Question 1

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.

Accepted Answer

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern but this has been adequately disclosed in the financial statements, an unmodified opinion with an emphasis of matter section is the appropriate audit report. This emphasizes the disclosure about going concern in the financial statements without changing the overall opinion on the financial statements themselves.

Question 2

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.

Accepted Answer

An unmodified opinion is appropriate if the misstatement is not material, meaning it is unlikely to affect the decisions of a reasonable user. This is the most common type of opinion issued.

Question 3

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.

Accepted Answer

A qualified opinion is the least severe type of report for disclosing departures from an unmodified report, as it indicates that except for certain issues, the financial statements are presented fairly.

Question 4

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.

Accepted Answer

The effect on the auditor's report is the same for both categories of scope limitations, as both can lead to a qualified opinion or a disclaimer of opinion depending on the materiality and pervasiveness of the limitation.

Question 5

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

Accepted Answer

An 'except for' opinion, also known as a qualified opinion, is issued when there is a material misstatement that is not pervasive, meaning it is material but not widespread throughout the financial statements.

Question 6

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.

Accepted Answer

An adverse opinion is issued when the auditor believes that the misstatements in the financial report are both material and pervasive, meaning they affect a significant portion of the financial report and cannot be easily corrected. Choices A, C, and D do not accurately reflect the criteria for issuing an adverse opinion.

Question 7

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.

Accepted Answer

The auditor's report should include an emphasis of matter section to draw attention to the discrepancy between the chairman's report and the financial report. The 50% increase in profit stated by the chairman may have factors, such as non-recurring income, that were not considered in the financial report's 20% increase. It is the auditor's responsibility to ensure that the financial report accurately represents the company's financial position, and the emphasis of matter section will inform readers of the potential misinterpretation.

Question 8

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.

Accepted Answer

The term 'reasonable assurance' indicates that while the auditor has conducted the audit in accordance with the appropriate auditing standards, there is still a possibility that material misstatements may exist in the financial statements. Therefore, it is not a guarantee that the financial statements are free from material misstatements.

Question 9

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

Accepted Answer

None of the conditions mentioned in the options require departure from an unmodified opinion. Option A states that if the financial report is materially misstated, the auditor would need to modify their opinion. Option B states that if the auditor is unable to obtain sufficient appropriate audit evidence, they would need to modify their opinion. However, absence of any such condition mentioned above would not require a departure from an unmodified opinion.

Question 10

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.

Accepted Answer

A qualified or adverse opinion is required when a significant uncertainty exists and has not been disclosed, as it affects the reliability of the financial statements. The choice between a qualified or adverse opinion will depend on the materiality of the uncertainty.

Question 11

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

Accepted Answer

All three options are valid reasons why the profession recognises the need for uniformity in reporting. Avoiding confusion, complying with professional standards (such as ASA 700 and ASA 705), and facilitating interpretation by users are all important considerations. Having a standard format for audit reports also enhances the credibility of the auditing profession and helps to ensure consistent quality in the audit process.

Question 12

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.

Accepted Answer

An emphasis of matter section is not a modification of the auditor's opinion; it is used to draw attention to a matter that is fundamental to users' understanding of the financial statements.

Question 13

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.

Accepted Answer

The auditor's responsibility for designing, implementing and maintaining relevant internal controls is not included in the auditor's responsibility section of the standard unmodified report. Instead, this is typically included in the management's responsibility section of the report.

Question 14

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.

Accepted Answer

The audit report date indicates the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial report. This means that the auditor's responsibilities extend up to this date, and any events occurring after this date are not considered in the audit report.

Question 15

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.

Accepted Answer

The introductory paragraph of the standard unmodified audit report identifies the financial report that has been examined by the auditor.

Question 16

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

Accepted Answer

In an adverse or disclaimer of opinion report, the auditor believes that the effects on the financial statements are both material and pervasive. Materiality implies that the effects are significant enough to influence the economic decisions of users of the financial statements, while pervasiveness implies that the effects are widespread and affect many aspects of the financial statements. Therefore, both A and B are correct.

Question 17

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

Accepted Answer

The audit report is dated 6 September 2012, which indicates that the auditor has completed their audit procedures up to that date. The release of the balance sheet and audit report to the public on 15 September 2012 indicates that the auditor has no material unrecorded transactions or events that occurred between 6 September 2012 and the release date. Therefore, the auditor has searched for material unrecorded transactions and events up to 6 September 2012.

Question 18

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.

Accepted Answer

The auditors agree with the directors that compliance with the standard would make the accounts misleading, so they would issue an unmodified opinion but include an emphasis of matter section to highlight the issue.

Question 19

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

Accepted Answer

An audit report is a formal opinion on the financial statements of an entity, provided by an independent auditor after examination of the entity's financial records and operations. Therefore, an audit report is only appropriate when an audit is conducted. Option A refers to a compilation or review report, while option B is too broad and vague.

Question 20

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.

Accepted Answer

A disclaimer of opinion is issued when there is a material and pervasive scope limitation, meaning that the auditor was unable to obtain sufficient evidence to support their opinion on the financial statements as a whole. This limitation must be significant enough to impact the overall reliability and accuracy of the financial statements. The other options given (conflict between reporting frameworks, conflict with management, and material scope limitation) may also impact the audit report, but they would typically result in a qualified or adverse opinion, rather than a disclaimer.

Quiz 18: Audit Reporting

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:

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

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

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:

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

An adverse opinion is issued when the auditor believes:

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:

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

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

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

The profession recognises the need for uniformity in reporting:

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

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

The audit report date indicates:

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

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

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:

An audit report is appropriate:

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