Question 1

The PCAOB expects that in most audits, the auditor will determine that at least one matter involved especially challenging, subjective, or complex auditor judgment.

Accepted Answer

This statement is true, as per the PCAOB's Auditing Standard No. 1210, the auditor is expected to encounter at least one significant matter that involves complex or subjective auditor judgment in most audits.

Question 2

The unqualified opinion audit report for public entities includes which of the following sections and/or paragraphs?

Accepted Answer

The unqualified opinion audit report for public entities includes all of the sections and/or paragraphs listed in choices A, B, and C (report title, address, and opinion; basis for opinion and discussion of critical audit areas; auditor information and date).

Question 3

Examples of unmodified opinions which contain modified wording (without adding an emphasis-of-matter paragraph) include

Accepted Answer

Reports involving other auditors can include modified wording in the auditor's report to indicate the involvement of other auditors without necessarily adding an emphasis-of-matter paragraph. This modification does not imply a qualification of the opinion but rather provides additional information about the audit process.

Question 4

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 5

The separate report on internal control over financial reporting

Accepted Answer

The separate report on internal control over financial reporting includes a paragraph that addresses the inherent limitations of internal controls. This is required by the PCAOB auditing standards. Answer A is incorrect because the report can contain a cross-reference to the auditor's report on the financial statements. Answer C is incorrect because the report is addressed to management and the audit committee of the company, not the PCAOB. Answer D is incorrect because the scope paragraph in the report refers to the procedures and methods used to evaluate internal controls, not the framework.

Question 6

The critical audit matters section of the auditor's report notes that this communication of critical audit matters alters the auditor's opinion on the financial statements.

Accepted Answer

The communication of critical audit matters in the auditor's report does not alter the auditor's opinion on the financial statements; it provides additional context regarding the audit that was performed.

Question 7

PCAOB standards use the term "unqualified opinion" to refer to the standard unmodified opinion audit report.

Accepted Answer

PCAOB standards do use the term "unqualified opinion" to refer to the standard unmodified opinion audit report.

Question 8

PCAOB auditing standards require the disclosure of the audit engagement partner's name and other accounting firms participating in the audit engagement in the audit report.

Accepted Answer

The answer of PCAOB auditing standards require the disclosure of...

Question 9

The critical audit matters section of the audit report is required for audits of fiscal years ending on or after June 30, 2019 for large companies, and fiscal years ending on or after December 31, 2020 for all other audits to which these requirements apply.

Accepted Answer

This is the correct timeline for the implementation of the critical audit matters section in the audit report.

Question 10

PCAOB audit report requirements require the auditor to include the auditor's signature, tenure, city and state where the audit firm is located, as well as the audit report date.

Accepted Answer

PCAOB audit report requirements do require the auditor's signature, tenure, city and state where the audit firm is located, as well as the audit report date to be included in the report.

Question 11

If the auditor concludes there are no critical audit matters, the auditor is not required to disclose this fact in the audit report.

Accepted Answer

The answer of If the auditor concludes there are no...

Question 12

If the auditor also issues a separate report on internal control over financial reporting for a public company, the additional paragraph following the opinion paragraph is included to reference the audit report on internal control.

Accepted Answer

The additional paragraph following the opinion paragraph in the auditor's report on financial statements for a public company includes a reference to the separate report on internal control over financial reporting if the auditor also issues one. This is done to inform users of the financial statements that the auditor has evaluated the effectiveness of the company's internal control over financial reporting in addition to the financial statements themselves.

Question 13

All of the following are causes for the addition of an emphasis of a matter paragraph under both AICPA and PCAOB standards except for

Accepted Answer

Reports involving other auditors typically require a modification to the auditor's responsibility section or an other-matter paragraph, not an emphasis of a matter paragraph.

Question 14

With regards to critical audit matters as defined by the PCAOB, the auditor would likely consider what type(s) of issues that involved "especially challenging, subjective, or complex auditor judgment" matters?
 Name at least three specific matters.

Accepted Answer

The answer of With regards to critical audit matters as...

Question 15

Similar to AICPA standards, the new PCAOB standard requires the auditor to disclose critical audit matters in the auditor's report.

Accepted Answer

The answer of Similar to AICPA standards, the new PCAOB...

Question 16

Under PCAOB standards,

Accepted Answer

PCAOB standards refer to the standard unmodified opinion audit report as an unqualified opinion audit report.

B is incorrect because while the scope paragraph does state that the financial statements are the responsibility of management, this is not the only content included in the scope paragraph.

C is also incorrect because while PCAOB standards do require auditors to evaluate internal controls, they do not specify a specific timeframe for how often this should be done.

D is incorrect because the scope paragraph for public companies includes additional requirements such as a statement about the auditor's responsibility to express an opinion on internal controls.

Question 17

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

Accepted Answer

Explanatory information regarding specific matters regarding the financial statements can be included in a separate paragraph in the report, also known as the explanatory paragraph. This paragraph typically follows the opinion paragraph and provides additional information that may be relevant to users of the financial statements.

Question 18

The basis for opinion paragraph of the audit report for a public company is worded exactly the same as the basis for opinion section for a U.S. nonpublic company.

Accepted Answer

The basis for opinion paragraph of the audit report for a public company differs from that of a nonpublic company. The basis for opinion paragraph for a public company includes a reference to the Public Company Accounting Oversight Board (PCAOB) while the basis for opinion section for a nonpublic company does not. Additionally, there may be additional legal and regulatory requirements specific to public companies that are addressed in this section.

Question 19

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

Section 404(b) of the Sarbanes-Oxley Act requires the auditor to attest to the effectiveness, not efficiency, of internal controls over financial reporting.

Question 20

Auditing standards for public companies are established by the

Accepted Answer

Auditing standards for public companies are established by the PCAOB (Public Company Accounting Oversight Board), which was created by the Sarbanes-Oxley Act of 2002 to oversee public company audits and ensure that auditors adhere to certain standards and guidelines. The SEC (Securities and Exchange Commission) has oversight authority over the PCAOB, but the PCAOB sets the auditing standards. The FASB (Financial Accounting Standards Board) sets accounting standards for both public and private companies, but not specifically for auditing. The IRS (Internal Revenue Service) is responsible for enforcing tax laws and regulations, but not auditing standards.

Quiz 3: Audit Reports