Question 1

To provide limited assurance, the CPA must perform procedures to gather evidence that no material modifications are needed for the financial statements to be in accordance with the financial reporting framework.

Accepted Answer

Limited assurance engagements require the CPA to perform procedures to obtain limited assurance that the financial statements are free from material misstatement. The CPA must conduct inquiries, perform analytical procedures, and obtain corroborating evidence. These procedures are designed to provide only a moderate level of assurance, and therefore, more extensive procedures may be necessary for a higher level of assurance.

Question 2

Characteristics of a pervasive misstatement or scope limitation include that is it not confined to specific elements, accounts, or items of the financial statements.

Accepted Answer

A pervasive misstatement or scope limitation affects the entirety of the financial statements rather than being limited to specific elements or accounts.

Question 3

In a compilation engagement, the CPA will assist management in the presentation of financial statements and will provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.

Accepted Answer

In a compilation engagement, the CPA assists management in the presentation of financial statements but does not provide any assurance on the fairness of the financial statements.

Question 4

An unmodified opinion is expressed by_______.

Accepted Answer

An unmodified opinion is expressed by the external auditor when they conclude that the financial statements are presented fairly, in all material respects. This indicates that the financial statements are free from material misstatement and accurately reflect the company's financial position.

Question 5

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.

Accepted Answer

This statement is correct. An audit includes various procedures performed by the auditor to obtain sufficient and appropriate audit evidence about the amounts and disclosures presented in the consolidated financial statements.

Question 6

Adverse opinions on the effectiveness of internal control over financial reporting (ICFR) are frequently issued for large, well-established companies.

Accepted Answer

Adverse opinions on the effectiveness of internal control over financial reporting (ICFR) are relatively rare for large, well-established companies because these entities typically have robust internal control systems in place to ensure accurate financial reporting.

Question 7

The auditor's report can be in writing or it can be expressed orally.

Accepted Answer

The auditor's report is always issued in writing as it is a formal opinion or disclaimer generated by an auditor which states the audit findings in a written format.

Question 8

The responsibility for the financial statements rests_______.

Accepted Answer

The responsibility for the financial statements rests solely with management, as they are responsible for ensuring the accuracy and completeness of the financial information presented in the statements. While auditors play a role in providing assurance on the reliability of the financial statements, the ultimate responsibility remains with management. The internal audit function may assist in ensuring the effectiveness of internal controls and identifying potential areas of risk, but they do not have final responsibility for the financial statements.

Question 9

An emphasis of matter paragraph is mandatory for all audit reports.

Accepted Answer

An emphasis of matter paragraph is not mandatory for all audit reports. It is only included when the auditor wants to draw attention to a particular matter that is appropriately presented or disclosed in the financial statements, but is of such importance that it is fundamental to users' understanding of the financial statements.

Question 10

A scope limitation occurs when auditors are able to perform planned audit procedures to gather sufficient appropriate evidence.

Accepted Answer

A scope limitation occurs when auditors are unable to perform planned audit procedures or when their ability to gather sufficient appropriate evidence is restricted, thus potentially impacting the auditor's ability to form an opinion on the financial statements.

Question 11

Companies typically present their financial statements in comparative form, which means showing two consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity.

Accepted Answer

Companies typically present their financial statements in comparative form with two consecutive years of balance sheets and three consecutive years of the income statement, statement of cash flows, and statement of stockholders' equity.

Question 12

An immaterial misstatement occurs when the client departs from the applicable financial reporting framework.

Accepted Answer

An immaterial misstatement refers to an error or omission in financial statements that is not significant enough to affect the decision-making of users. Departing from the applicable financial reporting framework can lead to misstatements, but not all such departures result in immaterial misstatements.

Question 13

Whether auditors choose to dual date or extend the end of fieldwork, they must request written representation from management as of the new date of the auditor's report.

Accepted Answer

This statement is true. When auditors choose to dual date or extend the end of fieldwork, they must request written representation from management as of the new date of the auditor's report. This is to ensure that the information presented in the report is accurate and up-to-date.

Question 14

A component auditor, which is a different accounting firm, may audit a component or subsidiary of the parent company.

Accepted Answer

A component auditor is an accounting firm that specializes in auditing the financial statements of a subsidiary or component of a parent company, which is different from the auditor of the parent company. This is done to provide an independent assessment of the subsidiary's financial position and performance, which can be useful for investors and stakeholders.

Question 15

Auditors of public companies can perform an integrated audit, which means performing the financial statement audit and the audit of the effectiveness of the internal control over financial reporting (ICFR) at the same time.

Accepted Answer

The answer of Auditors of public companies can perform an...

Question 16

If the client has a going concern issue, then management must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation.

Accepted Answer

This is accurate, as per accounting standards, if there is a going concern issue, management needs to disclose the situation and any plans to address it in the notes to the financial statements.

Question 17

The concept of materiality is NOT an important factor in determining which type of modified report to issue.

Accepted Answer

The concept of materiality is an important factor in determining which type of modified report to issue. If the matter is considered material, an adverse or disclaimer of opinion may be necessary, while an unmodified report with an emphasis of matter or other explanatory paragraph may be sufficient for immaterial matters.

Question 18

If the subsidiary 's financial statements audited by the component auditor is a material amount of the group financial statements, the group engagement partner typically decides to reference the work completed by the component auditor in the audit report.

Accepted Answer

If the subsidiary's financial statements audited by the component auditor is a material amount of the group financial statements, the group engagement partner typically decides to reference the work completed by the component auditor in the audit report.

Question 19

The auditor should consider modifying the opinion if the management refuses to sign the updated representation letter.

Accepted Answer

The representation letter is an essential part of the audit process, and the auditor may consider modifying the opinion if management refuses to sign it. The representation letter confirms that management has provided all the necessary information and disclosures to the auditor and may indicate that the financial statements are accurate and complete. Without this confirmation, the auditor may not be able to rely on the completeness and accuracy of the financial statements, which could lead to a modification of the opinion.

Question 20

An unmodified opinion is expressed by the auditor when the auditor concludes the financial statements are presented fairly, in all material respects.

Accepted Answer

An unmodified opinion is also known as a clean opinion, and it means that the auditor has concluded that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. This is the best possible outcome for an audit, indicating that the auditor has found no material misstatements or inconsistencies in the financial reporting.

Quiz 15: Reporting on the Audit