ACC 246 Auditing Chap 2

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Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. g. The report indicates that the audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion.

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once b. A report providing reasonable assurance

Audit report

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once g. Quality control elements

Human resources and monitoring

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. c. The report indicates that management is responsible for the preparation of the financial statements.

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. f. The report indicates that the audit procedures selected depend on the auditor's judgment.

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once h. Registered public accounting firm

A CPA firm that may conduct audits of public or nonpublic companies

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once f. Inspection

A review of a CPA firm conducted by PCAOB

Match each the following statements with the appropriate type of auditors' report (each auditors' report may be used once, more than once, or not at all): d. The financial statements are not fairly presented.

Adverse.

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once a. A report providing a summary of findings

Agreed-upon procedures report

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once c. An error

An unintentional misstatement

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. h. The report indicates that the auditors consider and provide an opinion on internal control.

D Internal control is considered, but no opinion is provided on it.

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. e. The report ordinarily concludes on whether the financial statements are in conformity with generally accepted auditing standards.

D It concludes on whether the financial statements are in conformity with generally accepted accounting principles.

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. d. The report indicates that the auditor's responsibility is to obtain particular assurance about whether the financial statements are free of material misstatements.

D Reasonable assurance is obtained.

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. b. The report is ordinarily addressed "to whom it may concern."

D The report is ordinarily addressed to the audit committee of the board of directors.

Select whether you agree (A) or disagree (D) with each of the following statements concerning the auditors' standard report of a nonpublic company. a. The report must begin with "CPA's Report" at the top.

D The top must have a title that includes the term "independent."

Match each the following statements with the appropriate type of auditors' report (each auditors' report may be used once, more than once, or not at all): a. The auditors are unable to determine the overall fairness of the financial statements.

Disclaimer.

A peer review is generally preformed by employees of the AICPA. True or False?

An audit should be designed to obtain reasonable assurance of detecting non-compliance with all laws. True or False?

If the auditors discover illegal acts by a client, they ordinarily must immediately resign from the engagement. True or False?

The auditor's report on a corporation's financial statements usually is addressed to the president of the company. True of False?

The auditors are primarily responsible for preparing the financial statements and expressing an opinion on whether they follow generally accepted auditing standards. True or False?

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once d. Financial reporting framework

Generally accepted accounting principles

For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once e. Fraud

Misappropriation of assets

Select whether each of the following is or is not a principle (or a portion of a principle) underlying an audit conducted in accordance with Generally Accepted Auditing Standards. 1. The purpose of an audit is to provide financial statement users with an opinion by the auditors on whether the financial statements are presented fairly, in all material and immaterial respects, in accordance with the applicable financial reporting framework.

N Not "immaterial"

Select whether each of the following is or is not a principle (or a portion of a principle) underlying an audit conducted in accordance with Generally Accepted Auditing Standards. 5. Inherent limitations of an audit include the need to conduct an audit to achieve a balance between the benefit to management and the benefit to the auditors.

N The balance is a proper balance between benefit and cost.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? f. The report should not refer to the auditors "evaluating the appropriateness of accounting policies," since those are the responsibility of management.

No An audit report does refer to the appropriateness of accounting policies.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? h. The opinion should not include "in all material respects" since the auditors are providing an opinion on the accuracy of the financial statements (opinion paragraph).

No Audits are performed to provide reasonable assurance of detecting material misstatements, and the report so indicates.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? c. The report should not indicate anything concerning management's responsibility for internal control.

No The report is correct as presented.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? d. The report should state that the auditor's responsibility is to express "reasonable assurance," not an opinion (first paragraph under auditor's responsibility).

No While an audit does provide reasonable assurance, the report is correct as presented.

Match each the following statements with the appropriate type of auditors' report (each auditors' report may be used once, more than once, or not at all): c. A limitation on the scope of the audit is significant, but not so as to overshadow an overall opinion.

Qualified.

Match each the following statements with the appropriate type of auditors' report (each auditors' report may be used once, more than once, or not at all): e. A material departure from GAAP exists, but not so material as to pervasively misstate the financial statements.

Qualified.

Match each the following statements with the appropriate type of auditors' report (each auditors' report may be used once, more than once, or not at all): b. This is the report most clients prefer.

Standard unmodified.

An audit is more likely to detect tax evasion than violations of antitrust laws. True or False?

Partners in CPA firms usually have the responsibility for signing the audit report. True or False?

The AICPA Statements on Attestation Standards do NOT supersede the AICPA Statements on Auditing Standards. True or False?

The pronouncements of the International Auditing and Assurance Standards Board do NOT override the national auditing standards of its members, even when financial statements are issued by a multinational company. True or False?

To express an opinion on financial statements, the auditor obtains reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. True or False?

Select whether each of the following is or is not a principle (or a portion of a principle) underlying an audit conducted in accordance with Generally Accepted Auditing Standards. 4. The opinion states whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? b. The report should indicate that we have "audited," rather than "examined" the financial statements (first paragraph after introduction).

Yes Examination of financial statements does not involve expression of opinion.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? i. The opinion should be on "accounting principles" generally accepted in the United States of America, not on auditing standards (opinion paragraph).

Yes The financial statements follow the appropriate accounting principles, while the audit follows generally accepted auditing standards.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? a. The report should not be addressed to management.

Yes The report is ordinarily addressed to the audit committee, the board of directors, the shareholders or the company itself.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? e. The audit is designed to assess risks of material misstatements due to errors or fraud; the term "illegal acts" is incorrect (second paragraph under auditor's responsibility)

Yes The word "errors" should replace "illegal acts" in the report (and the order of the terms should be reversed).

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? j. The signature on the report should be that of the CPA firm, not that of the partner.

Yes While the international report allows the partner to sign the report (in addition to the CPA firm name), the GAAS report does not.

Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report: Independent Auditor's Report To the Management of Casa Royale, Inc.: We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the ricks of material misstatement of the consolidated financial statements, whether due to fraud of illegal acts. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is adequate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Case Royale, Inc., and its subsidiaries as of December 31, 20X1, and the results of their operations and their cash flows for the year then ended in accordance with auditing standards generally accepted in the United States of America. Howard Smythe, Partner Phoenix, Arizona February 12, 20X2 Respond as to the accuracy of the following comments made by a reviewer of the report: Comment is correct? g. The evidence should be sufficient and appropriate rather than "adequate" (third paragraph under auditor's responsibility).

ACC 246 Auditing Chap 2

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