Audit CH 17

When auditors determine a change in accounting principle is not appropriate, the auditors can issue a

-qualified opinion -adverse opinion

The distinctive between the effects of departures from generally accepted accounting principles that are material but not pervasive and those that are material and pervasive is based on AICPA and PCAOB audit standards.

FALSE

Financial statements that cover one or more prior periods are called _______ financial statements.

comparative

Group financial statements are those of a company that consists of more than one _____,

component

Auditors that are responsible for issuing the audit report on a group of companies are known as ____ auditors.

group

The title for an unmodified report for a nonpublic company must include the word _____ to describe the auditors relationship to the client.

independent

The decision on whether a scope limitation results in a qualified or disclaimer of opinion is whether misstatements or possible misstatements are both _____ and _____.

material and pervasive

To evaluate consistent application of GAAP when reporting on only the current period, auditors should consider the current period under audit and the preceding ______.

period

The purpose of notes to financial statements is to ____.

properly disclose information required by GAAP.

A qualified opinion is issued when auditors are unable to obtain sufficient appropriate audit evidence on which to base the opinion because of a(n) ____ limitation.

scope

Makes reference to component auditors

shared responsibility opinion between the group auditors and the component auditor.

An audit report for a public client indicates that the audit was performed in accordance with:

standards of the Public Company Accounting Oversight Board.

Subsequent doubt exists when conditions and event, considered in the aggregate, indicate that it is probable that the entity will be unable to meet it obligations as they before due for a _____ period of time.

reasonable

The nonpublic company audit report should be signed with the name of ____.

the CPA firm

A major assumption underlying the inclusion of an emphasis-of-matter paragraph for an uncertainty is _______.

the matter is adequately disclosed in the notes.

For auditors that are reporting on two periods, consistency of GAAP application should be evaluated between the current period and the preceding _______.

two periods.

A situation in which conclusive audit evidence concerning the ultimate outcome cannot be gathered because the outcome will occur in the future is called ______.

uncertainty

Auditor who want to emphasize significant client transactions with related parties can issue a:

unmodified opinion with an emphasis-of-matter paragraph.

Additional circumstances that may result in an unmodified opinion with an emphasis-of matter paragraph include _______.

-a major catastrophe with significant effects. -significant transactions with related parties -unusually important subsequent events.

Sufficient appropriate audit evidence is obtained when ____.

-all audit documentation has been reviewed -the financial statements are prepared.

Primary circumstances that result in an audit report with an unmodified opinion but with additional financial statement-related information include ____.

-substantial doubt about the company's going concern status. -important subsequent events. -inconsistent application of generally accepted accounting principles.

In the United States, financial statements are most frequently prepared following the general-purpose framework of _____.

GAAP

An audit report for a public client indicates that the financial statements were prepared in conformity with:

Generally accepted accounting principles.

Make no reference to component auditors.

Group auditor takes full responsibility for the entire audit.

In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is:

Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.

What types or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?

Qualified = No Adverse = yes

A situation involving an uncertainty may also involved a scope limitation.

TRUE

If the auditors have formed an opinion that the financial statements are materially and pervasively misstated, a _____ opinion is appropriate,

adverse

A disclaimer of opinion

-cannot be used when the auditors have formed an opinion on the financial statements -should include any and all reservations auditors have about the statements.

For each critical audit matter(CAM), the auditors must include in the audit report _____.

-identification of the matter -Description of the principal considerations that led the auditor determine that the matter is a CAM. -Description of how the CAM was addressed in the audit. -reference to the accounts and disclosures affected.

If there is substantial doubt an entity's ability to continue as a going concern:

-nonpublic companies must add an emphasis-of-matter paragraph to the audit report. -an unmodified opinion may still be issued.

Audit considerations for client-imposed limitations include ______.

-the assessment of fraud risk\ -determining whether or not to withdraw from the engagement.

Conditions that may rise substantial doubt about the going-concern assumption include _____.

-work stoppages -legal proceedings -adverse financial ratios

For scope limitations that have a material but not pervasive effect on the financial statements, auditors should issue a report that includes modifications to :

-an additional basis for modification paragraph -the opinion paragraph.

PCAOB standards state that when a significant scope limitation is imposed by the client, the auditors should ordinarily issue a _________ opinion.

disclaimer of.

Matter that, in the auditor's professional judgement were of most significance in the current period audit of financial statements are defined as _____ audit matters in public company audit reports.

key

When the auditors have obtained sufficient appropriate audit evidence to conclude that the financial statements, taken as a whole, are not materially missed and there is no need to disclose additional information, they will issue a(n) _____ opinion using a(n) _____ report.

unmodified standard.

When the financial statements are not fairly presented in conformity with generally accepted accounting principles, auditors issue a(n) _____ opinion.

adverse

A material and persuasive departure from GAAP requires a basis for modification paragraph and an ____

adverse opinion.

If there are material departures from GAAP in the financial statements, auditors must ____ the audit report.

alter

The PCAOB audit report includes an additional paragraph indicating ____.

auditors also have issued a report on the client's internal control over financial reporting.

Under PCAOB requirements, critical audit matters must be disclosed when an adverse opinion is issued.

FALSE>

In a shared responsibility report, the _____ sections of the audit report are modified.

-auditor's responsibility -opinion

Form AP must be filed with the PCAOB within ____ days of the date the audit report is first included in a document filed with the SEC.

35

Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an auditor report of a nonpublic company?

A consistent modification.

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in:

An emphasis-of-matter paragraph to the auditors' report.

Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly. . ." This is:

An improper type of reporting

An unmodified opinion with additional audit-related information included in the audit report is appropriate when ____.

a report is filed with comparative statements when there are predecessor auditors.

Financial statement disclosures regarding the firm's going concern status include all of the following except:

audit procedures performed to identify and review going concern status.

To evaluate whether there is substantial doubt about a client's ability to continue as a going concern, auditors should ____.

consider results of audit procedures performed during the audit.

For a change in accounting principle, the client must report in the note to the financial statements all of the following except the _____ the change.

auditor's approval of

The nature of an audit is outlined in the section called _____.

auditor's responsibility.

Limitations` on the scope of the audit may occur due to all of the following except ___>

auditor-imposed limitations.

The auditors' report should be dated as of the date the:

auditors have accumulated sufficient appropriate evidence.

For a nonpublic company, a qualified departure from GAAP requires a ___ for modified paragraph and changes to the _____ paragraph.

basis opinion

According to the PCAOB, any issues arising from the audit that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures material to the financial statements and (2) involved especially challenging, subjective or complex audit judgement are _____.

critical audit matters.

A scope limitation that does not allow the auditors to obtain sufficient appropriate audit evidence for a substantial proportion of the financial statements should result in _____ opinion.

disclaimer of

Re-expressing or revising an audit opinion that was previously issued is referred to as ______ the report.

updating

A material departure from generally accepted accounting principles will result in auditor consideration of:

whether to issue an adverse opinion rather than a qualified opinion.