Deck 15: Audit Reports

Question 1

As described by the AICPA,the purpose of an audit is to enhance the degree of confidence that users can place in the financial statements.

Answer 1

True

Question 2

The auditor should only provide an opinion on the financial statements if the opinion indicates that the financial statements are fairly stated in all material respects.

Answer 2

False

Question 3

An auditor is not required to inform the reader of an audit report when there has been a change in accounting principles that materially affects the financial statements.

Answer 3

False

Question 4

A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion.

Question 5

Under international auditing standards,when the audit client has engaged other audit firms to audit remote locations around the country,the principal auditor must mention the other audit firms in the audit report.

Question 6

The SEC has established reporting deadlines for public companies ranging from 60 to 90 days after year-end depending on the industry in which the company operates.

Question 7

When financial statements contain generally accepted accounting principles in the current year that are different from the generally accepted accounting principles used in the preceding year,the auditor will typically make mention of it in the report.

Question 8

The term "except for" is used in the opinion paragraph of an audit report that will be qualified for a GAAP violation that is not pervasive.

Question 9

The phrase "substantial doubt about the company's ability to continue as a going concern" is used in an unqualified opinion with an additional paragraph explaining the auditor's conclusions regarding the going concern assumption.

Question 10

A justified departure from GAAP will result in the issuance of an adverse opinion.

Question 11

After the balance sheet date but prior to the audit report date,the client decides to acquire Bargain Company to obtain a significant increase in revenues.The auditor's report would probably include the statement: "except for the acquisition of Bargain Company...".

Question 12

For some engagements,the financial statements might be audited in accordance with multiple auditing standards.

Question 13

The audit report delineates the responsibility of client management and that of the audit firm.

Question 14

Modification of the audit report is required when another audit firm performs part of the financial statement audit.

Question 15

The audit report is usually written but,in certain circumstances,can be in the form of a verbal presentation to the audit committee.

Question 16

An unqualified audit opinion with an explanatory paragraph often makes reference to the footnotes of the financial statements

Question 17

Andrews Corporation adopted an accounting principle that is a material departure from GAAP.The auditor determined that the financial statements are fairly presented,except for this specifically identifiable GAAP departure,and therefore would issue a disclaimer of opinion.

Question 18

The PCAOB's reporting standard AS 3101 adopted in 2017 retains the "pass/fail" opinion that has been in effect for many decades.

Question 19

There are no differences in audit report requirements across the standards of the AICPA,PCAOB,and IAASB.

Question 20

A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

Question 21

The AICPAs Auditing Standards Board voted in 2017 to consider aligning its guidance with PCAOB standards related to disclosure of critical audit matters.

Question 22

Critical audit matters (CAMs)include matters that are material to the financial statements but do not relate to accounts or disclosures.

Question 23

The auditor will issue an unqualified opinion on ICFR if the auditor has identified only one material weakness in ICFR.

Question 24

Uncertainties,such as doubt about the going concern of a client,may result in an adverse opinion.

Question 25

The auditor will modify the audit report on ICFR effectiveness when management's annual certification pursuant to Section 302 of the Sarbanes-Oxley Act is misstated.

Question 26

For a change in accounting principles that management does not justify to the auditor,the auditor will likely choose between a qualified and an adverse opinion.

Question 27

When circumstances preclude an auditor from performing certain procedures and the auditor can be satisfied using other alternative procedures,a disclaimer of opinion will be issued.

Question 28

When the auditor is unable to obtain sufficient,appropriate evidence concerning the beginning inventory,which is material,the report is modified by adding an explanatory paragraph prior to the opinion paragraph and appropriate modification to the auditor's responsibility paragraph.

Question 29

If the firm auditing a company realizes that it is not independent with respect to the client,it will issue a disclaimer of opinion based on the inherent GAAP violation imposed by the audit firm.

Question 30

If the auditor concludes that the financial statements taken as a whole are not fairly presented,the auditor should issue an adverse opinion.

Question 31

If scope limitations that are not client-imposed exist and make it impossible for the auditor to form an opinion,the auditor should render an adverse opinion.

Question 32

The auditor is only concerned about the aggregate internal control deficiencies when determining the appropriate opinion on internal control over financial reporting (ICFR).

Question 33

For a client with serious going concern issues,the auditor has to make a choice between issuing an unqualified audit report with an explanatory paragraph or a disclaimer.

Question 34

Inconsistent application of accounting principles by the client is a GAAP violation and would result in a qualified audit report.

Question 35

Under PCAOB standards (AS 3101)approved in 2017,all U.S.public companies will be required to disclose whether any critical audit matter (CAM)arose during the current period audit or state that there was none.

Question 36

Restrictions on the scope of the audit whether imposed by the client or circumstances may require the auditor to issue either a qualified or an adverse opinion.

Question 37

The failure of a client to include a statement of cash flows will result in the issuance of a disclaimer of opinion by the auditor.

Question 38

IAASB standards require disclosure of key audit matters (KAMs)related to five specific topics.

Question 39

The client will not allow Collier and Company,CPAs,to read the minutes of the board of director's meetings that occurred during the year under audit.Such a limitation will usually result in the auditor issuing a disclaimer.

Question 40

An auditor can issue a disclaimer of opinion because of an inability to obtain sufficient appropriate evidence.

Question 41

If the auditor has no reservations about the fairness of the financial statements but believes there is a remote possibility that resolution of an uncertainty will have a material effect on the financial statements,which of the following would the auditor issue?

A)A disclaimer of opinion.
B)An unqualified opinion with no report modifications.
C)An adverse opinion.
D)An unqualified opinion with explanatory paragraphs.

Question 42

Which of the following statements is true regarding audit reporting?

A)The auditor should provide an opinion based on the audit evidence obtained.
B)Auditing standards require auditors to provide positive assurance.
C)The auditor's opinion should state whether the financial statements are presented fairly.
D)All of the above statements are true.

Question 43

When it is discovered that an important audit procedure was not performed,the SEC imposes sanctions against the audit firm responsible.

Question 44

Typically,omissions may be discovered when audit documentation is reviewed as part of an external or internal review program.

Question 45

The use of another CPA firm by an audit firm to perform part of the engagement on a client's subsidiary will require the audit firm to do which of the following?

A)Merge with the other CPA firm.
B)Perform a peer review on the other CPA firm.
C)Ensure the independence of the other CPA firm of the client.
D)List the other firm in the footnotes to the client's financial statements.

Question 46

If an omission of an important audit procedure is discovered,the auditor should immediately issue a disclaimer of opinion for the audit.

Question 47

If the auditor decides to draw attention to large related party transactions occurring in the financial statements of the client,which report will most likely be issued?

A)Qualified opinion.
B)Unqualified opinion with an explanatory paragraph.
C)Adverse opinion.
D)Consolidated opinion.

Question 48

What can a user of financial statements infer from an unqualified opinion on the financial statements?

A)The auditor found no instances of error or fraud.
B)The auditor has no reservations about the fairness of presentation.
C)The auditor is satisfied that management is both credible and competent.
D)All of the above can be inferred by the user.

Question 49

Which of the following is not a change included in PCAOB's new reporting standard AS 3101?

A)Specific mention of comprehensive income and notes to the financial statements.
B)An affirmative statement that the audit firm is registered with the PCAOB.
C)A new disclosure that includes the year in which the audit firm began serving consecutively as the client's auditor.
D)A new report title,"Report of Independent Registered Public Accounting Firm."

Question 50

In which one of the following instances would an auditor most likely issue an unqualified opinion without explanatory language?

A)Management's disclosures are missing or inadequate.
B)There is substantial doubt about the entity's ability to continue as a going concern.
C)There is a significant limitation on the scope of the engagement.
D)There is an immaterial deviation from GAAP related to capitalizing repairs.

Question 51

Which of the following would not result in an unqualified audit report with an explanatory paragraph?

A)Going concern issue.
B)Scope limitation.
C)Emphasis of a matter.
D)Consistency of presentation.

Question 52

A client company has a history of negative cash flow trends and continuing losses.Which type of opinion will the auditor most likely issue?

A)Adverse.
B)Unqualified with explanatory language.
C)Qualified.
D)Disclaimer of opinion.

Question 53

Which of the following is an instance where the auditor would add a paragraph in a report expressing an unqualified opinion?

A)There is serious doubt that the client can continue as a going concern.
B)Management's disclosures are not adequate.
C)There are significant uncertainties that are not properly disclosed in the footnotes.
D)There is a material dollar misstatement in the financial statements.

Question 54

The decision about whether to make reference to another auditor in the report on the audit of ICFR does not differ from the corresponding decision as it relates to the audit of the financial statements.

Question 55

Audit reporting standards for financial statement and integrated audits require auditors to provide which of the following?
a.Positive assurance.
b.Negative assurance.
c.Materiality assurance.
d.No assurance.

Question 56

Which of the following is an example of the contents of an opinion paragraph found in an unqualified audit report?

A)"We have audited...."
B)"Nothing came to our attention..."
C)"The financial statements referred to above present fairly..."
D)"An audit includes examining,on a test basis..."

Question 57

Audit reports are designed to promote clear communication between the auditor and the financial statement user. Which of the following is not delineated in the audit report?

A)What was audited and the relative responsibilities of the client and the auditor.
B)The experience level of the audit team.
C)The nature of the audit opinion formulation process.
D)The auditor's opinion on the fairness of the financial statements.

Question 58

If the auditor determines that management's annual report on internal controls is incomplete or not properly presented,the auditor's report will include an explanatory paragraph that describes the reasons for this determination.

Question 59

According to the AICPA's audit reporting principles,which of the following is incorrect?

A)The purpose of an audit is to enhance the degree of confidence that users can place in the financial statements.
B)The purpose of an audit is achieved when an auditor expresses an opinion on the financial statements.
C)The auditor expresses an opinion as to whether the financial statements are free of material misstatement or states that an opinion cannot be expressed.
D)The auditor provides positive assurance that the financial statements are free of errors,either intentional or unintentional.

Question 60

If omitted audit procedures cannot be performed,the auditor should extend previous work done and modify the report,if necessary.

Question 61

In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?

A)The client has had significant transactions with related entities that the auditor wants to emphasize.
B)The financial statements are not in conformity with FASB requirements regarding the capitalization of leases.
C)The auditor is not independent.
D)There is substantial doubt about the entity's ability to continue as a going concern.

Question 62

Adverse opinions affect the audit report in which of the following ways?

A)Modifying the auditor's responsibility paragraph.
B)Adding an explanatory paragraph.
C)Modifying the opinion paragraph to read "does not present fairly."
D)Both B and C.
E)All of the above.

Question 63

Scope limitations resulting in disclaimers under U.S.auditing standards affect the standard audit report through which of the following?

A)Modifying the introductory paragraph
B)Eliminating the scope paragraph.
C)Adding an explanatory paragraph before the disclaimer paragraph.
D)Both B and C.
E)All of the above.

Question 64

In which one of the following instances would an auditor most likely issue an adverse opinion?

A)Management declines to present earnings per share in the income statement.
B)There is substantial doubt about the entity's ability to continue as a going concern.
C)There is a material dollar misstatement that is pervasive in the financial statements.
D)The client does not allow the auditor to send confirmations to its three largest customers.

Question 65

Adverse opinions can only be issued by auditors based on which of the following?

A)Violations of GAAP.
B)Scope limitations.
C)Going concern.
D)Lack of independence.
E)Either B or D.

Question 66

In which one of the following instances would an auditor not issue a disclaimer of opinion?

A)The auditors are not invited to observe the periodic inventory at year-end.
B)There are significant misstatements in the financial statements.
C)There is a significant limitation on the scope of the engagement.
D)There is insufficient evidence for the auditor to form an opinion on the fairness of the financial statements.

Question 67

When an auditor is faced with a material departure from GAAP that is pervasive,which of the following should the audit report contain?

A)An unqualified opinion.
B)A qualified opinion with an explanatory paragraph.
C)An adverse opinion.
D)A disclaimer of opinion.

Question 68

An audit of the Flagler Company,a diamond mining company,brings to light the fact that its equipment has been marked up to the owners' expectation of market values.Such a situation will most likely result in which type of opinion?

A)Disclaimer.
B)Review.
C)Adverse.
D)Unqualified with explanatory language.

Question 69

If a client expensed the acquisition cost of some assets that should have been capitalized and depreciated over their useful lives,which of the following would be incorrect?

A)A qualified opinion would be appropriate.
B)The opinion paragraph should be modified to include language such as: "except for the effects of not capitalizing the acquisition costs of some assets..."
C)An explanatory paragraph should include the effects of the subject matter of the qualification,where practicable.
D)An explanatory paragraph should be modified to include language such as: "subject to the qualified act..."

Question 70

Disclaimers of opinion can only be issued by auditors based on which of the following?

A)Violations of GAAP.
B)Substantial scope limitations.
C)Going concern.
D)Lack of independence.
E)Either B or D.

Question 71

When an auditor lacks independence with respect to a client,which of the following should the auditor issue?

A)A disclaimer of opinion.
B)An adverse opinion.
C)A qualified opinion with explanatory paragraph.
D)An unqualified opinion.

Question 72

Qualified opinions can only be issued by auditors for which of the following?

A)Violations of GAAP.
B)Scope limitations.
C)Going concern.
D)Lack of independence.
E)Either A or B.

Question 73

Which of the following is an example of circumstances that would not limit the audit scope?

A)An inadequacy in the accounting records.
B)The inability to gather sufficient competent evidence.
C)Emphasis of an important matter.
D)The timing of the fieldwork.

Question 74

In which one of the following cases would an auditor most likely issue a qualified opinion?

A)There is a highly material,and very pervasive departure from SFAS No.141 and No.142.
B)There is a change in accounting principles promulgated by the FASB.
C)There is an immaterial dollar misstatement on the financial statements.
D)There is one material departure from GAAP that affects only two accounts.

Question 75

How would the auditor categorize a situation when the financial statements do not contain a note the auditor believes is necessary for fair presentation?

A)A scope limitation.
B)An uncertainty.
C)A departure from GAAP.
D)An act discreditable.

Question 76

The opinion paragraph of the audit report for Schnook Co.states that the financial statements "do not present fairly." Which type of audit opinion is this?

A)Improper.
B)Adverse.
C)Disclaimer.
D)Qualified.

Question 77

When an auditor issues an adverse opinion,which of the following should be included in the opinion paragraph?

A)The financial statement effects of the departure from GAAP.
B)A statement that indicates that the financial statements are fairly stated except for a reason that is described in the separate paragraph.
C)A reference to a separate paragraph that describes the reason for the adverse opinion.
D)The reasons that the financial statements are misleading.

Question 78

Which of the following phrases should not be used when the auditor is qualifying the audit opinion?

A)Except for.
B)Subject to.
C)With the exception of.
D)With the qualification of.

Question 79

Violations of GAAP resulting in qualified opinions affect the audit report through which of the following?

A)Modifying the auditor's responsibility paragraph.
B)Adding an explanatory paragraph.
C)Modifying the opinion paragraph to read "except for."
D)Both B and C.
E)All of the above.

Question 80

In which one of the following instances would an auditor most likely issue a disclaimer of opinion?

A)Management will not sign a management representation letter.
B)Management declines to provide a statement of cash flows.
C)The auditor is independent of the client.
D)The auditor is unable to confirm receivables but performs alternative procedures.