Question 1

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

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 date ensures that the financial statements have been reviewed and approved by management and the board, and that any subsequent events up to that date have been considered in the audit.

Question 2

If the balance sheet of a company is dated December 31, 2015, the audit report is dated March 6, 2016, and both are released to the public on March 15, 2016, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to

Accepted Answer

The audit report is dated March 6, 2016, indicating that the auditor has searched for material unrecorded transactions and events that occurred up to this date. The release date of March 15, 2016, is irrelevant in determining the period covered by the audit. Therefore, option B is the best choice.

Question 3

The use of the term "reasonable assurance" is intended to indicate that an audit cannot be expected to

Accepted Answer

The term "reasonable assurance" means that the auditor is not able to completely eliminate the possibility of material errors or fraud existing in the financial statements. Auditing provides reasonable assurance, not absolute assurance, that the financial statements are free from material misstatement. The other choices are incorrect as they do not accurately reflect the meaning of reasonable assurance.

Question 4

The phrase "in our opinion" indicates that

Accepted Answer

The phrase "in our opinion" suggests that the auditor is providing their professional judgment and evaluation based on the information provided during the audit. This indicates that there may be some level of information risk associated with the financial statements, as the opinion is based on the auditor's evaluation of the information available, but does not provide an absolute guarantee.

Question 5

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

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 6

It is management's responsibility to select the accounting policies that are used in the preparation of the financial statements. What is the auditor's responsibility with respect to these accounting policies?

Accepted Answer

The auditor's responsibility is to evaluate the appropriateness of the accounting policies chosen by management and the associated estimates made. The auditor should ensure that the financial statements reflect the economic substance of the transactions and events being reported and are in accordance with the relevant financial reporting framework. The auditor may also make recommendations to management for more appropriate accounting policies or estimates, but ultimately it is management's responsibility to select the policies used.

Question 7

Double dating a report is done when

Accepted Answer

Double dating is done when a material event occurs after the date of the auditor's report and before the date the report is issued. The purpose of double dating is to inform the reader that the event occurred after the audit work was completed but before the report was issued. This ensures that the reader is aware of the event and its possible impact on the financial statements. Double dating is not done because of differences in year-ends or because the auditor finished his work later than planned.

Question 8

PA firm has been auditing Big Manufacturing Company (BMC) for several years. Last year, BMC converted its inventory and purchasing systems to a new system effective December 31, the date of the year-end. To their horror, the PA firm discovered at the beginning of the current year that there was a cutoff error in the accounts payable system of $25 million dollars LAST YEAR. Neither the client nor the firm had detected that the purchases of December 31 had been omitted from the old computer system transaction processing and had been recorded only in the new computer system, understating last year's expenses. Last year's financial statements have been restated and the error disclosed in the notes to both last year's and this year's financial statements. What type of audit opinion will BMC receive this year?

Accepted Answer

The error was corrected and disclosed in the financial statements, so an unqualified opinion is appropriate as the financial statements are now fairly presented.

Question 9

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, 2015, year end. How should the audit report be signed?

Accepted Answer

The audit report should be signed with the name of the firm, "Kent, Lane, and Lang, LLP," as it is a limited liability partnership.

Question 10

One of the most controversial parts of the auditor's report is the meaning of the term "presents fairly." What does the auditor's opinion mean when these words are used?

Accepted Answer

The term "presents fairly" means that the financial statements are prepared in accordance with the applicable financial reporting framework, and they provide a fair representation of the entity's financial position, performance, and cash flows.

Question 11

According to CAS 700, the standard unqualified report's title should be

Accepted Answer

According to CAS 700, the standard unqualified report's title should be "Independent Auditor's Report."

Question 12

Bianca Jones was engaged to conduct the audit of Smilicor Company (a toy distributor) three months after its year-end date. Bianca was unable to conduct an audit of opening inventory but was able to satisfy herself with respect to the opening balances. She was also able to conduct audit procedures for other opening balances; for example, by observing fixed assets. What type of audit opinion would Smilicor receive?

Accepted Answer

Since Bianca was able to satisfy herself with respect to the opening balances and was able to conduct audit procedures for other opening balances, she would issue an unqualified audit opinion. The inability to audit opening inventory is not significant enough to cause a disclaimer, adverse, or qualified opinion.

Question 13

Under Canadian Auditing Standards, the introductory paragraph of the independent auditor's report indicates that the auditor has audited the balance sheet, the income statement, the cash flow, a summary of accounting policies and notes, and

Accepted Answer

The introductory paragraph of the independent auditor's report indicates that the auditor has audited the balance sheet, the income statement, the cash flow, a summary of accounting policies and notes, and the statement of changes in equity. The statements of retained earnings may be included in the notes to the financial statements but are not specifically mentioned as being audited. The management's discussion and analysis letter is not audited by the independent auditor. The internal controls of the company may be assessed as part of the audit but are not specifically mentioned in the introductory paragraph of the independent auditor's report.

Question 14

There are five conditions that must be met before an auditor can issue a standard unqualified report. Discuss each of these five conditions.

Accepted Answer

The answer of There are five conditions that must be...

Question 15

In the scope paragraph of the audit report, the use of the term "reasonable assurance" is intended to indicate that

Accepted Answer

Reasonable assurance means that while the auditor has conducted the audit to detect material misstatements, there is still a possibility that some material misstatements may not be detected.

Question 16

The independent auditor's opinion explains how much evidence the auditor collects during the independent audit. How much evidence is collected?

Accepted Answer

The independent auditor's opinion states that the auditor collects sufficient and appropriate evidence to provide a basis for the audit opinion. This means that the auditor collects enough evidence to support their evaluation of the financial statements and their conclusions about the fairness of the presentation of the financial position of the organization.

Question 17

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

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 18

The scope paragraph of the standard unqualified audit report in the auditor responsibility section states that the audit is designed to

Accepted Answer

The scope paragraph outlines the purpose of the audit, which is to obtain reasonable assurance that the financial statements are free of material misstatement. The audit does not guarantee the detection of all errors and irregularities, and while the auditor must adhere to a generally accepted financial reporting framework, this is not the primary objective of the audit.

Question 19

The most common type of audit report contains

Accepted Answer

An unqualified opinion is the most common type of audit report. It means that the auditor has reviewed the financial statements and found them to be free from material misstatements and in compliance with generally accepted accounting principles.

Question 20

Management has several responsibilities that are important to the auditor. One of these is that management is responsible for

Accepted Answer

The answer of Management has several responsibilities that are important...

Quiz 19: Audit Reports on Financial Statements