Deck 18: Audit Reporting

Question 1

The most common type of audit report is the standard unmodified audit report. It is used when which three of the following conditions have been met: 1. The financial report is presented fairly, in all material respects, in accordance with the applicable financial reporting framework (usually Australian accounting standards).
2) The financial report is presented fairly, in all material respects, in accordance with the relevant statutory requirements (usually the Corporations Act).
3) The financial information complies with relevant statutory and other requirements.
4) The view presented by the financial report is consistent with the auditor's understanding of the entity and its environment.

A) 1, 2 & 3
B) 2, 3, & 4
C) 1, 2 & 4
D) 1, 3 & 4

Answer 1

D

Question 2

It is appropriate to issue an opinion that contains the phrase 'Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph' when:

A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) None of the above

Answer 2

A

Question 3

It is more difficult to evaluate the materiality of potential errors resulting from a scope limitation than from a:

A) misstatement in the financial report.
B) going concern disclosure.
C) both A and B
D) neither A nor B

Answer 3

A

Question 4

What condition/s require/s departure from an unmodified report?

A) The financial report is materially misstated.
B) Inability to obtain sufficient appropriate audit evidence
C) Both A and B
D) None of the above

Question 5

Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:

A) does not know if the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
B) does not believe the report is prepared or presented fairly in all material respects in accordance with an applicable accounting framework.
C) is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
D) is satisfied that the report is prepared and presented fairly except for a specific aspect of it.

Question 6

The auditor's conclusions are stated as opinion rather than a statement of fact, as:

A) to allow for a margin of error.
B) conclusions are based on professional judgement.
C) to avoid the possibility of legal action against the auditor.
D) all of the above

Question 7

As the auditor was enagaged to undertake the audit after the year- end, and he was unable to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly. The auditor must depart from the unmodified audit report because:

A) the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control.
B) the auditor has lost independence.
C) the financial report has not been prepared in accordance with accounting standards.
D) the scope of the audit has been limited.

Question 8

Where the preparers of the financial report believe that the application of an accounting standard may mislead the users of those statements, and the auditor concurs with this view:

A) a standard unmodified opinion can be issued.
B) an emphasis of matter paragraph will be added to the audit report.
C) a scope limitation will arise.
D) the accounting standard need not be followed.

Question 9

Under certain circumstances, the auditor is required to provide additional information regarding the financial report even though he or she intends to express an unmodified opinion. Normally, such explanatory information should be:

A) included in the opinion paragraph.
B) included in the scope paragraph.
C) included in an emphasis of matter paragraph.
D) included in the introductory paragraph.

Question 10

Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial report is issued. These matters are referred to as:

A) non sequiturs.
B) inestimable matters.
C) in suspense matters.
D) significant uncertainties.

Question 11

When amounts are so material that an adverse opinion is required, the opinion statement must clearly state that the financial report:

A) does not present a true and fair view.
B) could not be audited.
C) are not free from material error.
D) should not be relied on.

Question 12

Whenever an auditor adds an emphasis of matter section to an unmodified audit report, the implication is that the auditor:

A) does not believe the report is presented fairly.
B) does not know if the report is presented fairly.
C) is satisfied that the report is presented fairly.
D) is satisfied that the report is presented fairly 'except for' a specific aspect of it.

Question 13

It is appropriate to issue an opinion that contains the phrase 'does not present a true and fair view' when:

A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) None of the above.

Question 14

Auditing Standards require that an audit report be issued whenever a public accounting firm:

A) performs an audit.
B) is engaged to perform any services of any nature.
C) does ASIC regulated work.
D) is associated with financial reports.

Question 15

The most common case in which conditions beyond the client's and auditor's control cause a scope limitation is an engagement:

A) where the auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries.
B) agreed upon after the client's balance sheet date.
C) where the client won't allow the auditor to confirm receivables for fear of offending its customers.
D) where the client is going through bankruptcy.

Question 16

Which of the following types of opinion is a report other than an unmodified report?

A) Adverse
B) Disclaimer of opinion
C) Qualified
D) All of the above

Question 17

ASA 700 requires that the title of the audit report:

A) include the word 'independent'.
B) not include any discriminatory language.
C) indicate whether the author is a proprietorship, partnership or incorporated.
D) indicate whether the author is a member of a professional body.

Question 18

When an adverse, qualified or disclaimer of opinion is issued, ASA 705 requires that the auditor's report includes:

A) a clear description of all the substantive reasons for the opinion.
B) where practicable, a quantification of the possible effect on the financial report.
C) both A and B
D) neither A nor B

Question 19

When a misstatement in the financial report would affect a user's decision but the overall statements are still fairly stated, it would be appropriate to issue:

A) an inability to form an opinion.
B) an unmodified opinion.
C) an adverse opinion.
D) a qualified opinion.

Question 20

The Corporations Act 2001 requires the auditor of a financial report to form an opinion about whether:

A) the auditor has been given all necessary information, explanation and assistance.
B) the entity has kept sufficient records for the financial report to be prepared and audited.
C) the financial report complies with accounting standards and presents a true and fair view.
D) all of the above

Question 21

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern and this has been adequately disclosed in the financial statements , the appropriate audit report would be:

A) an unmodified opinion with no emphasis of matter section.
B) a qualified opinion with an emphasis of matter section.
C) an adverse opinion with an emphasis of matter section.
D) an unmodified opinion with an emphasis of matter section.

Question 22

If a misstatement exists, but is unlikely to affect the decisions of a reasonable user, it is appropriate to issue:

A) an ability to form an opinion.
B) an unmodified opinion.
C) a qualified opinion.
D) an adverse opinion.

Question 23

The LEAST severe type of report for disclosing departures from an unmodified report is the:

A) report on unaudited financial statements.
B) qualified opinion.
C) adverse opinion.
D) disclaimer of opinion.

Question 24

Of the two major categories of scope limitations, (1) those caused by client and (2) those caused by conditions beyond the control of either client or auditor, the effect on the auditor's report:

A) is more serious for 1 than for 2.
B) is negligible.
C) is more serious for 2 than for 1.
D) is the same for both.

Question 25

It is appropriate to issue an opinion that contains the phrase 'except for' when:

A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material and pervasive.
C) there has been a material misstatement on a particular matter that is material.
D) none of the above

Question 26

An adverse opinion is issued when the auditor believes:

A) some parts of the financial report are materially misstated or misleading.
B) the misstatements are material and pervasive to the financial report.
C) the audit firm is not independent.
D) the financial report will be found to be misleading or misstated, if an adequate investigation is performed.

Question 27

Goods Pty Ltd's financial report shows a profit increase of 20% on the previous year. The chairman's report in Goods Pty Ltd's annual report boasts of a 50% increase in profit from the previous year. The auditor's report should include:

A) an emphasis of matter section.
B) an adverse opinion.
C) a qualified opinion.
D) an 'except for' qualified opinion.

Question 28

In the auditor's responsibility paragraph of the audit report, the use of the term 'reasonable assurance' is intended to indicate that:

A) no material misstatements exist in the financial statements.
B) no misstatements exist in the financial statements.
C) there is a possibility that immaterial misstatements still exist in the financial statements.
D) there is a possibility that material misstatements still exist in the financial statements.

Question 29

Which one of the following is NOT a condition requiring departure from an unmodified opinion?

A) The financial report is materially misstated.
B) Inability to obtain sufficient appropriate audit evidence
C) Both A and B
D) None of the above

Question 30

When a significant uncertainty exists and this has NOT been disclosed:

A) a scope limitation will need to be reported.
B) an inability to form an opinion must be used.
C) a qualified or an adverse opinion is required, depending on materiality.
D) an unmodified opinion with an emphasis of matter section is appropriate.

Question 31

The profession recognises the need for uniformity in reporting:

A) as a means of avoiding confusion.
B) because ASA 700 and ASA 705 have defined and enumerated the types of audit reports that should be included with general- purpose financial reports.
C) because users would have considerable difficulty interpreting the meaning of an auditor's report if each were an original creation.
D) all of the above

Question 32

Which one of the following is NOT an example of a departure from unmodified?

A) A qualified opinion
B) An emphasis of matter section
C) An adverse opinion
D) None; all are examples of modifications.

Question 33

The auditor's responsibility section of the standard unmodified report does NOT include:

A) the auditor's responsibility for expressing an opinion on the financial report based on an audit.
B) the auditor's responsibility for designing, implementing and maintaining relevant internal controls.
C) that the audit was conducted in accordance with Australian auditing standards.
D) a discussion of the audit evidence accumulated and the factors considered in forming the audit opinion.

Question 34

The audit report date indicates:

A) the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial report.
B) the last date on which users may institute a lawsuit against either client or auditor.
C) the date on which the financial report was filed with ASIC.
D) the last day of the financial period.

Question 35

The introductory paragraph of the standard unmodified audit report states that the financial report:

A) identifies the financial report examined.
B) is the responsibility of management.
C) is the responsibility of the auditor.
D) is the joint responsibility of management and the auditor.

Question 36

In an adverse or disclaimer of opinion report, the auditor:

A) believes that the effects are material.
B) believes that the effects are pervasive.
C) both A and B
D) none of the above

Question 37

If the balance sheet of a company is dated 30 June 2012, the audit report is dated 6 September 2012 and both are released to the public on 15 September 2012, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to:

A) 30 June 2012.
B) 15 September 2012.
C) 6 September 2012.
D) none of the above

Question 38

Angel Pty Ltd's financial report includes two balance sheets and profit and loss accounts. One set is drawn up in accordance with applicable accounting standards and the other set is drawn up without complying with one standard, which the directors consider makes the accounts misleading. The auditors concur. The audit report should, therefore, contain:

A) an adverse opinion.
B) an unmodified opinion with an emphasis of matter section.
C) a qualified opinion with an emphasis of matter section.
D) a disclaimer of opinion.

Question 39

An audit report is appropriate:

A) whenever a public accounting firm assists a client in preparing financial reports.
B) whenever a public accounting firm is associated with financial reports.
C) only when an audit is conducted.
D) none of the above

Question 40

The need to issue a disclaimer of opinion arises when there is:

A) a conflict between reporting frameworks.
B) a material and pervasive scope limitation.
C) a conflict with management.
D) a material scope limitation.

Question 41

Misstatements must be compared with some measurement base before a decision can be made about the materiality of the failure to follow accounting standards. A commonly accepted measurement base would be:

A) current assets.
B) total assets.
C) profit.
D) all of the above

Question 42

Which of the following representations does an auditor make when he or she issues an unmodified audit opinion?

A) The financial report has been audited at the lowest materiality level possible.
B) The financial report has been prepared in accordance with Australian Securities Exchange listing requirements.
C) The financial report has been prepared in accordance with Australian auditing standards.
D) The financial report has been prepared in accordance with applicable accounting standards.

Question 43

What are significant uncertainties and should they always be referred to in the audit report?

Question 44

The appropriate date for the audit report is the one on which the:

A) auditor signs the report.
B) client's financial year ended.
C) auditor and client entered into a contract.
D) auditor types and delivers the report to client.

Question 45

Which of the following is NOT a category of audit or attestation report?

A) Agreed- upon audit procedures
B) An audit of internal controls
C) A review engagement
D) An audit of financial reports

Question 46

What are the two main causes of scope limitations?

Question 47

Under what conditions is a disclaimer of opinion issued?

Question 48

The primary concern in measuring materiality when a client has failed to follow an accounting standard is usually:

A) measurability of the dollar error.
B) the total dollar error in the accounts involved, compared with some base.
C) the nature of the item in error.
D) whether it can materially affect some future period.

Question 49

What are the two conditions under which a qualified opinion may be issued?

Question 50

A disclaimer of opinion is issued whenever the auditor:

A) has been unable to obtain sufficient appropriate audit evidence on which to base the opinion and that the possible effects on the financial report could be both material and pervasive.
B) believes that the overall financial report is not presented fairly.
C) has determined that the financial report is presented fairly.
D) believes that some material part(s) of the financial report are not presented fairly.

Question 51

What three conditions must be met in order for a standard unmodified audit report to be appropriate?

Question 52

Where an audit report is qualified, the qualification is included in the opinion paragraph.

Question 53

The audit report is normally addressed to the company's president or chief executive officer.

Question 54

When there is a material inconsistency between the financial report and other information in the annual report and the client refuses to change the information, the auditor should:

A) include an emphasis of matter section in the audit report.
B) issue a qualified opinion.
C) do nothing as the audit opinion is confined to the financial report.
D) advise ASIC and the ASX.

Question 55

It is usually more difficult to evaluate the materiality of potential errors resulting from a disagreement with management than from a scope limitation.

Question 56

The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing legal action, the auditor must estimate:

A) its effect on management's future decisions.
B) its effect on the auditor's exposure to lawsuits.
C) its effect on users of the financial report.
D) its effect on net income.

Question 57

On discovering a significant uncertainty affecting the financial report, an auditor should immediately qualify the audit report.

Question 58

Discuss how materiality affects audit reporting decisions.

Question 59

Which auditing standard/s require/s an expression of an opinion about the overall financial report?

A) ASA 700
B) ASA 705
C) Both ASA 700 and ASA 705
D) Neither ASA 700 nor ASA 705

Question 60

A public accounting firm is associated with the financial report of its client:

A) if it performs any services at all for the client.
B) only when it does attestation services, such as a review or an audit.
C) only when it does a financial audit.
D) even if the firm only assists a client in preparing the financial report but does not do an audit.

Question 61

The phrase 'Auditing Standards require that we ...plan and perform the audit to obtain reasonable assurance whether the financial report is free of material misstatement' is included in the opinion paragraph of an audit report.

Question 62

An adverse opinion is used when there has been a material and pervasive scope restriction caused by the client.

Question 63

Professional standards require that a report be issued whenever a public accounting firm is associated with financial statements.

Question 64

The Corporations Act requires that the financial report of a company must present a true and fair view of its state of affairs and profit (or loss) only.

Question 65

What are the nine distinct parts of a standard audit report?

Question 66

Whenever an auditor discovers a material and pervasive violation of an accounting standard in the financial report that the client refuses to correct, the auditor should issue a disclaimer of opinion.

Question 67

Where there are scope limitations, the size of potential errors is important in determining the appropriate form of the audit report.

Question 68

An example of an indicator of a business's inability to continue as a going concern is an arrears or discontinuance of dividends.

Question 69

The appropriate date for the report is the one on which the auditor completes the most important auditing procedures in the field.

Question 70

When a qualified opinion is issued, a clear description of all the substantive reasons should be given.

Question 71

An adverse opinion is used when there has been a material and pervasive misstatement.

Question 72

The intent in the opinion statement is to indicate that the conclusion reached is based on fact.

Question 73

The most common case in which conditions beyond the client's and the auditor's control cause a scope limitation is an engagement agreed upon after the client's balance sheet date.

Question 74

The signature section of the audit report identifies the public accounting firm that has performed the audit.

Question 75

An emphasis of matter paragraph is included in an audit report where the auditor is uncertain about whether a report has been fairly presented.

Question 76

A disclaimer of opinion resulting from a client limitation requires a 'basis' section to describe the limitation.

Question 77

The audit of a half- year financial report requires the same audit procedures as those performed during the annual financial report audit.

Question 78

The phrase 'generally accepted accounting principles' can be found in the auditor's responsibility paragraph of a standard unmodified report.

Question 79

Auditing standards require that an audit report include the word 'independent' in the report's title.

Question 80

The most common type of audit report is the standard unmodified audit report.