Ch 12: Reports on Audited Financial Statements

What type or types of audit opinions are appropriate when FS are materially and pervasively misstated? a) Qualified or adverse b) Qualified (not adverse) c) Adverse (not qualified) d) Not qualified nor adverse

c) Adverse (not qualified)

When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following? a) The introductory paragraph b) The opinion paragraph c) An emphsis-of-matter paragraph d) An other-matter paragraph

c) An emphsis-of-matter paragraph

Which of the following statements is NOT true with respect to the audit examinations and reports for public and nonpublic entities? a) Audit examinations for nonpublic entities are basesd on user demand but based on legislative requirements for public entities b) The reports for both public and nonpublic entities express an opinion on the entity's financial statements c) Auditors are required to express an opinion on internal control in the audit of nonpublic entities but not in the audit of public entities d) Management is responsible for the fairness of the financial statements for both public entities and nonpublic entities

c) Auditors are required to express an opinion on internal control in the audit of nonpublic entities but not in the audit of public entities

Company A hired Samson & Delilah, CPAs, to audit the financial statements of Company B and deliver the report to Megabank. Who is the client? a) Megabank b) Samson & Delilah c) Company A d) Company B

c) Company A

An audit report for a public client indicates that the FS were prepared in conformity with: a) GAAP (US) b) Standards of the PCAOB (US) c) GAAP (US) d) GAAP (PCAOB)

c) GAAP (US)

Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an audit report? a) A consistency modification b) An adverse opinion c) A qualified opinion d) Part of the audit has been performed by component auditors

a) A consistency modification

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: a) An emphasis-of-matter paragraph to the auditors' report b) A footnote to the FS c) The body of the FS d) The "summary of significant accounting policies" section of the FS

a) An emphasis-of-matter paragraph to the auditors' report

When reporting under GAAS, certain statements are required in all auditors' reports ("explicit") and others are required only under certain conditions ("implicit"). Which combination that follows correctly describes the auditors' responsibilities for reporting? GAAP, Consistency, Going Concern, Opinion a) E, I, I, E b) E, E, I, E, c) I, E, E, I d) I, I, E, I

a) E, I, I, E - nothing about consistency & going concern unless there is a problem

If the auditors decide to present separate reports on the entity's financial statement and IC over financial reporting, which of the following should be modified to refer to the other report? a) FS report AND IC report b) FS report, NOT IC report c) NOT FS report, IC report d) NEITHER FS report or IC report

a) FS report AND IC report ** See Ch 5 appendix (221) => IC opinion - last paragraph of each report refers to the other report

In an audit report on combined FS, reference to the fact that a portion of the audit was performed by a component auditor is: a) Not to be construed as a qualification, but rather as a division of responsibility between two CPA firms b) Not in accordance with GAAS c) A qualification that lessens the collective responsibility of both CPA firms d) An example of a dual opinion requiring the signatures of both auditors

a) Not to be construed as a qualification, but rather as a division of responsibility between two CPA firms

When component auditors are involved in the audit of group financial statements, the group auditors may issue a report that: a) Refers to the component auditors, describes the extent of the component auditors' work, and expresses an unmodifed opinion b) Does not consider or evaluate the component auditors' work but expresses an unmodified opinion in a standard report c) Places primarily responsibilitiy for the reporting on the component auditors d) Names the component auditors, describes their work, and presents only the group auditors' report

a) Refers to the component auditors, describes the extent of the component auditors' work, and expresses an unmodifed opinion b - report doesn't talk about PA work, but still need to consider/evaluate it

How is the auditors' responsibility for expressing the opinion on financial statements disclosed in the standard (unmodifed) report for a nonpublic company? a) Stated explicitly in the Auditor's Responsibility section b) Unstated but understood in the Auditor's Responsibility section c) Stated explicitly in the opinion paragraph d) Stated explicitly in the introductory paragraph

a) Stated explicitly in the Auditor's Responsibility section

The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors' report alternatives? a) Unmodified opinion with a reference to going-concern or disclaimer of opinion b) Standard (unmodified) report or a disclaimer of opinion c) Qualified opinion or adverse opinion d) Standard (unmodified) report or adverse opinion

a) Unmodified opinion with a reference to going-concern or a disclaimer of opinion

The auditors report should be dated as of the date the: a) Report is delivered to the client b) Auditors have accumulated sufficient evidence c) Fiscal period under audit ends d) Peer review of the working papers is completed

b) Auditors have accumulated sufficient evidence

An audit report for a public client indicates that the audit was performed in accordance with: a) GAAS (US) b) Standards of the PCAOB (US) c) GAAP (US) d) GAAP (PCAOB)

b) Standards of the PCAOB (US)

R. Wolfe became the new auditor for Royal Corporation, succeeding C. Mason, who audited the FS last year. Wolfe needs to report on Royal's comparative financial statements and should isclose in the report an explanation about other auditors having audited the prior year a) Only if Mason's opinion last year was qualified b) To describe the prior audit and the opinion but not name Mason as the predecessor auditor c) To describe the audit but not reveal the type of opinion issued by Mason d) To describe the audit and the opinion and name Mason as the predecessor auditor

b) To describe the prior audit and the opinion but not name Mason as the predecessor auditor d- only if include the audit report of the predecessor auditor

If the opinion issued on prior years' FS is no longer appropriate and FS are presented in comparative form, the auditors' current report should: a) Not reference the prior years' FS b) Indicate that the opinion in the prior years' FS cannot be relied upon c) Reference the type of opinion issued on the prior years' FS and indicate that the current opinion on these FS differs from that expressed in the prior yeras d) Express the revised opinion on the prior years' FS without referencing the previously issued opinion

c) Reference the type of opinion issued on the prior years' FS and indicate that the current opinion on these FS differs from that expressed in the prior yeras

Which of the following is NOT included in the standard (unmodifed) report on the financial statements? a) An identification of the financial statements that were audited b) A general description of an audit c) An opinion that the financial statements present financial position in accordance with GAAP d) An emphasis-of-matter paragraph commenting on the effect of ecnomic conditions on the entity

d) An emphasis-of-matter paragraph commenting on the effect of ecnomic conditions on the entity

Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation give in Note 6, ... the financial referred to above present fairly..." This is: a) An unmodified opinion b) A disclaimer of opinion c) An "except for" opinion d) An improper type of reporting

d) An improper type of reporting

Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion? a) Entity changed its estimated allowance for uncollectible accounts receivable b) Entity corrected a prior mistake in accounting for interest capitalization c) Entity sold one of its subsidiaries and consolidated six subsidiaries this year compared to seven last year d) Entity changed its inventory costing method from FIFO to LIFO

d) Entity changed its inventory costing method from FIFO to LIFO *** IF MATERIAL a - change in estimates not consistency issue c - sale of subsidiary does NOT need to be reported as a change in acct. principle

Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considereing the materiality of this departure from GAAP, the auditors would choose between which reporting options? a) Unmodified opinion or disclaimer of opinion b) Unmodified opinion or qualified opinion c) Unmodified opinion with an emphasis-of-matter paragraph or an adverse opinion d) Qualified opinion or adverse opinion

d) Qualified opinion or adverse opinion - already dealing with a material amount; Question is HOW material - pervasiveness

When financial statements are presented in comparative form and another firm audited the prior years' financial statements (but the other firm's report is not presented with the financial statements), the auditors' report on the current-year financial statements should: a) Disclaim an opinion on the prior years' financial statements b) Not refer to the prior years' FS c) Refer to any procedures performed by the current auditor to verify the opinion on the prior years' FS d) Refer to the report and type of opinion issued by the other firm on the prior years' FS

d) Refer to the report and type of opinion issued by the other firm on the prior years' FS

Under which of the following conditions can a disclaimer of opinion NEVER be issued? a) The entity's going-concern problems are highly material and pervasive b) The entity does not allow the auditors access to evidence about important accounts c) The auditors own stock in the entity d) The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method

d) The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method