Ch. 17 - Auditors' Reports
An audit report for a public client indicates that the financial statements were prepared in conformity with:
Generally accepted accounting principles (United States).
Which of the following is least likely to result in an additional paragraph being added to an audit report?
A decision not to confirm accounts receivable. An emphasis-of-matter paragraph is appropriate when an auditor wishes to emphasize a matter concerning the financial statements, but not a matter concerning the scope of the audit engagement. An emphasis-of-matter paragraph is not appropriate since confirming accounts receivable relates to the scope of the audit.
What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?
Adverse but not qualified. When a misstatement is pervasive, an adverse opinion is appropriate.
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:
An emphasis-of-matter paragraph to the auditors' report. The AUDITOR communicates through the auditors' report. Note that the CLIENT will include a discussion of the related party transactions in a note to the financial statements.
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:
An improper type of reporting. This phrase does not give the reader of the report a clear-cut indication of the auditors' opinion. The phrase appears to modify the opinion paragraph, but is not forceful enough to constitute qualifying language.
The auditors' report should be dated as of the date the:
Auditors have accumulated sufficient appropriate evidence. The audit report should be dated no earlier than when the auditors have accumulated sufficient appropriate evidence. This date is often the last day of fieldwork.
Critical audit matters are most likely to include those matters that:
Involve challenging, subjective or complex auditor judgment. By definition critical audit matters involve challenging, subjective or complex auditor judgment. While material weaknesses (Are material weaknesses in internal control) and significant risks (Involve significant risks) will often be considered critical audit matters, not all are, and the answers are less complete than answer (Involve challenging, subjective or complex auditor judgment).
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:
Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. Reference to the work of a component auditor is not, in itself, a qualification of the group audit report. This reference does not lessen the auditors' collective responsibility. Rather, it merely divides this responsibility among two or more 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 Opinion When an unjustified change in accounting principles occurs, either a qualified or adverse opinion is appropriate as this represents a departure from generally accepted accounting principles. An adverse opinion is appropriate, but not a disclaimer of opinion.
A material departure from generally accepted accounting principles will result in auditor consideration of:
Whether to issue an adverse opinion rather than a qualified opinion. When the auditors take exception to the application of accounting principles in the client's financial statements, they will issue either a qualified or adverse opinion, depending on whether the misstatement is considered pervasive.
An audit report for a public client indicates that the audit was performed in accordance with:
Standards of the Public Company Accounting Oversight Board (United States).
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?
Unmodified with an Additional Paragraph (NOT a qualified opinion). Substantial doubt about a client's ability to continue as a going concern results in either an unqualified report with an additional paragraph (or, less frequently, a disclaimer of opinion). A qualified report is not appropriate.