1.Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?
a.The details of most recorded transactions are not available after a specified period of time.
b.It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements.
c.Management has a reputation for consulting with several accounting firms about significant accounting issues.
d.Internal control activities requiring the segregation of duties are subject to management override.
Explanation
Choice "b" is correct. A CPA cannot render an opinion on financial statements unless he or she has obtained sufficient appropriate audit evidence supporting that opinion. If such evidence were unlikely to be available, the CPA would most likely reject the potential audit engagement.
Choice "a" is incorrect. The auditor takes the availability of information into account when planning the audit, and would need to perform testing throughout the period, but this would not be cause for rejecting a potential audit engagement.
Choice "d" is incorrect. The risk of management override is considered during planning and would not be cause for rejecting a potential audit engagement.
Choice "c" is incorrect. Management may consult with several accounting firms, and this would not be cause for rejecting a potential audit engagement.
2.A scope limitation sufficient to preclude an unmodified opinion always will result when management:
a.Engages the auditor after the year-end physical inventory is completed.
b.Requests that certain material accounts receivable not be confirmed.
c.Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP.
d.Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
Explanation
Choice "c" is correct.The introductory paragraph of the standard unmodified 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 "d" is incorrect. Preventing the review of documentation of the predecessor auditor would be a reason not to accept the engagement.
Choices "a",and "b" are incorrect, as there are generally alternative procedures the auditor can perform to accomplish his or her goals.
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