Chapter 12- smartbook

Restrictions imposed by an entity prohibited the observation of physical inventories, which accounted for 35 percent of total assets. Alternative auditing procedures were not feasible, although the auditors were able to examine satisfactory evidence for all other items in the financial statements. The auditors would most likely express Multiple Choice an unmodified opinion on the entity's financial statements with a modification of the Auditor's Responsibilities for the Audit of the Financial Statements Section. a qualified opinion on the entity's financial statements, referring to a departure from generally accepted accounting principles. a disclaimer of opinion on the entity's financial statements. an unmodified opinion on the entity's financial statements with an other-matter paragraph.

a disclaimer of opinion on the entity's financial statements.

A disclaimer of opinion on ICFR is appropriate when: Multiple choice question. either a scope limitation or material weakness issue arises. a material weakness is identified. a scope limitation is encountered.

a scope limitation is encountered.

When auditors are engaged to examine and report on supplementary information ______. Multiple select question. a separate report on the information may be prepared an other-matters paragraph may be added to the audit report the auditors' conclusion will express an opinion

a separate report on the information may be prepared an other-matters paragraph may be added to the audit report

When a material weakness in ICFR is identified, the auditors' will issue a(n) Blank______ opinion. Multiple choice question. disclaimer of qualified adverse

adverse

When the auditor finds a pervasive departure from GAAP, a(n) ______. Multiple choice question. adverse opinion must be issued qualified opinion must be issued standard report may still be appropriate disclaimer of opinion is appropriate

adverse opinion must be issued

If the audit team has been engaged to communicate key audit matters, they would do so in ______ section. Multiple choice question. -the Basis for Opinion -an additional Key Audit Matters -the Auditor's Responsibilities for the Audit of the Financial Statements

an additional Key Audit Matters Reason: If the audit team has been engaged to communicate key audit matters , they would do so in an additional Key Audit Matter section...

When two different auditors examined financial statements included in comparative years ______. Multiple select question. the current year auditor must issue a qualified opinion an other-matters paragraph can be used to reference the predecessor auditor the predecessor auditor's report should be included with the statements

an other-matters paragraph can be used to reference the predecessor auditor the predecessor auditor's report should be included with the statements

Auditors must communicate to those charged with the entity's governance ______ scope limitations. Multiple choice question. any client-imposed both client and circumstance imposed any circumstance-imposed

any client-imposed

Select all that apply When auditors issue a report on current-year financial statements ______. Multiple select question. the updated report must be dual dated with the prior and current audit report date auditor responsibility for comparative financial statements extend to the current audit report date they must consider if prior years' opinions are still appropriate

auditor responsibility for comparative financial statements extend to the current audit report date they must consider if prior years' opinions are still appropriate

The date of the auditors' report is the date when the: Multiple choice question. auditors have obtained sufficient evidence to support the opinion. audit opinion is released. audit opinion has been reviewed by a partner not involved in the audit.

auditors have obtained sufficient evidence to support the opinion. Reason:The auditors' report on the financial statements expresses an opinion on whether the financial statements present the entity's financial position.

The Sarbanes-Oxley Act and Auditing Standards 2201 require Blank______ to prepare a report on the effectiveness of the entity's internal control over financial reporting. Multiple choice question. -only management -both the management and the auditor -either the management or the auditor -only the auditor

both the management and the auditor the Sarbanes Oxley Act of 2002 & Audit Standard 2201 required two type of report. 1. A report that prepare by the entity' management, on the effectiveness of the entity internal control over financial reporting. 2. A report prepare by the auditor on the effectiveness of the entity' s internal control over financial reporting.

A departure from GAAP is____________ when it can be isolated to a particular account group or transactions without materially affecting other accounts.

compartmentalized Reason: Compartmentalized is that the departure can be isolated to a particular account group or transaction without affecting other accounts to a material extent.

In some cases, principal or group auditors perform the audit of a material portion of a consolidated entity's assets, liabilities, revenues, and expenses, and other independent, __________ auditors may be engaged to audit divisions or subsidiaries that are included in the group financial statements.

component

When a scope limitation is encountered, the auditors' report will express a(n) Blank______ opinion on ICFR. Multiple choice question. adverse disclaimer of qualified

disclaimer of

A reissued report ______. Multiple select question. does not consider events since the date the original report is dual-dated with the original date and the date of reissue differs from an updated report

does not consider events since the date the original report differs from an updated report

Non-accelerated filers are required to ______. Multiple choice question. have both management reports and auditor reports on the effectiveness of ICFR have an auditor report on the effectiveness of ICFR only have management reports on ICFR only

have management reports on ICFR only

An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should Multiple Choice indicate the substantive reasons for the qualification in the predecessor auditors' opinion. express an opinion only on the current year's financial statements and make no reference to the prior years' statements. issue an updated comparative report indicating the involvement of component auditors. explain to the client that comparative financial statements may not be presented under these circumstances.

indicate the substantive reasons for the qualification in the predecessor auditors' opinion.

The Basis for Opinion paragraph on a PCAOB audit report ______. Multiple select question. indicates the responsibilities of management identifies any critical audit matters found during the audit engagement describes the audit indicates the responsibilities of the audit team states the firm is registered with the PCAOB

indicates the responsibilities of management describes the audit indicates the responsibilities of the audit team states the firm is registered with the PCAOB

PCAOB standards require that the audit of ICFR be ______ the financial statement audit. Multiple choice question. performed as a separate engagement from integrated with

integrated with

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) Blank______ exists. Multiple choice question. material weakness internal control deficiency significant deficiency

internal control deficiency

A non-accelerated filer ______ required to have an audit of its ICFR. Multiple choice question. is is not

is not

The audit team is required to evaluate and express an opinion on the effectiveness of the entity's ICFR for ______. Multiple choice question. both issuers and non-issuers non-issuers only issuers only

issuers only

Presenting balance sheets for two years and statements of income, changes in shareholders' equity and cash flow for three years in comparative format is required for ______. Multiple choice question. neither issuers or non-issuers both issuers and non-issuers issuers only non-issuers only

issuers only Reason: This is an SEC requirement

Responsibility to evaluate whether substantial doubt about continued existence of the entity exists rests with the Blank______. Multiple choice question. both management and auditors management auditors

management Reason: The manager responsible for the fairness of the financial statement and the design, implementation, and maintenance of internal control. In addition, they are also responsible for evaluate whether substantial doubt about the entity's ability to continue as a going conern.

When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______. Multiple choice question. may add additional paragraphs to their report should ask management to discuss the matter in their Responsibilities paragraph must modify the Basis for Opinion paragraph to reference item(s) to be emphasized must modify the Opinion paragraph to include reference to the item(s) to be emphasized

may add additional paragraphs to their report

When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______. Multiple choice question. must modify the Opinion paragraph to include reference to the item(s) to be emphasized may add additional paragraphs to their report should ask management to discuss the matter in their Responsibilities paragraph must modify the Basis for Opinion paragraph to reference item(s) to be emphasized

may add additional paragraphs to their report

A departure from GAAP ______. Multiple choice question. -will alway result in a qualified opinion -may be ignored if immaterial -must always be mentioned in the auditor's report

may be ignored if immaterial Reason: If a departure from GAAP is immaterial, the audit team would treat the departure as if it did not exist.

When auditing public entities, auditors ______. Multiple choice question. may either prepare separate reports or provide a single, combined report must combine the report of the financial statements with the report of ICFR must prepare a report on the financial statements and a separate report on ICFR

may either prepare separate reports or provide a single, combined report

An auditor issued a qualified opinion on 2018 and 2019 financial statements. When doing the audit of the 2020 financial statements the auditor ______. Multiple choice question. must also issue a qualified opinion may issue an unmodified opinion if appropriate

may issue an unmodified opinion if appropriate

An auditor issued a qualified opinion on 2018 and 2019 financial statements. In 2020, the company restated the 2018 and 2019 statements to be in accordance with GAAP. When doing the audit of the 2020 financial statements, the auditor ______. Multiple choice question. must leave the qualified opinions and add an emphasis-of-matter paragraph to the 2020 report to explain what was done may issue an unmodified opinion on all three years, if appropriate

may issue an unmodified opinion on all three years, if appropriate

When a audit firm becomes the auditor of a company in 2020, the predecessor auditor ______ be referenced in the current audit report. Multiple choice question. must never may or may not must always

may or may not

AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as ____________ opinions.

modified reason: Professional standard refer to qualified opinions, adverse opinions, and disclaimers of opinion as modified opinions.

When comparative statements are issued and circumstances have changed in the intervening period, auditors should ______. Multiple choice question. add an emphasis-of-matter paragraph to the current year opinion modify opinions expressed in prior years reissue the opinions expressed in prior years

modify opinions expressed in prior years

When an annual report contains other information such as a president's letter or MD & A, the auditor ______. Multiple choice question. -must read and audit the information -has no obligation to read the information or refer to it in the audit report -must read the information and determine if it is consistent with audited financial statements

must read the information and determine if it is consistent with audited financial statements

In describing the standards under which an audit is conducted, the statement "auditing standards generally accepted in the United States of America" are found in reports of: Multiple choice question. both issuers and non-issuers. non-issuers only. issuers only.

non-issuers only. Reason: Correct. Audits of issuers are conducted using PCAOB standards.

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditors should Multiple Choice explicitly concur that the change is preferred. refer to the change in an emphasis-of-matter paragraph. not refer to consistency in the report. refer to the change in the Basis for Opinion Section.

not refer to consistency in the report.

With respect to required supplementary information included with the basic financial statements, auditors are required to ______. Multiple select question. issue an opinion with regard to the fairness of the information obtain written representations from management compare information with the financial statements for consistency

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 Blank______ audited the full financial statements. Multiple choice question. only if they have not whether or not they have only if they have

only if they have

When companies present required supplementary information, auditors are required to expand their report to include an ______. Multiple choice question. emphasis-of-matter paragraph other-matter paragraph opinion on the fairness of the information

other-matter paragraph

SEC filing and audit requirements apply to: Multiple choice question. private entities only. public entities only. both public and private entities.

public entities only. Reason: Issuers (public entities) are required to file certain financial information with the SEC while the non-issues (nonpublic entities ) are not subject to filing or audit requirement.

The phrase "except for" is used in: Multiple choice question. both qualified and adverse opinions. qualified opinions only. adverse opinions only. disclaimers of opinion only.

qualified opinions only. Reason: Qualified opinion use the phrase except for in describing the issues that give rise to the qualification.

When audit teams are unable to obtain sufficient appropriate evidence, either a client-imposed or circumstance-imposed __________ __________ exists.

scope limitation reason:Scope limitations is when audit teams are unable to obtain sufficient appropriate evidence

When a scope limitation is immaterial, a(n) ______. Multiple choice question. unmodified opinion is appropriate but the scope limitation must be referenced qualified opinion must be issued standard report can be issued standard report can be issued only if the limitation was circumstance-imposed

standard report can be issued

When the auditor finds a departure from GAAP, a(n) ______. Multiple choice question. -qualified opinion must be issued -adverse or disclaimer of opinion must be issued -standard report may still be appropriate

standard report may still be appropriate Reason: This is true when the departure is immaterial.

When group auditors decide to refer to the work and reports of component auditors ______. Multiple select question. it is considered a scope limitation the extent of the component auditors' work must be disclosed it is referred to as a division of responsibility the component auditors should be mentioned by name

the extent of the component auditors' work must be disclosed it is referred to as a division of responsibility

The SEC requires issuers to present balance sheets for _________ years and statements of income, changes in shareholders' equity, and cash flows for __________ years in a comparative format.

two three

Both prior-year audits and information that has come to the auditor's attention since then (particularly in the most recent audit) are the basis for a(n)________ report.

updated

Auditors normally disclaim an opinion or even withdraw from the engagement ______. Multiple choice question. any time a scope limitation is material when a scope limitation is circumstance-imposed when a scope limitation is client-imposed any time a scope limitation is discovered

when a scope limitation is client-imposed reason: Audit teams should carefully consider the implications of a client-imposed scope limitation b/c such restrictions on the audit may cast doubt on management integrity.

If group auditors are satisfied with the independence and professional reputation of the component auditors, a standard report may be issued ______. Multiple choice question. but the report must state that other, unnamed auditors participated in the audit but the component auditors must be mentioned by name with the group auditors assuming full responsibility for the audit

with the group auditors assuming full responsibility for the audit

Which of the following phrases would auditors most likely include in their report when expressing a qualified opinion on the entity's financial statements because of inadequate disclosure? Multiple Choice "Does not present fairly in all material respects." "Except for the effects of the matter described in the Basis for Qualified Opinion Section of our report" "With the foregoing explanation of these omitted disclosures." "Subject to the departure from generally accepted accounting principles, as described below."

"Except for the effects of the matter described in the Basis for Qualified Opinion Section of our report"

When other information is presented along with the financial statements, the auditors' report includes an Other Information section that includes ______. Multiple select question. -an indication that the audit team expresses an opinion on the other information -a statement that management is responsible for the other information -a description of any material misstatements of the other information, if found -the audit team's responsibility with respect to the information

-a statement that management is responsible for the other information -a description of any material misstatements of the other information, if found -the audit team's responsibility with respect to the information

When the auditor finds a pervasive departure from GAAP, a(n) ______. Multiple choice question. -qualified opinion must be issued -adverse opinion must be issued -disclaimer of opinion is appropriate -standard report may still be appropriate

-adverse opinion must be issued reason: If the GAAP departure is pervasive and material to the point of misleading , the auditor must issue an adverse opinion.

Required SEC financial information: Multiple select question. -must be filed by both public and nonpublic entities. -includes audited financial statements. -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. -is filed using Form 10-K. -must be filed within 60 to 90 days of the end of the fiscal year. Reason: Correct. Required SEC financial information includes audited financial statements. Correct. Required SEC financial information is filed using Form 10-K. Reason: Correct. Required SEC financial information must be filed within 60 to 90 days of the end of the fiscal year. must be filed by both public and nonpublic entities. Reason: Incorrect. Only public entities are required to file with the SEC.

The standard auditors' report on the financial statements for nonpublic entities Blank______. Multiple select question. should have a title that stresses auditor independence is also referred to as the ASB report must be addressed to the board or directors and shareholders is appropriate even if material issues are encountered during the audit

-is also referred to as the ASB report -should have a title that stresses auditor independence Reason: b/c ASB prescribe the format & contents of the report for non-issuers, these reports are sometimes refer to as ASB report. The report should be title independent auditor's report (or other suitable title stressing the independence of the auditors.)

When the auditor finds a departure from GAAP that is sufficiently material to affect users' decisions, but the departure can be compartmentalized, the auditors ______. Multiple choice question. -may still issue a standard report -must qualify the opinion -must issue either an adverse or disclaimer of opinion

-must qualify the opinion reason: The auditor must qualify the opinion

When a scope limitation is material and alternative procedures cannot be performed, a(n) ______. Multiple choice question. -unmodified opinion is appropriate but the scope limitation must be referenced -adverse opinion must be issued -qualified or disclaimer of opinion must be issued -standard report can be issued only if the limitation was circumstance-imposed

-qualified or disclaimer of opinion must be issued Reason: If the scope limitation is material & alternative procedures cannot be performed, Auditors issue either a qualified opinion or disclaimer of opinion, depending upon the materiality and pervasiveness of the scope limitation.

Which of the following statements is correct? Multiple choice question. -Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk. -Auditing standards place official limits on the contents of paragraphs -auditors add to a standard audit report. -Auditors cannot add anything other than the standard explanatory paragraphs to an unmodified report.

Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.

Which of the following statements regarding engaging auditors to examine and report on summary financial statements are correct? Multiple select question. The auditors' conclusion will express an opinion. Auditors must have audited the full financial statements to accept. The report must refer to the audit report on the full financial statements.

Auditors must have audited the full financial statements to accept. The report must refer to the audit report on the full financial statements. Reason: Correct. Auditors must have audited the full financial statements to accept. The report must refer to the audit report on the full financial statements.

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

Management's deliberate refusal to provide evidence is known as a(n) __________ - imposed scope limitation and a situation beyond the auditors' and company's control is known as a(n) ___________- imposed scope limitation.

Blank 1: client Blank 2: circumstance reason: Client- imposed scope limitation is when management'd deliberate refusal to provide the audit team access to evidence or otherwise limit the audit team's application of audit procedure. Circumstance -imposed scope limitation is when circumstances beyond the audit team's and client's control.

A departure from GAAP is __________ when it can be isolated to a particular account group or transactions without materially affecting other accounts.

Blank 1: compartmentalized

If a material departure from GAAP is noted during an audit examination of a public entity, the entity's financial statements and auditors' report would be classified as a(n)_________ filing by the SEC and would not satisfy its reporting requirements.

Blank 1: deficient Reason: the entitiy's financial statements and accompanying auditor's report would be classified as a "deficient" filing by the SEC & would not satisfy its reporting requirements.

Emphasis-of-matter and other-matter paragraphs may be collectively referred to as ____________ paragraphs.

Blank 1: explanatory

When a large entity prepares consolidated statements that include more than one component, they are referred to as ________ financial statements.

Blank 1: group

Matters communicated to those in charge of governance, which are the most significant and may include higher risk areas, required significant judgment, or significant transactions or events, are referred to as ________ ________ matters.

Blank 1: key Blank 2: audit Key Audit Matters are matter communicated to those in charge of governance, which are the most significant and may include higher risk areas, required significant judgment, or significant transactions or events

The auditors' report would express an adverse opinion when a(n) _________ ___________ in ICFR is identified.

Blank 1: material Blank 2: weakness or weaknesses

Paragraphs that provide information relating to understanding the audit, auditor responsibility, or audit report are known as _________-________paragraphs.

Blank 1: other Blank 2: matter

If a departure from GAAP is __________, affecting numerous accounts and financial statement relationships, or is material to the point that the financial statements as a whole are misleading a(n) __________ opinion must be issued.

Blank 1: pervasive Blank 2: adverse reason: If the GAAP departure is pervasive and material to the point of misleading , the auditor must issue an adverse opinion.

When an auditor provides additional copies of a previous audit report or grants entities permission to use a previous report in another document sometimes after its original date, it is referred to as a(n) __________ report.

Blank 1: reissued

A deficiency or combination of deficiencies important enough to merit attention to those charged with governance is identified as a(n) __________ deficiency.

Blank 1: significant

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 An unmodified report is appropriate when there is no material issues encounter during the audit & that the financial statement are prepare according to GAAP.

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

True or false: Auditors cannot express different opinions on comparative years' financial statements in the same report.

False

True or false: The date on the audit reports indicates when the partner-in-charge approved of the audit materials.

False Reason: Correct. The date indicates when the audit team obtained sufficient appropriate evidence to support the opinion.

True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.

False Reason: The conclusion will address whether the information is fairly stated but no opinion will be expressed.

True or false: If a material departure from GAAP is noted during an audit examination of an issuer, the financial statements may still be filed with the SEC to satisfy reporting requirements as long as the audit opinion is included.

False Reason: This would be classified as a "deficient" filing by the SEC and would not satisfy its reporting requirements.

Which of the following statement is correct? Multiple choice question. -The management report on the effectiveness of an entity's internal controls is required for both public and nonpublic entities. -The auditor's report on the effectiveness of an entity's internal controls is required for public entities only.

The auditor's report on the effectiveness of an entity's internal controls is required for public entities only. Reason: b/c only public entities are require to filed a report and not nonpublic entities.

In which of the following circumstances would a qualified opinion not be appropriate? Multiple Choice A scope limitation prevents the auditors from completing an important auditing procedure. An accounting principle at variance with generally accepted accounting principles is used. The entity has failed to properly disclose going-concern uncertainties. The auditors lack independence with respect to the audited entity.

The auditors lack independence with respect to the audited entity.

Which of the following statements regarding audit reports for public and nonpublic entities are correct? Multiple select question. The general content and message communicated by the reports contain many similarities. All entities include a statement that the audit was conducted under "auditing standards generally accepted in the United States of America." The auditor's report and opinion on internal controls is only mentioned for public entities.

The general content and message communicated by the reports contain many similarities. The auditor's report and opinion on internal controls is only mentioned for public entities. Reason: Correct. This is a true statement.

The Auditor's Responsibility section of the standard audit report for a nonpublic entity includes paragraphs indicating Blank______. Multiple select question. -a description of the audit -entity management's responsibility for the fairness of the financial statements -identifying several components of a GAAS audit -the audit team's responsibility to conduct the audit under GAAS

a description of the audit identifying several components of a GAAS audit the audit team's responsibility to conduct the audit under GAAS