Audit Chapter 17

After performing all necessary procedures, the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditors should:

Use the date of the previous report.

The term "except for" in an audit report is:

Used in a qualified opinion.

If the predecessor auditors do not reissue their audit report on comparative financial statements, the successor auditors should:

Refer to the report of the predecessor auditors.

Which of the following would most likely be an appropriate addressee for an audit report?

The shareholders of the corporation whose financial statements were examined.

Which of the following accounting changes requires an emphasis-of-matter paragraph regarding consistency in the auditors' report?

A change from the straight-line method of depreciation to an accelerated method for a class of fixed assets.

An audit client has refused to allow the auditors to perform a presumptively mandatory auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of:

A disclaimer of opinion.

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to:

A separate paragraph (section) which discusses the basis for the opinion rendered.

Which of the following is not explicitly included in an audit report for a nonpublic company?

A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance.

Which of the following is least likely to result in an emphasis-of-matter paragraph being added to an unmodified auditor's report on the financial statements of a client that sells jewelry through a retail store?

Reliance placed upon a specialist to evaluate the diamonds.

A scope restriction is least likely to result in a(an):

Adverse opinion.

If group auditors make no reference to component auditors whose work they have relied on as a part of the basis for their report, the group auditors:

Are assuming responsibility for the work of the component auditors.

Audit reports should be dated as the date on which sufficient appropriate audit evidence has been collected.

True

When an auditor has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the current financial statement date (9/30/X1), the auditor's responsibility includes:

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

The Rotter Company changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements, which are being presented by themselves. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should:

Express an adverse opinion with the basis for a modification paragraph disclosing the reason (the accounting change) for the opinion.

A public company's financial statements should be prepared following standards of the Public Company Accounting Oversight Board.

False

If financial statements contain a material departure from generally accepted accounting principles, the auditors usually should issue a disclaimer of opinion.

False

When the auditors are unable to comply with generally accepted auditing standards, they should issue an opinion that is unmodified, but include an additional emphasis-of-matter paragraph in the report.

False

Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public?

Form S-1.

CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct?

In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to:

Increase ownership equity.

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if:

Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.

Which of the following 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?

Inquiring of the entity's legal counsel about litigation, claims, and assessments.

The auditors include an emphasis-of-matter paragraph in an audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph:

Is appropriate and would not negate the unmodified opinion.

A basis for a modification paragraph in the audit of the financial statements of a nonpublic company:

Is only included with qualified, adverse, or disclaimers of opinion.

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should:

Issue an "except for" qualification or an adverse opinion.

When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:

Issue an unmodified opinion with no reference to this omission.

An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to:

Lease rather than purchase operating facilities.

It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an):

Limitation in the scope of the audit.

When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should:

Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.

A client has changed the salvage values of a number of its fixed assets. The auditors believe that the revised salvage values are realistic. The appropriate report on the financial statements is:

Standard unmodified.

If financial statements fail to disclose a material fact, the auditors may disclose the information in an emphasis-of-matter paragraph and, depending upon materiality, issue either a qualified opinion or adverse opinion on the statements.

True

Regulation S-X governs the form and content of financial statements filed with the SEC.

True

When evaluating the results of audit tests, materiality depends upon both the dollar amount and the nature of the item.

True

When there is a significant question about a company's ability to remain a going concern, the report issued is usually unmodified with an emphasis-of-matter paragraph.

True

Which of the following modifications of the auditors' report does not include an additional paragraph?

The audit report indicates a division of responsibility between two CPA firms.

The unmodified standard audit report of a nonpublic company does not explicitly state that:

The audit was conducted in accordance with accounting principles generally accepted in the United States of America.

Which of the following circumstances generally results in the issuance of a report that includes an opinion that is other than unmodified?

The auditor is unable to obtain sufficient appropriate audit evidence.

If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows:

The auditors should issue a qualified report for the departure from generally accepted accounting principles.

Under which of the following set of circumstances might the auditors disclaim an opinion?

There are significant scope limitations on the audit.