CAT Auditing Principles & Procedures 2 — Questions and Answers
Question 1: Which type of audit opinion is issued when the auditor concludes that the financial statements are fairly presented but includes an explanatory paragraph highlighting a significant uncertainty?
- Adverse opinion
- Disclaimer of opinion
- Unmodified opinion with emphasis-of-matter paragraph (Correct answer)
- Qualified opinion
Correct answer: Unmodified opinion with emphasis-of-matter paragraph
An unmodified (clean) opinion with an emphasis-of-matter paragraph is used when statements are fairly presented but the auditor wants to draw attention to a significant matter such as a going concern uncertainty.
Question 2: When an auditor uses the work of a component auditor in a group audit, what is the primary responsibility of the group auditor?
- The group auditor shares equal responsibility with the component auditor
- The group auditor bears sole responsibility for the group audit opinion (Correct answer)
- The component auditor assumes full responsibility for their portion
- Responsibility is waived for components audited by other firms
Correct answer: The group auditor bears sole responsibility for the group audit opinion
The group engagement partner is responsible for the direction, supervision, and performance of the group audit engagement and for the auditor's report on the group financial statements.
Question 3: The concept of 'professional skepticism' in auditing requires the auditor to:
- Assume management is dishonest until proven otherwise
- Maintain a questioning mind and critically assess audit evidence (Correct answer)
- Accept all management representations without question
- Focus only on areas where fraud has previously occurred
Correct answer: Maintain a questioning mind and critically assess audit evidence
Professional skepticism means the auditor maintains an alert, questioning attitude and critically evaluates audit evidence rather than defaulting to trust or distrust.
Question 4: Which procedure would an auditor most likely perform to test the completeness assertion for accounts payable?
- Confirm outstanding balances with major vendors
- Review subsequent cash disbursements after year-end (Correct answer)
- Vouch recorded payables back to purchase orders
- Recalculate accrued interest on notes payable
Correct answer: Review subsequent cash disbursements after year-end
Reviewing subsequent disbursements helps identify payments made after year-end for goods or services received before year-end that may not have been recorded, addressing completeness.
Question 5: An auditor discovers that the client's bookkeeper both writes checks and reconciles the bank account. This situation represents a deficiency in:
- Segregation of duties (Correct answer)
- Authorization controls
- Physical safeguards
- Information processing controls
Correct answer: Segregation of duties
Segregation of duties requires that custody, recording, and authorization functions be performed by different individuals; combining check-writing and bank reconciliation in one person eliminates a key control.
Question 6: Which of the following best describes a 'walkthrough' in the context of internal control evaluation?
- A physical inspection of the client's facility
- Tracing a transaction from origination through the accounting records to financial reporting (Correct answer)
- Observing employees performing their duties
- Reviewing the client's written control policies
Correct answer: Tracing a transaction from origination through the accounting records to financial reporting
A walkthrough involves following one or more transactions through each step of the process to confirm the auditor's understanding of the system and whether controls are designed as documented.
Question 7: Under which circumstance would an auditor issue a disclaimer of opinion?
- A material misstatement exists in the financial statements
- Management imposes a significant scope limitation (Correct answer)
- The auditor disagrees with the accounting method used
- A material uncertainty about going concern exists
Correct answer: Management imposes a significant scope limitation
A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence due to a scope limitation so significant that no opinion can be expressed.
CAT Auditing Principles & Procedures 2
Which type of audit opinion is issued when the auditor concludes that the financial statements are fairly presented but includes an explanatory paragraph highlighting a significant uncertainty?