefore obtain written representations from
management regarding the purpose and uses of the financial statements.
Choice "a" is incorrect. The auditor need not disclaim an opinion, but would either use a modified U.S.
style report (distributed outside the U.S. only) or a standard U.S. report modified for a GAAP departure
(distributed within the U.S.)
Choice "b" is incorrect. The auditor is not required to receive a waiver from the other country.
Choice "d" is incorrect. The auditor is not required to communicate with the auditor of the non-U.S.
parent.
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