Question

The auditor’s judgment concerning the overall fairness of presentation of financial position, results of operations, and changes in cash flow is applied within the framework of:

a.         quality control.

b.         generally accepted auditing standards which include the concept of materiality.

c.         the auditor’s evaluation of the audited company’s internal control.

d.         generally accepted accounting principles

To emphasize the fact that the auditor is independent, the addressee of the audit report is usually not:

a.         the company’s management.

b.         the stockholders of the client company.

c.         the board of directors of the client company.

d.         either b or c.

When the auditor believes a company’s financial statements are misleading because they were not prepared in conformity with GAAP, the auditor must issue a(n):

            a.         qualified opinion.

            b.         adverse opinion.

            c.         disclaimer of opinion.

            d.         qualified or an adverse opinion, depending on materiality.

To emphasize auditor independence from management, many corporations:

a.         appoint a partner of the firm conducting the audit to the corporation’s audit committee.

b.         establish a policy of discouraging social contact between employees of the corporation and the staff of the independent auditor.

c.         have the independent auditor report to an audit committee of outside members of the board of directors.

d.         request that a representative of the independent auditor be on hand at the annual stockholders’ meeting.

Answer 1