Topic 15- Audit Reporting
If in the auditor's report, she states an opinion regarding the subject matter she evaluated, she is providing which type of assurance? a. Positive b. Negative c. Disclaimer d. None of the above
A
The following language was taken from an auditor's report on financial statements: "As discussed in Note X to the financial statements, the Company is a defendant in a lawsuit [briefly describe the nature of the litigation consistent with the Company's description in the note to the financial statements]. Our opinion is not modified with respect to this matter. "This is an example of which type of paragraph? a. Emphasis of matter paragraph b. Other matter paragraph
A
The financial statements of HBM Co. have been audited by the same auditor for the past 5 years. In the 2013 filing, HBM presents three years worth of financial statements for comparative purposes. The auditor's report included in the 2013 filing should refer to their audits of which year(s)? a. All three years presented (2011, 2012, 2013) b. 2011 only c. 2013 and 2012 only d. 2013 only
A An audit report must accompany the financial statements of all years presented in the filing. The auditor would update his report from prior years based on information obtaind during the audit of the 2013 financial statements.
When performing an audit, the auditor concludes that the client's financial statements are presented fairly and in accordance with GAAP. However, after considering all relevant factors, the auditor also concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Which of the following audit opinions should the auditor issue? a. Unqualified b. Qualified c. Disclaimer d. Adverse
A The nature of the audit opinion does not change when substantial doubt exists about an entity's ability to continue as a going concern. That said, the auditor is required to include an explanatory or emphasis of matter paragraph to disclose the substantial doubt.
The following language was taken from an auditor's report on a client's financial statements: "We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements."This is an example of which type of audit opinion? a. Disclaimer of opinion b. Unmodified opinion c. Qualified opinion d. Adverse opinion
A This is wording from a disclaimer of opinion. Notice that no opinion is given by the auditor. In all of the other options, the auditor offers an opinion on the financial statements.
Reviews of financial statements typically include which of the following? (select all that apply) a. obtaining a management representation letter b. inquiries c. a small amount of substantive testing of transactions d. analytical procedures
A, B, and D
An auditor has audited a client's financial statements for 5 consecutive years. The client presents 3 years worth of financial statements in the filing for comparative purposes. For the 2012 audit, the auditor expressed a qualified opinion due to a scope limitation on confirmation of receivables. In the 2013 audit, the auditor issued an unqualified opinion on the 2013 financial statements. When confirming the 2013 receivables balances with the client's customers, the auditor was able to obtain the A/R balances from the previous year (2012) as well and concluded that they were fairly stated. When presenting the audit report for comparative financial statements (2011-2013), the auditor would most likely do which of the following with regard to the 2012 financial information? a. Do not change the previously-issued auditor's report b. Update the audit report by issuing an unqualified opinion on the 2012 financial statements c. Re-issue the audit report from the 2012 financial statements d. Combined the 2012 and 2013 reports into a single report and issue a qualified opinion for the 2012 financial statements and an unqualified opinion on the 2013 financial statements
B
The auditor provides an overview of what an audit entails in which paragraph of the standard AICPA unmodified audit report? a. Introductory paragraph b. Auditor's Responsibility paragraph c. The audit report date d. Management's Responsibility paragraph
B
The indication of whether or not the auditor believes he has sufficient and appropriate audit evidence to provide a basis for his opinion is ________________ in the audit report. a. implied b. stated explicitly
B
When issuing a modified audit opinion under AICPA standards, the auditor adds an explanatory paragraph _____________ the opinion paragraph in the auditor's report. a. after b. before c. embedded within
B
When performing an audit, the auditor concludes that the client's financial statements are presented fairly and in accordance with GAAP. However, after considering all relevant factors, the auditor also concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Which of the following audit opinions should the auditor issue? a. Qualified b. Unqualified c. Disclaimer d. Adverse
B The nature of the audit opinion does not change when substantial doubt exists about an entity's ability to continue as a going concern. That said, the auditor is required to include an explanatory or emphasis of matter paragraph to disclose the substantial doubt.
The auditor specifies the time period covered by the auditor's report in which paragraph of the standard unmodified audit report issued under AICPA standards? a. Auditor's Responsibility paragraph b. Report on the Financial Statements c. Management's Responsibility for the Financial Statements paragraph d. Audit report date
B The time period covered by the audit is indicated in the Report on the Financial Statements paragraph, which is the introductory paragraph of the auditor's report. The audit report date is typically the date the auditor completed the audit.
In their audit report for which of the following engagements would the auditor provide positive assurance? (check all that apply) a. Review of financial statements b. Audit of financial statements c. Audit of internal controls
B and C
Reviews of financial statements typically include which of the following? (select all that apply) a. a small amount of substantive testing of transactions b. obtaining a management representation letter c. analytical procedures d. inquiries
B, C, and D
The following language was taken from the auditor's report on financial statements: "In our opinion, because of the significance of the matter discussed in the previous paragraph, the consolidated financial statements referred to above do not present fairly the financial position of ABC Company and its subsidiaries as of December 31, 20X1"This is an example of which type of audit opinion? a. Qualified opinion b. Disclaimer of opinion c. Adverse opinion d. Unmodified opinion
C
When issuing a modified audit opinion under AICPA standards, the auditor adds an explanatory paragraph _____________ the opinion paragraph in the auditor's report. a. after b. embedded within c. before
C
Which of the following audit opinions would most likely be issued if the financial statements are materially misstated due to misstatements in several account balances? a. Qualified b. Disclaimer c. Adverse d. Unqualified
C
An auditor is unable to obtain adequate audit evidence regarding several material account balances. Which of the following types of audit opinions would most likely be issued? a. Adverse b. Unqualified c. Disclaimer d. Qualified
C Since the problem is pervasive and material, the auditor would most likely disclaim an opinion. Since he or she cannot obtain adequate evidence on several material accounts, the auditor would not be able to come to a conclusion and therefore would disclaim an opinion.
An auditor is unable to obtain adequate audit evidence regarding several material account balances. Which of the following types of audit opinions would most likely be issued? a. Qualified b. Adverse c. Disclaimer d. Unqualified
C Since the problem is pervasive and material, the auditor would most likely disclaim an opinion. Since he or she cannot obtain adequate evidence on several material accounts, the auditor would not be able to come to a conclusion and therefore would disclaim an opinion.
On what basis can a qualified opinion be issued? a. Material but non-pervasive scope limitation b. Material but non-pervasive GAAP violation c. Material and pervasive GAAP violation d. Two of the above are correct
D
Which of the following audit opinions would most likely be issued if the financial statements are materially misstated, and the misstatements are not pervasive? a. Unqualified b. Disclaimer c. Adverse d. Qualified
D
Which of the following audit opinions would most likely be issued if the financial statements are materially misstated due to a misstatement in one particular account balance? a. Disclaimer b. Unqualified c. Adverse d. Qualified
D Since the misstatement relates to one particular account balance, the auditor would most likely issue a qualified opinion.
Which of the following types of audit opinions would most likely be issued when the auditor is unable to obtain adequate audit evidence regarding several material account balances? a. Unqualified b. Qualified c. Adverse d. Disclaimer
D Since the problem is pervasive and material, the auditor would most likely disclaim an opinion. Since he or she cannot obtain adequate evidence on several material accounts, the auditor would not be able to come to a conclusion and therefore would disclaim an opinion.
Each of the following must be disclosed regarding a CAM that is identified by the auditor, except: a. Description of what the CAM is b. Discussion of the main considerations leading the auditor to determine that the matter is a CAM c. Description of how the CAM was addressed in the audit d. Reference to the relevant financial statement accounts or disclosures relating to the CAM e. All of the above must be disclosed regarding a CAM identified by the auditor
E
Which of the following assurance types does not result in an auditor opinion being issued? a. Positive assurance b. Negative assurance c. Adverse opinion d. Disclaimer of Opinion e. Two of the above are correct
E
During a review of financial statements, the auditor would NOT perform substantive analytical procedures.
FALSE
Emphasis of matter paragraphs and other matter paragraphs are both included in the auditor's report before the opinion paragraph.
FALSE
The following language was taken from an auditor's report on a client's financial statements: "We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements." This is an example of a qualified audit opinion.
FALSE
The following language was taken from an auditor's report on financial statements: "In our opinion, except for the possible effects of the matter described in the previous paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1" This is an example of an unqualified opinion.
FALSE
When the auditor is unable to obtain adequate audit evidence regarding one material account balance for a non-pervasive issue, he would most likely issue an adverse opinion.
FALSE A qualified opinion is most likely here. Scope limitations do not ever result in adverse opinions. They result in either qualified opinions or disclaimers of the opinion. Since the lack of evidence relates to only one account balance, the auditor would likely qualify his or her opinion rather than disclaim an opinion.
Under PCAOB standards, auditors will be required to identify and disclose at least one Critical Audit Matter (CAM) for each audit engagement as part of the standard audit report.
FALSE Although the PCAOB expects that most audit engagements will involve one or more CAMs, the standards recognize that each engagement may not contain a CAM. In those cases, the report would include a statment saying that the auditor determined that there are no critical audit matters.
In the United States, the lead engagement partner's name is not required to be disclosed for audits of publicly-traded companies.
FALSE Although the lead engagement partner's name is not disclosed in the audit report, it is required to be disclosed in the PCAOB's Form AP.
Critical Audit Matters (CAMs) are defined as those matters that are critical for the auditor to know about before beginning the audit.
FALSE Critical Audit Matters (CAM's) are those matters that are (1) material to the financial statements, (2) especially challenging, subjective, or involving complex judgment by the auditor, and (3) that are communicated or required to be communicated to the audit committee of the board of directors. These are matters that the auditor identifies during the course of the audit, not necessarily before the engagement begins.
Emphasis of matter paragraphs are used to discuss matters that are relevant to the user's understanding of the audit, the auditor's responsibilities, or to the auditor's report.
FALSE Other Matter paragraphs would be used for this purpose.
If a previous auditor does not want his or her audit report from a prior period to be included in the current year filing, the current-year auditor would need to re-issue the audit opinion.
FALSE Re-issuing the opinion is synonomous with including the audit opinion of the prior year in the current year filing. The auditor should instead include an other matter paragraph in the current period audit report indicating that other auditors audited the prior period financial statements.
Reviews of financial statements include inquiries, analytical procedures, and a small amount of substantive testing of transactions.
FALSE Substantive testing of transactions are not performed during a review of financial statements.
The AICPA requires that auditors disclose in the auditor's report how long they have served as the auditor to that particular client.
FALSE The PCAOB, but not the AICPA, requires that auditors indicate in the auditor's report how long they have been auditing the client.
When issuing a modified opinion under AICPA auditing standards, the auditor adds an explanatory paragraph AFTER the opinion paragraph in the audit report.
FALSE The auditor adds the explanatory paragraph BEFORE the opinion paragraph when issuing a modified opinion under AICPA auditing standards.
If a previous auditor does not want his or her audit report from a prior period to be included in the current year filing, the auditor should re-audit the prior year financial statements and present the findings of their audit in the current year audit report.
FALSE The auditor should instead include an other matter paragraph in the current period audit report indicating that other auditors audited the prior period financial statements.
An auditor discovers that a disclosure that is required under GAAP has not been made in the financial statements. According to AICPA standards, he or she should use an emphasis of a matter paragraph to draw attention to that disclosure.
FALSE The auditor uses emphasis of matter paragraphs to draw attention to matters that are properly disclosed in the financial statements. If a disclosure that is required under GAAP is not included in the financial statements, the auditor should modify his or her audit opinion, including an explanatory paragraph prior to the opinion paragraph, but does not add an emphasis of matter paragraph.
Auditors should use emphasis of a matter paragraphs to draw attention to the fact that a required disclosure has been omitted from the financial statements.
FALSE The auditor uses emphasis of matter paragraphs to draw attention to matters that are properly disclosed in the financial statements. If a disclosure that is required under GAAP is not included in the financial statements, the auditor should modify his or her audit opinion, including an explanatory paragraph prior to the opinion paragraph, but does not add an emphasis of matter paragraph.
The auditor's report on a review of financial statements provides positive assurance regarding the fair presentation of the financial statements.
FALSE The auditor's report for a review of financial statements provides negative assurance, not positive assurance.
The 'Basis for Opinion' paragraph in the PCAOB's version of the audit report should indicate the financial reporting framework used by the client in preparing the financial statements.
FALSE The financial reporting framework used for preparation of the financial statements should be identified in the opinion paragraph of the auditor's report.
The auditor should indicate which auditing standards were followed in conducting the audit in the introductory paragraph of the auditor's report.
FALSE The identification of the set of auditing standards used in the audit appears in the 'Auditor's Responsibility' section of the audit for AICPA/IAASB audits and in the 'Basis for Opinion' paragraph for PCAOB audits.
If an engaged audit firm uses other audit firms that provide less than 5% of the total audit work performed, the identity of those other audit firms must be dislcosed to the public in the Form AP.
FALSE The identify of "other audit firms" that perofrm 5% or more of the audit work must be disclosed in the Form AP, but a simple count of "other audit firms" (i.e., no list of the firms' names) that provide less than 5% of the audit work is required.
The introductory paragraph of the AICPA's version of the auditor's report is always modified when the auditor issues a modified opinion.
FALSE The introductory paragraph is modified when the auditor issues a disclaimer of opinion, but not for the other modifications.
The following language was taken from an auditor's report on a client's financial statements: "The Company's financial statements do not disclose [describe the nature of the omitted information that is not practicable to present in the auditor's report]. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America.In our opinion, except for the omission of the information described in the previous paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0." This is an example of a qualified opinion due to a scope limitation.
FALSE This is a qualified opinion that is due to a GAAP violation. Inadequate disclosure, where those disclosures are required by GAAP, would lead the auditor to modify the audit opinion.
The following language was taken from an auditor's report on financial statements: "As discussed in Note X to the financial statements, the Company is a defendant in a lawsuit [briefly describe the nature of the litigation consistent with the Company's description in the note to the financial statements]. Our opinion is not modified with respect to this matter. " This is an example of an 'Other Matter' paragraph.
FALSE This is an example of an emphasis of matter paragraph.
When providing negative assurance, the auditor states an opinion regarding the subject matter she evaluated.
FALSE When providing negative assurance, the auditor does not provide an opinion, but rather states whether or not anything significant came to his or her attention during the course of the evaluation.
When an auditor concludes that the financial statements are fairly stated in accordance with GAAP, he or she would issue a disclaimer of opinion.
FALSE When the auditor concludes that the financial statements are presented fairly in accordance with GAAP, he or she would issue an unqualified opinion.
An unqualified opinion is the opinion the auditor issues when he or she believes the financial statements are fairly stated in accordance with GAAP.
TRUE
Emphasis of matter paragraphs and other matter paragraphs are both included in the auditor's report after the opinion paragraph.
TRUE
The auditor must explicitly state in their report whether or not they believe they have sufficient and appropriate audit evidence to provide a basis for their opinion under AICPA standards.
TRUE
The auditor's report on a review of financial statements provides negative assurance regarding the fair presentation of the financial statements.
TRUE
The following language was taken from the auditor's report on financial statements: "In our opinion, because of the significance of the matter discussed in the previous paragraph, the consolidated financial statements referred to above do not present fairly the financial position of ABC Company and its subsidiaries as of December 31, 20X1" This is an example of an adverse opinion.
TRUE
The opinion paragraph should indicate the financial reporting framework used by the client in preparing the financial statements.
TRUE
When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, the auditor should add an emphasis of matter paragraph to his or her audit report.
TRUE
When the auditor signs the audit report in the United States, he signs the name of his firm rather than his own name.
TRUE
An auditor has audited a client's financial statements for 5 consecutive years. The client presents 3 years worth of financial statements in the filing for comparative purposes. For the 2012 audit, the auditor expressed a qualified opinion due to a scope limitation on confirmation of receivables. In the 2013 audit, the auditor issued an unqualified opinion on the 2013 financial statements. When presenting the audit report for comparative financial statements (2011-2013), the auditor can change his or her opinion on the 2012 audit of financial statement to be an unqualified opinion if he or she desires.
TRUE If the auditor has obtained adequate evidence regarding the receivables balance for 2012 (such as through subsequent collections during 2012) he or she can change their previous audit opinion from qualified to unqualified. This is called updating the audit report.
If an engaged audit firm chooses to use another audit firm to provide 6% of the total audit work for an audit of a publicly-traded company in the United States, the auditor who issues the opinion must disclose the identity of the other audit firm to the public.
TRUE The PCAOB requires the disclosure - in the Form AP - of individual firms that provide 5% or more of the audit work performed during an engagement.
For audits of public companies, the auditor's report is typically addressed to the board of directors and stockholders of the company--not to management.
TRUE This statement is true. Since the board (the stockholder's representatives) and stockholders hire the auditor, the report is addressed to them.
If an auditor is unable to mail confirmation for accounts receivable but has become satisfied about the balance through the use of alternative auditing procedures, he/she would most likely: a. Disclaim an opinion because mailing confirmations is a required audit procedure. b. Express an unmodified opinion containing reference to the alternative procedures performed c. Express an unmodified opinion with no reference to the alternative procedures performed. d. Express a qualified opinion and include a separate explanatory paragraph stating that alternative procedures were performed.
Was either B or D (think D)
