Chapter 18: Report on Audited F/S

The portion of the consolidated financial statements audited by one independent auditor compared to another independent auditor is used to determine the designation as ______ auditor

principal

Auditors can add explanatory language to the standard unqualified audit report by ______. A. adding explanatory wording to the existing paragraphs of the report B. omitting the opinion paragraph or the introductory paragraph, but not both C. inserting an additional explanatory paragraph

A. adding explanatory wording to the existing paragraphs of the report C. inserting an additional explanatory paragraph

The auditor's standard unqualified audit report for a public company contains the ______. A. audit report date B. the addressee C. name of the engagement partner D. report title E. "Basis for Opinion" section

A. audit report date B. the addressee D. report title E. "Basis for Opinion" section

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

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

If the other auditor's report is not a standard unqualified audit report, the principal auditor must ______. A. determine the nature of the departure and its significance B. not issue an unqualified audit opinion C. always refer to the departure in his or her audit report D. explain how material departures affect the overall audit opinion

A. determine the nature of the departure and its significance D. explain how material departures affect the overall audit opinion

The auditor's standard unqualified audit report for a public company contains the ______. A. how long the auditor has served B. breakdown of fees billed to the client C. "Critical Audit Matters" section D. "Opinion" section E. name and signature of firm

A. how long the auditor has served C. "Critical Audit Matters" section D. "Opinion" section E. name and signature of firm

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

A. identify at least one

When required supplementary information (RSI) is omitted to departs materially from the requirements of the applicable financial reporting framework the auditor must ______. A. include an explanatory paragraph in the audit report B. disclaim an opinion of the financial statements C. make no mention of RSI in the audit report D. issue an adverse opinion

A. include an explanatory paragraph in the audit report

An ASB audit report ______. A. indicates the audit was conducted in accordance with generally accepted auditing standards B. is titled "Report of Independent Registered Public Accounting Firm" C. contains an opinion on the effectiveness of the entity's internal control over financial reporting

A. indicates the audit was conducted in accordance with generally accepted auditing standards

That an entity will continue as a going concern ______. A. is evaluated by the auditor B. is a basic assumption of financial reporting C. refers to a period of time not to exceed two years from the date of the financial statements being audited D. is assessed by management

A. is evaluated by the auditor B. is a basic assumption of financial reporting D. is assessed by management

When the other auditor's report is not a standard, unqualified report, the principal auditor ______ refer to to the departure in his or her report. A. may or may not have to B. is always required C. is never required

A. may or may not have to

Under PCAOB standards, when an auditor's opinion is based in part on the report of another auditor, explanatory language is added to the ______ paragraphs. A. opinion B. management's responsibility C. basis for opinion D. scope

A. opinion C. basis for opinion

In the CAM section of the audit report, a paragraph or table must ______. A. refer to financial statement accounts and disclosures related to the CAM B. explain how each matter was determined to be a CAM C. describe how each CAM was addressed in the audit D. name the audit partner who assessed CAM

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

Management's going concern assessment is independently assessed by auditors ______. A. to ensure management's assessment has been adequately conducted and disclosed B. and included as part of the audit report C. to provide extra assurance to financial statement users that the company will not go bankrupt

A. to ensure management's assessment has been adequately conducted and disclosed

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? A. A departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements. B. A change in accounting principle that does not have a material effect in the current year but is expected to have a material effect in future years C. Accounting for a major subsidiary using the equity method in 20X1 and consolidating the subsidiary's and parent's financial statements in 20X2.

B. A change in accounting principle that does not have a material effect in the current year but is expected to have a material effect in future years

If the other auditor's report is not a standard unqualified audit report, the principal auditor must ______. A. always refer to the departure in his or her audit report B. determine the nature of the departure and its significance C. not issue an unqualified audit opinion D. explain how material departures affect the overall audit opinion

B. determine the nature of the departure and its significance D. explain how material departures affect the overall audit opinion

Under PCAOB standards ______ A. both explanatory and emphasis paragraphs are sometimes required B. explanatory paragraphs are sometimes required but emphasis paragraphs are always optional C. both explanatory and emphasis paragraphs are always optional D. emphasis paragraphs are sometimes required but explanatory paragraphs are always optional

B. explanatory paragraphs are sometimes required but emphasis paragraphs are always optional

An auditor adds an explanatory paragraph to a standard unqualified report on an entity's financial statements when ______. A. there is a scope limitation resulting from an inability to collect sufficient appropriate evidence B. there is substantial doubt about an entity's ability to continue as a going concern C. the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion D> the auditor references the report on the audit of internal control for public companies. E. there is a lack of independence of the auditor

B. there is substantial doubt about an entity's ability to continue as a going concern C. the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion D> the auditor references the report on the audit of internal control for public companies.

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

C. not mentioned in the auditor's report

A change from an inappropriate use or application of accounting principle in prior years to an acceptable accounting principle in the current year ______. A. is considered a change in accounting principle or method of application B. means that the auditor cannot issue an unqualified opinion on the current year financial statements C. requires the prior-period financial statements to be restated retroactively D. requires an explanatory paragraph to highlight a lack of comparability

C. requires the prior-period financial statements to be restated retroactively D. requires an explanatory paragraph to highlight a lack of comparability

An auditor is most likely to disclaim an opinion on an entity when ______. A. there is substantial doubt about the entity's ability to continue as a going concern and the financial problems are adequately disclosed B. there is substantial doubt about the entity's ability to continue as a going concern and the financial problems are not adequately disclosed C. the entity is experiencing immediate financial distress and a bankruptcy is impending

C. the entity is experiencing immediate financial distress and a bankruptcy is impending

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

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

Under PCAOB standards, when multiple firms participate in an audit, the principal auditor must disclose the other firms that participated ______ referenced in the audit report. A. only if they are not B. only if they are C. whether or not they are

C. whether or not they are

Under ASB standards ______ A. both emphasis-of-matter and other-matter paragraphs are always optional B. other-matter paragraphs are sometimes required but emphasis-of-matter paragraphs are always optional C. emphasis-of-matter paragraphs are sometimes required but other-matter paragraphs are always optional D. both emphasis-of-matter and other-matter paragraphs are sometimes required

D. both emphasis-of-matter and other-matter paragraphs are sometimes required

When the auditor concludes there is substantial doubt about the entity's ability to continue as a going concern and management has adequately disclosed the financial problems, the auditor will typically express a(n) ______ opinion. A. qualified B. adverse C. disclaimer of D. unqualified

D. unqualified

True or false: When a correction to a material misstatement in previously issued financial statements is made, the auditor is not required to mention the misstatement in the current year report.

False

When part of the audit has been completed by a separate, unaffiliated public accounting firm, the auditor for the parent company must be satisfied that he or she is the ____ auditor

principal

Changes that affect comparability but not consistency include a change in ______. A. accounting estimate B. accounting principle C. classification D. reporting entity

A. accounting estimate C. classification

When the auditor is not required to audit management's assessment of internal control over financial reporting, the auditor must ______. A. add an explanatory paragraph to the audit report B. qualify his or her audit opinion with an expect for C. not mention internal control over financial reporting in the audit report

A. add an explanatory paragraph to the audit report

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

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

If an entity's disclosures with respect to its ability to continue as a going concern are inadequate, the result could be for the auditor to ______. A. issue an unqualified opinion with an explanatory paragraph B. issue a qualified opinion C. disclaim an opinion on the entity D. issue an adverse opinion

B. issue a qualified opinion D. issue an adverse opinion

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

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

An auditor issues a standard unqualified audit report when ______. A. the auditor has received payment for services rendered in order to issue the audit report B. sufficient evidence has been gathered by the auditor C. the auditor believes the financial statements conform to GAAP in all material respects D. the audit has been performed in accordance with applicable auditing standards

B. sufficient evidence has been gathered by the auditor C. the auditor believes the financial statements conform to GAAP in all material respects D. the audit has been performed in accordance with applicable auditing standards

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 ______. A. the auditor takes no responsibility as related to ICFR B. the company was not required to have an audit of its ICFR C. no opinion on ICFR is being expressed

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

When would an auditor be most likely to issue an unqualified opinion and add a discussion of the change in an explanatory paragraph? A. When there is a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements. B. When there is a client-imposed scope limitation. C. When an entity makes a change in accounting principle and the auditor concurs with the change.

C. When an entity makes a change in accounting principle and the auditor concurs with the change.

A change in accounting estimate is ______. A. described in an explanatory paragraph in the auditor's report B. considered a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements C. generally disclosed in a footnote but does not require an explanatory paragraph in the auditor's report

C. generally disclosed in a footnote but does not require an explanatory paragraph in the auditor's report

A PCAOB report ______. A. indicates the audit was conducted in accordance with generally accepted auditing standards B. recommends but does not mandate the disclosure of CAMs C. is titled "Report of Independent Registered Public Accounting Firm"

C. is titled "Report of Independent Registered Public Accounting Firm"

If an entity makes a change in accounting principle and the auditor concurs with the change, the auditor will ______. A. qualify the report and indicate that the financial statements present fairly except for the effects of the change in accounting principle B. issue a qualified opinion and add a discussion of the change in an explanatory paragraph C. issue an unqualified opinion and add a discussion of the change in an explanatory paragraph

C. issue an unqualified opinion and add a discussion of the change in an explanatory paragraph

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

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

D. adds an explanatory paragraph to a standard unqualified audit report

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

True or false: An entity received a going concern report in 20X1. The auditor determines the substantial doubt regarding going concern has been removed in 20X2. The explanatory paragraph included in the prior year's audit report is not included with the auditor's report covering the comparative financial statements.

True

True or false: Auditors explicitly consider auditor subjectivity when determining what matters should be considered CAMs.

True

Unmodified or unqualified opinions both refer to a(n) ____ audit opinion

clean

The auditor's standard unqualified audit report implies that the ____ of the financial statements is not materially affected by inconsistent use of accounting principle.

comparability

A fundamental principle of accounting is that financial statements should be ______ between periods.

comparable

When an auditor adds explanatory wording to the existing paragraphs of the report it is referred to as ___ wording.

modified

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 the auditor concludes there is substantial doubt about the entity's ability to continue as a going concern and management has adequately disclosed the financial problems, the auditor will typically express a(n) ____ opinion

unqualified