CHAPTER 12 LEARNSMART
Situations in which an entity does not follow GAAP in preparing its financial statements are referred to as _____ _____ GAAP.
Blank 1: departures or departure Blank 2: from
When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) _____ _____ _____.
Blank 1: division Blank 2: of Blank 3: responsibility
When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) _____ of _____.
Blank 1: division Blank 2: responsibility
AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as _____ opinions.
Blank 1: modified
When an audit team is unable to obtain sufficient, appropriate evidence, a(n) _____ limitation exists.
Blank 1: scope
The four types of audit opinions are a(n) _____ opinion, a(n) _____ opinion, a(n) _____ opinion and a disclaimer of opinion.
Blank 1: unmodified or unqualified Blank 2: qualified or modified Blank 3: adverse
Both prior-year audits and information that has come to the auditor's attention since then (particularly in the most recent audit) is the basis for a(n) _____ report.
Blank 1: updated
True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.
False
Which of the following statements regarding engaging auditors to examine and report on summary financial statements are correct?
The report must refer to the audit report on the full financial statements. Auditors must have audited the full financial statements to accept.
The basis for opinion section for issues indicates the ______.
audit provides a reasonable basis of the opinion responsibilities of management and the auditors
When auditors find a departure from GAAP during an audit, a(n) ______ opinion is not typically appropriate.
disclaimer of
Required SEC financial information ______.
is filed using Form 10-K must be filed within 60 to 90 days of the end of the fiscal year includes audited financial statements
When group auditors decide to refer to the work and reports of component auditors ______.
it is referred to as a division of responsibility the extent of the component auditors' work must be disclosed
When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______.
may add additional paragraphs to their report
A departure from GAAP ______.
may be ignored if immaterial
When auditing public entities, auditors ______.
may either prepare separate reports or provide a single, combined report
Non-issuers ______.
may need audited financial statements as a condition for certain activities are not subject to SEC filing or audit requirements
Issuers ______.
must include footnotes and other required disclosures along with the audited financial statements file their SEC reports using Form 10-K
Audits teams may be engaged to examine and report on condensed financial statements ______ audited the full financial statements.
only if they have
When companies present required supplementary information, auditors are required to expand their report to include an ______.
other-matter paragraph
In regards to required supplementary information, audit teams are required to ______.
perform limited procedures with respect to the information obtain written representations from management
SEC filing and audit requirements apply to ______.
public entities only
When a scope limitation is material and alternative procedures cannot be performed, a(n) ______.
qualified or disclaimer of opinion must be issued
When evaluating a change in accounting principle, the audit team ______.
should be satisfied the method of accounting for the change is appropriate should be satisfied the new principle is GAAP should be satisfied disclosures related to the change are appropriate
When other information is presented along with the financial statements, the auditors' report includes an Other Information section that includes ______.
the audit team's responsibility with respect to the information a description of any material misstatements of the other information, if found a statement that management is responsible for the other information
The audit report on the financial statements expresses an opinion on whether the financial statement present, in accordance with GAAP, the entity's ______.
cash flows results of operations financial position
The most recent date of the auditors' report is used and an extension of auditor responsibilities for comparative financial statements occurs when auditors provide ______ reports.
updated
The auditors' conclusion on condensed financial statements ______ express an opinion.
will not
A deficiency (or combination of deficiencies) that does not result in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis but is considered important enough to merit attention to those charged with governance is a(n) _____ _____.
Blank 1: significant Blank 2: deficiency
When no material issues are encountered during the audit and the financial statements are prepared in accordance with GAAP a(n) _____ audit report is appropriate.
Blank 1: standard or unmodified
Which of the following statements is correct?
Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.
The three sections of the PCAOB report are: Opinion of the Financial Statements; Basis for Opinion; and _____ _____ _____.
Blank 1: Critical Blank 2: Audit Blank 3: Matters
Paragraphs that provide information fundamental to understanding the entity's financial statements are known as _____ -of- _____ paragraphs.
Blank 1: Emphasis Blank 2: Matter
The two types of scope limitations are _____ - imposed and _____ - imposed.
Blank 1: client Blank 2: circumstance or circumstances
Emphasis-of-matter and other-matter paragraphs may be collectively referred to as _____ paragraphs.
Explanatory
When auditors are faced with a score limitation during an audit, a(n) ______ opinion is not typically issued.
adverse
When auditors are engaged to examine and report on supplementary information ______.
an other-matters paragraph may be added to the audit report a separate report on the information may be prepared
A situation in which the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion is a(n) ______.
internal control deficiency
When the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion a(n) ______ exists.
internal control deficiency
The standard auditors' report on the financial statements for nonpublic entities ______.
is also referred to as the ASB report should have a title that stresses auditor independence
With respect to required supplementary information, audit teams are required to perform ______ procedures.
limited
A deficiency (or combination of deficiencies) that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis is a(n) ______.
material weakness
When there is a reasonable possibility that a material misstatement would not be prevented or deducted on a timely basis a(n) ______ exists.
material weakness
When a company chooses to present non-required supplementary information in the annual report, the company ______ engage auditors to examine and report on the information.
may
When component auditors are used in the audit of group financial statements, the group auditors ______.
must obtain information about the independence and reputation of the component auditors may decide to assume full responsibility for the component auditors' work
When an annual report contains other information such as a president's letter or MD & A, the auditor ______.
must read the information and determine if it is consistent with audited financial statements
When annual reports contain MD&A, financial summaries, ratios, or other management commentary, audit teams ______.
must read the information and determine whether it is consistent with audited financial statements or contains material misstatements
With respect to required supplementary information included with the basic financial statements, auditors are required to ______.
obtain written representations from management compare information with the financial statements for consistency
Auditors may be engaged to examine and report on summary financial statements ______ audited the full financial statements.
only if they have
When a scope limitation is immaterial, a(n) ______.
standard report can be issued
When the auditor finds a departure from GAAP, a(n) ______.
standard report may still be appropriate
The Basis for Opinion paragraph on a PCAOB audit report ______.
states the firm is registered with the PCAOB describes the audit indicates the responsibilities of the audit team indicates the responsibilities of management
When auditors issue a report on current-year financial statements ______.
they must consider if prior years' opinions are still appropriate auditor responsibility for comparative financial statements extend to the current audit report date
When management decides to change an accounting principle and the auditors do not believe the new adopted principle is preferable to the previously used principle, the audit team should ______.
treat the change as a departure from GAAP and modify the report accordingly
Assume the same auditors have audited a client for all years for which comparative financial statements are being presented and that an unqualified opinion was appropriate in all years. The auditor will provide a(n) ______ report as part of this audit.
updated
The auditors' conclusion on not required supplementary information ______ express an opinion.
will not
When annual reports contain other information, such as MD&A or financial ratios, and the audit team finds a material inconsistency that the client will not revise, the audit team should consider ______.
withdrawing from the engagement adding an explanatory paragraph to the audit report withholding the use of the audit report
