Question 1

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 2

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

The answer of Changes in accounting estimates requires the auditor...

Question 3

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...

Question 4

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 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 type of opinion that an auditor can issue.

Question 5

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 6

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

Accepted Answer

This statement is true. Material items that affect the comparability of financial statements, such as a change in accounting method or a significant transaction, should be disclosed in the footnotes to provide users with a better understanding of the financial performance and position of the company.

Question 7

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 8

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

This is true. The principal auditor is responsible for determining the materiality of amounts in question and assessing the overall impact on the financial statements.

Question 9

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 10

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" in the opinion paragraph of an audit report is a signal that the auditor has issued a qualified opinion. A qualified opinion means that the financial statements are fairly presented in all material respects, except for a specific matter that the auditor has identified in the report. This is different from an unqualified opinion, which means that the financial statements are fairly presented and there are no material misstatements. An adverse opinion or a disclaimer of opinion would indicate more significant issues with the financial statements.

Question 11

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 12

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 13

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

A disclaimer of opinion must be issued in all cases where the auditor lacks independence. Independence is a fundamental requirement for auditors, and its absence undermines the credibility of the audit opinion. Therefore, the auditor cannot issue any other type of opinion, including a qualified or an adverse opinion, if independence is impaired. The only option is to disclaim an opinion, which means that the auditor cannot express any conclusion on the financial statements. The disclaimer must explain the reason for the lack of independence and its effect on the audit, as well as any other limitations on the scope of the audit that may have contributed to the disclaimer.

Question 14

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 affect consistency and therefore require an explanatory paragraph in the audit report.

Question 15

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 16

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 opinion paragraph should be modified to indicate the division of responsibility and name the other CPA firm. A shared opinion is issued when the auditor and the other CPA firm are jointly responsible for the work performed.

Question 17

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 when generally accepted accounting principles have not been used. However, lack of independence would require an adverse opinion, not a qualified opinion.

Question 18

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

A modified unqualified audit report is issued when the financial statements are fairly presented but the auditor believes additional disclosures are necessary to provide a better understanding of the financials.

Question 19

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

The answer of The only modified unqualified opinion that does...

Question 20

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

The answer of A client has changed their method of...

Quiz 3: Audit Reports

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:

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

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

An adverse opinion is issued when the auditor believes:

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.

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

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:

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.

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:

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

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

An auditor can express a qualified opinion due to a:

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

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.

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

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.

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

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.

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) :