CH 17 Smartbook

In a shared responsibility report, the ______ sections of the audit report are modified.

opinion auditor's responsibility

Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they before due for a(n) ____ period of time.

reasonable

Modified opinions are required when there is a ______.

scope limitation departure from GAAP

CAM and KAM sections are omitted from audit reports when ______ issued.

adverse and disclaimer of opinions are

Financial statements that cover one or more prior periods are called _______ financial statements.

Comparative

If there are material departures from GAAP in the financial statements, auditors must ____ the audit report.

alter

An audit report that states the auditors do not express an opinion on the financial statements is called a(n) ______ opinion

disclaimer of

Items that may be considered KAMs (CAMs) include ______.

income taxes going concern assessments the allowance for sales returns goodwill impairment

If substantial doubt regarding Going Concern status remains after considering management's plans, auditors ______ opinion.

may still issue an unmodified

Which of the following statements is correct?

Both KAMs and CAMs are selected from matters communicated to those charged with governance.

If auditors have formed an opinion that the financial statements are materially and pervasively misstated, a(n) ______ opinion is appropriate.

adverse

When the financial statements are not fairly presented in conformity with generally accepted accounting principles, auditors issue a(n) ___ opinion.

adverse

Conditions that may raise substantial doubt about the going-concern assumption include ______.

adverse financial ratios work stoppages legal proceedings

A material and pervasive departure from GAAP requires a basis for modification paragraph and a(n) ______.

adverse opinion

When comparative financial statements are presented by the client company, the auditors' report should ______.

always cover all years presented

Financial statement disclosures regarding the firm's going concern status include all of the following except:

audit procedures performed to identify and review going concern status

For a change in accounting principle, the client must report in the note to the financial statements all of the following except the ______ the change.

auditor's approval of

For a nonpublic company, a qualified departure from GAAP requires a(n) for modification paragraph and changes to the paragraph.

basis opinion

A situation in which conclusive audit evidence concerning the ultimate outcome cannot be gathered because the outcome will occur in the future is called a(n)

component

Group financial statements are those of a company that consists of more than one

component

Multiple uncertainties that cause the auditor to conclude it's not possible to form an opinion on the financial statements may make a(n) ______ opinion appropriate.

disclaimer of

PCAOB standards state that when a significant scope limitation is imposed by the client, the auditors should ordinarily issue a(n) ______ opinion.

disclaimer of

Auditors that are responsible for issuing the audit report on a group of companies (e.g. a parent and its subsidiaries) are known as ______ auditors.

group

When predecessor auditors have audited the prior-period financial statements for a comparative period, the current auditor may have the predecessor auditor reissue their audit report for the prior period or they can ______.

include an other-matter paragraph to the current audit report

If substantial doubt regarding going concern status does not remain after considering management's plans, auditors ______ opinion.

may issue an unmodified

The PCAOB requires that critical audit matters (CAMs) ______.

only be reported when the auditors issue a qualified or adverse opinion

An adverse opinion is appropriate if a material misstatement is considered

pervasive

An opinion that states the financial statements are presented in conformity with GAAP "except for" the effects of some matter is referred to as a(n) ______ opinion..

qualified

If the auditors of a nonpublic company decide that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive, a(n) ______ opinion is appropriate.

qualified

When a company that is in the process of, or about to liquidate is still following the going-concern basis of accounting, the result is ordinarily either a(n) or opinion.

qualified adverse

When, after considering management's plans, substantial doubt about the company's going concern status still remains, auditors ______ add a Going Concern section to the report.

should not

When two or more CPA firms are involved in the audit of group financial statements, the unmodified opinion audit report is ______ modified to include reference to CPA firms considered component auditors.

sometimes

Audit considerations for client-imposed limitations include ______.

the assessment of fraud risk determining whether or not to withdraw from the engagement

A major assumption underlying the inclusion of an emphasis-of-matter paragraph for an uncertainty is ______.

the matter is adequately disclosed in the notes

The unqualified audit report for audits of public companies should reference ______.

the standards of the PCAOB

For auditors that are reporting on two periods, consistency of GAAP application should be evaluated between the current period and the preceding ______.

two periods

When the auditors have obtained sufficient appropriate audit evidence to conclude that the financial statements, taken as a whole, are not materially misstated and there is no need to disclose additional information, they will issue a(n) _____ opinion.

unmodified

Re-expressing or revising an audit opinion that was previously issued is referred to as the report.

updating

For comparative financial statements, the auditor can issue an opinion that cover both years if ______.

the prior year was audited by the firm

Additional circumstances that may result in an unmodified opinion with an emphasis-of-matter paragraph include ______.

unusually important subsequent events a major catastrophe with significant effects significant transactions with related parties

A lawyer who refuses to provide appropriate information for a case that has not yet been settled creates a(n) ______ for the auditor.

scope limitation

When auditors believe a change in accounting principle does not meet one or more of the four requirements, appropriate audit opinions are ______.

adverse qualified

A qualified opinion is issued when auditors are unable to obtain sufficient appropriate audit evidence on which to base the opinion because of a(n) ____ limitation.

scope

Auditors evaluate changes in accounting principles to determine if ______.

the method of accounting for the effect of the change is in conformity with GAAP the newly adopted principle is generally accepted the disclosures related to the change are adequate

If a client changes depreciation methods but the change is immaterial, the auditor should issue a(n) ______.

unmodified opinion

Auditors who want to emphasize significant client transactions with related parties can issue a(n) ______.

unmodified opinion with an emphasis-of-matter paragraph

Group auditors that make no reference to the component auditors should issue a(n) ______.

unmodified report

In group financial statements, issues arise when one or more subsidiaries are audited by auditors other than the group auditors.

component

Primary circumstances that result in an audit report with an unmodified opinion but with additional financial statement-related information include ______.

important subsequent events inconsistent application of generally accepted accounting principles substantial doubt about the company's going concern status

Limitations on the scope of the audit may occur due to all of the following except ______.

auditor-imposed limitations

When, after considering management's plans, substantial doubt about the company's going concern status does not remain, an Emphasis of Matter section ______.

may be added at the auditors' discretion

When there is substantial doubt about a company's going concern status, GAAP has not been consistently applied, or there are other circumstances such as an unusually important subsequent event, additional information ______.

may or may not be required to be added to the unmodified audit report

The purpose of notes to financial statements is to ______.

properly disclose information required by GAAP

If auditors have substantial doubt about a company's ability to continue as a going concern and management's disclosures are materially inadequate, appropriate audit opinions are a(n) ______.

qualified opinion adverse opinion

The PCAOB audit report for large public companies includes an additional paragraph indicating ______.

auditors also have issued a report on the client's internal control over financial reporting

To evaluate consistent application of GAAP when reporting on only the current period, auditors should consider the current period under audit and the preceding ______.

period

Publicly owned companies are required to include ______ for each of the last two years in their annual reports.

balance sheets

To evaluate whether there is substantial doubt about a client's ability to continue as a going concern, auditors should ______.

consider results of audit procedures performed during the audit

True or false: A basis-of-modification paragraph due to omitted information must include the omitted information.

false

True or false: An auditor is required to add an emphasis-of-matter paragraph for all uncertainties.

false

True or false: CAM and KAM sections are optional when either an adverse or disclaimer of opinion is issued.

false

A disclaimer of opinion ______.

-cannot be issued when the auditors have formed an opinion on the financial statements -should include any and all reservations auditors have about the statements

For each critical audit matter (CAM), the auditors must include in the audit report ______.

-description of how the matter was addressed in the audit -identification of the matter -reference to the accounts and disclosures affected -principal considerations that led the auditor to determine it is a CAM

In the United States, financial statements are most frequently prepared following the general-purpose framework of ______.

GAAP

Disclosure requirements come from pronouncements issued by ______.

GASB FASB

An unmodified opinion with additional audit-related information included in the audit report is appropriate when ______.

a report is filed with comparative statements when there are predecessor auditors

A disclaimer of opinion is most frequently the result of ______.

a scope limitation that leaves auditors unable to obtain sufficient appropriate audit evidence

When the report on a public company is qualified for a departure from GAAP, the modification involves ______.

adding an additional untitled paragraph after the opinion paragraph

For departures from GAAP due to the omission of information that is material and pervasive, auditors should issue a(n) ______ opinion.

adverse

Financial statements are generally presented in ____ form for the current year and one or more preceding years.

comparative

A scope limitation that does not allow the auditors to obtain sufficient appropriate audit evidence for a substantial proportion of the financial statements should result in a(n) ______ opinion.

disclaimer of

When auditors have concern about a company's ability to continue as a(n) ____ ____, they should consider whether management's plans for dealing with the conditions are likely to mitigate the problem.

going concern

For a nonpublic company, a matter leading to a qualified opinion ______ considered a KAM.

is always

When a company is in the process of, or about to discontinue operating, the ____ basis of accounting must be followed.

liquidation

Auditors issue a(n) adverse opinion when the deficiencies in the financial statements are both ____ and ____.

material pervasive

The decision on whether a scope limitation results in a qualified or disclaimer of opinion is whether misstatements or possible misstatements are both ___ and ___.

material pervasive

For a public company, a matter leading to a qualified opinion ______ considered a CAM.

may be

The term "other-matter paragraph" is used by ______.

nonpublic companies only

The term "explanatory paragraph" is used by __.

public companies only

True or false: A situation involving an uncertainty may also involve a scope limitation.

true