Question 1

Auditors cannot give negative assurance in an audit report.

Accepted Answer

The answer of Auditors cannot give negative assurance in an...

Question 2

Moderate assurance is typical in the review report of audited financial statements.

Accepted Answer

The answer of Moderate assurance is typical in the review...

Question 3

An auditor decided to issue a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevented the auditor from applying necessary procedures.The opinion paragraph of the auditor's report should state that the qualification pertains to ________.
A)a GAAP departure
B)a departure from generally accepted auditing standards
C)the possible effect of the lack of audit evidence on the financial statements
D)inadequate disclosure of necessary information

Accepted Answer

The wording of the question suggests that the major inadequacy in the entity's computerized accounting records prevented the auditor from obtaining sufficient audit evidence to support the financial statements. Therefore, the qualification pertains to the possible effect of the lack of audit evidence on the financial statements. It is not a GAAP departure, a departure from generally accepted auditing standards, or inadequate disclosure of necessary information that led to the qualified opinion.

Question 4

The words "except for" should be used in the scope paragraph only if there is a reservation resulting in a disclaimer of opinion or a scope qualification.

Accepted Answer

"Except for" is typically used to indicate a limitation or exception to the auditor's conclusion. If there is no such limitation, the phrase should not be used in the scope paragraph.

Question 5

When the auditor is not independent,a GAAP departure qualification is required.

Accepted Answer

The answer of When the auditor is not independent,a GAAP...

Question 6

When an adverse opinion is given,all the substantive reasons for the opinion must be disclosed in the report in explanatory paragraphs.

Accepted Answer

This is a requirement of generally accepted auditing standards (GAAS) in the United States. The auditor must disclose all substantive reasons for an adverse opinion in the report to provide transparency and clarity to users of the financial statements. Failure to do so could result in a lack of trust in the auditor and the financial statements they are auditing.

Question 7

An accountant becomes associated with financial statements when he or she signs them as the Chief Financial Officer.

Accepted Answer

An accountant becomes associated with financial statements primarily through the act of preparing, auditing, or reviewing them, not merely by signing them as the Chief Financial Officer (CFO). The CFO's signature typically represents management's responsibility for the financial statements, rather than the accountant's professional association with them.

Question 8

In Canada,when there has been a change in accounting principles and the effect of the change has been properly disclosed,the auditor should ________.
A)refer to the change in an explanatory paragraph
B)explicitly concur that the change is preferred
C)issue an unqualified opinion
D)refer to the change in the opinion paragraph

Accepted Answer

When there has been a change in accounting principles and the effect of the change has been properly disclosed, the auditor should issue an unqualified opinion indicating the change in accounting principle has been properly accounted for and disclosed. This opinion should also include a reference to the note in the financial statements that describes the change in accounting principle.

Question 9

When a client will not permit inquiry of outside legal counsel,the audit report will ordinarily contain a(n)________.
A)disclaimer of opinion
B)"except for" qualified opinion regarding a departure from generally accepted accounting principles
C)unqualified opinion with a separate explanatory paragraph
D)adverse opinion

Accepted Answer

When the client refuses to allow inquiry of their legal counsel, the auditor is unable to gather sufficient audit evidence and cannot express an unqualified opinion. As a result, the auditor will typically issue a disclaimer of opinion, which indicates that they were unable to form an opinion on the financial statements.

Question 10

In which of the following circumstances may the auditor issue the standard unqualified,unmodified audit report?
A)The client disclosed a change in accounting principles with an immaterial effect on financial position and results of operations.
B)The financial statements do not disclose significant going concern issues.
C)The financial statements do not disclose a justified departure from generally accepted accounting principles.
D)The auditor has not been able to audit a substantial portion of the balance sheet because of circumstances beyond anyone's control.

Accepted Answer

The answer of In which of the following circumstances may...

Question 11

An independent auditor must consider whether the auditee has the ability to continue as a going concern.If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report,the auditor should ________.
A)disclaim an opinion.
B)express an adverse opinion.
C)qualify the opinion.
D)express an unqualified opinion.

Accepted Answer

If disclosure is adequate and no other basis exists for modifying the report, the auditor should express an unqualified opinion. A disclaimer or adverse opinion would only be necessary if the auditor concludes that the financial statements are materially misstated or inadequate disclosure has been made. However, if there is a substantial doubt about the auditee's ability to continue as a going concern, the auditor must include an emphasis of matter paragraph in the auditor's report. This paragraph draws attention to the note in the financial statements that discloses the uncertainty.

Question 12

Under which of the following circumstances would a disclaimer of opinion be appropriate?
A)The client refuses to allow the auditor to review the minutes of the board of director's meetings.
B)The financial statements fail to contain adequate disclosure of related party transactions.
C)The auditor is engaged during the year and is unable to observe opening physical inventories which are material.
D)The auditor has identified illegal payments to foreign officials made by the client's management.

Accepted Answer

The answer of Under which of the following circumstances would...

Question 13

A scope limitation imposed by a client would result in an adverse opinion.

Accepted Answer

The answer of A scope limitation imposed by a client...

Question 14

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time,the auditor's responsibility is to ________.
A)prepare prospective financial information to verify whether management's plans can be effectively implemented
B)project future conditions and events for a period of time not to exceed one year following the date of the financial statements
C)issue a qualified or adverse opinion,depending upon materiality,due to the possible effects on the financial statements
D)consider the adequacy of disclosure about the entity's possible inability to continue as a going concern

Accepted Answer

When the auditor concludes there is substantial doubt about an entity's ability to continue as a going concern, their responsibility is to consider the adequacy of disclosure about the possible inability to continue as a going concern. The auditor should ensure that the financial statements contain appropriate disclosures concerning the entity's ability to continue as a going concern, including a description of management's plans and the possible effects on the financial statements. The auditor's responsibility is not to prepare prospective financial information or project future conditions and events, and issuing a qualified or adverse opinion would depend on materiality and the auditor's judgment of the impact on the financial statements. Therefore, choice D is the best answer.

Question 15

Auditing standards require that an appropriate communication be issued in all cases where an accountant's name is associated with financial information.

Accepted Answer

This is required by both generally accepted auditing standards (GAAS) and the International Standards on Auditing (ISA). This communication could be in the form of an auditor's report or other documentation.

Question 16

Management has decided that the life of a piece of heavy equipment should be decreased from 15 years to 10 years,thus increasing the annual amortization.The auditor agrees that this amortization period is more reflective of the nature of the asset.The type of audit report that should be issued is ________.
A)unqualified
B)qualified
C)adverse
D)disclaimer

Accepted Answer

The change in the amortization period is a reasonable and necessary adjustment, and the auditor agrees with it. This means that there are no material misstatements or uncertainties in the financial statements that need to be disclosed, and thus an unqualified audit report can be issued.

Question 17

By its silence,a clean opinion implies that the financial statement disclosures are reasonably adequate.

Accepted Answer

By not expressing any discrepancies or concerns, a clean opinion indicates that the financial statement disclosures are reasonably adequate.

Question 18

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A)Inspecting title documents to verify whether any assets are pledged as collateral.
B)Confirming with third parties the details of arrangements to maintain financial support.
C)Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
D)Comparing the entity's amortization and asset capitalization policies to other entities in the industry.

Accepted Answer

Confirming with third parties the details of arrangements to maintain financial support would provide assurance to the auditor about the entity's ability to obtain financing or other assistance needed to continue as a going concern. Inspecting title documents, reconciling cash balances, and comparing amortization and capitalization policies may provide some insight into the entity's financial health, but would not necessarily indicate whether it is at risk of going concern.

Question 19

The term "financial statements" includes all of the footnote disclosures

Accepted Answer

Financial statements are a set of documents that provide information about the financial performance, position, and cash flows of an organization. These statements typically include the balance sheet, income statement, and statement of cash flows, as well as accompanying footnote disclosures that provide additional details and explanations. Therefore, the term "financial statements" includes all of the footnote disclosures.

Question 20

An auditor who is reporting on financial statements that contain a material departure from generally accepted accounting principles should include a separate explanatory paragraph and ________.
A)express a qualified or adverse opinion
B)not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote
C)deny an opinion on the financial statements
D)express a qualified opinion or deny an opinion

Accepted Answer

According to auditing standards, when financial statements contain a material departure from generally accepted accounting principles, the auditor should include a separate explanatory paragraph in the audit report, expressing a qualified or adverse opinion on the financial statements. This is because such a departure may affect the fairness of the financial statements and the users' understanding of them. Therefore, Option A is the best choice. Options B and C are incorrect because modifying the opinion paragraph for such departures is required by auditing standards, and denying an opinion is only necessary when there is a material limitation on the scope of the audit. Option D is partially correct, but not the best choice, because it includes both qualified and denial options.

Quiz 4: Reports on Audited Financial Statements

Auditors cannot give negative assurance in an audit report.

Moderate assurance is typical in the review report of audited financial statements.

The words "except for" should be used in the scope paragraph only if there is a reservation resulting in a disclaimer of opinion or a scope qualification.

When the auditor is not independent,a GAAP departure qualification is required.

When an adverse opinion is given,all the substantive reasons for the opinion must be disclosed in the report in explanatory paragraphs.

An accountant becomes associated with financial statements when he or she signs them as the Chief Financial Officer.

In Canada,when there has been a change in accounting principles and the effect of the change has been properly disclosed,the auditor should ________.

When a client will not permit inquiry of outside legal counsel,the audit report will ordinarily contain a(n) ________.

In which of the following circumstances may the auditor issue the standard unqualified,unmodified audit report?

An independent auditor must consider whether the auditee has the ability to continue as a going concern.If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report,the auditor should ________.

Under which of the following circumstances would a disclaimer of opinion be appropriate?

A scope limitation imposed by a client would result in an adverse opinion.

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time,the auditor's responsibility is to ________.

Auditing standards require that an appropriate communication be issued in all cases where an accountant's name is associated with financial information.

By its silence,a clean opinion implies that the financial statement disclosures are reasonably adequate.

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

The term "financial statements" includes all of the footnote disclosures

An auditor who is reporting on financial statements that contain a material departure from generally accepted accounting principles should include a separate explanatory paragraph and ________.