Question 1

If the auditor lacks independence, a disclaimer of opinion must be issued:
A) if the client requests it.
B) only if it is highly material.
C) only if it is material but not pervasive.
D) in all cases.

Accepted Answer

A disclaimer of opinion must always be issued if the auditor lacks independence, regardless of whether the client requests it, the materiality of the issue, or its pervasiveness. The lack of independence is a fundamental issue that prevents the auditor from being able to express an opinion on the financial statements.

Question 2

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

Accepted Answer

Items that materially affect the comparability of the financial statements, such as changes in accounting policies, significant acquisitions or disposals, and restatements of prior period financials, generally require disclosure in the footnotes to ensure transparency and provide relevant information to users of the financial statements.

Question 3

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?
A) The auditor lacks independence.
B) A client-imposed scope limitation.
C) A circumstance imposed scope limitation.
D) Lack of full disclosure within the footnotes.

Accepted Answer

The answer of In which situation would the auditor be...

Question 4

When other auditors are involved in the audit and they qualify their portion of the audit, the principle auditor must decide if the amount in question is material to the financial statements as a whole.

Accepted Answer

The principle auditor is responsible for making the determination of whether the amount in question is material to the financial statements as a whole, even if other auditors are involved and have qualified their portion of the audit. This decision requires professional judgment and an understanding of the context and significance of the amount involved.

Question 5

Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report.

Accepted Answer

Changes in estimates do not affect consistency or comparability in a way that requires an explanatory paragraph in the audit report; they are a normal part of business operations and accounting practices.

Question 6

An auditor can express a qualified opinion due to a:
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor can express a qualified opinion...

Question 7

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:
A) a disclaimer.
B) an unqualified opinion.
C) a qualified opinion.
D) an adverse opinion.

Accepted Answer

A qualified opinion is issued when the financial statements present the entity's financial position, results of operations, and cash flows in conformity with generally accepted accounting principles, except for the effects of a material matter about which there is a disagreement or a limitation on the scope of the audit. If a client refuses to disclose information that materially affects the comparability of financial statements, the auditor may issue a qualified opinion due to the lack of adequate disclosure.

Question 8

A modified unqualified auditor report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

Accepted Answer

A modified unqualified auditor report can arise when the auditor believes that the financial statements are fairly stated but also believes that additional information should be provided to the users of the financial statements, such as a change in accounting methods or a material uncertainty related to going concern. In such cases, the auditor may issue an unqualified opinion with a modification to the auditor's report to draw attention to the additional information or disclosures.

Question 9

The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved. In this case only the introductory paragraph is modified.

Accepted Answer

The answer of The only modified unqualified opinion that does...

Question 10

A qualified opinion can be issued for which of the following?
I. When a limitation on the scope of the audit has occurred.
II. When the auditor lacks independence.
III. When generally accepted accounting principles have not been used.
A) I and II
B) I and III
C) II and III
D) I, II and III

Accepted Answer

A qualified opinion can be issued when there is a limitation on the scope of the audit or when generally accepted accounting principles have not been used. However, if the auditor lacks independence, a disclaimer of opinion or an adverse opinion is required instead of a qualified opinion.

Question 11

Changes of an accounting estimate requires the auditor to issue a modified unqualified audit report with a consistency paragraph is inserted after the opinion paragraph.

Accepted Answer

Changes in accounting estimates do not require a consistency paragraph in the audit report, as they are considered normal and do not affect the comparability of financial statements.

Question 12

If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n):
A) adverse opinion.
B) disclaimer opinion.
C) unqualified opinion.
D) qualified opinion.

Accepted Answer

The phrase "except for" indicates that the auditor is issuing a qualified opinion, which means that the financial statements are fairly presented except for a specific material departure from GAAP or IFRS.

Question 13

As a result of management's refusal to permit the auditor to physically examine inventory. The auditor must depart from the unqualified audit report because:
A) the financial statements have not been prepared in accordance with GAAP.
B) the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control.
C) the financial statements have not been audited in accordance with GAAS.
D) the scope of the audit has been restricted.

Accepted Answer

When management restricts the scope of an audit, either by not providing sufficient evidence or preventing the auditor from accessing certain information, the auditor must issue a modified audit report indicating that the scope was limited. In this case, the auditor's inability to physically examine inventory means that the scope of the audit has been restricted. Therefore, the best choice is D, which indicates that the scope of the audit has been restricted.

Question 14

An adverse opinion is issued when the auditor believes:
A) some parts of the financial statements are materially misstated or misleading. d the financial statements would be found to be materially misstated if an investigation were performed.
B) the financial statements would be found to be materially misstated if an investigation were performed.
C) the auditor is not independent.
D) the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Accepted Answer

An adverse opinion is issued when the auditor believes that the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. This type of opinion is only given when there are significant and pervasive issues with the financial statements.

Question 15

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n):
A) disclaimer.
B) adverse opinion.
C) unqualified opinion.
D) qualified opinion.

Accepted Answer

The answer of A client has changed their method of...

Question 16

An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued?
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor determines the financial statements include...

Question 17

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified.

Accepted Answer

When a different CPA firm performs a part of the audit and the auditor chooses to issue a shared opinion, both the auditor's responsibility paragraph and the opinion paragraph should be modified. The auditor's responsibility paragraph should state that the auditor is responsible only for the portion of the audit performed by the auditor's firm, while the opinion paragraph should refer to the work of the other CPA firm and express a conclusion about the financial statements taken as a whole.

Question 18

In certain circumstances, an auditor will issue modified unqualified report. Discuss each of the five circumstances when an auditor would issue an unqualified report with an explanatory paragraph or modified wording.

Accepted Answer

The answer of In certain circumstances, an auditor will issue...

Question 19

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.

Accepted Answer

Changes in reporting entities affect both comparability and consistency, and therefore require an explanatory paragraph in the audit report.

Question 20

When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:
A) an adverse opinion.
B) a disclaimer of opinion.
C) either a qualified opinion or an adverse opinion.
D) either a qualified opinion or an unqualified opinion with modified wording.

Accepted Answer

When the auditor determines that they lack independence, they are not able to provide an opinion and should issue a disclaimer of opinion. This is because independence is a fundamental requirement for auditors and without it, their opinion cannot be considered reliable. Option A is incorrect because an adverse opinion is issued when the financial statements are materially misstated, not when the auditor lacks independence. Option C is incorrect because a qualified opinion is issued when there are material misstatements in the financial statements, but they are not pervasive enough to require an adverse opinion. Option D is incorrect because an unqualified opinion with modified wording is issued when there are concerns that need to be brought to the attention of the users of the financial statements, but overall the statements are fairly presented. However, lack of independence goes beyond just a concern and warrants a disclaimer of opinion.

Quiz 3: Audit Reports

If the auditor lacks independence, a disclaimer of opinion must be issued:

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion?

When other auditors are involved in the audit and they qualify their portion of the audit, the principle auditor must decide if the amount in question is material to the financial statements as a whole.

Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report.

An auditor can express a qualified opinion due to a:

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:

A modified unqualified auditor report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided.

The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved. In this case only the introductory paragraph is modified.

A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred. II. When the auditor lacks independence. III. When generally accepted accounting principles have not been used.

Changes of an accounting estimate requires the auditor to issue a modified unqualified audit report with a consistency paragraph is inserted after the opinion paragraph.

If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n) :

As a result of management's refusal to permit the auditor to physically examine inventory. The auditor must depart from the unqualified audit report because:

An adverse opinion is issued when the auditor believes:

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n) :

An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued?

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified.

In certain circumstances, an auditor will issue modified unqualified report. Discuss each of the five circumstances when an auditor would issue an unqualified report with an explanatory paragraph or modified wording.

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.

When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue: