Chapter 15- Audit

Which one of the following is an example of the contents of an opinion paragraph found in an audit report?

"The financial statements referred to above present fairly,..."

When the auditor is unable to obtain sufficient appropriate evidence because the client did not allow a procedure to be completed, which of the following would the report most likely contain?

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: Yes.

When the auditor wishes to emphasize a matter in the financial statements, which of the following would the audit report contain?

A Qualification: No; An Explanatory Paragraph After the Opinion Paragraph: Yes.

When financial statements contain a material, unjustified departure from GAAP, which of the following is contained in the audit report?

A Qualification: Yes; An Explanatory Paragraph After the Opinion Paragraph: Yes.

How would the auditor categorize a situation when the financial statements do not contain a footnote the auditor believes is necessary for fair presentation?

A departure from GAAP.

When an auditor lacks independence with respect to a client, which of the following should the auditor issue?

A disclaimer of opinion.

Which of the following is a change that is not being debated by auditing standard setters and investors?

Adding disclosure about which engagement partner at the firm supervised the audit and who from outside the audit firm participated in the audit, Adding commentary on areas of risk of material misstatement of the financial statements identified by the auditor, Adding commentary about the level of materiality applied by the auditor to perform the audit = All of the above are being debated.

An audit of the Flagler Company, a diamond mining company, brings to light the fact that its equipment has been marked up to the owners' expectation of market values. Such a situation will most likely result in which type of report?

Adverse.

The opinion paragraph of the audit report for Schnook Co. states that the financial statements "do not present fairly". Which type of audit report is this?.

Adverse.

Scope limitations resulting in disclaimers under U.S. auditing standards affect the standard audit report through which of the following?

All of the above; Modifying the introductory paragraph, Eliminating the scope paragraph, AND Adding an explanatory paragraph before the disclaimer paragraph

When an auditor is faced with a material departure from GAAP that is pervasive, which of the following should the audit report contain?

An adverse opinion.

Adverse opinions affect the standard audit report in which of the following ways?

Both B and C; Adding an explanatory paragraph before the opinion paragraph AND Modifying the opinion paragraph to read " does not present fairly."

Violations of GAAP resulting in qualified opinions affect the standard audit report through which of the following?

Both b and c; Adding an explanatory paragraph before the opinion paragraph. AND Modifying the opinion paragraph to read "except for."

Which one of the following is not a type of unqualified audit opinion issued by auditors?

Does not include the opinion paragraph.

Qualified opinions can only be issued by auditors for which of the following?

E. Either A or B, Violations of GAAP. and Scope limitations.

Disclaimers of opinion can only be issued by auditors based on which of the following?

Either B or D; Substantial scope limitations AND Lack of independence

Which of the following is an example of circumstances that would not limit the audit scope?

Emphasis of an important matter.

When the financial statements contain a material departure from GAAP that the auditor believes is justified, where should the justification appear?

In a paragraph added before the opinion paragraph.

When the auditor is not independent with respect to a client, what must the auditor do?

Include a separate paragraph in the audit report stating the lack of independence.

In the audit of consolidated financial statements under U.S. auditing standards when more than one CPA firm is involved and the principal audit firm chooses to mention the other firm(s), the wording of which paragraph(s) is modified?

Introductory Paragraph: Yes; Scope Paragraph: Yes; Opinion Paragraph: No.

The use of another CPA firm by an audit firm to perform part of the engagement on a client's subsidiary will require the audit firm to do which of the following?

List the other firm in the footnotes to the client's financial statements.

Which one of the following is an instance where the auditor would add a paragraph after the opinion paragraph?

Management's disclosures are not adequate.

Auditing reporting standards for financial statement and integrated audits require auditors to provide which of the following?

Positive assurance.

According to the AICPA, the auditor needs to form an opinion on the financial statements based on an evaluation of the audit evidence obtained. This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?

Principle 1

According to the AICPA, the auditor needs to clearly express an opinion based on audit evidence obtained in the form of a written report. This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?

Principle 7

Which of the following would not result in an unqualified audit report with an explanatory paragraph?

Scope limitation.

The division of responsibility between the reporting company's management and the audit firm is described in which one of the following?

Scope paragraph.

Which of the following phrases should not be used when the auditor is qualifying the audit opinion?

Subject to.

In which one of the following instances would an auditor most likely issue a disclaimer of opinion?

The auditor is independent of the client.

When there is a restriction on the scope of the internal control over financial reporting (ICFR) engagement, what should the auditor do?

The auditor will issue an adverse opinion.

When management chooses to include information in its report on ICFR that is in addition to the information required to be provided, what should the auditor do?

The auditor will present the information in a separate schedule in the footnotes.

The scope paragraph of an unqualified opinion primarily gives information relating to which of the following?.

The division of responsibilities.

Audit reports are designed to promote clear communication between the auditor and the financial statement user. Which of the following is not delineated in the audit report?

The experience level of the audit team.

In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?

The financial statements are not in conformity with FASB requirements regarding the capitalization of leases.

If a client expensed the acquisition cost of some assets that should have been capitalized and depreciated them over their useful lives, which of the following would be incorrect?

The opinion paragraph should be modified to include language such as: "except for the effects of not capitalizing the acquisition costs of some assets..."

When an auditor issues an adverse opinion, which of the following should be included in the opinion paragraph?

The reasons that the financial statements are misleading.

A justified departure from GAAP may result in which of the following?

An unqualified audit opinion with an explanatory paragraph either before or after the opinion paragraph.

An emphasis of a matter may result in which of the following?

An unqualified audit opinion with an explanatory paragraph either before or after the opinion paragraph.

A reference to another auditor under U.S. auditing standards may result in which of the following?

An unqualified audit opinion with modified wording for all three paragraphs.

If the auditor believes that there is a remote probability that resolution of an uncertainty will have a material effect on the financial statements, which of the following would the auditor issue?

An unqualified opinion with explanatory paragraphs.

According to the AICPA principles, which of the following is incorrect?.

Auditors should issue an unqualified opinion in all cases where companies have provided an entire set of financial statements and footnotes that include all years presented for comparative purposes.

In which one of the following instances would an auditor not issue a disclaimer of opinion?

There are significant misstatements in the financial statements.

In which one of the following cases would an auditor most likely issue a qualified opinion?

There is a highly material, and very pervasive departure from SFAS No. 141 and No. 142.

In which one of the following instances would an auditor most likely issue an adverse opinion?

There is a material dollar misstatement that overshadows the overall financial statements.

In which one of the following instances would an auditor most likely issue a standard unqualified opinion without explanatory language?

There is substantial doubt about the entity's ability to continue as a going concern.

If the auditor decides to draw attention to large related party transactions occurring in the financial statements of the client, which report will most likely be issued?

Unqualified with an explanatory paragraph

A client company has a history of negative cash flow trends and continuing losses. Which type of opinion will the auditor most likely issue?

Unqualified with explanatory language.

Adverse opinions can only be issued by auditors based on which of the following?

Violations of GAAP.

When might an auditor modify the introductory paragraph and replace the scope paragraph with explanatory paragraph?

When a scope limitation exists.

PCAOB Auditing Standard 5 does not identify which of the following situations as one in which the auditor will modify the audit report on ICFR effectiveness?

When the annual report includes a copy of the annual certification pursuant to Section 302 of the Sarbanes-Oxley Act.

In which of the following situations would the auditor modify the audit report on ICFR?

When the auditor concludes that management's report on ICFR is not complete or is improperly presented.