Question 1

The standard report issued in the audit of an issuer includes a(n)
A)Responsibilities of Management for the Financial Statements Section providing a general description of an audit conducted in accordance with the applicable auditing standards.
B)Opinion on the Financial Statements section identifying the responsibility of management and auditors in the financial reporting process.
C)Critical Audit Matters section indicating that an audit was conducted in accordance with PCAOB standards.
D)Opinion on the Financial Statements section providing the auditors' conclusion as to the fair presentation of the financial statements.

Accepted Answer

The standard report issued in the audit of an issuer includes an Opinion on the Financial Statements section, which provides the auditors' conclusion as to the fair presentation of the financial statements. The other options mentioned are also included in the standard report, but the most essential part of the audit report is the opinion on the financial statements.

Question 2

Murray & Co., CPAs completed the audit of Classic, Inc., a non-issuer, on March 1, 2018 for a January 31, 2018 fiscal year end. The audit team encountered no significant issues and found no material misstatements. Murray & Co. has audited Classic, Inc. for several years and past audits did not reveal any significant issues or material misstatements. The audit team partner determined that a standard (unmodified) report on Classic, Inc.'s financial statements was appropriate. The auditors' report, drafted by I.M. Nu, a staff assistant, is provided below.
Independent Auditor's Report
To the Board of Directors and Shareholders
Classic, Inc.
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Classic Inc., which comprise the balance sheet as of January 31, 2021 and the related statements of changes in shareholders' equity and cash flows for the year then ended, and the related notes to the financial statements.In our opinion, the accompanying financial statements present fairly, the financial position of Classic, Inc. as of January 31, 2021 and the results of its operations and its cash flows for the year then ended.
Basis for OpinionWe conducted our audit in accordance with generally accepted auditing standards. We are required to be independent of Classic Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America.In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Classic Inc.'s ability to continue as a going concern for one year following the issuance of the financial statements.
Auditor's Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements.
In performing an audit in accordance with GAAS, we:
[detail omitted; assume all elements of the GAAS audit are appropriately worded]
Murray & Co, CPAs
January 31, 2021
Required:
Identify the deficiencies and errors in the draft report. Do not rewrite the report, but be specific as to what is incorrect or omitted. Organize your answer by paragraph or section.

Accepted Answer

The answer of Murray & Co., CPAs completed the audit...

Question 3

Murray & Co., CPAs completed the audit of Classic, Inc., an issuer, on March 1, 2021 for a January 31, 2021 fiscal year end. The audit team encountered no significant issues and found no material misstatements. The audit team partner determined that a standard report on Classic, Inc.'s financial statements was appropriate. The auditors' report, drafted by I.M. Nu, a staff assistant, is provided below. (Nu has decided to present separate reports on the financial statements and on internal control over financial reporting).
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Classic, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Classic Inc. (the Company) as of December 31, 2020 and the related statements of comprehensive income, stockholders' equity, and cash flows for the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020.
Basis for Opinion
Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee. Because we are expressing an unqualified opinion, PCAOB standards do not require communication of critical audit matters in our report.
Murray & Co, CPAs
January 31, 2021
Required:Identify the deficiencies and errors in the draft report. Do not rewrite the report, but be specific as to what is incorrect or omitted. Organize your answer by paragraph or section.

Accepted Answer

The answer of Murray & Co., CPAs completed the audit...

Question 4

Below are two independent situations.
A. Grinner and Greeter, CPAs, were engaged to perform an audit of the financial statements of Happy, Inc. Happy's management would not allow Grinner and Greeter to confirm any of the accounts receivable. All other auditing procedures were performed as considered necessary by Grinner and Greeter and no issues were encountered. However, Grinner and Greeter were unable to satisfy themselves with regard to the balance in accounts receivable.B. Tick and Tie, CPAs, were performing their annual audit of Johnson Manufacturing Company. Johnson is currently being sued for $2,000,000 related to an alleged defective product that they sold to a customer. Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and have to pay the entire $2,000,000. Johnson's management has included information in the footnotes about the lawsuit. However, they have not recorded any loss or liability in the income statement or balance sheet.Required:For each of the independent situations presented above, state what type of opinion should be issued on the company's financial statements. Briefly explain your rationale. Finally, state what modifications, if any, would be required to the standard report.

Accepted Answer

The answer of Below are two independent situations.
A. Grinner and...

Question 5

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations. What reporting options are available to auditors when scope limitations are encountered during the engagement?

Accepted Answer

The answer of Define a scope limitation and distinguish between...

Question 6

Harris & Thompson were engaged to audit Smart Corp's comparative financial statements for the years ended December 31, Year 1 and Year 2. The Year 1 financial statements were presented in accordance with generally accepted accounting principles, but the Year 2 financial statements were determined to be materially misstated. As a result, Harris & Thompson should
A)issue a qualified opinion on the comparative financial statements as a whole.
B)issue an unqualified opinion on the Year 1 financial statements and disclaim an opinion on the Year 2 financial statements.
C)issue an unqualified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements.
D)reissue the previous opinion on the Year 1 financial statements and withdraw from the engagement.

Accepted Answer

Since the Year 2 financial statements were materially misstated, Harris & Thompson cannot issue an unqualified opinion on the comparative financial statements as a whole. They also cannot disclaim an opinion on the Year 2 financial statements since they were engaged to audit them. The appropriate course of action is to issue an unqualified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements, disclosing the nature of the material misstatement. This allows users of the financial statements to make informed decisions about the reliability of the information presented.

Question 7

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is
A)limited to the previously issued report date.
B)extended to the date of the updated audit report.
C)limited to 30 days after the date of the prior years' financial statements.
D)extended to the updated report date only if information comes to the auditors' attention requiring modification of the previously expressed opinion.

Accepted Answer

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility extends to the date of the updated audit report. This means they are responsible for considering whether any new information that has come to light since the original report date would affect the financial statements or the previously issued audit report.

Question 8

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations. What reporting options are available to auditors when scope limitations are encountered during the engagement?

Accepted Answer

The answer of Define a scope limitation and distinguish between...

Question 9

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the condensed financial statements is
A)complete with respect to disclosures required by the SEC.
B)fairly stated, in all material respects, in accordance with generally accepted accounting principles.
C)consistent, in all material respects, with the prior years' condensed financial statements.
D)fairly stated, in all material respects, in relation to the complete financial statements.

Accepted Answer

When financial statements are condensed, they do not include all the detailed information that would be available in the complete financial statements. Therefore, the auditors' conclusion should state that the condensed financial statements are fairly stated, in all material respects, in relation to the complete financial statements. Choice A is incorrect because the SEC requires specific disclosures that are not necessarily included in condensed financial statements. Choice B is incorrect because it is the standard conclusion for financial statements, but does not specifically address the condensed nature of the statements. Choice C is incorrect because the consistency of the condensed financial statements with prior years is not the primary concern addressed by the auditors' conclusion.

Question 10

Harris is auditing the financial statements of Cole Corp., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Harris issue?
A)Unqualified opinion on the financial statements with an explanatory paragraph disclaiming an opinion on the mineral reserve information, but noting the misstatement.
B)Adverse opinion on the financial statements and mineral reserve information due to the misstatement.
C)Unqualified opinion on the financial statements with an explanatory paragraph expressing a qualified or adverse opinion on the mineral reserve information.
D)Qualified opinion on the financial statements and mineral reserve information due to the misstatement.

Accepted Answer

The answer of Harris is auditing the financial statements of...

Question 11

Carson, LLP, audited Best Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, Carson gave Best permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for Carson's responsibility on the reissued report?
A)December 31, Year 1.
B)March 1, Year 2.
C)December 31, Year 2.
D)February 15, Year 3.

Accepted Answer

The cutoff date for Carson's responsibility on the reissued report is the original report date, March 1, Year 2. This is because the auditor's responsibility extends to the date of the original report, not the date of reissuance or any subsequent events.

Question 12

When other information is presented in a document with audited financial statements, the auditors' report should
A)state that the auditor read the other information for inconsistencies and misstatements with the financial statements.
B)provide limited assurance as to whether the other information is presented in accordance with generally accepted accounting principles.
C)reference the other information only if inconsistencies or material misstatements are identified between this information and the financial statements.
D)be expanded to express an opinion that the other information is consistent with the financial statements and not materially misstated.

Accepted Answer

When other information is presented in a document with audited financial statements, the auditors' report should state that the auditor read the other information for inconsistencies and misstatements with the financial statements. This is done in order to ensure that the other information is not contradicted by the financial statements and that it does not contain any material misstatements or errors.

Question 13

When a previously expressed opinion is updated from qualified to unqualified, the auditors' report on comparative financial statements should
A)not modify the previously expressed opinion or refer to factors affecting the opinion on the prior years' financial statements.
B)update the opinion expressed on the prior years' financial statements but provide no explanation for the updated opinion.
C)not modify the previously expressed opinion but include a reference to the footnote describing the factors affecting the opinion on the prior years' financial statements.
D)update the previously expressed opinion and explain the reasons for the change, including a reference to the footnote describing the change.

Accepted Answer

When a previously expressed opinion is updated from qualified to unqualified, the auditors' report on comparative financial statements should update the previously expressed opinion and explain the reasons for the change, including a reference to the footnote describing the change. This is because it is important for stakeholders to understand the reason behind the change in opinion to make informed decisions. Simply updating the opinion without explaining the reasons for the change may be misleading and confusing.

Quiz 12: Reports on Audited Financial Statements

The standard report issued in the audit of an issuer includes a(n)

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations. What reporting options are available to auditors when scope limitations are encountered during the engagement?

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations. What reporting options are available to auditors when scope limitations are encountered during the engagement?

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the condensed financial statements is

Harris is auditing the financial statements of Cole Corp., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Harris issue?

Carson, LLP, audited Best Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, Carson gave Best permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for Carson's responsibility on the reissued report?

When other information is presented in a document with audited financial statements, the auditors' report should

When a previously expressed opinion is updated from qualified to unqualified, the auditors' report on comparative financial statements should