Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

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Prepare for the CPA Auditing and Attestation Exam. Leverage comprehensive materials, flashcards, and detailed explanations for each question. Master essential auditing concepts and techniques with confidence!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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Under what condition can a CPA audit only a company's balance sheet?

If the CPA disclaims an opinion on the other financial statements.
If the auditor understands the purpose of the balance sheet and the applicable financial reporting framework.
If Maxim Co. is a nonissuer.
If the loan amount is material to the financial statements as a whole.

The correct answer is: If the auditor understands the purpose of the balance sheet and the applicable financial reporting framework.

The correct choice indicates that a CPA can audit only a company's balance sheet if the auditor understands the purpose of the balance sheet and the applicable financial reporting framework. This understanding is critical because the balance sheet reflects the company's financial position at a specific point in time, showing assets, liabilities, and equity. When conducting such a limited audit, the auditor must be aware of the general purpose of the balance sheet, which is to provide information on the resources controlled by the entity and the claims against those resources. Additionally, familiarity with the applicable financial reporting framework (such as US GAAP or IFRS) is essential to ensure that the balance sheet is prepared correctly, follows the relevant accounting standards, and meets the needs of users of the financial statements. A limited audit that focuses solely on the balance sheet would require the auditor to express an opinion based on the available evidence regarding whether the balance sheet presents the financial position of the company fairly in accordance with the chosen reporting framework. This reflects a narrower scope of the audit process compared to a full audit that would encompass the income statement, cash flow statement, and other disclosures. By ensuring a comprehensive understanding of these elements, a CPA can adequately exercise judgment regarding their audit procedures and the nature of the opinions expressed.