Question 1

In the scope paragraph of the audit report issued for financial statements of a non-public company, the auditor expresses an opinion about the internal controls of the company.

Accepted Answer

The scope paragraph in the audit report for financial statements of a non-public company generally includes the auditor's statement about the work done and the basis of the audit, but does not express an opinion about internal controls. However, if the auditor did perform an audit of internal controls, the audit report would include a separate opinion on the effectiveness of the company's internal controls.

Question 2

The audit report is normally addressed to the company's president or chief executive officer.

Accepted Answer

The audit report is typically addressed to the shareholders or the board of directors of the company, not directly to the president or chief executive officer.

Question 3

Users of the financial statements rely on the auditor's report because of the absolute assurance the report provides.

Accepted Answer

The auditor's report provides reasonable assurance, not absolute assurance. Users of financial statements may rely on the auditor's report, but they should also consider other sources of information and perform their own assessments and analyses.

Question 4

A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued.Normally, such explanatory information is:
A)included in the scope paragraph.
B)included in the opinion paragraph.
C)included in a separate paragraph in the report.
D)included in the introductory paragraph.

Accepted Answer

Explanatory information regarding specific matters should be included in a separate paragraph in the report, often referred to as the "emphasis of matter" paragraph. This separate paragraph follows the opinion paragraph but precedes the "basis for opinion" paragraph. It provides additional information to users of the financial statements, even though the overall opinion is still unqualified.

Question 5

Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms?
I.A combined report on financial statements and internal control over financial reporting
II.Separate reports on financial statements and internal control over financial reporting
A)I only
B)II only
C)Either I or II.
D)Neither I nor II.

Accepted Answer

An auditor can choose to issue a combined report on financial statements and internal control over financial reporting or separate reports on financial statements and internal control over financial reporting. The choice depends on the circumstances and the auditor's professional judgment. Therefore, both options are valid.

Question 6

Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph)include:
A)the use of other auditors.
B)material uncertainties.
C)substantial doubt about the audited company (or the entity)continuing as a going concern.
D)lack of consistent application of GAAP.

Accepted Answer

When other auditors are used, the principal auditor may modify the wording of the opinion to indicate the division of responsibility, but it remains an unqualified opinion.

Question 7

In which of the following situations would the auditor most likely issue an unqualified report?
A)The client valued ending inventory by using the replacement cost method.
B)The client valued ending inventory by using the Next-In-First-Out (NIFO)method.
C)The client valued ending inventory at selling price rather than historical cost.
D)The client valued ending inventory by using the First-In-First-Out (FIFO)method, but showed the replacement cost of inventory in the Notes to the Financial Statements.

Accepted Answer

The use of the FIFO method for valuing inventory is generally accepted and appropriate. Additionally, the disclosure of the replacement cost of inventory in the Notes to the Financial Statements provides transparency and further information to users of the financial statements. Therefore, the auditor would issue an unqualified report.

Question 8

Section 404(b)of the Sarbanes Oxley Act requires that the auditor of a public company attest to management's report on the efficiency of internal controls over financial reporting.

Accepted Answer

The answer of Section 404(b)of the Sarbanes Oxley Act requires...

Question 9

The phrase "generally accepted accounting principles" can be found in the opinion paragraph of a standard unqualified report.

Accepted Answer

The opinion paragraph of a standard unqualified report affirms that the financial statements are prepared in accordance with generally accepted accounting principles.

Question 10

Auditors of public company financial statements must issue separate reports on internal control over financial reporting.

Accepted Answer

The answer of Auditors of public company financial statements must...

Question 11

The scope paragraph of the auditor's responsibility section of the audit report issued for financial statements of a non-public company should refer to generally accepted auditing standards .

Accepted Answer

The scope paragraph of the auditor's responsibility section of the audit report for financial statements of a non-public company should reference the generally accepted auditing standards that were followed during the audit. This paragraph typically outlines the extent of the auditor's procedures and the responsibility of the company's management for the financial statements.

Question 12

The phrase "auditing standards generally accepted in the United States of America" can be found in the opinion paragraph of a standard, unqualified audit report for a non-public company.

Accepted Answer

The answer of The phrase "auditing standards generally accepted in...

Question 13

The date of the auditor's report is indicative of the last day of the auditor's responsibility for the review of significant events occurring after the balance sheet date.

Accepted Answer

The date of the auditor's report represents the last day of the auditor's responsibility for the review of significant events that occurred after the balance sheet date.

Question 14

There are four conditions that must be met before an auditor can issue a standard unqualified report for the audit of a private company.Please discuss each of these five conditions.

Accepted Answer

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

Question 15

The audit report date is the date the auditor completed audit procedures in the field.

Accepted Answer

The audit report date is the date on which the auditor completes the audit procedures and signs the audit report. This date represents the auditor's last day of audit fieldwork.

Question 16

The phrase "Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material error" is included in the auditor's opinion section of an audit report.

Accepted Answer

The answer of The phrase "Those standards require that we...

Question 17

Auditing standards for public companies are established by the:
A)SEC.
B)FASB.
C)PCAOB.
D)IRS.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is responsible for establishing auditing standards for public companies under the Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission (SEC) oversees the PCAOB but does not establish the auditing standards themselves. The Financial Accounting Standards Board (FASB) sets accounting standards, not auditing standards. The Internal Revenue Service (IRS) does not establish auditing standards for public companies.

Question 18

The introductory paragraph of the auditor's report states that the auditor is responsible for the preparation, presentation and opinion on financial statements.

Accepted Answer

The answer of The introductory paragraph of the auditor's report...

Question 19

The standard unqualified audit report:
A)is sometimes called a clean opinion.
B)can be issued only with an explanatory paragraph.
C)can be issued if only a balance sheet and income statement are included in the financial statements.
D)is sometimes called a disclaimer report.

Accepted Answer

The standard unqualified audit report is sometimes referred to as a "clean opinion" because it states that the financial statements are fairly presented in all material respects. This type of report is issued when the auditor has no significant concerns or issues with the financial statements.

Question 20

The standard unqualified audit report for public entities includes the following three paragraphs:
A)introductory, scope and management's responsibility.
B)materiality, scope and report.
C)introductory, scope and opinion.
D)scope, fieldwork and conclusion.

Accepted Answer

The standard unqualified audit report for public entities includes an introductory paragraph that contains the entity's name, a statement that the report is an audit, and the period covered by the audit. The scope paragraph describes the auditor's responsibilities and the limitations on the audit. The opinion paragraph provides the auditor's conclusion about whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. These three paragraphs are covered in choice C.

Quiz 3: Audit Reports

In the scope paragraph of the audit report issued for financial statements of a non-public company, the auditor expresses an opinion about the internal controls of the company.

The audit report is normally addressed to the company's president or chief executive officer.

Users of the financial statements rely on the auditor's report because of the absolute assurance the report provides.

A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued.Normally, such explanatory information is:

Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

In which of the following situations would the auditor most likely issue an unqualified report?