Question 1

Changes in accounting estimates requires the auditor to issue a modified unqualified audit report with a consistency paragraph inserted after the opinion paragraph.

Accepted Answer

Changes in accounting estimates do not require a modified audit report or a consistency paragraph, as they are considered normal and expected adjustments in financial reporting.

Question 2

An auditor can express a qualified opinion due to a:
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor can express a qualified opinion...

Question 3

The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved.In this case only the introductory paragraph is modified.

Accepted Answer

A modified unqualified opinion involving other auditors typically includes an explanatory paragraph to describe the division of responsibility.

Question 4

If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n):
A)adverse opinion.
B)disclaimer of opinion.
C)unqualified opinion.
D)qualified opinion.

Accepted Answer

The phrase "except for" indicates that there is a specific issue or limitation that affects the financial statements as a whole, but the rest of the financial statements are fairly presented. This type of opinion is a qualified opinion, as the auditor is unable to provide an unqualified opinion due to the identified issue.

Question 5

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.

Accepted Answer

Changes in reporting entities do not affect consistency, but they do affect comparability. Therefore, an explanatory paragraph is required in the audit report regarding the effect of the changes on the financial statements.

Question 6

Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report.

Accepted Answer

Changes in estimates do not affect consistency or comparability in a way that requires an explanatory paragraph in the audit report; they are a normal part of business operations and accounting practices.

Question 7

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor determines the financial statements include...

Question 8

A modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

Accepted Answer

This statement is true. A modified unqualified audit report can be issued when the auditor believes the financial statements are fairly stated but also believes that there is additional information that should be disclosed in order to better inform the users of the financial statements. Examples of such disclosures could include information regarding uncertainties, contingencies, or related party transactions.

Question 9

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements.If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n):
A)disclaimer.
B)adverse opinion.
C)unqualified opinion.
D)qualified opinion.

Accepted Answer

A qualified opinion is issued when the auditor disagrees with a change in accounting principle that has a material effect on the financial statements.

Question 10

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.If the client refuses to properly disclose the item, the auditor will most likely issue:
A)a disclaimer.
B)an unqualified opinion.
C)a qualified opinion.
D)an adverse opinion.

Accepted Answer

A qualified opinion is issued when the financial statements present the entity's financial position, results of operations, and cash flows in conformity with generally accepted accounting principles, except for the effects of a material matter about which there is a disagreement or a limitation on the scope of the audit. If a client refuses to disclose information that materially affects the comparability of financial statements, the auditor may issue a qualified opinion due to the lack of adequate disclosure.

Question 11

If the auditor lacks independence, a disclaimer of opinion must be issued:
A)if the client requests it.
B)only if it is highly material.
C)only if it is material but not pervasive.
D)in all cases.

Accepted Answer

According to auditing standards, if the auditor lacks independence, a disclaimer of opinion must be issued in all cases. This is because lack of independence impairs the auditor's ability to provide an objective, unbiased opinion on the financial statements.

Question 12

A qualified opinion can be issued for which of the following?
I.When a limitation on the scope of the audit has occurred
II.When the auditor lacks independence
III.When generally accepted accounting principles have not been used
A)I and II
B)I and III
C)II and III
D)I, II and III

Accepted Answer

A qualified opinion can be issued when there is a limitation on the scope of the audit or if generally accepted accounting principles have not been used. However, lack of independence would result in an adverse opinion or a disclaimer of opinion.

Question 13

An adverse opinion is issued when the auditor believes:
A)some parts of the financial statements are materially misstated or misleading.
B)the financial statements would be found to be materially misstated if an investigation were performed.
C)the auditor is not independent.
D)the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Accepted Answer

An adverse opinion is issued when the auditor believes that the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. This is the most severe form of opinion that an auditor can issue.

Question 14

As a result of management's refusal to permit the auditor to physically examine inventory, the auditor must depart from the unqualified audit report because:
A)the financial statements have not been prepared in accordance with GAAP.
B)the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control.
C)the financial statements have not been audited in accordance with GAAS.
D)the scope of the audit has been restricted.

Accepted Answer

The refusal to physically examine inventory restricts the audit scope, therefore the auditor must depart from an unqualified opinion and disclose the limitation in the audit report. This is considered a scope limitation.

Question 15

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

Accepted Answer

This is because comparability is one of the qualitative characteristics of financial statements, and any factors that materially affect it should be disclosed in the footnotes to ensure users have full and accurate information for making decisions.

Question 16

When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue:
A)an adverse opinion.
B)a disclaimer of opinion.
C)either a qualified opinion or an adverse opinion.
D)either a qualified opinion or an unqualified opinion with modified wording.

Accepted Answer

A disclaimer of opinion is issued when the auditor is not able to form an opinion on the financial statements, which can be due to a lack of independence or other significant uncertainties.

Question 17

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified.

Accepted Answer

When a different CPA firm is relied upon to perform part of the audit, both the auditor's responsibility paragraph and the scope paragraph should be modified to reflect the division of responsibility. This is necessary to provide clarity to users of the financial statements regarding which parts of the audit were performed by which firm. As a result, a shared opinion should have modifications to both paragraphs.

Question 18

Discuss each of the five circumstances when an auditor would issue an unqualified audit report with an explanatory paragraph or modified wording.

Accepted Answer

The answer of Discuss each of the five circumstances when...

Question 19

When other auditors are involved in the audit and they qualify their portion of the audit, the principal auditor must decide if the amount in question is material to the financial statements as a whole.

Accepted Answer

The principal auditor is responsible for determining the overall materiality of the financial statements, including the portions of the audit conducted by other auditors. If the amount in question is material to the financial statements as a whole, the principal auditor may need to modify the audit opinion or take other appropriate actions.

Question 20

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?
A)The auditor lacks independence.
B)A client-imposed scope limitation
C)A circumstance imposed scope limitation
D)Lack of full disclosure within the footnotes

Accepted Answer

The answer of In which situation would the auditor be...

Quiz 3: Audit Reports

Changes in accounting estimates requires the auditor to issue a modified unqualified audit report with a consistency paragraph inserted after the opinion paragraph.

An auditor can express a qualified opinion due to a:

The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved.In this case only the introductory paragraph is modified.

If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n) :

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.

Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report.

An auditor determines the financial statements include at least a material departure from GAAP.Which type of opinion may be issued?

A modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements.If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n) :

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.If the client refuses to properly disclose the item, the auditor will most likely issue:

If the auditor lacks independence, a disclaimer of opinion must be issued:

A qualified opinion can be issued for which of the following? I.When a limitation on the scope of the audit has occurred II.When the auditor lacks independence III.When generally accepted accounting principles have not been used

An adverse opinion is issued when the auditor believes:

As a result of management's refusal to permit the auditor to physically examine inventory, the auditor must depart from the unqualified audit report because:

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue:

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified.

Discuss each of the five circumstances when an auditor would issue an unqualified audit report with an explanatory paragraph or modified wording.

When other auditors are involved in the audit and they qualify their portion of the audit, the principal auditor must decide if the amount in question is material to the financial statements as a whole.

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?