Sample Questions
Question 1
Easy
An emphasis-of-matter paragraph in an auditor's report is used to:
Solution
C is correct.
Under AU-C 706.06-.07, an emphasis-of-matter paragraph is used when the auditor considers it necessary to draw users' attention to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to users' understanding. Common examples include significant uncertainties (such as going concern) or accounting changes. The opinion remains unmodified.
Under AU-C 706.06-.07, an emphasis-of-matter paragraph is used when the auditor considers it necessary to draw users' attention to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to users' understanding. Common examples include significant uncertainties (such as going concern) or accounting changes. The opinion remains unmodified.
Question 2
Medium
Under Government Auditing Standards, each finding reported in the Yellow Book report must include which elements?
Solution
GAGAS requires findings to be developed using a five-element structure: condition (what the auditor found), criteria (what should be), cause (why the condition occurred), effect (actual or potential impact), and recommendation (what should be done to address the condition). This structure applies to material weaknesses, significant deficiencies, material noncompliance, fraud, and abuse reported in the Yellow Book report.
Question 3
Hard
An auditor completing a single audit under the Uniform Guidance identifies instances of noncompliance that are material to a major federal program. The entity qualified as a low-risk auditee in prior years. The auditor should:
Solution
C is correct.
Under AU-C 935 and the Uniform Guidance, when the auditor identifies material instances of noncompliance with a major federal program, the auditor should modify the compliance opinion. A qualified opinion is appropriate if the noncompliance is material but not pervasive; an adverse opinion is appropriate if the noncompliance is material and pervasive. The entity's prior low-risk auditee status does not shield it from a modified opinion in the current year. The current-year findings may affect the entity's eligibility for low-risk auditee status in future years when the federal oversight agency evaluates the audit results.
Under AU-C 935 and the Uniform Guidance, when the auditor identifies material instances of noncompliance with a major federal program, the auditor should modify the compliance opinion. A qualified opinion is appropriate if the noncompliance is material but not pervasive; an adverse opinion is appropriate if the noncompliance is material and pervasive. The entity's prior low-risk auditee status does not shield it from a modified opinion in the current year. The current-year findings may affect the entity's eligibility for low-risk auditee status in future years when the federal oversight agency evaluates the audit results.
