audit chapter 17
Auditors' reports issued in connection with which of the following are not considered to be on financial statements based on a special purpose framework?
Compiled financial statements prepared in accordance with appraised liquidation values.
Reports are considered reports on financial statements prepared in accordance with a special purpose framework when issued in conjunction with
Compliance with aspects of regulatory requirements related to audited financial statements.
What is an auditor's responsibility for supplementary information, such as the disclosure of pension information, that is outside the basic financial statements but required by the GASB?
The auditor should apply certain limited procedures to the supplementary information and report deficiencies in, or omissions of, such information.
When an auditor's report is incorporated by reference in an SEC registration statement, a prospectus that includes a statement about the auditor's involvement should refer to the auditor as
Expert in auditing and accounting.
A client has requested an auditor to audit and report on the single element of net income. The auditor should obtain audit evidence relating to the fairness of
Financial position and results of operations.
While planning an engagement to issue a report on the application of the requirements of an applicable financial reporting framework to a specific transaction of a nonissuer, a reporting accountant should obtain an understanding of the
Form and substance of the specific transaction.
Field is an employee of Gold Enterprises. Thomas Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if
Hardy also performs procedures on Gold's financial position and results of operations.
The financial statements of KCP America, a U.S. entity, are prepared for inclusion in the consolidated financial statements of its non-U.S. parent. These financial statements are prepared in accordance with a financial reporting framework generally accepted in the parent's country and are for use only in that country. Which is an appropriate report on the financial statements for KCP America's auditor to issue? A U.S. form of report (unmodified) A U.S. form of report modified to report on the financial reporting framework of the parent's country The report form of the parent's country
II and III only.
When supplementary information (SI) is presented separately from the audited financial statements, how should the auditor's report on SI be presented?
In a separate auditor's report.
Supplementary information (SI) not necessary for the fair presentation of the audited financial statements is presented with those statements. How should an auditor report on this SI?
In a separate report or other-matter paragraph.
A modification of the auditor's report on a review of interim financial information is necessitated by which of the following?
Inadequate disclosure.
Which of the following should the auditor of a nonissuer do when reporting on supplementary information that is required by a designated accounting standard setter, presented with the basic financial statements?
Include a paragraph after the opinion paragraph that references the required supplementary information (RSI).
Comfort letters ordinarily are signed by the client's
Independent auditors.
Which of the following best describes other information in documents containing audited financial statements?
Information presented in addition to the audited financial statements, such as a report by management on operations.
AU-C 915, Reports on Application of Requirements of an Applicable Financial Reporting Framework, provides guidance to a reporting accountant who
Is preparing a written report on the application of an applicable financial reporting framework to a specific transaction.
Supplementary Information (SI) not required for the financial statements to be fairly presented
Is presented outside the basic statements.
If an auditor undertakes an engagement to audit a nonissuer's complete financial statements and also to audit a specific element of the financial statements, then the auditor should
Issue separate audit reports for the complete financial statements and the specific element of the financial statements.
In a comfort letter, the auditor should most likely avoid using which of the following terms to describe the work performed?
Made a general review.
When making a review of interim financial information (IFI), the auditor's work consists primarily of
Making inquiries and performing analytical procedures concerning significant accounting matters.
A CPA should not normally refer to which one of the following subjects in a comfort letter?
Management's determination of operating segments.
The objective of a review of interim financial information of an issuer is to provide an auditor with a basis for reporting whether
Material modifications should be made to conform with generally accepted accounting principles.
The objective of a review of interim financial information (IFI) of a nonissuer is to provide an auditor with a basis for reporting whether
Material modifications should be made to conform with the applicable financial reporting framework.
Which of the following statements is true with respect to an auditor's report expressing an opinion on a specific item on a financial statement?
Materiality must be related to the specified item rather than to the financial statements as a whole.
As a condition of obtaining a loan from First National Bank, Maxim Co. is required to submit an audited balance sheet but not the related statements of income, retained earnings, or cash flows. Maxim would like to engage a CPA to audit only its balance sheet. Under these circumstances, the CPA
May audit only Maxim's balance sheet if the CPA can audit interrelated items.
The auditor's inquiries of management regarding required supplementary information (RSI) should be directed to the judgments made concerning
Measurement and presentation.
Whenever a report filed on a printed form designed by authorities calls upon the independent auditor to make an assertion that the auditor believes is not justified, the auditor should
Reword the form.
When the auditor reports on supplementary information (SI), a separate report should be issued when the
SI and the audited statements are presented separately.
Investment and property schedules are presented for purposes of additional analysis in a document outside the basic financial statements. The schedules are not required supplementary information. When the auditor is engaged to report on whether the supplementary information is fairly stated in relation to the audited financial statements as a whole, the measurement of materiality is the
Same as that used in forming an opinion on the basic financial statements as a whole.
When audited financial statements are presented in a document containing other information, the auditor
Should be aware of whether the other information contains a material misstatement of fact.
When reporting on supplementary information (SI) in relation to the financial statements as a whole, an auditor
Should determine the information is presented with the statements or is readily available.
When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should
State that the basis of presentation is a basis of accounting other than GAAP.
When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should
State that the special purpose framework is a basis of accounting other than GAAP.
Which of the following is a suitable title for a financial statement prepared using a special purpose framework?
Statement of income - regulatory basis.
Which of the following titles is suitable for financial statements that are prepared on a cash basis?
Statement of revenue collected and expenses paid.
When reporting on financial statements prepared on the same basis of accounting used for income tax purposes, the auditor should include in the report a paragraph that
States that the income tax basis of accounting is a basis of accounting other than GAAP.
An auditor may report on summary financial statements that are derived from audited financial statements only if the auditor
States whether the information is consistent with the audited financial statements.
A registration statement filed with the SEC contains the reports of two independent auditors on their audits of financial statements for different periods. The predecessor auditor who audited the prior-period financial statements generally should obtain a letter of representation from the
Successor independent auditor.
If management omits all required supplementary information (RSI) from the accompanying financial statements of a nonissuer, the auditor should
Take no further action.
When performing a review of interim financial information (IFI), an auditor would typically do each of the following except
Test controls related to the preparation of annual financial information.
Which of the following applies to an accountant conducting a review of interim financial information?
The accountant must maintain independence in mental attitude in all matters relating to the engagement.
An auditor is reporting on summary financial statements for an annual period. The auditor's unmodified opinion should indicate whether the information in the summary financial statements is consistent, in all material respects, with
The audited financial statements.
All of the following statements about financial statements prepared in accordance with a reporting framework generally accepted in another country and intended for use in the U.S. are true except
The auditor expresses an opinion on whether the financial statements are presented fairly within the framework of the U.S.
The auditor should not accept an engagement to report on summary statements unless
The auditor has been engaged to audit the financial statements from which the summary statements are derived.
A registration statement filed with the Securities and Exchange Commission may contain the reports of two or more independent auditors on their audits of the financial statements for different periods. What responsibility does the auditor who has not audited the most recent financial statements have relative to events occurring after the date of his or her report that may affect the financial statements on which (s)he reported?
The auditor has responsibility for events up to the effective date of the registration statement.
Supplementary information (SI) not necessary for the audited financial statements to be fairly presented is presented with those statements. The auditor of the statements has what responsibility for subsequent events?
The auditor is not responsible for considering subsequent events with respect to the SI.
An auditor is reporting on cash-basis financial statements. These statements are best referred to in the opinion by which of the following descriptions?
"Assets and liabilities arising from cash transactions" and "revenue collected and expenses paid."
Whenever negative assurance is provided by a CPA, it is based upon
An absence of nullifying evidence.
Form 8-K must be filed within
4 business days after significant events.
Form 10-K is filed with the SEC to update the information a company supplied when filing a registration statement under the Securities Exchange Act of 1934. A large accelerated filer must submit Form 10-K within
60 days of the end of the company's fiscal year.
MEEN, LLP, is finalizing its audit report of financial statements intended for use only outside the U.S. The report must include
A U.S. form of the report or the report form of the other country.
All of the following are considered an appropriate basis of accounting other than GAAP except
A projection based on a hypothetical assumption.
A report based on a review of interim financial information (IFI) would include all of the following elements except
A representation that the financial statements are the responsibility of the auditor.
An auditor's report on financial statements prepared on the cash receipts and disbursements basis of accounting should include all of the following except
A statement that the cash receipts and disbursements basis of accounting is not a special purpose framework.
When an auditor is requested to express an opinion on the inventory of an entity, the auditor may
Accept the engagement and express an opinion.
Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co. but not on the statements of income, changes in shareholders' equity, or cash flows. Harris will have access to all information underlying the basic financial statements. Under these circumstances, Harris may
Accept the engagement if an audit in accordance with GAAS is practicable.
if information supplementary to the basic financial statements has been subjected to auditing procedures, the auditor may express an opinion that the accompanying information is fairly stated in
All material respects in relation to the basic financial statements as a whole.
Which of the following matters is covered in a typical comfort letter?
An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC.
An auditor's report on financial statements prepared in accordance with the income tax basis of accounting should include all of the following except
An opinion as to whether the basis of accounting used is appropriate under the circumstances.
Which of the following items is included when reporting on audited statements prepared in accordance with a basis of accounting other than GAAP?
An opinion on whether the statements are fairly presented in accordance with the basis of accounting used.
The auditor has determined that the audited financial statements and supplementary information (SI) are presented together. The auditor may report on the SI in
An other-matter paragraph.
If an auditor has issued an adverse opinion on a complete set of financial statements, the auditor is precluded from expressing which of the following in an audit report on a single financial statement of the nonissuer entity?
An unmodified opinion.
In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the requirements of an applicable financial reporting framework to a specific transaction. The accountant's report should include a statement that
Any difference in the facts, circumstances, or assumptions presented may change the report.
What is an auditor's responsibility for required supplementary information (RSI)?
Apply limited procedures to the information and report its omission or the need for material modifications.
An auditor who is engaged to report on whether supplementary information (SI) is fairly stated should determine that the
Auditor's report on the financial statements did not disclaim an opinion.
The other information in a document containing audited financial statements and the auditor's report on them may be relevant to an independent auditor. With respect to other information, the
Auditor's responsibility is to read the other information to identify any material inconsistencies with the statements.
An independent auditor's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the
Auditor's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.
When an independent auditor's report based on a review of interim financial information is presented in a registration statement, a prospectus should include a statement about the auditor's involvement. This statement should clarify that the
Auditor's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.
An auditor is reporting on a single financial statement. How should materiality be determined?
Based on the single financial statement being reported on.
An auditor is engaged to report on statistical data presented with audited financial statements. Under these circumstances, the report on the statistical data should
Be limited to data derived from the entity's audited financial statements.
For reporting purposes, the auditor should consider each of the following types of financial presentation to be a financial statement except the statement of
Changes in the elements of working capital.
Which of the following statements is true concerning letters for underwriters, commonly referred to as comfort letters?
Comfort letters typically give negative assurance on unaudited interim financial information.
An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances, the auditor should
Compare the required supplementary information for consistency with the audited financial statements.
When planning a review of an audit client's interim financial statements, which of the following procedures should the auditor perform to obtain an understanding of the entity and its environment, including its internal control?
Consider the results of audit procedures performed with respect to the current year's financial statements.
Blue, CPA, has been asked to report on the application of a financial reporting framework to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement but should
Consult with the continuing accountant to obtain information relevant to the transaction.
The Securities and Exchange Commission has authority to
Determine accounting principles for the purpose of financial reporting by companies offering securities to the public.
Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta's auditor, discovers that the statements are not suitably titled, Wall should
Disclose any reservations in a basis for qualified opinion paragraph and qualify the opinion.
An entity prepares its financial statements on its income tax basis. The accompanying notes include a summary of significant accounting policies that discusses the basis of presentation and describes how that basis differs from GAAP. The dollar amount of the effects of the difference between the income tax basis and GAAP
Need not be quantified and included in either the notes to the financial statements or the auditor's report.
When an auditor issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive
Negative assurance on capsule information.
Which of the following matters is included in a typical comfort letter?
Negative assurance on whether unaudited condensed financial information complies in form with the accounting requirements of the SEC.
Which of the following circumstances requires modification of the auditor's report on a review of interim financial information (IFI)? Substantial Doubt about the Entity's Ability to Continue as a Going Concern Inadequate Disclosure
No Yes
An entity prepares its financial statements on its income tax basis. A description of how that basis differs from GAAP should be included in the
Notes to the financial statements.
An auditor has performed additional procedures for a client making a private placement of securities that is exempt from SEC filing requirements. In addition to permitting the inclusion of the audited statements in the offering document, the auditor has assisted the client in its preparation of the placement document. Before the client distributes the document, the auditor should do all the following except
Obtain agreement from the SEC that the offering document is complete.
A U.S. entity prepares its financial statements in accordance with a financial reporting framework generally accepted in another country. These financial statements will be included in the consolidated financial statements of its non-U.S. parent. Before reporting on the financial statements of the U.S. entity, the auditor practicing in the U.S. should
Obtain an understanding of the purpose of the financial statements and the intended users.
In an auditor's review of interim financial information (IFI), the auditor typically performs each of the following except
Obtaining corroborating external evidence.
Which of the following is one of management's responsibilities surrounding supplementary information (SI)?
Preparing SI in accordance with applicable criteria.
An auditor is engaged to report on supplementary information (SI) not required for the financial statements to be fairly presented. The auditor is required to perform certain procedures based on the materiality level. Which of the following is not a procedure performed by the auditor?
Presenting the results in an opinion paragraph.
The report on summary financial statements should indicate that the
Procedures performed included evaluating whether they are prepared in accordance with the applied criteria.
Supplementary information (SI) not necessary for the audited financial statements to be fairly presented is presented with those statements. Management is responsible for
Providing written representations.
If the auditor believes that financial statements prepared on the entity's income tax basis are not suitably titled, the auditor should
Qualify the opinion.
Which of the following procedures ordinarily should be applied when an independent auditor conducts a review of interim financial information of an issuer?
Read the minutes of the board of directors' meetings.
An auditor's report on financial statements prepared in conformity with the cash basis of accounting should include a separate emphasis-of-matter paragraph that
Refers to the note to the financial statements that describes the basis of accounting.
An auditor who conducts an audit in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in accordance with a special purpose framework, such as the cash basis of accounting, should issue a
Report expressing an opinion.
An auditor should
Report on supplementary information if (s)he is specifically engaged to do so.
An auditor may express an opinion on an entity's accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements as a whole, provided that the
Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.
The objective of a review of interim financial information (IFI) of a nonissuer is to provide the auditor with a basis for
Reporting whether material modifications should be made for such information to conform with the applicable financial reporting framework.
Prior to the report release date, an auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?
Request that the client revise the letter of transmittal.
Comfort letters ordinarily are Addressed to the client's Signed by the client's
Requesting party Independent auditor
An audit of the financial statements included in Form 10-Q is not required. However, an external auditor's involvement with a Form 10-Q that is being prepared for filing with the SEC most likely consists of a(n)
Review of the interim financial statements included in Form 10-Q.
An auditor concludes prior to the release date of the report that a material inconsistency exists in the other information in an annual report to shareholders. The report contains audited financial statements. If the auditor concludes that the financial statements do not require revision, but management refuses to revise or eliminate the material inconsistency, the auditor may
Revise the auditor's report to include a separate other-matter paragraph describing the material inconsistency.
The auditor is engaged to report on whether supplementary information is fairly stated in relation to the audited financial statements as a whole. Which of the following best describes the auditor's responsibility for this information if it is outside the basic financial statements and not deemed necessary to their fair presentation?
The auditor should not express an opinion on the supplementary information if (s)he disclaimed an opinion on the financial statements.
The client's financial reporting includes supplementary financial information outside the basic financial statements but required by the Financial Accounting Standards Board (FASB). Which of the following statements is correct regarding the auditor's responsibility for this supplementary financial information?
The auditor should perform limited procedures.
In its annual report to shareholders, Lake Co. included an assertion about the effectiveness of its sales force. Lake's auditor is expressing an unmodified opinion on Lake's financial statements but has not been engaged to examine and report on this management assertion. What is the auditor's responsibility concerning such information?
The auditor should read the assertion and consider whether it is a material misstatement of fact.
Which of the following best describes the auditor's reporting responsibility when engaged to report on supplementary information in relation to the financial statements as a whole?
The auditor should report on all the information.
Required supplementary information (RSI) must accompany the basic financial statements. Who determines whether RSI is required?
The designated accounting standards setter.
An auditor is reporting on financial statements prepared in accordance with a framework generally accepted in another country. The auditor most likely has the option of using a U.S. form of report or the report form of the other country if
The financial statements and report are intended for use only outside the U.S.
The information supplementary to the basic financial statements on which the auditor has been engaged to report may not include
The information supplementary to the basic financial statements on which the auditor has been engaged to report may not include
The procedures to express an opinion on supplementary information are based on which of the following?
The materiality level used for the audit of the financial statements.
Comfort letters ordinarily are addressed to
The party who negotiated the agreement with the client.
An auditor who is engaged to report on whether supplementary information is fairly stated, in all material respects, in relation to the statements as a whole should determine that which of the following conditions are satisfied?
The supplementary information is derived directly from the underlying records used to prepare the statements and relates to the same period.
Management chooses to place supplementary information required by the FASB or GASB in notes to the financial statements. According to GAAS, this information may be identified as
Unaudited.
An auditor practicing in the U.S. has been engaged to report on the financial statements of a U.S. entity that have been prepared in accordance with a financial reporting framework generally accepted in another country. The auditor should
Understand the framework.
If an auditor of a nonissuer accepts an engagement to issue a comfort letter in connection with financial statements included in a securities offering, then the auditor should provide the letter only to
Underwriters and other parties meeting the definition of a requesting party.
If management declines to present required supplementary information, the auditor should express a(n)
Unmodified opinion with an other-matter paragraph.
In a comfort letter, an auditor may provide negative assurance about
Whether the entity's unaudited interim financial information complies as to form with the accounting requirements of the Securities Act of 1933.
A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entity's Schedule of Accounts Receivable Schedule of Royalties
Yes Yes
SEC Form S-3 is an optional, short-form registration statement that relies on the incorporation by reference of periodic reports required by the Securities Exchange Act of 1934. Form S-3 offers substantial savings in filing costs over other forms because minimal disclosures are required in the prospectus. The SEC permits the use of Form S-3 by an issuer that
is a seasoned issuer or a well-known seasoned issuer.
