Question 1

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor:

Accepted Answer

Auditors can accept engagements to report on a single financial statement, such as the balance sheet, as long as they have access to all necessary information. This does not constitute a scope limitation or a departure from generally accepted auditing standards, allowing the auditor to perform the engagement and provide an appropriate opinion.

Question 2

An emphasis-of-matter paragraph ordinarily:

Accepted Answer

An emphasis-of-matter paragraph is included in the auditor's report to draw attention to a matter that is fundamental to users' understanding of the financial statements. It ordinarily follows the opinion paragraph.

Question 3

Doe, an independent auditor, was engaged to perform an audit of the financial statements of Ally Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Doe, and accounts receivable were not confirmed by direct communication with debtors, Doe was able to obtain sufficient appropriate audit evidence by applying alternative auditing procedures. Doe's audit report will probably contain:

Accepted Answer

Doe was able to obtain sufficient appropriate audit evidence through alternative procedures, which means that the audit was performed in accordance with auditing standards. Therefore, Doe can issue a standard unmodified opinion.

Question 4

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for:

Accepted Answer

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for updating the report on the previous financial statements regardless of the opinion previously issued. This ensures that the auditor's opinion reflects any new information or changes that may have occurred since the original report was issued.

Question 5

Morgan, CPA, is the group auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the component auditor, as well as the quality of the component auditor's audit. With respect to Morgan's report on the consolidated financial statements, taken as a whole, Morgan:

Accepted Answer

Morgan may refer to the audit of the component auditor in the audit report on the consolidated financial statements. However, Morgan is not required to do so. If Morgan chooses to refer to the component auditor, Morgan must include a description of the scope and nature of the component auditor's work, but is not required to include a qualified opinion.

Question 6

For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to:

Accepted Answer

In a comparative financial statement, auditors' opinion would refer to each of the years in the two-year period. This is because the auditors have audited both years and their opinion applies to both years presented for comparison. Therefore, the auditors' opinion would cover both years.

Question 7

The basis for a modification paragraph is ordinarily placed:

Accepted Answer

The answer of The basis for a modification paragraph is...

Question 8

When the auditor is unable to determine the amounts associated with noncompliance with a law by client personnel due to a scope limitation, the auditor should issue a(an):

Accepted Answer

When the auditor is unable to determine the amounts associated with noncompliance with a law by client personnel due to a scope limitation, the auditor is unable to obtain sufficient appropriate audit evidence to support the amounts and disclosures in the financial statements. As a result, the auditor is unable to form an opinion on the financial statements and should issue a disclaimer of opinion.

Question 9

Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on a public company's financial statements? $$\begin{array} { | c | c | c | } 
\hline & \text { Conformiy with PCAOB Standards } & \text { Adequacy of disclosure } \
\hline \text { A. } & \text { Explicitly } & \text { Explicitly } \
\hline \text { B. } & \text { Implicitly } & \text { Implicitly } \
\hline \text { C. } & \text { Implicitly } & \text { Explicitly } \
\hline \text { D. } & \text { Explicitly } & \text { Implicitly } \
\hline
\end{array}$$

Accepted Answer

An auditor explicitly states conformity with PCAOB standards in the audit report, while the adequacy of disclosure is implied through the fair presentation of financial statements.

Question 10

The auditors include an emphasis-of-matter paragraph in an audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph:

Accepted Answer

Including an emphasis-of-matter paragraph to highlight a particular matter does not negate the unmodified opinion as long as the auditors' assessment of the financial statements remains unmodified. It is considered appropriate to include such a paragraph to provide readers with an additional explanation or detail regarding the financial statements being reported upon.

Question 11

When reporting on comparative financial statements where the financial statements of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor should indicate in the report:

Accepted Answer

The successor auditor should indicate the type of opinion expressed by the predecessor auditor when the predecessor's report is not presented. This provides context and continuity for the financial statement users regarding the audit opinions over time.

Question 12

An auditor's report on comparative financial statements should be dated as of the date of the:

Accepted Answer

The auditor's report should be dated as of the date when the auditor has accumulated sufficient appropriate audit evidence to support the opinion on the financial statements. This date signifies the end of the auditor's responsibility for the review of events that may affect the financial statements.

Question 13

Under which of the following set of circumstances might the auditors disclaim an opinion?

Accepted Answer

When there are significant scope limitations on the audit, the auditors may not have been able to obtain sufficient appropriate audit evidence to support their opinion on the financial statements. In such cases, the auditors may disclaim an opinion, which means they cannot express an opinion on the financial statements. The other options listed may result in qualified opinions or explanatory paragraphs in the audit report, but they do not necessarily lead to a disclaimer of opinion.

Question 14

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be:

Accepted Answer

According to accounting standards, a change that is reasonably certain to have a material effect in later years but has no material effect on the financial statements in the current year should be disclosed in the notes to the financial statements of the current year. It is not required to be referred to in the auditor's report or treated as a subsequent event. Therefore, the best choice is option B.

Question 15

In which of the following circumstances will it be most likely that an adverse opinion is considered appropriate?

Accepted Answer

An adverse opinion is appropriate when the financial statements are not in conformity with generally accepted accounting principles that have a material impact on the financial statements. This circumstance is described in option C, where the statements are not in conformity with GAAP regarding pension plans. Options A and D suggest that the auditor's independence or ability to conduct an audit has been compromised, which would require a disclaimer or qualified opinion, respectively. Option B suggests a departure from GAAP with an immaterial impact, which would result in an unqualified opinion with an explanatory paragraph.

Question 16

For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected:

Accepted Answer

While it is generally encouraged to apply accounting principles consistently from year to year, it is not a requirement for financial statements to be presented fairly in conformity with generally accepted accounting principles. Therefore, option D is the correct choice.

Question 17

Which of the following is a general purpose financial reporting framework?

Accepted Answer

International Financial Reporting Standards (IFRS) is a general purpose financial reporting framework that provides guidance on how various financial transactions and events should be reported in financial statements. It is used in many countries around the world to ensure consistency and comparability in financial reporting. The other choices are related to auditing standards and not financial reporting frameworks.

Question 18

Which of the following will result in emphasis-of-matter as to consistency in the auditor's report, regardless of whether the item is fully disclosed in the financial statements?

Accepted Answer

A change from an unacceptable accounting principle to a generally accepted one is considered a change in accounting principle and requires the auditor to issue an emphasis-of-matter paragraph in their report regarding consistency, regardless of whether the item is fully disclosed in the financial statements. The other choices (A, C, and D) do not necessarily require an emphasis-of-matter paragraph regarding consistency.

Question 19

Which of the following is least likely to result in a qualification of the auditors' opinion due to a scope limitation?

Accepted Answer

Reliance on the report of component auditors is a common practice in auditing, especially for large corporations with multiple divisions or international operations. This does not inherently limit the scope of the audit or lead to a qualification of the auditors' opinion, as long as the principal auditors are satisfied with the work of the component auditors.

Question 20

An independent auditor has concluded that substantial doubt remains about a client's ability to continue as a going concern, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a(an):

Accepted Answer

An "emphasis-of-matter" paragraph would be appropriate in this situation to draw attention to the going concern issue, but because the financial statements have been properly disclosed, an unmodified opinion can still be issued.

Quiz 17: Auditors Report