ACCT 4123 Chapter 12
When auditors issue a report on current-year financial statements ______.
- they must consider if prior years' opinions are still appropriate - auditor responsibility for comparative financial statements extend to the current audit report date
In which of the following should an auditors' report refer to the lack of consistency when there is a change in accounting principle that is significant?
An emphasis-of-matter paragraph following the Basis for Opinion Section.
True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.
Falsed [Reason: The conclusion will address whether the information is fairly stated but no opinion will be expressed.]
In which of the following circumstances would auditors be most likely to express an adverse opinion?
The financial statements are not in accordance with generally accepted accounting principles regarding the capitalization of leases.
When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is
extended to the date of the updated audit report.
A departure from GAAP ______.
may be ignored if immaterial
When a audit firm becomes the auditor of a company in 2020, the predecessor auditor ______ be referenced in the current audit report.
may or may not
Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in
the Basis for Adverse Opinion Section.
The issuance of a disclaimer of opinion generally indicates
the auditors cannot form an opinion on the fairness of presentation of the financial statements as a whole.
Which of the following statements is not included in the Auditor's Responsibilities for the Audit of the Financial Statements Section of the standard (unmodified) report?
"In accordance with accounting principles generally accepted in the United States of America."
Which of the following statements regarding engaging auditors to examine and report on summary financial statements are correct?
- The report must refer to the audit report on the full financial statements. - Auditors must have audited the full financial statements to accept.
The three sections of the PCAOB report are: Opinion of the Financial Statements; Basis for Opinion; and _____ _____ _____.
Critical Audit Matters
True or false: Auditors cannot express different opinions on comparative years' financial statements in the same report.
False [Reason: This can be done when appropriate.]
Which of the following paragraphs or sections of the group auditors' report is modified to identify the extent of component auditor involvement in the audit of group financial statements?
The Opnion Section.
An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's
balance sheet only.
When a scope limitation is encountered, the auditors' report will express a(n) ______ opinion on ICFR.
disclaimer of
Emphasis-of-matter and other-matter paragraphs may be collectively referred to as _____ paragraphs.
explanatory
Charlie Company's comparative financial statements include the financial statements of the prior year that were audited by predecessor auditors whose report on those financial statements is not presented. If the predecessor's report was qualified, the successor auditors should
indicate in their report the substantive reasons for the qualification issued by the predecessor auditors.
PCAOB standards require that the audit of ICFR be ______ the financial statement audit.
integrated with
Presenting balance sheets for two years and statements of income, changes in shareholders' equity and cash flow for three years in comparative format is required for ______.
issuers only
The audit team is required to evaluate and express an opinion on the effectiveness of the entity's ICFR for ______.
issuers only
When the auditor finds a departure from GAAP that is sufficiently material to affect users' decisions, but the departure can be compartmentalized, the auditors ______.
must qualify the opinion
When an annual report contains other information such as a president's letter or MD & A, the auditor ______.
must read the information and determine if it is consistent with audited financial statements
SEC filing and audit requirements apply to ______.
public entities only
The phrase "except for" is used in ______.
qualified opinions only
When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is
qualified or adverse, depending on the overall materiality and pervasiveness of the GAAP departure.
A deficiency or combination of deficiencies important enough to merit attention to those charged with governance is identified as a(n) _____ deficiency.
significant
When a scope limitation is immaterial, a(n) ______.
standard report can be issued
The four types of audit opinions are a(n) _____ opinion, a(n) _____ opinion, a(n) _____ opinion and a disclaimer of opinion.
unmodified; qualified; adverse
Which of the following is an example of a material accounting change that requires recognition in an unmodified opinion on the entity's financial statements?
A change in the entity's form of reporting entity.
If the audit team is restricted from performing procedures to evaluate the effectiveness of an issuer's internal control over financial reporting, their report would express:
A disclaimer of opinion.
Which of the following statements is correct? A. Auditors cannot add anything other then the standard explanatory paragraphs to an unmodified report. B. Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk. C. Auditing standards place official limits on the contents of paragraphs auditors add to a standard audit report.
B. Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.
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. The entity's financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s). "Except for the Effects of Such Adjustments" "Possible Discontinuance of the Entity's Operations" A. Yes; Yes B. Yes; No C. No; Yes D. No; No
D. [Reason: The auditor's report is REQUIRED to include an emphasis-of-matter paragraph that specifically uses the phrase: "Substantial Doubt About The Entity's Ability To Continue As A Going Concern"
Which of the following best describes the auditors' responsibility when financial statements are presented in comparative format?
The auditors' report must refer to all financial statements presented in comparative form, regardless of whether they have been audited by the current auditors or predecessor auditors.
Restrictions imposed by an entity prohibited the observation of physical inventories, which accounted for 35 percent of total assets. Alternative auditing procedures were not feasible, although the auditors were able to examine satisfactory evidence for all other items in the financial statements. The auditors would most likely express
a disclaimer of opinion on the entity's financial statements.
A disclaimer of opinion on ICFR is appropriate when ______.
a scope limitation is encountered
Responsibility to evaluate whether substantial doubt about continued existence of the entity exists rests with the ______.
management
Auditors may be engaged to examine and report on summary financial statements ______ audited the full financial statements.
only if they have
When no material issues are encountered during the audit and the financial statements are prepared in accordance with GAAP a(n) _____ audit report is appropriate.
standard or unmodified
The SEC requires issuers to present balance sheets for _____ years and statements of income, changes in shareholders' equity, and cash flows for _____ years in comparative format.
two; three
Both prior-year audits and information that has come to the auditor's attention since then (particularly in the most recent audit) is the basis for a(n) _____ report.
updated
When other information is presented along with the financial statements, the auditors' report includes an Other Information section that includes ______.
- a description of any material misstatements of the other information, if found - the audit team's responsibility with respect to the information - a statement that management is responsible for the other information
When auditors are engaged to examine and report on supplementary information ______.
- a separate report on the information may be prepared - an other-matters paragraph may be added to the audit report
A reissued report ______.
- does not consider events since the date the original report - differs from an updated report
The opinion section of the standard audit report includes ______
- identification of the financial statements and years examined - the fact that the statements were prepared in accordance with GAAP
Required SEC financial information ______.
- includes audited financial statements - is filed using Form 10-K - must be filed within 60 to 90 days of the end of the fiscal year
The Basis for Opinion paragraph on a PCAOB audit report ______.
- indicates the responsibilities of the audit team - states the firm is registered with the PCAOB - describes the audit - indicates the responsibilities of management
With respect to required supplementary information included with the basic financial statements, auditors are required to ______.
- obtain written representations from management - compare information with the financial statements for consistency
The standard auditors' report on the financial statements for nonpublic entities ______.
- should have a title that stresses auditor independence - is also referred to as the ASB report
When group auditors decide to refer to the work and reports of component auditors ______.
- the extent of the component auditors' work must be disclosed - it is referred to as a division of responsibility
When two different auditors examined financial statements included in comparative years ______.
- the predecessor auditor's report should be included with the statements - an other-matters paragraph can be used to reference the predecessor auditor
Which of the following situations would not result in auditors adding an emphasis-of-matter paragraph or section to their report without modifying the remainder of the report? A. Reference to a change in the method of accounting mandated by the issuance of a new accounting standard. B. Reference to an acquisition made by the entity during the most recent fiscal year. C. Reference to a going-concern uncertainty facing the entity. D. Reference to a departure from GAAP that is material, but not pervasive, to the financial statements.
D. Reference to a departure from GAAP that is material, but not pervasive, to the financial statements.
Holmes, CPA, assisted Williams Corporation in preparing its financial statements and gave Williams permission to use Holmes's name in communications containing these financial statements. If Holmes did not audit the financial statements, what type of opinion should be expressed?
Disclaimer of opinion because Holmes did not audit the financial statements.
If the audit team identifies one or more significant deficiencies in an issuer's internal control over financial reporting and the scope of the engagement is not restricted, the auditors' report would:
Express an unqualified opinion on internal control over financial reporting, without reference to the significant deficiency.
In which of the following situations would auditors ordinarily choose between expressing a qualified opinion or an adverse opinion on the entity's financial statements?
The financial statements fail to disclose information that is required by generally accepted accounting principles.
When a material weakness is ICFR is identified, the auditors' will issue a(n) ______ opinion.
adverse
Management's deliberate refusal to provide evidence is known as a(n) _____ - imposed scope limitation and a situation beyond the auditors' and company's control is known as a(n) _____ - imposed scope limitation.
client; circumstance
A departure from GAAP is _____ when it can be isolated to a particular account group or transactions without materially affecting other accounts.
compartmentalized
When the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion a(n) ______ exists.
internal control deficiency
The auditors' report would express an adverse opinion when a(n) _____ _____ in ICFR is identified.
material weakness
When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______.
may add additional paragraphs to their report
An auditor issued a qualified opinion on 2018 and 2019 financial statements. When doing the audit of the 2020 financial statements the auditor ______.
may issue an unmodified opinion if appropriate
AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as _____ opinions.
modified
If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would
not mention the alternative procedures.
Paragraphs that provide information relating to understanding the audit, auditor responsibility, or audit report are known as _____-_____ paragraphs.
other-matter
When companies present required supplementary information, auditors are required to expand their report to include an ______.
other-matter paragraph
When a scope limitation is material and alternative procedures cannot be performed, a(n) ______.
qualified or disclaimer of opinion must be issued
When an auditor provides additional copies of a previous audit report or grants entities permission to use a previous report in another document sometimes after its original date, it is referred to as a(n) _____ report.
reissued
When audit teams are unable to obtain sufficient appropriate evidence, either a client-imposed or circumstance-imposed _____ _____ exists.
scope limitation
When the auditor finds a departure from GAAP, a(n) ______.
standard report may still be appropriate
If group auditors are satisfied with the independence and professional reputation of the component auditors, a standard report may be issued ______.
with the group auditors assuming full responsibility for the audit
