17 - 18 - 21

When an auditor expresses an adverse opinion, the opinion paragraph should include

A direct reference to a separate paragraph disclosing the basis for the opinion

The refusal of client's legal counsel to provide info requested in an inquiry letter generally is considered

A limitation on the scope of the audit

An emphasis-of-matter paragraph is used in the auditor's report to draw users' attention to

A matter appropriately presented or disclosed in FS

Eagle Company, a public company, had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle's inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either

A qualified opinion or a disclaimer of opinion.

Eagle Co had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle's inventory account. Assuming inventory account is at least material, the auditor would most likely choose either

A qualified opinion or disclaimer of opinion

When an auditor is asked to express an opinion on an entity's rent and royalty revenues, he or she may

Accept the engagement provided the auditor's opinion is expressed in a special report.

When an auditor is asked to express an opinion on an entity's rent and royalty revenues, he or she may

Accept the engagement, provided the auditor's opinion is expressed in a special report.

If financial statements are to meet the requirements of adequate disclosure,

All information believed by the auditor to be essential to the fair presentation of the financial statements must be disclosed, no matter how confidential management believes the data to be. (In considering the adequacy of disclosure, the auditor necessarily uses confidential client information. Otherwise, forming an opinion on the statements would be difficult. To the extent required by GAAP or an other appropriate financial reporting framework, such information must be disclosed. But beyond these requirements, the auditor who discloses confidential information without specific consent violates Conduct Rule 301, Confidential Client Information.)

Which of the following professional services would be considered an attest engagement?

An engagement to report on compliance w statutory requirements

In which situation is the auditor most likely NOT to include an emphasis-of-matter paragraph in the auditor's report?

An important audit procedure was performed

Which of the following statements concerning prospectives FS is correct?

Any type of prospective FS would normally be appropriate for LIMITED use

Which of the following statements concerning prospective FS are true?

Any type of prospective FS would normally be appropriate for limited use

Under which of the following circumstances might auditor disclaim an opinion?

Auditor is unable to obtain sufficient appropriate evidence to support mgmt.'s assertions concerning an uncertainty

Blank checks are maintained in an unlocked cabinet along with the check-signing machine. Blank checks and the check-signing machine should be locked in separate locations to prevent the embezzlement of funds.

Auditor's communications on significant deficiencies and material weakness.

When qualifying an opinion because of an insufficiency of appropriate audit evidence, an auditor should refer to the situation in the:

Auditor's responsibility section (only, NOT notes to FS)

The general accreditation granted by Institute of Internal Auditors is known as the

CIA

For which of the following events would an auditor issue a report that omits any reference to a change in accounting principles or correction of a material misstatements?

Change in useful life used to calculate the provision for dep exp (change in east)

Which of the following services, if any, may accountant who is NOT independent provide?

Compilations but not reviews

When reporting on comparative FS, which of the following circumstances should ordinarily cause auditor to change previously issued opinion in PY FS?

Departure from GAAP caused an adverse opinion in PY S and those statements have been properly restated

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion on Tech's financial statements would most likely result from

Departure from generally accepted accounting principle

Zag Co. presents financial position and results of operations but not the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows, although Brown's access to all of the information underlying the basic financial statements will not be limited. Under these circumstances, Brown most likely would

Explain to Zag that the omission requires a qualification of the auditor's opinion (An entity that reports financial position and results of operations should provide a statement of cash flows. Thus, the omission of the cash flow statement is normally a basis for modifying the opinion. If the statements fail to disclose required information, the auditor should provide the information in the report, if practicable. However, the auditor is not required to prepare a basic financial statement. Accordingly, (s)he should qualify the opinion and explain the reason in a basis for qualified opinion paragraph.)

The objective of the audit of GAAP-based FS is to

Express an opinion on fairness with which the statements present financial position, results of operations, and CF in accordance w GAAP

In which of the following circumstances would an auditor be most likely to express an adverse opinion?

FS are not in conformity w FASB regarding capitalization of leases (departure from GAAP)

In which of the following situations would an auditor ordinarily choose between a qualified opinion and adverse opinion?

FS fail to disclose information that is required by the applicable reporting framework (departure from GAAP)

Keli engaged March CPA to submit to Kell a written perusal financial plan containing unaudited personal FS... Kell is required to agree that the

FS will not be used to obtain credit

Given one or more hypothetical assumptions, a party may prepare an entity's expected financial position, results of operations, and CF. Such prospective FS are known as

Financial projections

An auditor includes a separate paragraph in an otherwise unmodified financial statement audit report to emphasize that the entity being reported upon had significant transactions with related parties. The inclusion of this separate paragraph

Is appropriate and would not negate the unmodified opinion.

Which of the following should a practitioner perform as part of an engagement for agreed-upon procedures in accordance w SSARS?

Issue report on findings based on specific procedures performed

An auditor issued an audit report that was dual dated for a subsequent event occurring after the date on which the auditor has obtained sufficient appropriate audit evidence but before issuance of the financial statements. The auditor's responsibility for events occurring subsequent ot the date on which the auditor has obtained sufficient appropriate evidence was

Limited to the specific event referenced.

When financial statements are materially but not pervasively misstated, an auditor may express a

Qualified Opinion: Yes, Disclaimer of an Opinion: No (A material misstatement results in either a qualified or an adverse opinion. The auditor must exercise judgment as to whether the misstatement is pervasive. If the misstatement is not pervasive, the auditor should express a qualified opinion.)

If an issuer releases financial statements the purport to present its financial position and results of operations but omits the statement of CF, the auditor ordinarily will express a

Qualified opinion (departure from GAAP, not pervasive)

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor's report. This paragraph should describe the change and

Refer to the FS note that discusses the change in detail

Which of the follow is not a type of PrimePlus service?

System design services

Which of the following best describes the auditor's responsibility for "other information" included in the annual report to stockholders that contains financial statements and the auditor's report?

The auditor has no obligation to corroborate the "other information" but should read the "other information" to determine whether it is materially inconsistent with the financial statements.

Which of the following circumstances would not be considered a departure from the auditor's unmodified report?

The auditor is asked to report only on the balance sheet, and the auditor can comply with relevant standards. (The auditor may report on one basic financial statement and not on the others if (1) the auditor complies with all AU-C sections relevant to the audit, (2) the audit is feasible, and (3) the auditor can perform procedures on interrelated items. For example, (1) sales and receivables, (2) inventory and payables, and (3) equipment and depreciation are interrelated.)

In which of the following circumstances would an auditor not express an unmodified opinion?

The auditor is unable to obtain audited financial statements of a long-term investee. (A qualified opinion may be based on a lack of sufficient appropriate evidence. Some common scope limitations relate to the inability to observe inventory, confirm accounts receivable, or obtain audited statements of a long-term investee.)

An auditor did not observe a client's taking of beginning physical inventory and was unable to become satisfied about the inventory by means of other auditing procedures. The possible effects are material...

The balance sheet only

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

The financial statements fail to disclose information that is required by GAAP

A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's financial statements. Which parties should reach an understanding on the limits of materiality for this purpose?

The lawyer and the auditor

Which of the following statements is a basic element of the auditor's report for a nonissuer?

The procedures used depend on the auditor's judgment. (The auditor's responsibility section states, "The procedures selected depend on the auditor's judgment . . .")

King, CPA, was engaged to audit the financial statements of Chang Company, a private company, after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King's financial statement audit report most likely contained a(n)

Unmodified opinion.

A public entity changed form the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the on the current current year's financial statements but is reasonably certain to have a substantial effect in later years. The client's financial statements contain no material misstatements and the auditor concurs with this change. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)

Unqualified opinion

Thibodeau Mines, Inc., uses LIFO for valuing inventories held in the United States and FIFO for inventories produced and held it its foreign operations

Unqualified, standard wording

A change in reporting entity is an example of an accounting change that affects comparability and requires an explanatory/emphasis-of-matter paragraph in the audit report.t/f

true

A public entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years. The client's financial statements contain no material misstatements and the auditor concurs with this change. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)

unqualified opinion

Pell CPA is the group engagement partner in the audit of the FS of Tech Consolidated Inc. Smith CPA audits one of Tech's subsidiaries. In which situation should pell refer to Smith's audit?

(II) Pell is unable to review Smith's audit documentation but reads FS and gains understanding that smith has excellent reputation

Which of the following statements ordinarily is included among written mgmt. representations obtained by auditor in audit of non-issuer?

All transactions have been recorded in the accounting records

PrimePlus engagements are mainly deigned to

Assist the elderly to maintain their financial independence and desired lifestyle as they age

Which of the following best describes the auditor's responsibility for "other information" included in annual report to SH that contains FS and auditor's report?

Auditor has no obligation to corroborate, but should read to determine if materially inconsistent w FS

During our audit we discovered evidence of the company's failure to safeguard inventory from loss, damage, and misappropriation.

Auditor's communications on significant deficiencies and material weakness.

Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities?

Auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management

An auditor most likely will express an unmodified opinion and will not add additional language to the report if the auditor

Believes there is a REMOTE likelihood of a material loss resulting from an uncertainty

When an accountant compiles a financial forecast, report should include a

Caveat that the prospective results..

An auditor may express a qualified opinion for which reasons?

Circumstances related to work: Yes Limitations imposed by mgmt.: Yes

An other-matter paragraph is included in the auditor's report EXCEPT when

Client has materially restated the PY's comparative FS

Which of the following parties should make an inquiry of a client's lawyer?

Client management

As Dr. Mohrweis explained in class, the auditor obtains information about lawsuits. Then auditor them needs to "corroborate" that information. Who initially gives the auditor the information regarding litigation and claims against the company?

Client's management

The primary source of information to be reported about litigation, claims, and assessments is the

Client's management

If the auditor determines that an inquiry of a client's external legal counsel is necessary, who should make the inquiry?

Client's mgmt. (all communication of client letterhead)

The accuracy of information included in notes that accompany the audited financial statements of a company whose shares are traded on a stock exchange is the primary responsibility of the

Company's management. (The notes are considered part of the basic financial statements. Because management has the primary responsibility for the financial statements, it also has the primary responsibility for the accuracy of information included in notes.)

When predecessor auditor reissues the report on the prior period's FS at the request of former client, the predecessor should

Compare the prior year FS that predecessor reported on w FS to be presented for comparative purposes (read, compare, replete from auditor and mgmt.)

An accountant should not compile unaudited FS for mgmt. of a non-issuer unless the accountant

Complies w SSARS

Patentex developed a new secret formula that is of great value because it resulted in a virtual monopoly. Patentex has capitalized all research and development costs associated with this formula. Greene, CPA, who is auditing this account, will probably

Confer with management regarding transfer of the amount from the balance sheet to the income statement. (U.S. GAAP require that R&D costs be expensed as incurred. The auditor should confer with management about this misstatement. If management refuses to correct the misstatement, the auditor should express a qualified or an adverse opinion if the misstatement is material. The required restatement is to expense the amounts capitalized, i.e., to transfer the amounts from the balance sheet to the income statement.)

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Confirming w 3rd parties the details of arrangements to maintain financial support

Does an auditor make the following representations explicitly or implicitly in the opinion paragraph when pressing an unmodified opinion?

Conformity w applicable financial reporting framework: Explicitly Adequacy of disclosure: Implicitly

When auditor concludes there is substantial doubt about a continuing audit client's ability to continue as a going concern it is auditor's responsibility to

Consider adequacy of disclosure about client's possible inability to continue

Which of the following is not a Trust Services principle?

Digital certificate authorization

When an independent CPA is associated with the financial statements of an issuer but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(n)

Disclaimer of opinion. (PCAOB auditing standards apply to engagements involving issuers. Under these standards, when an accountant is associated with the financial statements of an issuer but has not audited or reviewed such statements, the report should disclaim an opinion on them (PCAOB Interim Auditing Standards).)

Miller CPA is engaged to compile the FS of Web Co in conformity w income tax basis of accounting. If Web's FS do NOT disclose the basis of accounting used, Miller should

Disclose the basis of accounting in accountant's compilation report

During an engagement to review the FS of a non-issuer, an accountant becomes aware that several leases that should be capitalized are not capitalized. The accountant considers these leases to be material to the FS. The accountant decides to modify the standard review report bc mgmt. will not capitalize the leases. The accountant should

Disclose the departure from GAAP in a separate paragraph of accountant's report

Wilson CPA...

Dual Dating

To which of the following matters would an auditor NOT apply materiality limits when obtaining specific written mgmt. representation?

Fraud involving....

An auditor may issue an unmodified audit report when the

Group engagement partner assumes responsibility for work of component auditor

Which of the following statements about litigation, claims, and assessments extracted from a latter from client's legal counsel is most likely to cause the auditor to request clarification?

I believe that the action can be settled for less than damages claimed ((bc probable and need estimate)

In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion on a client's financial statements?

Inability to obtain sufficient competent evidence

FS of a non-issuer that have been review by an accountant should be accompanied by a report stating that a review

Includes primary applying analytical procedures to mgmt. financial data and making inquiries of company and mgmt.

Key Co....

Jan 1 year 1, through May 1 year 3

Which of the following documentation is required for audit in accordance w generally accepted auditing standards?

Mgmt. representation letter

March CPA is engaged by Monday Corp to audit FS of Wall Corp... auditor's report addressed to:

Monday Corp, the client that engaged March

Negative assurance may be expressed when practitioner requested to apply agreed-upon procedures to specified

NO/NO

An annual SH report includes audited FS and contains a mgmt. report asserting that the FS are responsibility of stmt. Is it permissible for the auditor's report to refer to the mgmt. report?

No - because the reference may lead to the belief that the auditor is providing assurances about mgmt.'s representations

Due to a scope limitation, an auditor disclaimed an opinion on FS as a whole, but the auditor's report included a statement that the current asset portion of the entity's BS was fairly stated. The inclusion of this statement is

Not appropriate because it may tend to overshadow the auditor's disclaimed opinion

On Feb 25.... mgmt. refused to adjust

Notify mgmt. and those charged w governance

The auditor's opinion refers to U.S. generally accepted accounting principles (U.S. GAAP). Which of the following best describes U.S. GAAP?

Principles issued by bodies designated by the Council of the AICPA. (GAAP are issued by bodies designated by the AICPA Council in accordance with Rules of Conduct 202 and 203. For nongovernmental financial accounting purposes, these standards setters include the FASB for U.S. GAAP and the International Accounting Standards Board (IASB) for international financial reporting standards. Moreover, pronouncements of the SEC must be followed by registrants.)

An assurance report on information can provide assurance about information's

Reliability, Relevance, AND timeliness

An auditor's report included the following paragraph relative to substantial doubt about a client's ability to continue as a going concern.. which statement is true

Report should not contain conditional language

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may

Require disclosure to keep the FS from being misleading (Type II)

Which of the following procedures would best detect a liability omission by management?

Review purchase contracts and other legal documents

Moore CPA has been asked to issue a review report on the BS of Dover Co. Moor will not be reporting on Dover's statements of income, RE, and CF. More may issue review report provided the

Scope of inquiry and analytical procedures has not been restricted

Each page of a non-issuer's FS review by an accountant should include the following reference:

See accountant's review report

Which of the following events occurring after the issuance of a set of financial statements and the accompanying of auditor's report would be most likely to cause the auditor to make further inquiries about the financial statements?

The discovery of information regarding a contingency that existed before the financial statements were issued

In which of the following circumstances would an auditor be most likely to express an adverse opinion?

The financial statements are not in conformity with the FASB Codification's guidance regarding the capitalization of leases. (An adverse opinion is expressed when, in the auditor's judgment, the financial statements as a whole are not presented fairly in conformity with GAAP. The FASB Accounting Standards Codification is authoritative with regard to U.S. GAAP.)

Which of the following statements is a basic element of the auditor's report for a non-issuer?

The procedures used depend on auditor's judgment

When mgmt. does NOT provide reasonable justification for change in account principle, and it presents comparative FS, the auditor should express a qualified opinion

each year that the FS initially reflecting change are presented

An auditor concludes that a client's noncompliance w laws and regulations, which has a material effect on the FS, has not been properly accounted for or disclosed. Depending on how pervasive the effect is on FS, the auditor should express either a

qualified or adverse opinion (departure from GAAP)

An auditor must disclaim an opinion when the auditor lacks independence.t/f

true

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion on Tech's financial statements would most likely result from

A lack of sufficient evidence.

When auditor asked to express an opinion an entity's rent and royalty revenues, he may

Accept the engagement, provided the auditor's opinion is expressed in special report

Indicate in the space provided below whether this information agrees with your records. If there are exceptions, please provide any information that will assist the auditor in reconciling the difference.

Accounts receivable confirmation request

FS of a non-public entity that have been reviewed by an accountant should be accompanies by a report stating that

All info included in the FS is representation of mgmt. of entity

FS of a non-issuer that have been reviewed by an accountant should be accompanied by a report stating that

All info included in the FS is the representation of mgmt. of entity

The auditor's responsibility section of an auditor''s report contains the following: "We did not audit the FS of EZ, which statements reflect total assets....audited by other auditors, whose report has been furnished to us...." These sentences

Assume no responsibility for the audit of the component auditor

An auditor who is unable to form an opinion on a new client's opening inventory balances may express an unmodified opinion on the current year's

Balance sheet only. (An inability to obtain sufficient appropriate audit evidence related to beginning inventory may prevent the auditor from expressing an unmodified opinion on some of the financial statements. Opening inventories enter into the determination of net income and cash flows. Thus, the auditor may disclaim an opinion on results of operations and cash flows. However, the balance sheet reports only the ending inventory balances. Thus, the auditor may express an unmodified opinion on the balance sheet.)

The auditor's report most likely is addressed to the following:

Board of Directors: Yes, Audited Entity: Yes, Internal Auditors: No (According to AU-C 700, the auditor's report ordinarily is addressed to those for whom the report is prepared. It may be addressed to the entity whose statements are being audited or to those charged with governance (e.g., the board or the audit committee). If the client is an unincorporated entity, the addressee depends on the circumstances, e.g., to the partners or the proprietor.)

The party responsible for assumptions identified in the preparation of prospective FS is usually

Client's mgmt.

In which of the following situations will a group auditor be most likely to refer to a component auditor who audited a subsidiary of the entity?

Component auditor performed an audit in accordance w PCAOB standards

The 4 principles of the IIA code of Ethics are

Confidentiality, competency, objectivity, and integrity

Jay Rich, CPA, hold 10 percent of stock in Rothenburg Construction Company. The board of directors of Rothenburg asks Rich to conduct its audit. Rich completes the audit and determines that the financial statements present fairly in accordance with generally accepted accounting principles.

Disclaimer

An accountant may accept an engagement to apply agreed-upon procedures to prospective FS, provided that

Distribution of the report is restricted to the specific users

An accountant's standard report on a review of FS of a non-issuer should state that the accountant

Is not aware of any material modifications that should be made to FS for them to conform to GAAP

The company believes that all material expenditures that have been deferred to future periods will be recoverable.

Management representation letter

An auditor's report includes the following statement: "The FS referred to above do not present fairly the financial position, results of operations, or cash flows in conformity w US GAAP" This auditor's report was most likely issued in connection w FS are

Misleading

If involved in an audit, a CPA cannot give, but a CPA could receive a

None of the above

When accountant attaches a compilation report to a non-issuer's FS that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the FS are

Not designed for those who are uninformed about omitted disclosures

Which of the following procedures should an accountant perform during an engagement to review the financial statements of a non-issuer?

Obtaining client representation letter from members of mgmt.

Which of the following should be the first step in review the FS of a non-issuer?

Obtaining general understanding of entity's org, its operating characteristics, and products/services

SSARS require an accountant to report when the accountant has

Prepared, through use of computer software, FS to be used by 3rd parties

When the auditor concurs w change in accounting principles that materially affects the comparability of the comparative FS the auditor should

Refer to the change in additional paragraph NOT: Express qualified opinion NOT: Concur Explicitly w the change

Which of the following procedures would best detect a liability omission by mgmt.?

Review purchase contracts and other legal documents

Under which of the following circumstances might an auditor disclaim an opinion?

The auditor is unable to obtain sufficient appropriate evidence to support management's assertions concerning an uncertainty. (Based on the audit evidence that is, or should be, available, the auditor assesses whether the audit evidence is sufficient to support managements' assertions about an uncertainty. When the auditor cannot obtain sufficient appropriate evidence, s/he expresses a qualified opinion if the possible effects are material but not pervasive. If the possible effects are material and pervasive, s/he disclaims an opinion.)

Mead CPA had substantial doubt about Tech Co's ability to continue as a going concern when reporting on Tech's audited FS for year ended June 30 Y1. That doubt has been removed in Y2. What is Mead's report responsibility if Tech is presenting its FS for the year end June 30 Y2 on a comparative basis w those of Y1?

The emphasis-of-matter paragraph included in Y1 auditor's report should not be repeated

Group engagement partner has identified a significant component of the group that is being audited by a component auditor. The group auditor intends to assume responsibility for the work of the component auditor. Accordingly,

The group engagement team should either audit the component directly or have the component auditor audit the information on its behalf

A practitioner has been engaged to apply agreed-upon procedures in accordance w SSAE to prospective FS. Which condition must be met?

The practitioner and specific parties agree upon the procedures to be performed

When compiling the FS of a non-public entity, an accountant should

Understand the accounting principles and practices of entity's industry

Mgmt. believes, and auditor is satisfied, that material loss probably will occur when pending litigation is resolved. Mgmt. is unable to make a reasonable estimate of the amount or range of potential loss but fully discloses the situation in the notes to the FS. If mgmt. does not make an accrual in the FS, the auditor should express an

Unmodified opinion w no additional paragraph in the auditor's report

Walker Computers is suing your client, Super Software, for royalties over patent infringement. Super Software's outside legal counsel assures you that Walker's case is completely without merit

Unqualified, standard wording

An auditor expresses a qualified opinion because of a material misstatement related to specific amounts in the financial statements. Which of the following phrases should be included in the opinion paragraph?

"When Read in Conjunction with Note X": No, "With the Foregoing Explanation": No (The auditor should use the phrase "except for" to qualify an opinion, followed by the basis for the qualification and a reference to the basis for qualified opinion paragraph preceding the opinion paragraph. Given a qualification because of a material misstatement related to specific amounts in the financial statements, the basis paragraph should describe the matter resulting in the qualification. It also should include (1) a description and quantification of the financial effects, if practicable; (2) an explanation of how narrative disclosures are misstated; or (3) omitted information, if practicable, and a description of its nature. However, if financial-effects disclosures are made in a note to the statements, the basis paragraph may refer to it. Furthermore, the notes are part of the financial statements, and a phrase such as "when read in conjunction with Note X" in the opinion paragraph is likely to be misunderstood. Also, wording such as "with the foregoing explanation" is neither clear nor forceful enough.)

Zero Corp suffered a loss having a material effect on FS as a result of a customer bankruptcy..

?

Accepting an engagement to examine an entity's financial projection most likely would be appropriate if projection were distributed to

A bank with which entity is negotiating for a loan

Auditing standard primarily encourage which of the following conversations between auditor and another party about financial reporting?

A conversation w those charged w governance to discuss matters pertaining to financial reporting

Auditing standards primarily encourage which of the following conversations about financial reporting?

A conversation with those charged with governance to discuss matters pertaining to financial reporting.

When reporting on comparative financial statements for a private company, which of the following circumstances should ordinarily cause the auditor to change the previously issued opinion on the prior year's financial statements?

A departure from generally accepted accounting principles cause an adverse opinion on the prior year's financial statements, and those statements have been properly restated

When reporting on comparative financial statements for a private company, which of the following circumstances should ordinarily cause the auditor to change the previously issued opinion on the prior year's financial statements?

A departure from generally accepted accounting principles caused an adverse opinion on the prior year's financial statements, and those statements have been properly restated.

When an auditor expresses an adverse opinion, the opinion paragraph should include

A direct reference to a separate paragraph disclosing the basis for the opinion. (An adverse opinion states that the financial statements are not fairly presented in accordance with the applicable financial reporting framework. When an adverse opinion is expressed, the opinion paragraph should directly refer to a basis for adverse opinion paragraph that discloses the basis for the adverse opinion. This paragraph should precede the opinion paragraph (AU-C 705).)

Restrictions imposed by management prohibit the observation of physical inventories, which account for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all other items in the financial statements. The auditor should express

A disclaimer of opinion. (The auditor may become aware of a management-imposed scope limitation after accepting the engagement that is likely to result in a qualified opinion or a disclaimer of opinion. The auditor should request removal of the limitation. If it is not removed, the auditor should communicate with those charged with governance and determine whether alternative procedures can be performed. If the auditor cannot obtain sufficient appropriate evidence because of the limitation, (s)he should determine whether the possible effects of undetected misstatements could be material and pervasive. If they are, the auditor should disclaim an opinion or withdraw from the engagement (AU-C 705).)

Under the ISAs, an auditor would not normally accept an engagement if

A limitation of its scope exists that may necessitate a disclaimer. (Unless required by statute, an auditor does not accept an engagement if its terms indicate a limitation of its scope that may necessitate a disclaimer.)

Which of the following components is appropriate in practitioner's report on results of applying agreed-upon procedures?

A list o the procedures performed, as agreed to by the specific parties identified in the report

The auditor is most likely to disclaim an opinion because of

A management-imposed limitation. (An inability to obtain sufficient appropriate evidence may result from (1) circumstances beyond the control of the entity, (2) circumstances related to the nature or the timing of the work, or (3) a management-imposed limitation. They result in either a qualified opinion or a disclaimer (AU-C 705).)

An auditor expresses an adverse opinion if

A misstatement is material and pervasive. (When the effects on the financial statements of a material misstatement are pervasive, the auditor expresses an adverse opinion. Pervasive effects are not confined to specific elements, accounts, or items of the financial statements. If they are confined, they represent a substantial proportion of the statements.)

Because an expression of opinion as to certain identified items in financial statements tends to overshadow or contradict a disclaimer of opinion or adverse opinion, it is inappropriate for an auditor to express

A piecemeal opinion (A piecemeal opinion is an opinion on a specific element of the statements when an auditor has disclaimed an opinion or expressed an adverse opinion on the statements as a whole. A piecemeal opinion is not acceptable because it contradicts the disclaimer or adverse opinion.)

Eagle Company, a public company, had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating the Eagle's inventory amount. Assuming the inventory account is at least material, the auditor would most likely choose either

A qualified opinion of a disclaimer of opnion

An auditor's report included an additional paragraph disclosing that there is a difference of opinion between the auditor and the client for which the auditor believed an adjustment to the financial statements should be made. The opinion paragraph of the auditor's report most likely expressed

A qualified opinion. (The most likely reason for including a separate paragraph disclosing a difference of opinion with the client is that the selection or application of an accounting principle is not in accordance with the applicable reporting framework. Such a disagreement is described in a basis for qualified opinion or basis for adverse opinion paragraph, depending upon the pervasiveness of the material misstatement.)

When the client fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related notes, it is the responsibility of the auditor to present the information, if practicable, in the auditor's report and express

A qualified or an adverse opinion. (A material misstatement requires the auditor to express a qualified or an adverse opinion. A material misstatement may result from inappropriate or inadequate disclosure or from omission of required disclosures. If information required to be presented or disclosed is omitted, the auditor describes the nature of the information in the basis paragraph. (S)he also includes the information, if practicable, and discusses the omission with those charged with governance. But an auditor is not expected to prepare a basic statement.)

For a particular entity's financial statements to be presented fairly, it is not required that

Accounting policies be applied on a basis consistent with those followed in the prior year. (A lack of consistency does not preclude fair presentation in accordance with the applicable reporting framework. For example, if the entity voluntarily changes from one accounting principle in accordance with the framework to another and the auditor concurs with the change, an emphasis-of-matter paragraph is required to be included in the auditor's report. But the financial statements will be in accordance with the framework.)

Ramamoorthi Savings and Loan's financial condition has been deteriorating for the last five years. Most of its problems result from loans made to real estate developers in Saint Johns County. Your review of the loan portfolio indicates that there should be a major increase in the loan-loss reserve. Based on your calculations, the proposed writedown of the loans will put Ramamoorthi into violation of the state's capital requirements. The client refuses to make the adjustment or to disclose the possible going concern issue in the notes to the financial statements.

Adverse

You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended September 30. On September 1, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Two thousand people were killed and numerous others paralyzed. The company's legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose this information in the financial statements.

Adverse

A client using U.S. GAAP has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the effects on the financial statements are material and pervasive?

Adverse opinion. (An adverse opinion is expressed when the financial statements are not presented fairly in accordance with the applicable reporting framework. An adverse is appropriate when a material misstatement exists that has pervasive effects on the financial statements.)

On August 13, a CPA dated the audit report on FS for year ended June 30. On Aug 27 an event are to CPA's attention that should be disclosed in notes to FS. The event was properly disclosed by entity by CPA decided not to dual-date auditor's report and date the report Aug 27. CPA was taking responsibility for

All subsequent events that occurred through Aug 27

On August 13, a CPA dated the audit report on financial statements for the year ended June 30. On August 27, an event came to the CPA's attention that should be disclosed in the notes to the financial statements. The event was properly disclosed by the entity, but the CPA decided not to dual-date the auditor's report and dated the report August 27. Under these circumstances, the CPA was taking responsibility for

All subsequent events that occurred through August 27. (Subsequent events are material events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements. They require adjustment or disclosure in the financial statements. If the auditor dates the report August 27, the auditor is assuming responsibility for all subsequent events that occurred through August 27.)

A client is a defendant in a patent infringement lawsuit against a major competitor. Which of the following items would least likely by included in the attorney's response to the auditor's letter of inquiry?

An

In a financial statement audit of a nonissuer, an auditor would express an unmodified opinion with an emphasis-of-matter paragraph added to the auditor's report for

An Unjustified Change in an Accounting Principle: No, A Weakness in Internal Control: No (An unjustified change in an accounting principle requires a modified opinion if it results in a material misstatement. Thus, an unmodified opinion with an emphasis-of-matter paragraph would not be appropriate. A weakness in internal control does not require an emphasis-of-matter paragraph but should be considered in planning the audit.)

A note to the financial statements of the First Security Bank indicates that all of the records relating to the bank's business operations are stored on magnetic disks and that no emergency backup systems or duplicate disks are stored because the bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, the auditor's report on the financial statements should express

An unmodified opinion. (Failure to provide for backup records does not affect the fairness of the financial statements, regardless of the negative implications for the client's internal control. The auditor should therefore express an unmodified opinion in the absence of other indications to the contrary.)

Kapok Corporation is a substantial user of computer equipment and has used an outside service bureau to process data in years past. During the current year, Kapok adopted the policy of leasing all hardware and expects to continue this arrangement in the future. This change in policy is adequately disclosed in notes to Kapok's financial statements, but uncertainty prohibits either Kapok or its auditor from assessing the impact of this change upon future operations. The audit report should include

An unmodified opinion. (In the absence of a material misstatement, for example, because of inadequate disclosure or a scope limitation, an uncertainty does not require modification of the opinion.)

When a certified public accountant who is not independent is associated with financial statements, (s)he is precluded from expressing an opinion because

Any auditing procedures (s)he might perform will not be in accordance with generally accepted auditing standards. (An auditor is associated with financial information when (s)he applies procedures that suffice to report in accordance with GAAS. The auditor must be independent of the entity when performing an engagement in accordance with GAAS unless (1) GAAS provide otherwise or (2) the auditor is required by law to accept and report on the engagement. Barring one of the exceptions, an auditor who is not independent must not report under GAAS. Independence means independence in fact and appearance (AU-C 200). This crucially important quality gives credibility to the auditor's opinion. If an auditor does not maintain the appearance of independence, however unbiased (s)he may be in fact, the public will be reluctant to believe that (s)he is unbiased.)

In connection with an audit of our financial statements, please furnish to our auditors a description and evaluation of any pending or probably litigation against our company of which you are aware.

Audit inquiry letter to legal counsel

Legal counsel's response to an auditor's inquiry about litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's FS. Which parties may reach an understanding on the limits of materiality of this purpose that are stated in the letter of inquiry?

Auditor and client's mgmt.

In which of the following situations would an auditor ordinarily issue an unqualified FS audit opinion w no explanatory paragraph?

Auditor decides to refer to report of another auditor as a basis, in part, for auditor's opinion

When qualifying an opinion because of an insufficiency of appropriate audit evidence, an auditor should refer to the situation in the

Auditor's Responsibility Section: Yes, Notes to the Financial Statements: No (An auditor may express a qualified opinion due to an inability to obtain sufficient appropriate audit evidence if the possible effects are material but not pervasive. But the notes to the financial statements are unchanged because they were not drafted by the auditor. Moreover, a sentence in the auditor's responsibility section states, "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.")

During the year under audit, we were advised that management consulted with Gonzales & Ramirez, CPAs. The purpose of this consultation was to obtain another CPA firm's opinion concerning the company's recognition of certain revenue that we believe should be deferred to future periods. Gonzales & Ramirez's opinion was consistent with our option, so management did not recognize the revenue in the current year.

Auditor's communication to those charged with governance (other than with respect to significant deficiencies and material weakness).

The timetable set by management to complete our audit was unreasonable considering the failure of the company's personnel to complete schedules on a timely basis and delays in providing necessary information.

Auditor's communication to those charged with governance (other than with respect to significant deficiencies and material weakness).

Several employees have disabled the antivirus detection software on their PCs because the software slows the processing of data and occasionally rings false alarms. The company should obtain antivirus software that runs continuously at all system entry points and that cannot be disabled by unauthorized personnel.

Auditor's communications on significant deficiencies and material weakness.

The comment below was taken from various parts of an auditor's working papers file. Which was the likely source of the statement? "In planning the sampling application, was appropriate consideration given to the relationship of the sample to the assertion and to planning materiality?"

Auditor's communications on significant deficiencies and material weakness.

The comment below was taken from various parts of an auditor's working papers file. Which was the likely source of the statement? "Several employees have disabled the antivirus detection software on their PCs because the software slows the processing of data and occasionally rings false alarms. The company should obtain antivirus software that runs continuously at all system entry points and that cannot be disabled by unauthorized personnel.

Auditor's communications on significant deficiencies and material weakness.

The company has insufficient expertise and controls over the selection and applications of accounting policies that are in conformity with GAAP.

Auditor's communications on significant deficiencies and material weakness.

To which of the following matters would materiality limits NOT apply in obtaining written mgmt. representations?

Availability of minutes of SH and BOD meetings

Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, Year 1. Park obtained sufficient appropriate audit evidence for all of Tech's financial statement items except Tech's opening inventory. Due to inadequate financial records, Park could not verify Tech's January 1, Year 1, inventory balances. Park's opinion on Tech's Year 1 financial statements most likely will be

Balance Sheet: Unmodified, Income Statement: Disclaimer (The auditor may report on one basic financial statement and not on the others. Because the balance sheet presents information at a specific moment in time, the auditor should be able to become satisfied regarding the balances presented at year end. However, beginning inventory is included in the determination of the results of operations and cash flows. Thus, the auditor will probably not be able to form an opinion as to the fairness of these statements and should disclaim an opinion on them.)

The financial statements include a separate statement of changes in equity. This statement should

Be identified in the introductory paragraph of the report but need not be reported on separately in the opinion paragraph. (The balance sheet, statement of income, statement of changes in equity, and statement of cash flows are the financial statements upon which the auditor customarily reports. The introductory paragraph identifies the titles of the entity's financial statements. However, the statement of changes in equity and a separate statement of comprehensive income are not separately reported on the opinion paragraph. The reason is that changes in equity and comprehensive income are included in financial position, results of operations, and cash flows.)

In the first audit of a client, an auditor was not able to gather sufficient appropriate audit evidence about the consistent application of accounting principles between the current and the prior year, as well as amounts of assets or liar at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor most likely would

Be unable to express an opinion on the current year's result of operations and cash flows

In the first audit of a client, an auditor was not able to gather sufficient appropriate audit evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor most likely would

Be unable to express an opinion on the current year's results of operations and cash flows. (According to AU-C 705, in a first audit, the auditor is permitted to (1) express an unmodified opinion on the financial position of the entity and (2) disclaim an opinion on the results of operations and cash flows, if relevant. A disclaimer of opinion is expressed because the auditor is unable to obtain sufficient appropriate audit evidence. This inability may result from (1) circumstances not controlled by the entity, (2) circumstances related to the nature or timing of the auditor's work, or (3) limitations imposed by management.)

The auditor's report may be addressed to the company whose financial statements are being audited or to that company's

Board of directors. (The auditor's report should be addressed to those for whom the report is prepared. If the client is the auditee, the addressee may be the company whose statements are being audited or to those charged with governance (e.g., the board of directors). If the client is an unincorporated entity, the report should be addressed as circumstances dictate, e.g., to the partners or the proprietor. If the statements audited are not those of the client, the client is the proper addressee (AU-C 700).)

How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

Both are explicitly represented.

A client makes test counts on the basis of a statistical plan. The auditor observes such counts as are deemed necessary and is able to become satisfied as to the reliability of the client's procedures. In reporting on the results of the audit, the auditor

Can express an unmodified opinion. (When the client uses statistical sampling to determine inventory quantities, the auditor must become satisfied that the procedures are reliable. The auditor must observe at least some counts and must be satisfied that the sampling plan is reasonable and statistically valid, that it has been properly applied, and that its results are reasonable. Given no significant scope limitation, the report need not refer to failure to observe a year-end physical count or to the alternative procedures employed. The auditor may express an unmodified opinion.)

Without affecting the CPA's willingness to express an unmodified opinion on the client's U.S.-GAAP-based financial statements, corporate management may refuse a request to

Change its basis of accounting for inventories from FIFO to LIFO because, in the opinion of the CPA, the FIFO method fails to give adequate recognition to the extraordinary increases in prices of merchandise acquired and held by the company. (FIFO (first-in, first-out) and LIFO (last-in, first-out) are both methods of accounting for inventories that are generally accepted in the U.S. LIFO has the advantage during periods of inflation of matching current costs with current revenues. An independent auditor who has requested a change from FIFO to LIFO is likely to express an unmodified opinion even if management refuses to do so because the financial statements would still conform with U.S. GAAP.)

An auditor may express a qualified opinion for which of the following reasons?

Circumstances Related to the Work: Yes, Limitations Imposed by Management: Yes (An auditor may express a qualified opinion due to an inability to obtain sufficient appropriate audit evidence if the possible effects are material but not pervasive. The inability to obtain sufficient audit evidence (also called a scope limitation) may result from (1) circumstances not controlled by the entity, such as destruction or government seizure of accounting records; (2) circumstances related to the nature or timing of the work, such as not being able to (a) observe inventory due to the late appointment of the auditor, (b) obtain an investee's financial information, or (c) determine that controls are ineffective; or (3) limitations imposed by management, such as preventing the auditor from observing inventory or confirming receivables (AU-C 705).)

A major purpose of the auditor's report on financial statements is to

Clarify for the public the nature of the auditor's responsibility and performance. (One of the highest priorities of the AICPA has been to reduce the gap between the nature of the auditor's responsibility and performance and the public's perception of the audit function. The auditor's report issued in accordance with auditing standards clarifies the role of the auditor with the intention of diminishing the gap.)

Which of the following procedures should an auditor ordinarily perform regarding subsequent events?

Compare the latest available interim financial statements with the financial statements being audited.

Before re-issuing a compilation report on the FS for the prior year, predecessor accountant is required to

Compare the prior year's FS w those of current year (1. read 2. compare 3. rep letter auditor and client)

A CPA is considered not associated with unaudited financial statements of a public entity when (s)he

Completed an audit and reported on the financial statements that, without the CPA's consent, were part of a prospectus including unaudited financial statements. (PCAOB auditing standards apply to engagements involving issuers. Under these standards, a CPA is associated with unaudited financial statements of a public entity when s/he prepares or assists in preparing them or consents to the use of his/her name with them. If neither condition is met, the CPA is not associated with the unaudited statements in the prospectus - PCAOB Interim Auditing Standards.)

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion and an adverse opinion?

Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed (departure from GAAP)

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion and an adverse opinion?

Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed. (When the auditor concludes that substantial doubt exists about an entity's ability to continue as a going concern for a reasonable period of time, (s)he should include an emphasis-of-matter paragraph (following the opinion paragraph) in the auditor's report to describe the uncertainty. By itself, this doubt does not require a modification of the opinion. However, if the entity's disclosures about the issue are inadequate, the misstatement may result in a qualified or an adverse opinion.)

Does an auditor make the following representations explicitly or implicitly in the opinion paragraph when expressing an unmodified opinion?

Conformity with the Applicable Financial Reporting Framework: Explicitly Adequacy of Disclosure: Implicitly (The opinion paragraph of the auditor's report explicitly states whether the financial statements are in accordance with the applicable financial reporting framework, e.g., U.S. GAAP or IFRS. The adequacy of disclosure is implicit in the auditor's report. Adequacy of disclosure is implied if the report does not mention disclosure.)

When an auditor concludes that substantial doubt exists about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to

Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern

An auditor should request that an audited entity send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide

Corroboration of information furnished by mgmt.

The primary reason an auditor requests letters of inquiry to be sent to client's legal counsel is to provide auditor with

Corroboration of information furnished by mgmt. about litigation, claims, and assessments

The primary reason an auditor requests letters of inquiry be sent to a client's attorneys is to provide the auditor with

Corroboration of the information furnished by management about litigation, claims, and assessments

An auditor should request that an audited entity send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide

Corroboration of the information furnished by management concerning litigation, claims, and assessments

If an accountant concludes that unaudited financial statements of an issuer on which the accountant is disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate revision. If the client does not accept the accountant's suggestion, the accountant should

Describe the appropriate revision to the financial statements in the accountant's disclaimer of opinion. (PCAOB auditing standards apply to engagements involving issuers. Under these standards, inadequate disclosure is a departure from U.S. GAAP. When an accountant who is associated with the unaudited statements of an issuer suggests revision because of such a departure and the client declines to provide the necessary disclosures, the disclaimer should be modified to describe the departure. The description should refer specifically to the nature of the departure and, if practicable, state the effects on the financial statements or include the necessary information for adequate disclosure (PCAOB Interim Auditing Standards).)

A CPA concludes that the unaudited FS of an issuer on which the CPA is disclaiming an opinion are not in conformity w GAAP bc mgmt. has failed to capitalize leases. The CPA suggests appropriate revisions to the FS, but mgmt. refuses to circumstances, the CPA ordinarily would

Describe the nature of the departure from GAAP in CPA's report and state the effects of the FS if practicable

A CPA concludes that the unaudited financial statements of an issuer on which the CPA is disclaiming an opinion are not in conformity with generally accepted accounting principles (GAAP) because management has failed to capitalize leases. The CPA suggests appropriate revisions to the financial statements, but management refuses to accept the CPA's suggestions. Under these circumstances, the CPA ordinarily would

Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable. (An accountant planning to disclaim an opinion on an issuer's financial statements may discover a material departure from GAAP. Under PCAOB standards, the accountant should disclose the departure in the disclaimer, including its effects if they have been determined by management or by the accountant's procedures.)

Morris CPA suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export a new audit client. Morris notified the audit committee and WW legal counsel, but either would assist Morris in determining whether amounts involved were material to FS or whether senior mgmt. was involved in scheme. Morris should:

Disclaim an opinion on FS (material AND pervasive)

Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither would assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris most likely should

Disclaim an opinion on the financial statements. (Bribery is a violation of laws or governmental regulations. If the auditor is precluded by management or those charged with governance - e.g., the audit committee - from obtaining sufficient appropriate evidence to evaluate whether material noncompliance with laws or regulations has - or is likely to have - occurred, the auditor should disclaim an opinion or express a qualified opinion.)

Trotman, Inc., a manufacturing company, has engaged a CPA to audit its financial statements for the year ended June 30, Year 2. The CPA observed the physical inventory count at June 30, Year 2, but no physical inventory had been taken at June 30, Year 1. The CPA has not been able to become satisfied as to the value of the inventory at June 30, Year 1. Assuming that the financial statements are fairly presented in all other material respects, the CPA should

Disclaim an opinion on the results of operations and cash flows but express an unmodified opinion on the balance sheet.

John Greenbaum, CPA, provides bookkeeping services to Santa Fe Products Co., an issuer. He also is a director of Santa Fe and performs limited auditing procedures in connection with his preparation of Santa Fe's financial statements. Greenbaum's report accompanying these financial statements should include a

Disclaimer of opinion and each page of the financial statements should be marked as unaudited. (When an accountant lacks independence, any procedures s/he might perform are not in accordance with GAAS. S/he is therefore precluded from expressing an opinion or any other form of assurance. If the statements are those of an issuer, the accountant should disclaim an opinion. S/he should also state that s/he is not independent and did not audit the statements. The reasons for lack of independence and any procedures performed should not be described. Each page of the statements should be clearly and conspicuously marked as unaudited.)

When an independent CPA is associated with the financial statements of an issuer but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(n)

Disclaimer of opinion. (PCAOB auditing standards apply to engagements involving issuers. Under these standards, a disclaimer should be attached to the financial statements of an issuer when an accountant is associated with those statements and has not audited or reviewed them. Association means that the accountant has consented to the use of his/her name in a report, document, or written communication containing the statements. Association also means that the accountant has prepared or assisted in preparing statements that (s)he submits to a client or others even if his/her name is not used (PCAOB Interim Auditing Standards).)

When management will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a(n)

Disclaimer of opinion. (The auditor may be unable to determine the legality of certain acts or the amounts associated with them because of an inability to gather sufficient appropriate audit evidence. For example, management may not permit inquiry of external legal counsel. In these circumstances, the scope limitation requires a qualified opinion or a disclaimer. However, if (1) the auditor cannot obtain sufficient appropriate evidence because of a management-imposed limitation, and (2) the possible effects of undetected misstatements are material and pervasive, the auditor should disclaim an opinion or withdraw from the engagement.)

Restrictions imposed by management of a retail entity that is a new client prevent an auditor from observing any physical inventories. These inventories account for 40% of the entity's assets. Alternative auditing procedures cannot be applied due to the nature of the entity's records. Under these circumstances, the auditor should express a(n)

Disclaimer of opinion. (The auditor may become aware of a management-imposed scope limitation after accepting the engagement that is likely to result in a qualified opinion or a disclaimer of opinion. The auditor should request removal of the limitation. If it is not removed, the auditor should communicate with those charged with governance and determine whether alternative procedures can be performed. If the auditor cannot obtain sufficient appropriate evidence because of the limitation, (s)he should determine whether the possible effects of undetected misstatements could be material and pervasive. If they are, the auditor should disclaim an opinion or withdraw from the engagement (AU-C 705).)

An auditor's client has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The client refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor should

Disclose the situation in the auditor's report. (The auditor should disclose this situation in the report because the violation could have a material effect on financial statement presentation. Even if no basis exists for modifying the opinion, disclosure in an emphasis-of-matter paragraph is appropriate. But U.S. GAAP require such information to be disclosed, for example, when the obligation has been classified as a noncurrent liability although the creditor has not waived or lost its right to demand immediate repayment. Hence, the auditor may also need to modify the opinion because of the misstatement resulting from the omitted disclosure.)

Which of the following events occurring after issuance of a set of FS and accompanying auditor's report would be most likely to cause auditor to make further inquiries about FS?

Discovery of info regarding contingency that existed before the FS issued

Which of the following events occurring after the date of the report most likely will cause the auditor to make further inquiries about the previously issued FS?

Discovery of information regarding a contingency that existed before the FS issued

An auditor finds several misstatements in FS that the client prefers not to correct. The auditor determines that the misstatements are not material in aggregate. Which of the following actions by auditor is most appropriate?

Document all misstatements accumulated during audit and the conclusion about whether uncorrected misstatements are material

A limitation on the scope of an audit sufficient to preclude an unmodified opinion will usually result when management

Does not make the minutes of the board of directors' meetings available to the auditor. (An inability to obtain sufficient appropriate evidence may result from limitations imposed by management. Failing to make the minutes of board meetings available is such a limitation. It also raises a question about management's compliance with the preconditions for an audit, e.g., providing access to relevant information and persons within the entity.)

Green, CPA, is aware that Green's name is to be included in the interim report of National Company, a publicly held entity. National's quarterly financial statements are contained in the interim report. Green has not audited or reviewed these interim financial statements. Green should request that I. Green's name not be included in the communication. II. The financial statements be marked as unaudited, with a notation that no opinion is expressed on them.

Either I or II. (The accountant may become aware that his/her name is to be included in a client-prepared written communication of an issuer containing financial statements that have not been audited or reviewed. Under PCAOB standards, which apply to engagements involving issuers, (s)he should request either that (1) his/her name not be included in the communication or (2) the financial statements be marked as unaudited, with a notation included to the effect that (s)he does not express an opinion on them.)

When the auditor cannot obtain sufficient appropriate evidence to determine whether certain client acts are not in compliance with laws and regulations, s/he would most likely express

Either a disclaimer of opinion or a qualified opinion. (When the auditor cannot obtain sufficient appropriate evidence, s/he expresses a qualified opinion if the possible effects are material but not pervasive. If the possible effects are material and pervasive, s/he disclaims an opinion.)

Which of the following is not one of the general areas of the IIA's....

Ethical standards

An examination of financial forecast is a professional service that involves

Evaluating preparation of financial forecast and support underlying mgmt.'s assumptions (expect and assumptions)

A client is a defendant in a patent infringement lawsuit agains a major competitor. Which of the following items would be LEAST likely to be included in legal counsel's response to auditor's letter of inquiry?

Evaluation of ability of client to continue as a going concern if verdict is unfavorable and max damages awarded

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of any changes in IC that might affect the financial reporting between end of reporting period and date of auditor's report?

Examine relevant internal audit reports issued during subsequent period

Which of the following procedures would an auditor most likely preform to obtain evidence about he occurrence of any changes in internal control that might affect financial reporting between the end of the reporting period and the date of the auditor's report?

Examine relevant internal audit reports issued during the subsequent period

Which of the following phrases will an auditor most likely include in the auditor's report when expressing a qualified opinion because of inadequate disclosure?

Except for the omission of the information. (A report qualified for inadequate disclosure includes a basis for qualified opinion paragraph preceding the opinion paragraph. The opinion paragraph states, "In our opinion, except for the omission of information described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly . . .")

As discussed in Note 4 to the financial statements, the company experienced a net loss for the year ended July 31, 2013, and is currently in default under substantially all its debt agreements. In addition, on September 25, 2013 the company filed a prenegotiated voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the company's ability to continue as a going concern.

Explanatory paragraph of an auditor's report on financial statements

On January 2, Year 2, the Retail Auto Parts Co. received a notice from its primary suppliers that effective immediately all wholesale prices would be increased 10%. On the basis of the notice, Retail Auto Parts Co. revalued its December 31, Year 1, inventory to reflect the higher costs. The inventory constituted a material proportion of total assets. However, the effect of the revaluation was material to current assets but not to total assets or net income. In reporting on the company's financial statements for the year ended December 31, Year 1, in which inventory is valued at the adjusted amounts, the auditor would most likely

Express a qualified opinion. (The auditor should express a qualified opinion when the financial statements are materially misstated, but the effects are not pervasive. Inventory is misstated because it should be recorded at lower of cost or market. Holding gains should not be recognized until realized, i.e., when inventory is sold. Furthermore, the effect on current assets is material. However, it (1) is confined to specific elements, accounts, or items and (2) is not a substantial proportion of the financial statements.)

The objective of the audit of GAAP-based financial statements is to

Express an opinion on the fairness with which the statements present financial position, results of operations, and cash flows in accordance with generally accepted accounting principles. (Based on an audit, the auditor expresses an opinion (or a disclaimer of opinion) on the fairness, in all material respects, of the presentation of financial statements, i.e., on whether they will be misleading to users.)

An auditor's decision concerning whether to dual date the audit report is based upon the auditor's willingness to

Extend auditing procedures. (When a subsequent event disclosed in the financial statements occurs after the date of the auditor's report but before the release of the auditor's report, the auditor may use dual dating. (S)he may date the report as of the original report date except for the matters affected by the subsequent event, which would be assigned the appropriate later date. In that case, the auditor's responsibility for events after the original report date would be limited to the specific event. If the auditor is willing to accept responsibility to the later date and accordingly extends subsequent events procedures to that date, the auditor may choose the later date as the date for the entire report.)

On February 13, Year 2, Fox, CPA, met with the audit committee of the Gem Corporation to review the draft of Fox's report on the company's financial statements as of and for the year ended December 31, Year 1. On February 16, Year 2, Fox completed all remaining field work and obtained sufficient appropriate evidence to support the opinion on the financial statements. On February 28, Year 2, the final report was mailed to Gem's audit committee. What date most likely would be used on Fox's report?

February 16, Year 2. (The report should be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence. February 16, Year 2, is the date that Fox obtained sufficient appropriate evidence to support the opinion on the financial statements. The auditor is not responsible for making any inquiries or carrying out any audit procedures for the period after the date of the report (but see AU-C 925).)

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of

Generally accepted accounting principles. (Reporting standards require the auditor to state whether the audited entity's financial statements are presented in conformity with GAAP. Without an applicable reporting framework, the auditor would have no uniform standard for judging fairness of presentation.)

In which of the follow circumstances would an auditor usually choose between issuing a qualified opinion or disclaimer of opinion on a client's FS?

Inability of auditor to obtain sufficient competent evidence

In which of the following circumstances would an auditor usually choose between expressing a qualified opinion or disclaiming an opinion?

Inability to obtain sufficient appropriate audit evidence. (Scope limitations may require a qualification of the opinion or a disclaimer. The choice depends on whether the possible effects of undetected misstatements are material and pervasive.)

In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion on a client's financial statements?

Inability to obtain sufficient competent evidence.

Green CPA concludes that there is substantial doubt about JKL's ability to continue as a going concern. If JKL's FS adequately disclose financial difficulties, Green's auditors report should

Include a paragraph following opinion paragraph Specifically use words "going concern" Specifically use words "substantial doubt"

An accountant who has review statements that did not omit disclosures required by GAAP may subsequently be requested to compile and report on statements for the same period that do not omit substantially all of those disclosures when they were presented in comparative FS. Accountant may report on the comparative compiled FS that omit such disclosures if

Includes in the report an additional paragraph indicating the nature of the previous service rendered

The auditor's report refers to the U.S. GAAP-based financial statements, which are customarily considered to include the balance sheet and the statements of

Income, changes in equity, and cash flows. (The balance sheet, statement of income, statement of changes in equity, and statement of cash flows are the financial statements upon which the auditor customarily reports. Furthermore, provided that the entity has items of other comprehensive income, U.S. GAAP require that comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements. The format may be (1) one continuous statement consisting of net income and other comprehensive income (OCI) or (2) two separate but consecutive statements. The introductory paragraph identifies the titles of the entity's financial statements. However, the statement of changes in equity and a separate statement of comprehensive income are not separately reported on the opinion paragraph. The reason is that changes in equity and comprehensive income are included in financial position, results of operations, and cash flows.)

Comparative FS for a public co include PY's statements, which were audited by predecessor auditor. The predecessor's report is not presented along w combative FS. If predecessor's report was unqualified, successor should

Indicate in auditor's report that predecessor auditor expressed unqualified opinion

Comparative financial statements for a public company include the prior year's statements, which were audited by a predecessor auditor. The predecessor's report is not presented along with the comparative financial statements. If the predecessor's report was unqualified, the successor should

Indicate in the auditor's report that the predecessor auditor expressed an unqailified opinion

Comparative financial statements for a public company include the prior year's statements, which were audited by a predecessor auditor. The predecessor's report is not presented along with the comparative financial statements. If the predecessor's report was unqualified, the successor should

Indicate in the auditor's report that the predecessor auditor expressed an unqualified opinion.

The evaluation of fairness in determining the appropriate opinion to express should include consideration of the qualitative aspects of the entity's accounting practices, including whether

Indicators of possible bias exist in management's judgments. (The auditor should be aware of the potential for management bias. For example, management's judgments may indicate a lack of neutrality that results in selective correction of identified misstatements and bias in making accounting estimates.)

The evaluation of fairness in determining the appropriate opinion to express should include consideration of the qualitative aspects of the entity's accounting practices, including whether

Indicators of possible bias exist in mgmt.'s judgments

After the date of the report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited FS UNLESS

Information, which existed at the report date and may affect the report, comes to auditor's attention

Which of the following inquiry or analytical procedures ordinarily are performed in an engagement to review a non-issuer's FS?

Inquiries concerning unusual or complex situations that may have an effect on the FS

Which of the following procedures will an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Inquiring as to whether any unusual adjustments were made after year end (1. inquiry 2. min 3. legal letter 4. interim)

Which of the following procedures will an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Inquiring of entity's legal counsel concerning litigation, claims, and assessments arising after year end (1. inquiry 2. minutes 3. legal letter 4. interim)

When an auditor qualifies an opinion because of the omission of information required to be disclosed, the auditor should describe the nature of the omission in the basis for qualified opinion paragraph and modify the

Introductory Paragraph: No, Auditor's Responsibility Section: Yes, Opinion Paragraph: Yes (If the material misstatement relates to specific amounts, the basis paragraph should describe and quantify the financial effects, if practicable. If the misstatement relates to narrative disclosures, the auditor should include an explanation. If the misstatement relates to an omission of required information, the auditor should describe the nature of the information and, if practicable, include the information. If the opinion is qualified, (1) the introductory paragraph and management's responsibility for the financial statements paragraph are unchanged, (2) the auditor's responsibility section mentions that the audit opinion is qualified, and (3) the opinion paragraph includes the language ". . ., except for the effects of the matter(s) described in the basis for qualified opinion paragraph, . . .")

Which of the following parts of the auditor's report are changed when an adverse opinion is expressed?

Introductory Paragraph: No, Auditor's Responsibility Section: Yes, Opinion Paragraph: Yes (The opinion should state that, because of the significance of the matter(s) described in the basis for adverse opinion paragraph, the financial statements are not presented fairly in accordance with the framework. The following are other effects on the auditor's report when an adverse opinion is expressed: (1) The introductory paragraph is unchanged; (2) the management's responsibility paragraph is unchanged; and (3) the auditor's responsibility section is changed to state, "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion.")

An auditor includes an emphasis-of-matter paragraph in otherwise unmodified report when the entity being reported on had significant transactions w related parties. The inclusion of this paragraph

Is appropriate and would not negate the unmodified opinion

A financial forecast consists of prospective FS that present an entity's expected financial position, results of operations, and cash flows. A forecast

Is based on assumptions reflecting conditions expected to exist and courses of action expected to be taken

An auditor includes a separate paragraph in an otherwise unmodified financial statement audit report to emphasize that the entity being reported upon had significant transactions with related parties. The inclusion of this separate paragraph

Is considered an "except for" qualification of the opinion

A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result when management

Is unable to obtain audited financial statements supporting the entity's investment in a foreign subsidiary. (An auditor's inability to obtain sufficient appropriate evidence may arise from, among other things, circumstances related to the nature or timing of the auditor's work. An example is an inability, not resulting from a management-imposed limitation, to obtain audited financial statements of a long-term investee. If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness.)

A CPA is associated with the financial statements of an issuer but is not independent. With respect to the CPA's lack of independence, which of the following actions by the CPA might confuse a reader of such financial statements?

Issuing a modified auditor's opinion explaining the reason for the auditor's lack of independence. (A modified opinion is a qualified opinion, adverse opinion, or disclaimer of opinion. When a CPA lacks independence, (s)he should disclaim an opinion and state specifically that (s)he is not independent. This guidance is in the AICPA's pronouncement on compilations. It does NOT apply to engagements performed for issuers (public companies). The PCAOB's Interim Auditing Standards apply, specifically, AU504 as it existed in April 2003. Issuing a modified opinion would improperly imply that an audit was performed in accordance with GAAS (PCAOB Interim Auditing Standards).)

An auditor may reasonably express a "subject to" qualified opinion for

Lack of consistency: No, Departure from an Applicable Financial Reporting Framework: No (The phrase "subject to" should not be used in any report. It is not clear or forceful enough (AU-C 705).)

Tech Co has disclosed an uncertainty arising from pending litigation. The auditor's decision to express a qualified opinion rather than an unmodified opinion most likely would be determined by

Lack of sufficient appropriate evidence

Tech Co has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion on Tech's FS would most likely result from

Lack of sufficient evidence (Scope)

It is our opinion that the possible liability to the company in this proceeding is nominal in amount

Lawyer's response to audit inquiry letter

An auditor would be most likely to identify a contingent liability by obtaining a

Letter from entity's general legal counsel

An auditor would be most likely to identify a contingent liability by obtaining a(n)

Letter from the entity's general legal counsel

An auditor issued an audit report that was dual dated for a subsequent event occurring after date on which auditor has obtained sufficient appropriate audit evidence by before issuance of FS. The auditor's responsibility for events occurring subsequent to date on which auditor has obtained sufficient evidence was

Limited to specific event referenced

An auditor released an audit report that was dual-dated for subsequently discovered fact occurring after the date of auditor's report but before issuance of the related FS. The auditor's responsibility for events occurring subsequent to original report date was

Limited to specific event references

An auditor released an audit report that was dual-dated for a subsequently discovered fact occurring after the date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was

Limited to the specific event referenced. (Subsequent to the original report date, the auditor is responsible only for the specific subsequently discovered fact for which the report was dual-dated. (S)he is responsible for other events only up to the original report date.)

Which of the following procedures should an accountant perform during engagement to compile prospective FS

Make inquiries about accounting principles used in preparation of prospective FS

Under which of the following circumstances would a disclaimer of opinion not be appropriate?

Management does not provide reasonable justification for a change in accounting principles. (If 1. the new principle and the method of accounting for the effect of the change are in accordance with the applicable reporting framework, 2. disclosures are adequate, and 3. the entity has justified that the principle is preferable, the auditor expresses an unmodified opinion. Otherwise, if the change is material, the misstatement results in expression of a qualified or an adverse opinion in the report for the year of change. A basis for modified opinion paragraph is added preceding the opinion paragraph.)

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?

Management does not provide reasonable justification for a change in accounting principles. (When management does not provide reasonable justification for a change in accounting principles, a qualified or adverse opinion should be expressed if the effect is a material misstatement.)

The primary responsibility for the adequacy of disclosure in the financial statements of an issuer rests with the

Management of the issuer. (Management is responsible for the accounting policies and the internal control of an entity, including the accounting system. Accordingly, management has the primary responsibility for the fairness of presentation of the financial statements in accordance with U.S. GAAP.)

The company considers the decline in the value of equity securities classified as available-for-sale to be temporary

Management representation letter

The company has no plans or intentions that may materially affect the carrying value or classification or assets and liabilities.

Management representation letter

There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices

Management representation letter

How are management's responsibility and the auditor's responsibility represented in the auditor's report?

Management's responsibility: Explicitly Auditor's Responsibility: Explicitly (The auditor's report explicitly states, "Management is responsible for the preparation and fair presentation of these financial statements . . ." It also states, "Our responsibility is to express an opinion on these financial statements based on our audit" (AU-C 700).)

Unaudited FS are presented in comparative form w audited FS in a document filed w SEC. In accordance w PCAOB Interim Auditing Standards, such standards should be

Marked as "unaudited" NOT: withheld until audited NOT: referred to in auditor report

The scope of an audit is NOT restricted when legal counsel's response to an auditor as a result of a client's letter of inquiry limits the response to

Matters to which legal counsel has given substantive attention in the form of legal representation

When financial statements audited by the independent auditor contain notes that are captioned "unaudited" or "not covered by the auditor's report," the auditor

May refer to these notes in the auditor's report. (If information included in the basic statements is (1) not required by the applicable reporting framework, (2) not necessary for fair presentation, and (3) clearly differentiated from the statements, the information may be identified as "unaudited" or "not covered by the auditor's report" (AU-C 700). If the auditor wishes to draw attention to such a matter that is appropriately presented or disclosed, (s)he may include an emphasis-of-matter paragraph in the auditor's report (AU-C 705). If (1) the information constitutes other information, (2) the information is materially inconsistent with the audited statements, and (3) management has not revised the information after a request by the auditor, the auditor should (1) include an other-matter paragraph in the report, (2) withhold the report, or (3) withdraw from the engagement. If the information contains a material misstatement of fact that management refuses to correct, the auditor should take further appropriate action (AU-C 720).)

An auditor's report includes the following statement: "The financial statements referred to above do not present fairly the financial position, results of operations, or cash flows in conformity with U.S. generally accepted accounting principles." This auditor's report was most likely issued in connection with financial statements that are

Misleading (The language quoted states an adverse opinion. The essence of an adverse opinion is that the statements reported on, as a whole, are materially and pervasively misstated. If financial statements fail to meet the standards, they are misleading.)

Accountant determined entity maintained its accounts on comprehensive basis of accounting other than GAAP - accountant would take action

Modified the review report to reflect the fact that the FS were presented on another comprehensive basis of accounting

March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor's report would usually be addressed to

Monday Corp., the client that engaged March. (If an auditor is retained to audit the financial statements of an entity that is not his/her client, the report customarily is addressed to the client and not to the board of directors or shareholders of the entity whose financial statements are being audited.)

Gole CPA is engaged to review the Y2 FS of North Co... Separate paragraph should indicate

No auditing procedures were performed after date of Y1 audit report

Which f the following expressions most likely would be included in representation letter by mgmt. of a non-issuer?

No events have occurred subsequent to BS date that require adjustment to or disclosure in FS

An annual shareholders' report includes audited financial statements and contains a management report asserting that the financial statements are the responsibility of management. Is it permissible for the auditor's report to refer to the management report?

No, because the reference may lead to the belief that the auditor is providing assurances about management's representations. (According to AU-C 700, such a reference in the auditor's report may lead users to the erroneous belief that the auditor is giving assurances about management's representations in the separate statement in the annual report.)

Due to a scope limitation, an auditor disclaimed an opinion on the financial statements as a whole, but the auditor's report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is

Not appropriate because it may tend to overshadow the auditor's disclaimer of opinion. (A piecemeal opinion is an expression of an opinion on a specific element of a financial statement when the auditor has disclaimed an opinion or expressed an adverse opinion on the financial statements as a whole. This type of assurance is inappropriate because it would contradict a disclaimer of opinion or an adverse opinion (AU-C 705).)

If the auditor obtains satisfaction with respect to the accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the auditor's report should be unmodified and could be expected to

Not mention the alternative procedures. (External confirmation of receivables is required except when (1) they are immaterial, (2) confirmation would be ineffective, or (3) the assessed risk of material misstatement is low; other substantive procedures address the assessed risk (AU505). Thus, if the auditor is able to obtain sufficient appropriate audit evidence without external confirmation, the opinion is unmodified, and the report should not refer to the omission of the procedures or the use of alternative procedures.)

Jewel CPA audited Infinite's PY FS. These statements are presented w those of CY's comparative purposes w/o Jewel's auditor's report, which expressed a qualified opinion. In drafting the CY's auditors report, the current auditor should:

Not name Jewel Indicate type of opinion expressed by Jewel Indicate reasons for Jewel's qualification

The predecessor auditor, who is satisfied after properly communicating w current auditor, has reissued a report because the audit client desires comparative FS. The predecessor auditor's report should

Not refer to the report or the work of the current auditor

Clark CPA compiled and reported on FS of Green Co. These FS omitted substantially all disclosures required by GAAP....Clark may

Not report on the comparative FS because the Y1 statements are not comparable w Y2 statements that include GAAP disclosures

The existence of audit risk is recognized by the statement in the auditor's report that the auditor

Obtains reasonable assurance about whether the FS are free of material misstatements

The existence of audit risk is recognized by the statement in the auditor's report that the auditor

Obtains reasonable assurance about whether the financial statements are free of material misstatement. (The existence of audit risk is recognized by the statement in the auditor's report that the auditor obtained reasonable assurance about whether the financial statements are free of material misstatement. Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk exists because the assurance is not absolute. Reasonable assurance is obtained when the auditor has obtained sufficient appropriate evidence to reduce audit risk to an acceptably low level (AU-C 200).)

The following additional paragraph was included in auditor's report to indicate lack of consistence:.... How should auditor report if concurred w change

Opinion: unmodified Location: after opinion paragraph

When reporting on comparative FS, an auditor ordinarily should change the previously expressed opinion on the PY FS if the

PY FS are restated to correct a material misstatement

When single-year FS are presented, an auditor ordinarily expresses an unmodified opinion if the

PY FS were audited by another CPA whose report, which expressed an unmodified opinion, is not presented

In planning the sampling application, was appropriate consideration given to the relationship of the sample to the assertion and to planning materiality?

Partner's engagement review notes

A purpose of mgmt. representation letter is to reduce

Possibility of misunderstanding concerning mgmt.'s responsibility for FS

An auditor decides to express a qualified opinion on an entity's FS because a major inadequacy in its computerized accounting records prevents auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to

Possible effects on FS

Cooper CPA believes there is substantial doubt about ability of Zero Corp to continue as a going concern.... mitigation factor...

Postpone expenditures for research and development projects

When an auditor expresses an adverse opinion, the matter resulting in the modification should be described in a paragraph

Preceding the opinion paragraph. (When an adverse opinion is expressed, the opinion paragraph should refer to a basis for adverse opinion paragraph that precedes the opinion paragraph. This paragraph describes the matter resulting in the modification (AU-C 705).)

Our use of professional judgment and the assessment of audit risk and materiality for the purpose of our audit mean that matters may have existed that would have been assessed differently by you. We make representation as to the sufficiency or appropriateness of the information in out working appears for your purposes.

Predecessor auditor's communication with successor auditor

When single-year financial statements are presented, an auditor ordinarily expresses an unmodified opinion if the

Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented. (When single-year financial statements are presented, the auditor's reporting responsibility is limited to those statements. If the prior year's financial statements are not presented for comparative purposes, the current-year auditor should not refer to the prior year's statements and the report thereon. Furthermore, the failure to present comparative statements is not a basis for modifying the opinion.)

Which of the following presents what the effects on historical financial data might have been if a consummated transaction had occurred at an earlier date?

Pro forma financial info

Final analytical procedures are generally intended to

Provide the auditor with a final, overall evaluation of relationships among FS balances

Final analytical procedures are generally intended to

Provide the auditor with a final, overall evaluation of the relationships among financial statement balances.

Final analytical procedures are generally intended to

Provide the auditor with final, overall evaluation of the relationships among financial statement balances

During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allow you to confirm accounts receivable because she is concerned about complaints from her customers. You are unable to satisfy yourself about accounts receivable by other audit procedures and you are concerned about Tracy's true motives.

Qualified

Gelato Bros., Inc., leases its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. Your review of the lease indicates that the rental terms are in excess of rental terms for similar buildings in the area. The company refuses to disclose this related-party transaction in the footnotes.

Qualified

The management of Bonner Corporation has decided to exclude the statement of cash flows from its financial statements because it believes that its bankers do not find the statement to be very useful.

Qualified

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following reports should the entity's auditor choose?

Qualified and disclaimer. (An auditor's inability to obtain sufficient appropriate evidence may arise from, among other things, circumstances related to the nature or timing of the auditor's work. An example is an inability, not resulting from a management-imposed limitation, to obtain audited financial statements of a long-term investee. If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness (AU-C 705).)

When an issuer refuses to include in its audited financial statements any of the segment disclosures that the auditor believes are required, the auditor should express a(n)

Qualified opinion because of inadequate disclosure. (If the statements are materially misstated because of the omission of required information, the auditor should modify the opinion for inadequate disclosure and describe the information omitted. The auditor also should include this information in the report, if practicable. But the auditor is not expected to prepare segment information. (S)he need not assume the position of a preparer of financial information.)

An auditor concludes that a client's noncompliance with laws and regulations, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on how pervasive the effect is on the financial statements, the auditor should express either a(n)

Qualified opinion or an adverse opinion. (When noncompliance with laws and regulations having a material effect on the financial statements has been detected but not properly reported, the auditor should insist upon revision of the financial statements. Failure to revise the statements precludes an unmodified opinion. Depending on the pervasiveness of the misstatement, the auditor should express either a qualified opinion or an adverse opinion.)

If an issuer releases financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(n)

Qualified opinion. (An entity that reports financial position and results of operations should provide a statement of cash flows. Thus, the omission of the cash flow statement is normally a basis for modifying the opinion. If the statements fail to disclose required information, the auditor should provide the information in the report, if practicable. However, the auditor is not required to prepare a basic financial statement. Accordingly, s/he should qualify the opinion and explain the reason in a basis for qualified opinion paragraph.)

When the financial statements contain a misstatement, the effect of which is material but not pervasive, the auditor should

Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification. (When the financial statements are materially misstated, but the effects are not pervasive, the auditor should express a qualified opinion. The report should contain a basis for qualified opinion paragraph preceding the opinion paragraph. If the material misstatement relates to specific amounts, the basis paragraph should describe and quantify the financial effects, if practicable. If the misstatement relates to narrative disclosures, the auditor should include an explanation. If the misstatement relates to an omission of required information, the auditor should describe the nature of the information and, if practicable, include the information. The opinion paragraph should refer to the basis paragraph.)

A CPA engaged to audit financial statements observes that the accounting for a certain material but not pervasive item is not in conformity with the applicable financial reporting framework, although the matter is prominently disclosed in a note to the financial statements. The CPA should

Qualify the opinion because of the misstatement. (When financial statements are materially misstated, but the effects are not pervasive, the auditor should express a qualified opinion if the audit has been in accordance with GAAS. The basis for the opinion should be stated in the report even if full and prominent note disclosure has been made.)

Which of the following procedures should an auditor ordinarily perform regarding subsequent events?

Read the latest subsequent intern financial statements (1. inquiry 2. minutes 3. legal letter 4. interim)

A CPA who is associated with the financial statements of an issuer, but has not audited or reviewed such statements, should

Read them to determine whether there are obvious material misstatements. (PCAOB auditing standards apply to engagements involving issuers. Under these standards, the CPA should issue a disclaimer stating that (s)he has not audited the statements and expresses no opinion on them. The CPA has no responsibility to apply any procedures beyond reading the financial statements for obvious material misstatements (PCAOB Interim Auditing Standards).)

When an independent CPA assists in preparing the FS of an issuer but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations the CPA has no responsibility to apply any procedures beyond

Reading the FS for obvious material misstatements

When an independent CPA assists in preparing the financial statements of an issuer but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond

Reading the financial statements for obvious material misstatements. (PCAOB standards apply to audit engagements involving issuers. Under the standards, the accountant has no responsibility to apply any procedures beyond reading the financial statements for obvious material misstatements. Any procedures applied should not be described.)

A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result when management

Refuses to furnish a management representation letter to the auditor. (According to AU-C 580, Written Representations, management's refusal to furnish written representations constitutes a limitation on the scope of the audit. The refusal is often sufficient to preclude an unmodified opinion. Moreover, it may cause an auditor to disclaim an opinion or withdraw from the engagement, especially with regard to representations about (1) fraud, (2) noncompliance, (3) uncorrected misstatements, (4) litigation and claims, (5) estimates, (6) related party transactions, and (7) subsequent events. However, the circumstances may permit a qualified opinion. Furthermore, the auditor should consider the effects of management's refusal on his/her ability to rely on other management representations.)

A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result when management

Refuses to permit its lawyer to respond to the letter of audit inquiry. (Direct communication with the entity's external legal counsel should be made if actual or potential litigation, claims, or assessments may result in a risk of material misstatement. If management refuses to permit this communication, the auditor should modify the opinion.)

A closely held manufacturing company must disclose all of the following information in audited financial statements except

Replacement cost of inventory. (A U.S. manufacturer should report inventory at full absorption cost unless the fair value is less than cost. Neither closely nor publicly held companies must report replacement cost of inventory.)

In auditing FS of Star Corp, Land discovered info leading Land to believe that Star's PY FS, which were audited by Tell, requires substantial revisions. Under these circumstances Land should

Request Star to arrange a meeting among the three parties to resolve the matter

On September 30, Year 2, Miller was asked to reissue an auditor's report dated March 31, Year 2, on a client's financial statements for the year ended December 31, Year 1. Miller will submit the reissued report to the client in a document that contains information in addition to the client's basic financial statements. However, Miller discovered that the client suffered substantial losses on receivables resulting from conditions that occurred since March 31, Year 2. Miller should

Request the client to disclose the event in a separate, appropriately labeled note to the financial statements and reissue the original report with its original date. (To prevent the financial statements from being misleading, management may disclose an event that arose after the date of the auditor's report. If the event is included in a separate note labeled as unaudited [e.g., a note captioned as "Event (Unaudited) Subsequent to the Date of the Independent Auditor's Report"], the auditor need not perform any procedures on the note. Moreover, the auditor's report should have the same date as the original report (AU-C 560).)

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Review compliance w terms of debt agreements

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Review compliance with the terms of debt agreements

An auditor may reasonably express an "except for" qualified opinion for a(n)

Scope Limitation: Yes, Unjustified Change in an Accounting Principle: Yes (A qualified opinion should be expressed if the auditor (1) has obtained sufficient appropriate audit evidence and concludes that misstatements, individually or combined, are material but not pervasive to the financial statements or (2) is unable to obtain sufficient appropriate audit evidence but concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive. A misstatement results from, for example, an inappropriate selection or application of an accounting principle. Among other things, the auditor evaluates whether the entity has justified that the alternative principle is preferable. An inability to obtain sufficient appropriate evidence is a scope limitation. Thus, an unjustified change in principle or a scope limitation may require expression of a qualified opinion. NOTE: All qualified opinions are "except for" opinions.)

Which of the following matters should an auditor communicate to those charged with governance?

Significant Audit Adjustments AND Management's Consultations with Other Accountants

When reporting on FS prepared on basis of accounting used for income tax purposes, auditor should include in report a paragraph that

State that income tax basis accounting is a basis of accounting other than GAAP

When engaged to compile the FS of a non-issuer, an accountant should possess a level of knowledge of entity's accounting principles and practice. This most likely will include obtaining a general understanding of the

Stated qualifications of entity's accounting personnel

NorthCo, a non-issuer, asked its tax accountant King CPA to generate North's interim FS on King's personal computer when King prepared North's quarterly tax return. King should not submit these FS to North unless King complies w provisions of

Statements on Standards for Auditing and Review Services (SSARS)

When reporting on financial statements prepared on the 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 generally accepted accounting principles.

In which of the following circumstances would an auditor most likely add as an emphasis-of-matter paragraph to the auditor's report while expressing an unmodified opinion

Substantial doubt about entity's ability to continue as a going concern

After an audit report containing an unmodified opinion on a non-issuer's FS was dated and the FS issued, client decided to sell shares of a sub that accounts for 30% of its rev and 25% of NI. The auditor should

Take no action bc auditor has no obligation to make any further inquiries

After the issuance of a client's financial statements, the client decided to sell the share of a subsidiary that accounts for 30% of its revenue and 25% of its net income. The auditor should

Take no action because the auditor has no obligation to make any further inquiries.

Which of the following is an example of a CPA being associated with unaudited financial statements of a public entity?

The CPA analyzes the client's input data before sending the data to an independent computer service company, and the processed financial statements are returned directly to the client. (If a CPA helps prepare or consents to the use of his/her name with unaudited financial statements, (s)he is associated with them. A CPA who reviews the client's input data has assisted in the preparation of the statements and is deemed to be associated with them (PCAOB Interim Auditing).)

An auditor's report on audited financial statements is inappropriate if it refers to

The CPA's assessment of sampling risk factors. (The auditor's report on audited financial statements states, "An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements." But the auditor's report does not directly refer to sampling. It also does not describe specific procedures.)

Which of the following assurances is not provided by compliance w Trust Services principles?

The FS created by the system are free of material misstatements

An auditor has been engaged by the State Bank to audit the XYZ Corporation in conjunction with a loan commitment. The report would most likely be addressed to

The State Bank. (Occasionally, an auditor is retained to audit the financial statements of an entity that is not his/her client. In such a case, the report customarily is addressed to the client and not to those charged with governance of the entity whose financial statements are being audited.)

Compiled financial statements of a non-issuer intended for 3rd party use should be accompanied by a report stating that

The accountant does not express an opinion or any other form of assurance on FS

The standard report issued by an accountant after reviewing the FS of a non-public entity states that

The accountant is not aware of any material modifications that should be made to the FS

Which of the following statements is correct concerning both an engagement to compile and an engagement to review a non-public entity's FS?

The accountant should obtain a written mgmt. representation letter

The date of the audit report is important because

The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained. (The auditor cannot date the report until sufficient appropriate evidence has been obtained. This date informs users that the auditor has considered the effects of events and transactions occurring up to that date of which the auditor became aware.)

In which of the following situations would an auditor ordinarily issue an unqualified/unmodified financial statement audit opinion with no explanatory (or emphasis-of-matter/other-matter) paragraph?

The auditor decides to refer to the report of another auditor as a basis, in part, for the auditor's opinion

In which of the following situations would an auditor ordinarily issue an unqualified/unmodified financial statement audit opinion with no explanatory (or emphasis-of-matter/other-matter) paragraph?

The auditor decides to refer to the report of another auditor as a basis, in part, for the auditor's opinion.

Under which of the following circumstances would an auditor's expression of an unmodified opinion for a nonissuer be inappropriate?

The auditor is unable to obtain the audited financial statements of a significant subsidiary. (An auditor's inability to obtain sufficient appropriate evidence may arise from, among other things, circumstances related to the nature or timing of the auditor's work. An example is an inability, not resulting from a management-imposed limitation, to obtain audited financial statements of a long-term investee. If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness (AU-C 705).)

An auditor may not express a qualified opinion when

The auditor lacks independence with respect to the audited entity. (An auditor must be independent of the entity when performing an audit in accordance with GAAS unless (1) GAAS provide otherwise or (2) a law or regulation requires the auditor to report on the statements (AU-C 200))

Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities?

The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management. (The auditor is responsible for the opinion on financial statements, but management is responsible for the representations made in the financial statements.)

For a nonissuer that does not receive governmental financial assistance, an auditor's report on financial statements generally would not refer to

The auditor's use of confirmations and analytical procedures. (The report does not describe specific auditing procedures performed by the auditor.)

To which of the following matters would materiality dollar ($) limits not apply in obtaining written management representations?

The availability of minutes of shareholders' and directors' meetings.

An auditor did not observe a client's taking of beginning physical inventory and was unable to become satisfied about the inventory by means of other auditing procedures. The possible effects are material. Assuming no other scope limitations or reporting problems, the auditor could express an unmodified opinion on the current year's financial statements for

The balance sheet only. (The auditor did not observe the counting of physical inventories at the beginning of the year and was not able to become satisfied by performing other procedures on those inventories. Because they enter into the determination of net income and cash flows, the auditor could not determine whether any adjustments were needed with respect to profit and net cash flows from operating activities. Moreover, the possible effects of the inability to obtain sufficient appropriate evidence regarding beginning inventories are material. Thus, the auditor should not express an opinion on the results of operations and cash flows. However, because the balance sheet reports only the ending inventory balance, the auditor can express an unmodified opinion on it alone, assuming (s)he is satisfied with the ending balance.)

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?

The company issues financial statements that purport to present financial position and results of operations but refuses to include the related statement of cash flows. (An entity that reports financial position and results of operations should provide a statement of cash flows. Thus, the omission of the cash flow statement is normally a basis for modifying the opinion. If the statements fail to disclose required information, the auditor should provide the information in the report, if practicable. However, the auditor is not required to prepare a basic financial statement. Accordingly, s/he should qualify the opinion because of a material misstatement and explain the reason in a basis for qualified opinion paragraph.)

A former client requests a predecessor auditor to reissue an audit report on a prior period's financial statements. The financial statements are not restated and the report is not revised. What date(s) should the predecessor auditor use in the reissued report?

The date of the prior-period report. (Use of the original date in a predecessor auditor's reissued report removes any implication that records, transactions, or events after such date have been audited or reviewed. However, the predecessor auditor should perform the following procedures to determine whether the report is still appropriate: (1) read the statements of the subsequent period, (2) compare the prior statements with the current statements, and (3) obtain written representations from management and the successor auditor about information obtained or events that occurred subsequent to the original date of the report (also see AU-C 925 regarding filings under the Securities Act of 1933).)

Under which of the following circumstances would a disclaimer of opinion not be appropriate?

The financial statements fail to contain adequate disclosure concerning related party transactions. (A disclaimer is inappropriate when the financial statements contain material departures from the applicable financial reporting framework. Inadequacy of the disclosures required by the applicable financial reporting framework is such a departure. Because U.S. GAAP require certain disclosures about related party transactions, the inadequacy of such disclosures is a basis for expressing a qualified or an adverse opinion.)

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion and an adverse opinion?

The financial statements fail to disclose information that is required by the applicable reporting framework. (Misstatements, including inadequate disclosures, may result in either a qualified or an adverse opinion. The auditor should exercise judgment about materiality by considering such factors as (1) benchmarks for dollar amounts, (2) significance to the statements and the entity, and (3) pervasiveness. If the misstatement is not pervasive, the auditor should express a qualified opinion.)

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. (The opinion of a suitably qualified, independent, outside party lends credibility to the financial statements and provides some protection to third parties who may rely upon them when making investment decisions. The opinion contained in the audit report, which accompanies audited financial statements, is the result of the auditor's performance of the attest function, that is, the gathering of evidence during the audit and the issuance of an opinion on the fairness of the presentation of the statements.)

When an auditor qualifies an opinion because of a scope limitation, which part(s) of the auditor's report should indicate that the qualification pertains to the possible effects on the financial statements and not to the scope limitation itself?

The opinion paragraph only. (When a qualified opinion results from an inability to obtain sufficient appropriate evidence, the auditor describes the matter in the basis for qualified opinion paragraph, not in a note to the statement. The description of the audit scope is the responsibility of the auditor, not management. The opinion paragraph should indicate that the qualification pertains to the possible effects on the financial statements, not to the scope limitation itself. The wording ". . . except for the possible effects of the matter described in the basis for qualified opinion paragraph . . ." is appropriate. The following are the other effects on the auditor's report when the opinion is qualified due to an inability to obtain sufficient appropriate evidence with possible effects that are material but not pervasive: (1) The introductory paragraph is unchanged; (2) the management's responsibility paragraph is unchanged; and (3) the auditor's responsibility section ends with the sentence, "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.")

An auditor decides to express a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to

The possible effects on the financial statements. (When an auditor qualifies his or her opinion because of a scope limitation, the wording in the opinion paragraph should indicate that the qualification pertains to the possible effects on the financial statements and not to the scope limitation itself.)

A non-issuer's FS for prior period are presented in comparative for w audited FS for the subsequent year. If prior period statements were reviewed,

The report on unaudited FS should be reissued OR The report on audited FS should include an other-matter paragraph

Limitation on the scope of the audit may require the auditor to express a qualified opinion or to disclaim an opinion. Which of the following is a limitation on the scope of the audit?

The unavailability of sufficient appropriate evidence. (A limitation on the scope of the audit is defined as an auditor's inability to obtain sufficient appropriate audit evidence. It may result from (1) circumstances not controlled by the entity, (2) circumstances related to the nature or timing of audit work, or (3) limitations imposed by management. An auditor's inability to obtain sufficient appropriate audit evidence results in a qualified opinion (disclaimer of opinion) when the possible effects of undetected misstatements are material but not pervasive (material and pervasive) (AU-C 705).)

Under which of the following circumstances might an auditor disclaim an opinion?

There are significant uncertainties affecting the financial statements for which the auditor is unable to obtain sufficient evidence to support management's assertions. (If the auditor is unable to obtain sufficient evidential matter to support management's assertions about a matter, a qualified opinion or disclaimer of opinion should be expressed.)

A practitioner's compilation report on a financial forecast should include a statement that

There will usually be differences between forecasted and actual results (caveat)

An auditor's opinion reads as follows: "In our opinion, except for the above-mentioned limitation on the scope of our audit..." This is an example of an

Unacceptable reporting practice. (When an opinion is qualified because of a scope limitation, the opinion paragraph should indicate that the qualification pertains to the possible effects on the statements of undetected misstatements (AU-C 705). The language given in the question bases the qualification on the restriction itself and is unacceptable.)

Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is

Unmodified and describe the departure in an other-matter paragraph. (A material departure from GAAP prohibits expression of an opinion that financial statements are in conformity with GAAP. However, an exception is permitted when the auditor can demonstrate that because of unusual circumstances the statements would otherwise have been misleading. Given these circumstances, and if no other basis for modifying the opinion exists, the auditor may express an unmodified opinion, provided that (s)he describes in an other-matter paragraph of the report the departure, its effects, and the reasons compliance with GAAP would have been misleading.)

Assume that subsequent to the date of the auditor's report (but prior to issuance of the related financial statements) Mr. McRae and his family sell all of their stock in Computer Credit and the new owners repay the advance from Lectronic. Mr. Gonzales' opinion as to Lectronic's financial statements will be

Unmodified because the issue of collectibility is now settled. (The subsequent event provides additional evidence with respect to conditions existing at the balance sheet date. Such an event may require adjustment of the financial statements and consequently may affect the audit report (AU-C 560). Here, the auditor can now express an unmodified opinion, assuming no other basis exists for modifying the opinion. The subsequent event has eliminated the issue of collectibility of the receivable.)

A non-issuer changes from SL method to DB method of depreciation for all newly acquired assets. This change has no material effect on current year's FS but is reasonably certain to have material effect in layer years. If change is disclosed in notes, auditor should report w an

Unmodified opinion

Digit Co uses the FIFO method of costing for its international sub's inventory and the LIFO method for domestic inventory. Under these circumstances, the auditor's report on Digit's FS should express an

Unmodified opinion

King CPA was engaged to audit Chang Co. Kind neither observed inventory account nor confirmed receivables by direct communication w debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King's FS audit report will contain

Unmodified opinion

King, CLA, was engaged to audit the financial statements of Change Company, a private company, after its fiscal year and ended. King neither observed the inventory count not confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King's financial statement audit report most likely contained a(n)

Unmodified opinion

An external auditor discovers that a payroll supervisor of the firm being audited has misappropriated $10,000. The firm's total assets and before-tax net income are $14 million and $3 million, respectively. Assuming no other issues affect the report, the external auditor's report will most likely contain a(n)

Unmodified opinion (The auditor is likely to express an unmodified opinion for two reasons. First, the misappropriated amount is immaterial relative to assets and income. Second, as long as the misappropriation is accounted for properly, the financial statements will be fairly presented.)

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(n)

Unmodified opinion. (Because the CPA is satisfied as to the amounts of receivables, no scope limitation exists. Accordingly, the report need not refer to the omission of the procedures or the use of alternative procedures, and the CPA may express an unmodified opinion.)

Billie J. King, CPA, was engaged to audit the financial statements of Newton Co. after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors, but was satisfied concerning both after applying alternative procedures. King's auditor's report most likely contained a(n)

Unmodified opinion. (Because the auditor is satisfied as to inventory quantities and the amounts of receivables, she obtained sufficient appropriate evidence. Accordingly, the opinion is not modified.)

In previous years, your client, Merc International, has consolidated its Panamanian subsidiary. Because of restrictions on repatriation of earnings placed on all foreign-owned corporations in Panama, Merc International has decided to account for the subsidiary on the equity basis in the current year. You concur with the change.

Unqualified - Paragraph for change in accounting principle

In prior years, Worcester Wool Mills has used current market prices to value its inventory of raw wool. During the current year, Worcester changed to FIFO for valuing raw wool.

Unqualified - Paragraph for change in accounting principle

Johnstone Manufacturing Company has used the double-declining balance method to depreciate its machinery. During the current year, management switched to the straight-line method because it held that it better represented the utilization of the assets. You concur with its decision. All information is adequately disclosed in the financial statements.

Unqualified - Paragraph for change in accounting principle

Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., is audited by another CPA firm. As the auditor of Sandy, Inc., you have assured yourself of the other CPA firm's independence and professional reputation. However, you are unwilling to take complete responsibility for its audit work.

Unqualified, modified wording to recognize other auditor

During the audit of Brannon Bakery Equipment, you found that a material amount of inventory had been excluded from the company's financial statements. After discussing this problem with management, you become convinced that it was an unintentional oversight. Management appropriately corrected the error prior to your finalization of field work.

Unqualified, standard wording

On January 31, Asare Toy Manufacturing hired your firm you audit the company's financial statements for the prior year. You were unable to observe the client's inventory on December 31. However, you were able to satisfy yourself about the inventory balance using other auditing procedures.

Unqualified, standard wording

Upon review of the recent history of the lives of its specialized automobiles, Gas Leak Technology justifiably changed the service lives for depreciation purposes on its autos from five years to three years. This change resulted in a material amount of additional depreciation expense.

Unqualified, standard wording

A practitioner may accept an agreed upon procedures engagement to calculate the rate of return on a specified investment and verify that the percentage agrees w the percentage in an identified schedule provided that

Use of the practitioner's report is restricted

In May Year 3, an auditor reissues the auditor's report on the Y1 FS at a former client's request. The Y1 FS are to presented comparatively w subsequent audited statements. They are not restated, and the auditor does not revise the wording of the report. The auditor should

Use the original report date on reissued report

In May Year 3, an auditor reissues the auditor's report on the Year 1 financial statements at a former client's request. The Year 1 financial statements are to be presented comparatively with subsequent audited statements. They are not restated, and the auditor does not revise the wording of the report. The auditor should

Use the original report date on the reissued report. (Use of the original date in a reissued report removes any implication that records, transactions, or events after such date have been audited or reviewed. However, the predecessor auditor should perform the following procedures to determine whether the report is still appropriate: (1) read the statements of the subsequent period, (2) compare the prior statements with the current statements, and (3) obtain written representations from management and the successor auditor about information obtained or events that occurred subsequent to the original date of the report.)

Adequate disclosure means that sufficient information is presented so that financial statements are not misleading. The decisions about adequate disclosure should reflect the needs of

Users with a reasonable knowledge of business. (The auditor considers the needs of users of the financial statements. However, it is reasonable for the auditor to assume that users (1) have reasonable knowledge of business and accounting, (2) are willing to study financial information with reasonable diligence, (3) understand the materiality limits of audited statements, (4) recognize that many amounts in the statements are based on estimates and judgments, and (5) make reasonable decisions based on the statements.)

Under which of the following circumstances may audited financial statements contain a note that is labeled "unaudited," disclosing an event occurring after the balance sheet date?

When the event occurs after the date of the auditor's original report. (To prevent the financial statements from being misleading, management may disclose an event that arose after the date of the auditor's report. If the event is included in a separate note labeled as unaudited [e.g., a note captioned as "Event (Unaudited) Subsequent to the Date of the Independent Auditor's Report"], the auditor need not perform any procedures on the note. Moreover, the auditor's report should have the same date as the original report (AU-C 560).)

The primary source of information to be reported about litigation, claims, and assessments is the

client's mgmt.

A change in accounting estimate is an example of an accounting change that affects comparability and requires an explanatory/emphasis-of-matter paragraph in the audit report.t/f

false

An auditor may be unable to express an unqualified opinion if an immaterial departure from GAAP is present in the financial statements.t/f

false

An opinion based in part on the report of another auditor requires an explanatory/emphasis-of-matter paragraph be added to the standard unqualified/unmodified audit report.t/f

false

An auditor has substantial doubt about the entity's ability to continue as a going concern for reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the

possible effects on entity's FS (ensure disclosed properly)

Which of the following matters should auditor communicate to those charged w governance

significant audit adjustments, mgmt. consultations w other accountants

A basic assumption that underlies financial reporting is that an entity will continue as a going concern.t/f

true

A going concern issue requires a modification of the three-paragraph standard unqualified audit report (public company).t/f

true

A scope limitation results from an inability to obtain sufficient appropriate evidence about some component of the financial statements.t/f

true

Changes that do not affect consistency are normally disclosed in the footnotes but do not require an explanatory/emphasis-of-matter paragraph in the audit report.t/f

true

The choice of which audit report to issue depends on the condition and the materiality of any departure.t/f

true