Question 1

The European Union has not yet implemented requirements for mandatory audit rendering and auditor rotation despite many years of debate on this subject.

Accepted Answer

The European Union has implemented requirements for mandatory audit firm rotation with the adoption of the EU Audit Reform, which came into effect on June 17, 2016, requiring public-interest entities to rotate their audit firms after a maximum engagement period.

Question 2

EPM, Inc., is a publicly listed manufacturing company with a calendar year-end. Their financial statements include a balance sheet, a statement of income, statement of cash flows, and statement of stockholders' equity. For the most recent audit, Harrington and Perry, LLP, from Denver, Colorado, audited the 2018 and 2019 financial statements. The auditors completed all significant fieldwork on March 5, 2020 and issued the audit report on March 16, 2020.
Required:
Consider all the facts given and write the PCAOBs new standard unmodified opinion audit report.

Accepted Answer

The answer of EPM, Inc., is a publicly listed manufacturing...

Question 3

An audit of historical financial statements most commonly includes the
A) balance sheet, statement of retained earnings, and the statement of cash flows.
B) income statement, the statement of cash flows, and the statement of net working capital.
C) statement of cash flows, balance sheet, and the statement of retained earnings.
D) balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity.

Accepted Answer

An audit of historical financial statements most commonly includes the balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity. The statement of retained earnings is typically included within the statement of changes in stockholders' equity. The statement of net working capital is not a standard financial statement.

Question 4

The basis of opinion section of the audit report issued for financial statements of a nonpublic company should refer to auditing standards generally accepted in the United States of America.

Accepted Answer

The basis of opinion section of the audit report for financial statements of a nonpublic company should refer to auditing standards generally accepted in the United States of America in order to maintain consistency and credibility in the audit process. Auditing standards provide guidelines for auditors to follow while conducting an audit, and the basis of opinion section in the audit report explains the scope of the audit, the procedures followed by the auditor, and the conclusions reached by the auditor. Therefore, the statement is true.

Question 5

The phrase "auditing standards generally accepted in the United States of America" can be found in the auditor's opinion paragraph of a standard unmodified opinion report for a nonpublic company.

Accepted Answer

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

Question 6

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 on the auditor's report represents the last day of responsibility for the review of significant events occurring after the balance sheet date.

Question 7

The PCAOB and the AICPA recently adopted new auditor reporting standards which are designed to make the standard audit report less informative for users.

Accepted Answer

This statement is incorrect. The PCAOB and the AICPA adopted new auditor reporting standards in 2017 which are designed to make the standard audit report more informative for users by including more information relevant to the audit, such as critical audit matters and going concern uncertainties.

Question 8

Financial statement users are normally much more concerned about a disclaimer than an unmodified opinion audit report that contains an additional emphasis-of-matter paragraph.

Accepted Answer

A disclaimer indicates the auditor could not form an opinion on the financial statements, suggesting significant uncertainty or limitations during the audit, which is more concerning than an unmodified opinion with an emphasis-of-matter paragraph that merely draws attention to a specific area without affecting the overall opinion.

Question 9

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

This phrase is typically found in the section of the audit report that describes the auditor's responsibilities, not in the opinion section.

Question 10

When analyzing the various types of audit reports,
A) the unmodified opinion with an emphasis-of-matter paragraph is the most common type of report.
B) companies will generally make the appropriate changes to their accounting records to avoid a qualification by the auditor.
C) management is more concerned about a qualified report than a disclaimer report.
D) an adverse report is issued when the auditor is unable to form an opinion on the financial statements.

Accepted Answer

Companies strive to receive an unmodified opinion, and will typically make necessary changes in their accounting records to avoid a qualified report.

Question 11

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

Accepted Answer

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

Question 12

An auditor will issue a disclaimer when he or she concludes that the financial statements are not fairly presented.

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. When an auditor concludes the financial statements are not fairly presented, they would issue an adverse opinion, not a disclaimer.

Question 13

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

The auditor can choose to issue either a combined report on financial statements and internal control over financial reporting, or separate reports on financial statements and internal control over financial reporting. It is up to the auditor's discretion to decide which option to choose based on their findings during the audit.

Question 14

Describe the standard unmodified opinion audit report to be issued for an audit of a private company issued for fiscal years ending on or after June 15, 2019. Begin by specifying the eight parts of the report, and then discuss the contents of each part.

Accepted Answer

The answer of Describe the standard unmodified opinion audit report...

Question 15

The phrase "accounting principles generally accepted in the United States of America" can be found in the auditor's opinion paragraph of a standard unmodified opinion report.

Accepted Answer

The phrase "accounting principles generally accepted in the United States of America" is one of the key components of an unmodified opinion in an auditor's report, indicating that the financial statements being audited have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States.

Question 16

In the auditor's responsibilities paragraph of the audit report issued for financial statements of a nonpublic company, the auditor expresses an opinion about the internal controls of the company.

Accepted Answer

In the auditor's responsibilities paragraph of the audit report issued for financial statements of a nonpublic company, the auditor does not express an opinion about the internal controls of the company. The auditor only expresses an opinion on the financial statements as a whole, and notes whether any material weaknesses in internal control were identified during the audit.

Question 17

What category of audit report will be issued if the auditor concludes that the financial statements are not fairly presented?
A) disclaimer
B) qualified
C) standard unmodified opinion
D) adverse

Accepted Answer

An adverse audit report is issued when the auditor concludes that the financial statements are not fairly presented, and the issues are so material and pervasive that they cause substantial doubt about the entity's ability to continue operations or affect the users' decisions.

Question 18

The standard unmodified 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 unmodified audit report is sometimes called a clean opinion because it indicates that the financial statements are fairly presented in all material aspects in accordance with the applicable accounting framework.

Question 19

The Auditing Standards Board (ASB) sets auditing standards in the U.S. for nonpublic entities.

Accepted Answer

The ASB sets auditing standards for both public and nonpublic entities in the U.S.

Question 20

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.

Quiz 3: Audit Reports