Question 1

When other information is presented in a document with audited financial statements,the auditors' report should

Accepted Answer

The auditor's report should reference other information only if inconsistencies or material misstatements are identified, as auditors are not responsible for providing assurance on other information.

Question 2

When reporting on financial statements that include only summarized totals of account balances,the auditors' conclusion should state whether the information in the summary financial statements

Accepted Answer

When reporting on financial statements that include only summarized totals of account balances, the auditors' conclusion should state whether the information in the summary financial statements is fairly stated, in all material respects, in relation to the complete financial statements. This is because the summary financial statements are not complete in themselves and are intended to provide an overview of the financial performance and position of the company. Therefore, the auditors' conclusion should provide assurance that the summary financial statements are fairly stated in relation to the complete financial statements, which provide a more detailed and comprehensive view of the company's financial position and performance.

Question 3

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations.What reporting options are available to auditors when scope limitations are encountered during the engagement?

Accepted Answer

The answer of Define a scope limitation and distinguish between...

Question 4

The standard (unmodified)report issued in the audit of a nonpublic entity includes a(n)

Accepted Answer

The standard (unmodified) report issued in the audit of a nonpublic entity includes an opinion paragraph providing the auditors' conclusion as to the fair presentation of the financial statements. This is the only required element of the standard report, and it is the most important section since it represents the auditors' overall evaluation of the financial statements. The other options may be included in the report but are not required.

Question 5

Murray & Co.,CPAs completed the audit of Classic Inc.,a nonpublic entity,on March 1,2015 for a January 31,2015 fiscal year end.The audit team encountered no significant issues and found no material misstatements.Murray & Co.has audited Classic Inc.for several years and past audits did not reveal any significant issues or material misstatements.The audit team partner determined that a standard (unmodified)report on Classic Inc.'s financial statements was appropriate.The auditors' report,drafted by I.M.Nu,a staff assistant,is provided below.
Independent Auditor's Report
To the Board of Directors and Shareholders
Classic,Inc.
We have audited the accompanying financial statements of Classic Inc.,which comprise the balance sheet as of January 31,2015 and the related statements of changes in shareholders' equity and cash flows for the year then ended,and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the financial statements.
Opinion
In our opinion,the financial statements referred to above present fairly,the financial position of Classic,Inc.as of January 31,2015 and the results of its operations and its cash flows for the year then ended.
Murray & Co,CPAs
January 31,2015
Required:
Identify the deficiencies and errors in the draft report.Do not rewrite the report,but be specific as to what is incorrect or omitted.Organize your answer by paragraph or section.

Accepted Answer

The answer of Murray & Co.,CPAs completed the audit of...

Question 6

For each of the situations below,indicate,by letter,the type of report most likely to be issued.
A. Unmodified opinion, no modification.
B. Unmodified opinion, emphasis-of-matter paragraph for consistency.
C. Unmodified opinion, emphasis-of-matter paragraph for a going-concern uncertainty.
D. Qualified opinion.
E. Disclaimer of opinion.
___ 1. The entity has a lawsuit pending against them. There is significant uncertainty about the outcome of the lawsuit, which could have a highly material impact on the viability of the entity. Management has provided adequate disclosure of the lawsuit in the footnotes accompanying the financial statements.
___ 2. The entity has a lawsuit pending against them. It is probable that the entity will lose the suit. Management has accrued the best estimate of the loss and provided adequate disclosure. It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern.
___ 3. The entity has a lawsuit pending against them. It is probable that the entity will lose the suit. Management has not accrued the best estimate of the loss, but has provided information in the footnotes. It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern.
___ 4. Based on recent analysis of usage, the entity has changed the useful life of its office equipment from five to four years. This change is reflected in the depreciation amounts computed for the current year.
___ 5. The entity's management has not provided written representations requested by the auditors. The failure to provide these representations is considered to be a significant limitation on the scope of the auditors' work.

Accepted Answer

The answer of For each of the situations below,indicate,by letter,the...

Question 7

Below are two independent situations.
A.Grinner and Greeter,CPAs,were engaged to perform an audit of the financial statements of Happy Inc.Happy's management would not allow Grinner and Greeter to confirm any of the accounts receivable.All other auditing procedures were performed as considered necessary by Grinner and Greeter and no issues were encountered.However,Grinner and Greeter were unable to satisfy themselves with regard to the balance in accounts receivable.
B.Tick and Tie,CPAs,were performing their annual audit of Johnson Manufacturing Company.Johnson is currently being sued for $2,000,000 related to an alleged defective product that they sold to a customer.Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and have to pay the entire $2,000,000.Johnson's management has included information in the footnotes about the lawsuit.However,they have not recorded any loss or liability in the income statement or balance sheet.
Required:
For each of the independent situations presented above,state what type of opinion should be issued on the company's financial statements.Briefly explain your rationale.Finally,state which paragraphs,if any,of the standard report would be modified.

Accepted Answer

The answer of Below are two independent situations.
A.Grinner and Greeter,CPAs,were...

Question 8

Harris is auditing the financial statements of Cole Corp.,an energy company.The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information.If this required information is materially misstated,what type of report should Harris issue?

Accepted Answer

The answer of Harris is auditing the financial statements of...

Question 9

In each of the circumstances listed below,indicate,by appropriate letter,which of the following types of opinions should be rendered on the entity's financial statements?
A. Unmodified
B. Qualified
C. Adverse
D. Disclaimer
___ 1. Departure from generally accepted accounting principles that is material but not pervasive.
___ 2. Going-concern uncertainties that may have a material (but not pervasive) effect on the financial statements.
___ 3. Emphasis of a matter, no GAAP departure.
___ 4. Material, but not pervasive, scope limitation.
___ 5. Material and pervasive departure from GAAP.

Accepted Answer

The answer of In each of the circumstances listed below,indicate,by...

Question 10

Listed below are words and phrases from the auditors' standard (unmodified)report on the entity's financial statements.For each of the words and phrases indicate by letter in which paragraph of the standard (unmodified)report they should appear:
A. Introductory paragraph
B. Management Responsibility section
C. Auditor's Responsibility section
D. Opinion paragraph
___ 1. Audit provides a reasonable basis for an opinion.
___ 2. The financial statements present fairly, in all material respects.
___ 3. Auditors' responsibility is to express an opinion.
___ 4. Auditors perform the audit to obtain reasonable assurance.
___ 5. Financial statements are in accordance with accounting principles generally accepted in the United States of America.
___ 6. Responsibility of the entity's management for the financial statements.
___ 7. Results of its operations and its cash flows.
___ 8. Conducted our audits in accordance with the auditing standards generally accepted in the United States of America.
___ 9. Management is responsible for the design, implementation, and maintenance of internal control.
___ 10. We have audited the accompanying financial statements.

Accepted Answer

The answer of Listed below are words and phrases from...

Question 11

For each of the sentences or phrases below,indicate,by letter,in which section of the standard (unmodified)report on the entity's financial statements the sentence or phrase would appear.
A. Introductory paragraph
B. Management's Responsibility section
C. Auditor's Responsibility section
D. Opinion paragraph
___ 1. Our responsibility is to express an opinion on these financial statements based on our audits.
___ 2. The financial statements referred to above present fairly, in all material respects, the financial position of…
___ 3. We have audited the accompanying financial statements of…
___ 4. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
___ 5. Management is responsible for the preparation and fair presentation of these financial statements…

Accepted Answer

The answer of For each of the sentences or phrases...

Question 12

Shown below are a number of situations that may be encountered during the audit examination.For each,indicate how the auditors' standard (unmodified)report would be modified (each reporting situation may result in more than one modification to the auditors' standard (unmodified)report).
A. Modification to introductory paragraph.
B. Modification to Management's Responsibility section.
C. Modification to Auditor's Responsibility section.
D. Modification to opinion paragraph.
E. Additional paragraph added to report.
F. No modifications to the standard (unmodified) report are necessary.
___ 1. Departure from GAAP that does not materially affect the financial statements.
___ 2. Inability of auditors to confirm accounts receivable with customers; while the scope limitation is material, the auditors still believe an opinion may be expressed on the entity's financial statements.
___ 3. Group auditors decide to refer to the work of component auditors in their report.
___ 4. Entity has changed from FIFO to LIFO accounting for inventories.
___ 5. Auditors wish to highlight an event that occurred following the date of the financial statements.
___ 6. Departure from GAAP that has a material, but not pervasive, effect on the financial statements.
___ 7. Group auditors decide to assume full responsibility for the work of component auditors and not refer to component auditors' work in their report.
___ 8. Scope limitation that precludes auditors from expressing an opinion.
___ 9. Auditors would like to disclose potential going-concern uncertainties in their report (these uncertainties have been appropriately disclosed in the entity's financial statements and related disclosures).
___ 10. Departure from GAAP that has a material and pervasive effect on the financial statements.

Accepted Answer

The answer of Shown below are a number of situations...

Quiz 12: Reports on Audited Financial Statements

When other information is presented in a document with audited financial statements,the auditors' report should

When reporting on financial statements that include only summarized totals of account balances,the auditors' conclusion should state whether the information in the summary financial statements

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations.What reporting options are available to auditors when scope limitations are encountered during the engagement?

The standard (unmodified) report issued in the audit of a nonpublic entity includes a(n)

Harris is auditing the financial statements of Cole Corp.,an energy company.The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information.If this required information is materially misstated,what type of report should Harris issue?