Audit Chapter 17 HW

A company has not followed generally accepted accounting principles in the recording of its leases. The amounts involved are immaterial.

Unmodified-standard

The auditors decide not to make reference to the report of a component auditor that audited a portion of group financial statements.

Unmodified-standard

A company has not followed generally accepted accounting principles in the recording of its leases.

Qualified or adverse

The auditors' report should be dated as of the date the: Multiple Choice Report is delivered to the client. Auditors have accumulated sufficient appropriate evidence. Fiscal period under audit ends.

Auditors have accumulated sufficient appropriate evidence.

The client has changed from LIFO to FIFO for inventory valuation purposes; the auditors do not concur with this change. The effect is considered material and pervasive.

Adverse

Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an audit report of a nonpublic company? Multiple Choice A consistency modification. An adverse opinion. A qualified opinion. Part of the audit has been performed by component auditors.

A consistency modification.

Which of the following is least likely to result in inclusion of an additional paragraph being added to an audit report? Multiple Choice The company is a component of a larger business enterprise. An unusually important significant event. A decision not to confirm accounts receivable.

A decision not to confirm accounts receivable.

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: Multiple Choice An emphasis-of-matter paragraph to the auditors' report. A footnote to the financial statements. The body of the financial statements.

An emphasis-of-matter paragraph to the auditors' report.

Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly . . ." This is: Multiple Choice An unmodified opinion. A disclaimer of opinion. An "except for" opinion. An improper type of reporting.

An improper type of reporting.

Client-imposed restrictions significantly limit the scope of the auditors' procedures, and they are unable to obtain sufficient appropriate audit evidence. The possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

Disclaimer

Draves Company owns substantial properties that have appreciated significantly in value since the date of purchase. The properties were appraised and are reported in the balance sheet at the appraised values (which materially exceed costs) with related disclosures. The CPAs believe that the appraised values reported in the balance sheet reasonably estimate the assets' current values.

Either qualified or adverse

Slade Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are actively traded in the market. Management insists that all investments be carried at original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client will never ultimately realize a substantial portion of the investments because the market value is much lower than the cost; the client has fully disclosed the facts in notes to the financial statements.

Either qualified or adverse

During the audit of Eagle Company, the CPA firm has encountered a significant scope limitation relating to inventory record availability and is unable to obtain sufficient appropriate audit evidence in that area.

Either qualified or disclaimer

An audit report for a public client indicates that the financial statements were prepared in conformity with: Multiple Choice Generally accepted auditing standards (United States). Standards of the Public Company Accounting Oversight Board (United States). Generally accepted accounting principles (United States). Generally accepted accounting principles (Public Company Accounting Oversight Board).

Generally accepted accounting principles (United States).

In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is: Multiple Choice Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. Not in accordance with generally accepted auditing standards. A qualification that lessens the collective responsibility of both CPA firms. An example of a dual opinion requiring the signatures of both auditors.

Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.

A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No

Option 2

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? Qualified Adverse (1) Yes Yes (2) Yes No (3) No Yes (4) No No

Option 3

When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No

Option 3

London Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are not actively traded in the market, and the CPA firm's engagement does not extend to any subsidiary company. The CPA firm is able to determine that all investments are carried at original cost but has no real idea of market value. Although the difference between cost and market could be material, it could not have a pervasive effect on the overall financial statements.

Qualified

The auditors believe that the financial statements have been presented in conformity with generally accepted accounting principles in all respects, except that a loss contingency that should be disclosed through a note to the financial statements is not included. While they consider this a material omission, they do not believe that it pervasively affects the financial statements.

Qualified

A company valued its inventory at current replacement cost. Although the auditor believes that the inventory costs do approximate replacement costs, these costs do not approximate any GAAP inventory valuation method.

Qualified or adverse

An audit report for a public client indicates that the audit was performed in accordance with: Multiple Choice Generally accepted auditing standards (United States). Standards of the Public Company Accounting Oversight Board (United States). Generally accepted accounting principles (United States). Generally accepted accounting principles (Public Company Accounting Oversight Board).

Standards of the Public Company Accounting Oversight Board (United States).

Bowles Company is engaged in a hazardous trade and has obtained insurance coverage related to the hazard. Although the likelihood is remote, a material portion of the company's assets could be destroyed by a serious accident.

Unmodified—standard report

The client has changed from LIFO to FIFO for inventory valuation purposes; the auditors concur with this change. The effect is considered material to the financial statements, although inventory is not a large part of total assets.

Unmodified—with an emphasis-of-matter paragraph.selected answer correct

A material departure from generally accepted accounting principles will result in auditor consideration of: Multiple Choice Whether to issue an adverse opinion rather than a disclaimer of opinion. Whether to issue a disclaimer of opinion rather than a qualified opinion. Whether to issue an adverse opinion rather than a qualified opinion.

Whether to issue an adverse opinion rather than a qualified opinion.

Emphasis of matter paragraph needed? (1) A change from the completed-contract method to the percentage-of-completion method of accounting for long-term construction contracts. (2) A change in the estimated service lives of previously recorded plant assets based on newly acquired information. (3) Correction of a mathematical error in inventory pricing made in a prior period. (4) A change from direct costing to full absorption costing for inventory valuation. (5) A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits. (6) A change to including the employer's share of FICA taxes as "Retirement benefits" on the income statement. This information was previously included with "Other taxes." (7) A change from the FIFO method of inventory pricing to the LIFO method of inventory pricing.

Yes No Yes Yes Yes No Yes