Question 1

The audit report delineates the responsibility of client management and that of the audit firm.

Accepted Answer

The audit report describes the responsibility of management for the financial statements and the responsibility of the audit firm for expressing an opinion on the financial statements.

Question 2

For the last several years,both the Financial Accounting Standards Board (FASB)and the International Auditing and Assurance Standards Board (IAASB)have been considering possible changes to the standard unqualified audit report.

Accepted Answer

False

Question 3

The term "except for" is used in the opinion paragraph of an audit report that will be qualified for a GAAP violation that is not pervasive.

Accepted Answer

The phrase "except for" is commonly used in audit reports to indicate a qualified opinion due to a specific GAAP violation that is not pervasive.

Question 4

There are no differences in audit report requirements across the standards of the AICPA,PCAOB,and IAASB.

Accepted Answer

While there may be some similarities in audit report requirements among the standards of the AICPA, PCAOB, and IAASB, there are also some differences based on the specific requirements and regulations of each organization. For example, the PCAOB requires the auditor to include a statement about the auditor's independence and a discussion of critical audit matters in the audit report, while the IAASB requires a description of key audit matters. These differences in requirements can lead to variations in the content and format of audit reports issued under each set of standards.

Question 5

A justified departure from GAAP will result in the issuance of an adverse opinion.

Accepted Answer

A justified departure from GAAP can result in a qualified opinion, not an adverse opinion. An adverse opinion is issued when there is a material departure from GAAP that affects the entirety of the financial statements, and the departure is deemed unjustified.

Question 6

The audit report can be a verbal presentation to the audit committee about the client.

Accepted Answer

The audit report is a written document that details the auditor's findings and opinion about the client's financial statements. It is submitted to both the client and the audit committee. While the auditor may choose to verbally present their findings and answer any questions from the committee, this does not replace the official audit report.

Question 7

An important component of an audit report is that the title includes the word "competent."

Accepted Answer

While the title of an audit report does typically include the word "audit" or "independent audit," it does not necessarily need to include the word "competent." The report itself, however, should demonstrate the competency of the auditor and provide evidence of their thorough examination and analysis of the financial statements.

Question 8

When there is an uncertainty surrounding the financial statements,the auditor may still be able to give an unqualified opinion.

Accepted Answer

If the auditor is able to obtain sufficient and appropriate evidence to support the financial statements despite the uncertainty, they may still issue an unqualified opinion with an explanatory paragraph highlighting the uncertainty. However, if the uncertainty is pervasive and material to the financial statements, the auditor may need to issue a qualified or adverse opinion.

Question 9

An unqualified audit opinion with an explanatory paragraph often makes reference to the footnotes of the financial statements

Accepted Answer

An unqualified audit opinion with an explanatory paragraph may refer to the footnotes of the financial statements to explain the reasons for the explanatory paragraph.

Question 10

A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion.

Accepted Answer

A departure from generally accepted accounting principles that is considered immaterial may result in an unmodified opinion with an explanatory paragraph or a modified opinion with a disclaimer of opinion. It generally does not result in a qualified or adverse opinion.

Question 11

The auditor should only provide an opinion on the financial statements if the opinion indicates that the financial statements are fairly stated in all material respects.

Accepted Answer

The auditor's role is to provide an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework, which can include an unqualified (clean), qualified, adverse, or a disclaimer of opinion, depending on the findings of the audit.

Question 12

The audit report is modified to five paragraphs as a result of another audit firm performing part of the financial statement audit.

Accepted Answer

The answer of The audit report is modified to five...

Question 13

A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

Accepted Answer

Under GAAP, a material lease transaction that meets certain criteria must be recognized as a capital lease. Treating it as an operating lease when it meets the criteria for a capital lease would result in a deviation from GAAP, which could lead to a qualified or adverse opinion from auditors.

Question 14

Andrews Corporation adopted an accounting principle that is a material departure from GAAP.The auditor determined that the financial statements are fairly presented,except for this specifically identifiable GAAP departure,and therefore would issue a disclaimer of opinion.

Accepted Answer

The auditor would likely issue a qualified opinion or an adverse opinion, not a disclaimer of opinion, because the departure from GAAP is specifically identifiable and the rest of the financial statements are fairly presented. A disclaimer of opinion is issued when the auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion.

Question 15

Under international auditing standards,when the audit client has engaged other audit firms to audit remote locations around the country,the principal auditor must mention the other audit firms in the audit report.

Accepted Answer

Under international auditing standards, the principal auditor is not required to mention other audit firms engaged by the audit client to audit remote locations in the audit report, unless the principal auditor decides to make reference to the work of the other auditors as a basis, in part, for the principal auditor's opinion.

Question 16

When financial statements contain generally accepted accounting principles in the current year that are different from the generally accepted accounting principles used in the preceding year,the auditor will typically make mention of it in the opinion.

Accepted Answer

The auditor is required to include a statement in the opinion paragraph of the audit report when there is a change in accounting principle, including a change from one generally accepted accounting principle to another.

Question 17

For some engagements,the financial statements might be audited in accordance with multiple auditing standards.

Accepted Answer

This is true as financial statements may be subject to audit by different standards depending on the nature of the engagement and the requirements of the stakeholders. Examples of multiple auditing standards include International Standards on Auditing (ISA), Generally Accepted Auditing Standards (GAAS), and the Public Company Accounting Oversight Board (PCAOB) standards.

Question 18

An auditor is not required to tell the reader of an audit report when there has been a change in accounting principles that materially affects the financial statements.

Accepted Answer

An auditor is required to disclose any changes in accounting principles that materially affect the financial statements in the audit report. This is a requirement of generally accepted auditing standards (GAAS) and is necessary to provide the user of the financial statements with a clear understanding of the impact of such changes on the company's financial position, results of operations, and cash flows.

Question 19

After the balance sheet date but prior to the audit report date the client decides to acquire Bargain Company to obtain a significant increase in revenues.The auditor would probably give a report that includes the statement: "except for the acquisition of Bargain Company...".

Accepted Answer

The answer of After the balance sheet date but prior...

Question 20

The substantial doubt about an entity's ability to continue as a going concern is a phrase that is used in an unqualified opinion with a certain type of explanatory language.

Accepted Answer

The answer of The substantial doubt about an entity's ability...

Quiz 15: Audit Reports on Financial Statements