Question 1

What are key audit matters,and what is stated by the auditors in the audit report under the section of key audit matters?

Accepted Answer

The answer of What are key audit matters,and what is...

Question 2

List the sections of an unmodified auditors' report.

Accepted Answer

The answer of List the sections of an unmodified auditors'...

Question 3

Your client has two sets of financial statements.One set is in compliance with IFRS,while the other set is in compliance with local tax legislation and will be used only with the tax returns.How do these events affect the independent auditor's report?
A)The auditor would issue an unmodified audit report for both financial statements,with an Emphasis of Matter paragraph that describes to readers the nature of the other set of financial statements.
B)The auditor would issue an unmodified auditor's report for both financial statements,labeling the auditor's report "for IFRS only" and "for tax purposes only."
C)The auditor would issue an unmodified audit report for both financial statements,with an Other Matter paragraph that describes to readers the nature of the other set of financial statements.
D)The auditor would issue a modified audit report,as the client is not allowed to have two different sets of financial statements.

Accepted Answer

The auditor would issue an unmodified audit report for both financial statements, with an Other Matter paragraph that describes to readers the nature of the other set of financial statements. This paragraph would explain that one set of financial statements is used for compliance with IFRS, while the other is used for compliance with local tax legislation and will only be used for tax returns. This type of disclosure is known as an other matter paragraph, and it does not affect the auditor's opinion on the financial statements.

Question 4

Clark Kent is a PA partner at the firm of Kent,Lane,and Lang,a limited liability partnership.Kent's firm has just completed the audit of a client with a March 31,2018,year end.How should the audit report be signed?
A)Clark Kent,PA
B)Kent,Lane,and Lang,LLP
C)Clark Kent,LLP
D)Kent,Lane,and Lang,PAs

Accepted Answer

The audit report should be signed by the name of the partnership, in this case, Kent, Lane, and Lang, LLP. As a limited liability partnership, the law requires that the partnership name be used, not the name of an individual partner.

Question 5

Your client has experienced a major data breach with lawsuits and fines pending of significant and uncertain amounts.These events are disclosed in the client's financial statements and are clearly explained in the notes.How do these events affect the independent auditor's report?
A)The auditor would issue an unmodified auditor's report.
B)The auditor would include an Emphasis of Matter paragraph titled "Data Breach" to highlight the events.
C)The auditor would include an Other Matters paragraph titled "Data Breach" to highlight the amounts.
D)The auditor issue a modified audit opinion due to the size of the uncertainty.

Accepted Answer

The independent auditor would include an Emphasis of Matter paragraph titled "Data Breach" to highlight the events. While the financial statements have been clearly explained in the notes, the auditor has a responsibility to draw attention to the events and their potential impact on the financial statements. This is done through an Emphasis of Matter paragraph, which is a way for the auditor to highlight important matters that are appropriately disclosed in the financial statements. This would be included in an otherwise unmodified auditor's report.

Question 6

The ASPE (Accounting Standards for Private Enterprises)financial reporting framework normally requires the auditor to report using the corresponding figures approach.This means that the auditor reports on
A)the current year's financial statements.
B)both periods under audit: the current and prior year.
C)three years: the current and prior year,and the effects of the prior year.
D)only the ending balances of the general ledger accounts.

Accepted Answer

The corresponding figures approach under the ASPE framework requires the auditor to report on the current year's financial statements, comparing them to the prior year's figures for context, but the audit opinion itself focuses on the current year's financial statements.

Question 7

The "unmodified report with Emphasis of Matter paragraph" or the "unmodified report with an Other Matter paragraph"
A)arise as a result of an incomplete audit.
B)arise when the financial statements are not quite "presented fairly."
C)meet the criteria of a complete audit with satisfactory results but further explanation is required.
D)meet the criteria of a complete audit but with unsatisfactory results.

Accepted Answer

An "unmodified report with Emphasis of Matter paragraph" or an "unmodified report with an Other Matter paragraph" indicates that the audit was complete and the results were satisfactory, but there is a need for further explanation on specific matters. This does not imply that the financial statements are not presented fairly or that the audit was incomplete or unsatisfactory.

Question 8

When a material uncertainty exists,the auditor must
A)disclose it in the audit report.
B)first determine the materiality of the item and whether adequate disclosure is included in the financial statements.
C)issue a disclaimer of opinion.
D)issue a modified opinion.

Accepted Answer

The auditor must first determine the materiality of the item and evaluate whether adequate disclosure is included in the financial statements before deciding whether to disclose the uncertainty in the audit report or modify the opinion. A disclaimer of opinion should only be issued when the auditor is unable to obtain sufficient appropriate audit evidence, which may not be applicable in this scenario.

Question 9

Your client is a large financial institution in Canada.Canadian regulators require that financial statements for such institutions have an audit report that provides an opinion on the consistency of accounting policies.How do these events affect the independent auditor's report?
A)The auditor would add an other matter paragraph titled "Report on Other Legal and Regulatory Requirements."
B)The auditor would add an emphasis of matter paragraph titled "Report on Other Legal and Regulatory Requirements."
C)The auditor would use a standard unmodified auditor's report.
D)The auditor would state in the opinion paragraph that the financial statements were prepared in accordance with the legislation for financial institutions.

Accepted Answer

The auditor would add an "other matter paragraph" to address specific legal or regulatory requirements, such as the consistency of accounting policies, which is beyond the scope of a standard unmodified auditor's report.

Question 10

The audit report date is important to users because it indicates the last day
A)of the fiscal period.
B)on which the financial statements may be filed with the provincial securities commission.
C)on which users may institute a lawsuit against either the client or auditor.
D)of the auditor's responsibility for the review of significant events that occurred after the date of the financial statements.

Accepted Answer

The audit report date signifies the last day of the auditor's responsibility for reviewing significant events that occurred after the date of the financial statements, ensuring that any material events are properly accounted for or disclosed.

Question 11

Analyze the "Responsibilities for the Audit of Financial Statements" section of the unmodified Independent Auditors' Report.Explain the intended purpose of the sentences in this section.

Accepted Answer

The answer of Analyze the "Responsibilities for the Audit of...

Question 12

What does the key audit matters section in an auditor's report typically include?

Accepted Answer

The answer of What does the key audit matters section...

Question 13

The appropriate date for the audit report for a public company is the date on which the
A)client's fiscal year ended.
B)auditor and client entered into a contract.
C)board of directors approved the financial statements.
D)auditor prepares and delivers the report to the client.

Accepted Answer

The appropriate date for the audit report for a public company is the date on which the board of directors approved the financial statements. This ensures that the report is based on the most up-to-date and accurate financial information available, reflecting any changes that may have occurred up to that point. The other options are not relevant to determining the appropriate date for the audit report.

Question 14

Your client,Huge Telephone Company (HTC),has encountered troubled times,due to deregulation.There is competition for local telephone business and long distance telephone business.The high speed lines for internet access provided via the telephone network have not been selling as well as expected.A new quirk is that many large cities are going to provide free wireless services by installing wireless transmitters on telephone poles,and is only offering to pay a pittance for the use of the telephone poles.HTC has been able to retain reasonable profits by cutting staff to a bare minimum and outsourcing many services.
However,due to several labour contracts and federal legislation that will increase services,you have doubts about the ability of the company to renew a major bond issue this coming year.
Required:
How does the above information affect the audit report?

Accepted Answer

The answer of Your client,Huge Telephone Company (HTC),has encountered troubled...

Question 15

If the balance sheet of a company is dated December 31,2018,the audit report is dated March 6,2019,and both are released to the public on March 15,2019,this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to
A)December 31,2018.
B)March 6,2019.
C)March 15,2019.
D)December 31,2019.

Accepted Answer

The audit report is dated March 6, 2019, which means the auditor has completed their audit procedures up to that date. The release of the balance sheet and audit report to the public on March 15, 2019, indicates that the auditor has completed their work up to March 6, 2019, but not beyond that date. Therefore, the auditor has searched for material unrecorded transactions and events that occurred up to March 6, 2019, but not beyond that date.

Question 16

ProForce Inc.is facing a large lawsuit from its employees.The contingency is significant and may lead to a going concern issue if ProForce is found guilty.ProForce took the adequate measures,as prescribed by IFRS (International Financial Reporting Standards),to account,disclose,and present the contingency in the financial statements.The auditor should
A)add a section in the audit report titled "Material Uncertainty Related to Going Concern" after the opinion paragraph.
B)issue an unmodified report with no extra sections.
C)issue a modified report.
D)deny an audit opinion.

Accepted Answer

The best choice is for the auditor to add a section in the audit report titled "Material Uncertainty Related to Going Concern" after the opinion paragraph. This is because the contingency ProForce is facing may lead to a going concern issue if they are found guilty. As per ISA 570, the auditor's report should include a separate section indicating a "Material Uncertainty Related to Going Concern" arising from events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern. This section will help to provide transparency and improve the users' understanding of the financial statements.

Question 17

Double dating a report is done when
A)the parent company and its subsidiaries have different year-ends.
B)the auditor finishes his work later than planned.
C)a material event occurs after the date of the auditor's report and affects the period that was audited.
D)a material event occurs after the date of the auditor's report and before the date the report is issued.

Accepted Answer

Double dating a report is done when a material event occurs after the date of the auditor's report and before the date the report is issued, which may affect the reader's understanding of the financial statements. Double dating involves adding a subsequent event note and a dual date to the original report to reflect the impact of the material event.

Question 18

Explain the difference between the corresponding figures approach and the comparative financial statements approach.

Accepted Answer

The answer of Explain the difference between the corresponding figures...

Question 19

Give an example of the key audit matters paragraph for a first year audit.

Accepted Answer

The answer of Give an example of the key audit...

Question 20

Publicly listed organizations and those using IFRS (International Financial Reporting Standards)must have audit reports that use the comparative financial statements approach.This means that the auditor reports on
A)the current year's financial statements.
B)both periods under audit,the current and prior year.
C)three years,the current and prior year,and the effects of the prior year.
D)only the ending balances of the general ledger accounts.

Accepted Answer

Publicly listed organizations and those using IFRS must have audit reports that use the comparative financial statements approach, meaning that the auditor reports on both periods under audit, the current and prior year. This allows for better analysis and understanding of the organization's financial performance and position over time. Option A is incorrect because it would only report on the current year's financial statements. Option C is incorrect because it includes the effects of the prior year, which is not required in a comparative financial statements approach. Option D is incorrect because it only reports on the ending balances of the general ledger accounts, which is not sufficient for a comprehensive audit report.

Quiz 19: Audit Reports on Financial Statements

What are key audit matters,and what is stated by the auditors in the audit report under the section of key audit matters?

List the sections of an unmodified auditors' report.

Your client has two sets of financial statements.One set is in compliance with IFRS,while the other set is in compliance with local tax legislation and will be used only with the tax returns.How do these events affect the independent auditor's report?

Clark Kent is a PA partner at the firm of Kent,Lane,and Lang,a limited liability partnership.Kent's firm has just completed the audit of a client with a March 31,2018,year end.How should the audit report be signed?

Your client has experienced a major data breach with lawsuits and fines pending of significant and uncertain amounts.These events are disclosed in the client's financial statements and are clearly explained in the notes.How do these events affect the independent auditor's report?

The ASPE (Accounting Standards for Private Enterprises) financial reporting framework normally requires the auditor to report using the corresponding figures approach.This means that the auditor reports on

The "unmodified report with Emphasis of Matter paragraph" or the "unmodified report with an Other Matter paragraph"

When a material uncertainty exists,the auditor must

Your client is a large financial institution in Canada.Canadian regulators require that financial statements for such institutions have an audit report that provides an opinion on the consistency of accounting policies.How do these events affect the independent auditor's report?

The audit report date is important to users because it indicates the last day

Analyze the "Responsibilities for the Audit of Financial Statements" section of the unmodified Independent Auditors' Report.Explain the intended purpose of the sentences in this section.

What does the key audit matters section in an auditor's report typically include?

The appropriate date for the audit report for a public company is the date on which the

If the balance sheet of a company is dated December 31,2018,the audit report is dated March 6,2019,and both are released to the public on March 15,2019,this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to

Double dating a report is done when

Explain the difference between the corresponding figures approach and the comparative financial statements approach.

Give an example of the key audit matters paragraph for a first year audit.

Publicly listed organizations and those using IFRS (International Financial Reporting Standards) must have audit reports that use the comparative financial statements approach.This means that the auditor reports on