Question 1

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 that a CPA wishes to emphasize regarding the financial statements is typically included in a separate paragraph in the report, known as an emphasis of matter paragraph. This is separate from the scope or opinion paragraphs, which contain different information.

Question 2

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 3

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 4

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

Accepted Answer

The phrase "generally accepted accounting principles" (GAAP) is typically referenced in the opinion paragraph of a standard unqualified audit report to indicate that the financial statements have been prepared in accordance with GAAP.

Question 5

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 is a generally accepted accounting principle, and showing the replacement cost of inventory in the Notes to the Financial Statements provides additional information for the users of the financial statements. Therefore, if the client used the FIFO method and disclosed the replacement cost in the Notes, the auditor would most likely issue an unqualified report. The other choices involve deviations from generally accepted accounting principles, which may have a material effect on the financial statements and result in a qualified or adverse report.

Question 6

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 in the auditor's responsibility section of the audit report for financial statements of a non-public company should refer to generally accepted auditing standards (GAAS), which provide a framework for conducting an audit in accordance with applicable auditing standards. The scope paragraph should outline the auditor's responsibilities and the nature of the audit procedures performed, as well as any limitations or qualifications to the audit opinion.

Question 7

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 8

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 of the audit report for financial statements of a non-public company does not include an opinion about the effectiveness of the company's internal controls. This opinion may be included in a separate report on internal control or in a combined report on both the financial statements and internal control.

Question 9

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 10

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 11

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. Both options are acceptable under auditing standards. Therefore, the answer is either I or II (or both), making option C the correct answer.

Question 12

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

The answer of Examples of unqualified opinions which contain modified...

Question 13

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 14

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 signifies the last day of the auditor's responsibility for reviewing important events that occurred after the balance sheet date.

Question 15

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) establishes and enforces auditing standards for public companies in the United States. The SEC oversees and enforces compliance with these standards. The FASB establishes accounting standards, not auditing standards. The IRS is not responsible for establishing auditing standards for public companies.

Question 16

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, a scope paragraph that describes the nature and extent of the audit procedures performed, and an opinion paragraph that expresses the auditor's conclusion on the fairness of the financial statements. The management's responsibility is typically addressed in the notes to the financial statements rather than the audit report itself. Materiality and fieldwork are also important aspects of the audit, but are typically addressed in the scope paragraph rather than having a separate paragraph devoted to them.

Question 17

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

Accepted Answer

The audit report date is the date that the auditor completed audit procedures in the field and obtained sufficient evidence to support their opinion.

Question 18

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. Reasonable assurance means that the auditor believes the financial statements are materially correct, but there is still a small risk that they may contain errors or misstatements. Therefore, users of the financial statements should not solely rely on the auditor's report and should conduct their own analysis and due diligence.

Question 19

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 20

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 also known as a clean opinion.

Quiz 3: Audit Reports

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: