ACC 269 Ch. 18 SmartBook

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An intentional management error can be considered ______ by the auditor regardless of the magnitude of the error.

material

For public companies registered with the SEC, the financial statements ______. must have a clean audit opinion can have a qualified audit opinion with explanation can have a qualified or an adverse audit opinion as long as the entity corrects the issue in the next year's filing

must have a clean audit opinion

Under ASB standards, when an issue other than those presented or disclosed in the financial statements is relevant to understanding the audit, the auditor's responsibilities, or the auditor's report, a(n) ______-______ paragraph can be included in the audit report.

other matter

A predecessor auditor should obtain a letter of representations from the current year, successor auditor when the predecessor auditor ______. indicates material items were discovered in the prior year that require disclosure in the current year will not reissue a report to be included with the current year financial statements plans to reissue a report on the financial statements of prior periods presented for comparative purposes

plans to reissue a report on the financial statements of prior periods presented for comparative purposes

For public companies, qualified and adverse opinions on financial statements are not accepted by ______. the IRS state corporation commissions the SEC investors and creditors

the SEC

True or false: If a GAAP departure's effect is so pervasive that the financial statements taken as a whole do not fairly present the entity's financial position, results of operations, and cash flows in accordance with GAAP, the auditor should withdraw from the engagement and disclaim an opinion.

False Reason: Correct. The auditor should issue an adverse opinion.

True or false: The concept of materiality plays a limited role in the auditor's choice of audit reports.

False Reason: Correct. The concept of materiality plays a major role in the auditor's choice of audit reports.

True or false: The auditor's opinions on the financial statements and on the effectiveness of internal control must be presented in two separate reports with the same dates.

False Reason: Correct. The opinions may be presented in two separate reports or one combined report.

Select all that apply An auditor issues a qualified opinion when there is ______. insufficient appropriate evidence a lack of independence a GAAP departure that materially affects the financial statements overall such that the statements are not fairly presented a scope limitation when the overall financial statements are presented fairly in accordance with GAAP a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP

a scope limitation when the overall financial statements are presented fairly in accordance with GAAP a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP

Under PCAOB standards ______. emphasis paragraphs are sometimes required, but explanatory paragraphs are always optional explanatory paragraphs are sometimes required, but emphasis paragraphs are always optional both explanatory and emphasis paragraphs are always optional both explanatory and emphasis paragraphs are sometimes required

explanatory paragraphs are sometimes required, but emphasis paragraphs are always optional

Select all that apply The auditor's report does not refer to the work of other auditors when the principal auditor ______. shares responsibility for the audit report with other auditors is satisfied as to the professional reputation and independence of the other auditor accepts full responsibility for the work done and conclusions drawn by other auditors

is satisfied as to the professional reputation and independence of the other auditor accepts full responsibility for the work done and conclusions drawn by other auditors

When an auditor is not independent, the reason(s) for the lack of independence should ______ ASB standards. be stated under PCAOB standards, but should not be stated under not be stated under PCAOB standards, but may be stated under be stated under both PCAOB and not be stated under PCABOB or

not be stated under PCAOB standards, but may be stated under

A change in accounting principles that does not have a material effect in the current year but that is expected to have a material effect in future years is ______. described in an explanatory paragraph in the auditor's report not mentioned in the auditor's report considered a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements

not mentioned in the auditor's report

The successor auditor includes an explanatory paragraph indicating that the prior period financial statements were audited along with the date and type of report issued when the ______. predecessor's report will not be included with the current report predecessor's report is being reissued with the current report successor auditor takes responsibility for the prior year financial statements

predecessor's report will not be included with the current report

The auditor considers the materiality and the importance of the portion of the consolidated financial statements audited by other auditors when determining whether they qualify to serve as the ______ auditor on the engagement.

principal or lead

Select all that apply An auditor adds an explanatory paragraph to a standard unqualified report on an entity's financial statements when ______. there is a scope limitation resulting from an inability to collect sufficient appropriate evidence the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion the auditor performs an integrated audit and issues separate reports on the financial statements and internal control there is substantial doubt about an entity's ability to continue as a going concern there is a lack of independence of the auditor

the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion the auditor performs an integrated audit and issues separate reports on the financial statements and internal control there is substantial doubt about an entity's ability to continue as a going concern

Select all that apply The auditor's standard unqualified audit report for a public company contains the ______. name of the engagement partner "Basis for Opinion" section audit report date report title addressee

"Basis for Opinion" section audit report date report title addressee

True or false: Prior period statements received a qualified or adverse opinion because the entity did not follow GAAP. If the entity conforms to GAAP in the current year and restates the prior period results, the auditor should express an unqualified opinion on the restated prior period financial statements presented as comparatives.

True Reason: Correct. This is true, but an explanatory paragraph must provide detailed information about the restatement and change of opinion.

Which of the following is included in the footnotes to the financial statements but does not require an explanatory paragraph in the auditor's report? accounting for a major subsidiary using the equity method in 20X1 and consolidating the subsidiary's and parent's financial statements in 20X2 a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements a change in accounting principles that does not have a material effect in the current year but is expected to have a material effect in future years

a change in accounting principles that does not have a material effect in the current year but is expected to have a material effect in future years

A disclaimer of opinion is not an option when there is ______. substantial doubt about an entity's ability to continue as a going concern a circumstance-imposed scope limitation a known departure from GAAP

a known departure from GAAP

Select all that apply Circumstances that likely will result in an audit opinion that departs from an unqualified opinion include ______. a scope limitation lack of auditor independence significant related-party transactions that are appropriately disclosed important events that occurred after the balance sheet date a departure from GAAP

a scope limitation lack of auditor independence a departure from GAAP

Select all that apply An auditor issues a qualified opinion when there is ______. a scope limitation when the overall financial statements are presented fairly in accordance with GAAP a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP a lack of independence insufficient appropriate evidence a GAAP departure that materially affects the financial statements overall such that the statements are not fairly presented

a scope limitation when the overall financial statements are presented fairly in accordance with GAAP a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP

Select all that apply Changes that affect comparability, but not consistency, include a change in ______. accounting estimate accounting principle reporting entity classification

accounting estimate classification

When the auditor is not required to audit management's assessment of internal control over financial reporting, the auditor must ______. qualify the audit opinion with an "except for" not mention internal control over financial reporting in the audit report add an explanatory paragraph to the Basis for Opinion section

add an explanatory paragraph to the Basis for Opinion section

When there is a lack of consistency in the application of accounting principles due to accounting changes, an auditor ______. disclaims an opinion on the current year financial statements due to a lack of consistency issues an adverse report on the entity's financial statements adds an explanatory paragraph to a standard unqualified audit report issues a qualified audit report stating "except for the change in accounting method described in Note XX"

adds an explanatory paragraph to a standard unqualified audit report

If the effects of a departure from GAAP are seen by the auditor as pervasively material in terms of the overall financial statements, the auditor will issue a(n) ______ opinion. disclaimer of adverse qualified

adverse

When the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall, the audit will issue a(n) ______ opinion. disclaimer of adverse qualified with explanation

adverse

When the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall, the auditor will issue a(n) ______ opinion.

adverse

Select all that apply If the financial statements are materially affected by a departure from GAAP, the opinion options for the auditor are ______. unqualified with an explanatory paragraph adverse qualified disclaimer

adverse qualified

Select all that apply If an entity fails to disclose information in the financial statements or footnotes as required by GAAP, the audit opinion options are ______. adverse qualified disclaimer unqualified with explanation

adverse qualified

The auditor considers whether the comparability of the financial statements between periods has been materially affected (1) by a change in accounting principles or (2) by a material adjustment to correct a misstatement in previously issued financial statements to identify ______ matters that might need to be included in the audit report.

consistency

Any matters arising from the audit of financial statements that are communicated or required to be communicated, to the audit committee, that relate to material financial statement accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment are called ______ ______ matters.

critical audit

Select all that apply In determining what matters should be considered CAMs, the auditor is required to take into account the ______. nature of management-provided evidence obtained regarding the matter degree of auditor subjectivity in applying audit procedures to address the matter extent of audit effort and judgment related to significant unusual transactions nature of consultations outside the engagement team regarding the matter nature and extent of audit effort required to address the matter

degree of auditor subjectivity in applying audit procedures to address the matter extent of audit effort and judgment related to significant unusual transactions nature of consultations outside the engagement team regarding the matter nature and extent of audit effort required to address the matter

Select all that apply In the CAM section of the audit report, a paragraph or table must ______. name the audit partner who assessed the CAM(s) describe how each CAM was addressed in the audit refer to financial statement accounts and disclosures related to the CAM explain how each matter was determined to be a CAM

describe how each CAM was addressed in the audit refer to financial statement accounts and disclosures related to the CAM explain how each matter was determined to be a CAM

When an entity has changed auditors, the predecessor auditor can reissue, at the request of the entity, the report on the financial statements of prior periods when those prior period statements are presented for comparative purposes. The predecessor auditor must ______. provide a letter of representation to the current year, successor auditor participate in the current year audit in order to determine if the report still applies determine if the previously issued reports are still appropriate

determine if the previously issued reports are still appropriate

If a scope limitation is so significant that the auditor considers the financial statements taken as a whole to be unreliable, the auditor will likely issue a(n) ______ opinion. adverse qualified disclaimer of

disclaimer of

When there is a known departure from GAAP, a(n) ______ opinion is not an option. disclaimer of adverse qualified

disclaimer of

When there is a lack of auditor independence, the auditor ______. issues an adverse opinion issues a qualified opinion that identifies the specific areas where independence is lacking issues an unqualified opinion with explanation disclaims an opinion

disclaims an opinion

Select all that apply An auditor issued a qualified opinion on prior period financial statements due to lack of conformity with GAAP. The entity has fixed the issue in the current year and appropriately restated the prior period financial statements. If the restated prior period statements are presented with the current statements as comparatives, the auditor should ______. not mention that the updated audit opinion is different than the original opinion include an explanatory paragraph immediately before the opinion paragraph disclose that the previously issued financial statements have been corrected and restated express an unmodified opinion on the restated financial statements

disclose that the previously issued financial statements have been corrected and restated express an unmodified opinion on the restated financial statements

If the auditor wishes to draw special attention to a particular matter that is properly presented or disclosed in the financial statements, the auditor may choose to include a(n) ______ paragraph in the auditor's report.

emphasis

Under ASB standards, when an auditor makes reference in the audit report to an issue that has been appropriately presented or disclosed in the financial statements, the auditor is using a(n) ______-of-______ paragraph.

emphasis matter

Whenever the audit opinion is qualified for a GAAP departure, the opinion paragraph will include the qualifying words " ______ ______."

except for

The PCAOB presumption is that in most audits the auditor will ______ CAM(s). identify at least one identify multiple not identify any

identify at least one

The PCAOB presumption is that in most audits the auditor will ______ CAM(s). not identify any identify at least one identify multiple

identify at least one

Select all that apply In deciding if they qualify to serve as the "principal auditor" for a consolidated entity, the auditor considers the ______. percentage of the total audit fee that was paid to each of the participating audit firms importance of the portion of the consolidated financial statements audited by the other auditors auditor's overall knowledge of the combined entity's financial statements materiality of the portion of the consolidated financial statements audited by the other auditors

importance of the portion of the consolidated financial statements audited by the other auditors auditor's overall knowledge of the combined entity's financial statements materiality of the portion of the consolidated financial statements audited by the other auditors

An error was judged to be material by the auditor even though it did not rise to conventional levels of materiality in quantitative terms. This was likely because the error was ______. due to carelessness due to lack of auditor independence intentional accidental

intentional

Select all that apply The auditor's report does not refer to the work of other auditors when the principal auditor ______. is satisfied as to the professional reputation and independence of the other auditor shares responsibility for the audit report with other auditors accepts full responsibility for the work done and conclusions drawn by other auditors

is satisfied as to the professional reputation and independence of the other auditor accepts full responsibility for the work done and conclusions drawn by other auditors

Select all that apply When a scope limitation exists but overall the financial statements present fairly in conformity with GAAP, the auditor will ______. issue a qualified opinion use the word "except for" in the report issue an unqualified opinion with explanation explain the impact of the faulty accounting issue an adverse opinion

issue a qualified opinion use the word "except for" in the report

An entity is issuing comparative financial statements. In prior years, the auditor expressed a standard unqualified report. This year the entity has inappropriately not capitalized certain lease obligations. The auditor should ______. issue a qualified report for a GAAP departure for both the current year and prior years reaudit the prior years' financial statements to ensure the accounting for leases complies with GAAP issue a qualified opinion for a GAAP departure clarifying the departure only affects the current year's statements withdraw from the engagement due to the entity's lack of conformity with GAAP

issue a qualified opinion for a GAAP departure clarifying the departure only affects the current year's statements

Select all that apply If an entity fails to disclose information in the financial statements or footnotes as required by GAAP, the auditor should ______. issue a qualified or adverse audit report amend the financial statements to include the omitted information, if practicable provide the omitted information, if practicable, in the audit report

issue a qualified or adverse audit report provide the omitted information, if practicable, in the audit report

If a departure from GAAP is pervasive and the financial statements taken as a whole do not fairly present the entity's financial position, results of operations, and cash flows in accordance with GAAP, the auditor should ______. issue an audit opinion that includes the words "except for" resign from the engagement and consult legal counsel issue an adverse opinion disclaim an opinion on the financial statements

issue an adverse opinion

An auditor disclaimed an opinion on the prior period financial statements but was able to conduct the current year audit without limitations. In this case, the auditor ______. may issue an unmodified opinion on both this year's and last year's statements must issue a qualified opinion for this year's statements that explains the prior limitation may issue an unmodified opinion on this year's statements

may issue an unmodified opinion on this year's statements

Select all that apply In determining what matters should be considered CAMs, the auditor is required to take into account the ______. nature of consultations outside the engagement team regarding the matter extent of audit effort and judgment related to significant unusual transactions degree of auditor subjectivity in applying audit procedures to address the matter nature and extent of audit effort required to address the matter nature of management-provided evidence obtained regarding the matter

nature of consultations outside the engagement team regarding the matter extent of audit effort and judgment related to significant unusual transactions degree of auditor subjectivity in applying audit procedures to address the matter nature and extent of audit effort required to address the matter

A change in accounting estimate ______ requires an explanatory paragraph in the audit report. never sometimes always

never

If an auditor considers a departure from GAAP to be material but not pervasive, the auditor will issue a(n) ______ opinion. adverse unqualified with explanation qualified disclaimer of

qualified

Select all that apply An auditor issues a standard unqualified audit report when the auditor has ______. reasonable assurance the financial statements conform to GAAP in all material respects received payment for services rendered and is released to issue the audit report performed the audit in accordance with applicable auditing standards gathered sufficient appropriate evidence

reasonable assurance the financial statements conform to GAAP in all material respects performed the audit in accordance with applicable auditing standards gathered sufficient appropriate evidence

Select all that apply In order to be identified as a CAM, a matter must ______. be one that has to be or will be communicated to the chief executive officer relate to accounts or disclosures that are material to the financial statements have involved especially challenging, subjective, or complex auditor judgment

relate to accounts or disclosures that are material to the financial statements have involved especially challenging, subjective, or complex auditor judgment

When the audit has been performed in accordance with applicable auditing standards, the auditor has gathered sufficient evidence, and the auditor believes that the financial statements conform to GAAP, a(n) ______ ______ financial statement audit report is issued.

standard unqualified

When an entity has a departure from GAAP judged to be immaterial by the auditor, the auditor will most likely issue a(n) ______. unqualified opinion with an explanatory paragraph opinion qualified for a GAAP departure disclaimer of opinion standard unqualified opinion

standard unqualified opinion

Select all that apply If prior period financial statements have been audited but the predecessor's report will not be included, the successor auditor indicates in an explanatory paragraph immediately following the opinion paragraph ______. that users or the current audit report must refer to the report issued by the predecessor auditor for more information the assumption of responsibility for the prior period statements that the prior period financial statements were audited by other auditors the date and the type of report issued by the predecessor auditor

that the prior period financial statements were audited by other auditors the date and the type of report issued by the predecessor auditor

Select all that apply When a circumstance such as a fire restricts the scope of the engagement, ______. the auditor must issue a qualified opinion with explanatory paragraph the auditor should disclaim an opinion the auditor can issue a standard unqualified opinion alternative procedures can be used to gather sufficient appropriate evidence

the auditor can issue a standard unqualified opinion alternative procedures can be used to gather sufficient appropriate evidence

When a client significantly restricts the scope of the engagement ______. the auditor should issue a qualified opinion with explanation the audit fee should be adjusted since less work will be performed alternative procedures must be used to gather sufficient appropriate evidence the auditor should consider disclaiming an opinion

the auditor should consider disclaiming an opinion

Select all that apply When the auditor is not required to audit management's assessment of internal control over financial reporting, the auditor must add an explanatory paragraph in the Basis for Opinion section indicating ______. the company was not required to have an audit of its ICFR no opinion on ICFR is being expressed the auditor takes no responsibility as related to ICFR

the company was not required to have an audit of its ICFR no opinion on ICFR is being expressed

Select all that apply In identifying CAMS, auditors must take into account ______. management's assessment of significant risks of material misstatement the nature and timing of significant unusual transactions degree of auditor judgment related to areas that involved significant management judgment

the nature and timing of significant unusual transactions degree of auditor judgment related to areas that involved significant management judgment

Select all that apply When the two opinions over internal control and over the financial statements are presented separately, ______. the reports must have the same date each report must contain the same type of opinion unqualified, qualified, or adverse each engagement must use the same audit staff and refer to this consistency within the report each report must include an explanatory paragraph referring to the opinion expressed in the other report

the reports must have the same date each report must include an explanatory paragraph referring to the opinion expressed in the other report

Select all that apply An auditor may use a disclaimer of opinion when ______. there is a lack of independence the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall there is a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP there is insufficient appropriate evidence to form an opinion

there is a lack of independence there is insufficient appropriate evidence to form an opinion

The principal auditor is sharing responsibility for the audit report with other auditors when ______. there is a reference to the other auditors in the audit report the other auditors lack independence from the entity being audited there is no reference to the other auditors in the audit report

there is a reference to the other auditors in the audit report

An immaterial scope limitation will normally result in a(n) ______. qualified opinion disclaimer of opinion standard unqualified opinion with an explanatory paragraph unqualified opinion

unqualified opinion

An immaterial scope limitation will normally result in a(n) ______. standard unqualified opinion with an explanatory paragraph disclaimer of opinion unqualified opinion qualified opinion

unqualified opinion

When the auditor determines that the entity has changed its use (or application) of accounting principles between periods or has corrected a material misstatement in previously issued financial statements in a way that materially affects the comparability of the financial statements being reported on, the auditor must ______. add an explanatory paragraph to the report disclaim an opinion on the financial statements issue a qualified or adverse opinion

add an explanatory paragraph to the report

Select all that apply If an auditor is not independent, the auditor ______. must withdraw from the engagement or disclaim an opinion issues a two-sentence report must describe any audit procedures performed must state the reason(s) for the lack of independence

must withdraw from the engagement or disclaim an opinion issues a two-sentence report

Select all that apply The auditor's standard unqualified audit report for a public company includes ______. breakdown of fees billed to the client name and signature of the audit firm "Critical Audit Matters" section how long the auditor has served "Opinion" section

name and signature of the audit firm "Critical Audit Matters" section how long the auditor has served "Opinion" section

An inability to collect sufficient appropriate evidence is considered a(n) ______. departure from GAAP scope limitation lack of auditor competence lack of auditor independence

scope limitation


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