CH 15 quiz

An auditor has audited a client's financial statements for 5 consecutive years. The client presents 3 years worth of financial statements in the filing for comparative purposes. For the 2012 audit, the auditor expressed a qualified opinion due to a scope limitation on confirmation of receivables. In the 2013 audit, the auditor issued an unqualified opinion on the 2013 financial statements. When confirming the 2013 receivables balances with the client's customers, the auditor was able to obtain the A/R balances from the previous year (2012) as well and concluded that they were fairly stated. When presenting the audit report for comparative financial statements (2011-2013), the auditor would most likely do which of the following with regard to the 2012 financial information? -Combined the 2012 and 2013 reports into a single report and issue a qualified opinion for the 2012 financial statements and an unqualified opinion on the 2013 financial statements -Update the audit report by issuing an unqualified opinion on the 2012 financial statements -Do not change the previously-issued auditor's report -Re-issue the audit report from the 2012 financial statements

-Update the audit report by issuing an unqualified opinion on the 2012 financial statements

Reviews of financial statements typically include which of the following? (select all that apply) -obtaining a management representation letter -analytical procedures -a small amount of substantive testing of transactions -inquiries

-obtaining a management representation letter -analytical procedures -inquiries

The financial statements of HBM Co. have been audited by the same auditor for the past 5 years. In the 2013 filing, HBM presents three years worth of financial statements for comparative purposes. The auditor's report included in the 2013 filing should refer to their audits of which year(s)? 2013 only 2011 only All three years presented (2011, 2012, 2013) 2013 and 2012 only

All three years presented (2011, 2012, 2013)

An auditor is unable to obtain adequate audit evidence regarding several material account balances. Which of the following types of audit opinions would most likely be issued? Unqualified Qualified Disclaimer Adverse

Disclaimer

Auditors should use emphasis of a matter paragraphs to draw attention to the fact that a required disclosure has been omitted from the financial statements. T/F

False

For audits of public companies, the auditor's report is typically addressed to the management of the company. T/F

False

The following language was taken from an auditor's report on financial statements: "In our opinion, except for the possible effects of the matter described in the previous paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1" This is an example of an unqualified opinion. T/F

False

When the auditor is unable to obtain adequate audit evidence regarding one material account balance for a non-pervasive issue, he would most likely issue an adverse opinion. T/F

Flase

If in the auditor's report, she states an opinion regarding the subject matter she evaluated, she is providing which type of assurance? Positive Negative Disclaimer None of the above

Positive

When the auditor signs the audit report in the United States, he signs the name of his firm rather than his own name. T/F

True

When performing an audit, the auditor concludes that the client's financial statements are presented fairly and in accordance with GAAP. However, after considering all relevant factors, the auditor also concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Which of the following audit opinions should the auditor issue? Adverse Unqualified Disclaimer Qualified

Unqualified

Jones, CPA, is the group engagement partner who is auditing the consolidated financial statements of his client. Jones plans to refer to a component auditor's examination of the financial statements of a subsidiary company but does not wish to present the other CPA's audit report. Both Jones and the other CPA's audit reports have noted no exceptions to generally accepted accounting principles. Under these circumstances the opinion paragraph of Jones' consolidated audit report should express a. An unmodified opinion. b. A disclaimer of opinion. c. Qualified opinion. d. A principal opinion.

a. An unmodified opinion.

The auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the client refuses to revise or eliminate the material inconsistency, the auditor should a. Revise the auditor's report to include a separate other-matter paragraph describing the material inconsistency. b. Consult with a party whose advice might influence the client, such as the client's legal counsel. c. Issue a qualified opinion after discussing the matter with the client's board of directors. d. Consider the matter closed since the other information is not in the audited financial statements.

a. Revise the auditor's report to include a separate other-matter paragraph describing the material inconsistency.

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 auditor views the misstatement involved as material, but not so pervasively material as to make the overall financial statements misleading. The opinion paragraph of the auditor's report most likely expressed a(n) a. Unmodified opinion. b. Qualified opinion. c. Adverse opinion. d. Disclaimer of opinion.

b. Qualified opinion.

Comparative financial statements include the financial statements of a prior period which were examined by a predecessor auditor, whose report is not presented. If the predecessor auditor's report was qualified, the successor auditor must a. Express an opinion on the current year statements alone and make no reference to the prior year statements. b. Issue a standard short-form comparative report indicating the division of responsibility. c. Obtain written approval from the predecessor auditor to include the prior year's financial statements. d. Disclose the reasons for any qualification included in the predecessor auditor's opinion.

d. Disclose the reasons for any qualification included in the predecessor auditor's opinion.

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's disclosures concerning this matter are adequate, the audit report may include a(n): Disclaimer of opinion (Yes or No), Qualified opinion (Yes or No) a. Yes, Yes b. Yes, No c. No, Yes d. No, No

d. No, No

The auditor is unable to reach a conclusion as to the propriety of management's representations due to management's inadequate record retention policies. The auditor will have to consider issuing a(n) a. Opinion qualified because of uncertainty. b. Opinion qualified because of inadequate disclosure. c. Adverse opinion or a qualified opinion. d. Qualified opinion or a disclaimer of opinion.

d. Qualified opinion or a disclaimer of opinion.

An auditor would issue an adverse opinion if a. The audit was begun by other independent auditors who withdrew from the engagement. b. A qualified opinion cannot be given because the auditor lacks independence. c. The restriction on the scope of the audit was significant. d. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

d. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

When an auditor conducts an audit in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in accordance with a basis of accounting such as the cash basis of accounting, the auditor should issue a(n) a. Disclaimer of opinion. b. Review report. c. Qualified opinion. d. Unmodified opinion with an emphasis-of-matter paragraph.

d. Unmodified opinion with an emphasis-of-matter paragraph.

After performing all necessary procedures a predecessor auditor reissues a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditor should a. Delete the date of the report. b. Dual date the report. c. Use the reissue date. d. Use the date of the previous report.

d. Use the date of the previous report.