Chapter 12: Reports on Audited Financial Statements (Connect SB)

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.

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

Situations in which an entity does not follow GAAP in preparing its financial statements are referred to as ______ ______ GAAP.

departure(s) from

When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) ________ _________ _________.

division of responsibility

When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) ___________ of ___________.

division; responsibility

Paragraphs that provide information fundamental to understanding the entity's financial statements are known as _____________ - of - _____________ paragraphs.

emphasis; matter

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

AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as ______________ opinions.

modified

Auditors may be engaged to examine and report on summary financial statements ______ audited the full financial statements.

only if they have

When companies present required supplementary information, auditors are required to expand their report to include an ______.

other-matter paragraph

Paragraphs that provide information relating to understanding the audit, auditor responsibility, or audit report are known as ___________ - _____________ paragraphs.

other; matter

SEC filing and audit requirements apply to ______.

public entities only

The phrase "except for" is used in ______.

qualified opinions only

When a scope limitation is material and alternative procedures cannot be performed, a(n) ______.

qualified or disclaimer of opinion must be issued

A deficiency or combination of deficiencies important enough to merit attention to those charged with governance is identified as a(n) _____________ deficiency.

significant

Required SEC financial information ______.

* Includes audited financial statements * is filed using Form-10k * must be filed within 60 to 90 days of the end of the fiscal year

When component auditors are used in the audit of group financial statements, the group auditors ______.

* may decide to assume full responsibility for the component auditors' work * must obtain information about the independence and reputation of the component auditors

The most recent date of the auditors' report is used and an extension of auditor responsibilities for comparative financial statements occurs when auditors provide ______ reports.

updated

Which of the following statements is correct?

Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.

The two types of scope limitations are ___________ - imposed and __________ - imposed.

client; circumstance(s)

A situation in which 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 is a(n) ______.

internal control deficiency

With respect to required supplementary information, audit teams are required to perform ______ procedures.

limited

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

When annual reports contain MD&A, financial summaries, ratios, or other management commentary, audit teams ______.

must read the information and determine whether it is consistent with audited financial statements or contains material misstatements

A deficiency (or combination of deficiencies) that does not result in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis but is considered important enough to merit attention to those charged with governance is a(n) _______ ________.

significant deficiency

When a scope limitation is immaterial, a(n) ______.

standard report can be issued

When management decides to change an accounting principle and the auditors do not believe the new adopted principle is preferable to the previously used principle, the audit team should ______.

treat the change as a departure from GAAP and modify the report accordingly

When annual reports contain other information, such as MD&A or financial ratios, and the audit team finds a material inconsistency that the client will not revise, the audit team should consider ______.

* adding an explanatory paragraph to the audit report * withdrawing from the engagement * withholding the use of the audit report

When auditors issue a report on current-year financial statements ______.

* auditor responsibility for comparative financial statements extend to the current audit report date * they must consider if prior years' opinions are still appropriate

With respect to required supplementary information included with the basic financial statements, auditors are required to ______.

* compare information with the financial statements for consistency * obtain written representations from management

Issuers ______.

* file their SEC reports using Form 10-K * must include footnotes and other required disclosures along with the audited financial statements

The Basis for Opinion paragraph on a PCAOB audit report ______.

* indicates the responsibilities of the audit team * indicates the responsibilities of management * states the firm is registered with the PCAOB *describes the audit

The standard auditors' report on the financial statements for nonpublic entities ______.

* is also referred to as the ASB report * should have a title that stresses auditor independence

When group auditors decide to refer to the work and reports of component auditors ______.

* it is referred to as a division of responsibility * the extent of the component auditors' work must be disclosed

In regards to required supplementary information, audit teams are required to ______.

* perform limited procedures with respect to the information * obtain written representations from management

The basis for opinion section for issues indicates the ______.

* responsibilities of management and the auditors * audit provides a reasonable basis of the opinion

The audit report on the financial statements expresses an opinion on whether the financial statement present, in accordance with GAAP, the entity's ______.

* results of operations * financial position * cash flows

When evaluating a change in accounting principle, the audit team ______.

* should be satisfied disclosures related to the change are appropriate * should be satisfied the method of accounting for the change is appropriate * should be satisfied the new principle is GAAP

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 * a statement that management is responsible for the other information * the audit team's responsibility with respect to the information

Non-issuers ______.

*are not subject to SEC filing or audit requirements * may need audited financial statements as a condition for certain activities

True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.

False

When auditors find a departure from GAAP during an audit, a(n) ______ opinion is not typically appropriate.

disclaimer of

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

A deficiency (or combination of deficiencies) that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis is a(n) ______.

material weakness

When there is a reasonable possibility that a material misstatement would not be prevented or deducted on a timely basis a(n) ______ exists.

material weakness

When a company chooses to present non-required supplementary information in the annual report, the company ______ engage auditors to examine and report on the information.

may

A departure from GAAP ______.

may be ignored if immaterial

When auditing public entities, auditors ______.

may either prepare separate reports or provide a single, combined report

When an audit team is unable to obtain sufficient, appropriate evidence, a(n) ____________ limitation exists.

scope

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

When the auditor finds a departure from GAAP, a(n) ______.

standard report may still be appropriate

Assume the same auditors have audited a client for all years for which comparative financial statements are being presented and that an unqualified opinion was appropriate in all years. The auditor will provide a(n) ______ report as part of this audit.

updated

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

The auditors' conclusion on condensed financial statements ______ express an opinion

will not

The auditors' conclusion on not required supplementary information ______ express an opinion.

will not