audit hw 8

In which of the following situations would an auditor's report ordinarily express an unmodified opinion without an additional paragraph?

A group auditor decides to refer to the report of a component auditor

A corporate balance sheet indicates that one of the corporate assets is a patent. An auditor will most likely obtain evidence regarding the continuing validity and existence of this patent by obtaining a written representation from

A patent attorney

In which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor's report?

An adverse opinion is expressed based on a difference of opinion between the client and the auditor's external specialist about the value of certain assets

A management's specialist most likely is useful to

Assist the client in preparing the financial statements

An auditor's report contains the following: "We did not audit the financial statements of JK Co., a wholly owned subsidiary whose statements reflect total assets and revenues constituting 17% and 19%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for JK Company, is based solely on the report of the other auditors." These sentences

Assume no responsibility for the audit of JK Co

The auditor's responsibility section of an auditor's report contains the following: "We did not audit the financial statements of EZ, Inc., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 27% and 29%, respectively, of the related consolidated totals. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ, Inc., is based solely on the report of the other auditors." These sentences

Assume no responsibility for the audit of the component auditor.

An auditor may refer to and identify an auditor's external specialist in the auditor's report if the

Auditor expresses a disclaimer of an opinion as a result of the specialist's findings

An auditor who uses the work of an auditor's external specialist may refer to and identify the specialist in the auditor's report if the

Auditor indicates a division of responsibility related to the work of the specialist

An auditor referred to the findings of an auditor's external specialist in the auditor's report. This may be an appropriate reporting practice if the

Auditor's report contains a qualified opinion

Which of the following is not a responsibility of a group engagement team?

Choose one member to be the group engagement partner

The auditor's evaluation of the reasonableness of accounting estimates

Considers that management bases its judgment on both subjective and objective factors

A statement in a group auditor's report that part of the audit was performed by a component auditor most likely indicates the

Decision not to assume responsibility for the audit of the component auditor

In evaluating the reasonableness of an entity's accounting estimates, an auditor considers whether assumptions are significant. These are most likely to be

Deviations from past experience

As part of the audit of fair value estimates and disclosures, an auditor may need to test the entity's significant assumptions. In these circumstances, the auditor should

Evaluate whether the assumptions individually and as a whole form a reasonable basis for the fair value estimates

Thomas, CPA, has audited the consolidated financial statements of Kass Corporation. Jones, CPA, has audited the financial statements of its sole subsidiary, which is significant in relation to the total audited by Thomas. It would be appropriate for Thomas to serve as the group auditor, but it is impracticable for Thomas to review the work of Jones. Assuming an unmodified opinion is expressed by Jones, Thomas should

Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones

An auditor may issue an unmodified audit report when the

Group engagement partner assumes responsibility for the work of a component auditor

Pell, CPA, is the group engagement partner in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell refer to Smith's audit?

II only

Which of the following is not considered an auditor's specialist?

Internal auditor

In the auditor's report, the group auditor decides not to refer to another CPA who audited a client's subsidiary. The group auditor could justify this decision if, among other requirements, the group auditor

Is satisfied as to the independence and professional reputation of the other CPA

George Karl, an auditor with extensive experience in the retail industry, is assigned to audit the reasonableness of accounting estimates in the Year 1 financial statements of Haas Company. Haas, which was formed in Year 1, markets fishing lures. Which of the following is the least important consideration for Karl's audit of the reasonableness of accounting estimates?

Karl has never been involved in an audit of a company that sells fishing lures

When a group auditor decides to refer to a component auditor's audit, the group auditor's report should indicate clearly, in the auditor's responsibility section, the

Magnitude of the portion of the financial statements audited by the component auditor

Auditors should obtain and evaluate sufficient appropriate evidence to support significant accounting estimates. Differences between the estimates best supported by the evidence and those in the financial statements

May be individually reasonable but collectively indicate possible bias

William Halsey is auditing the consolidated financial statements of Rex, Inc. Abbey Lincoln is the auditor who has audited and reported on the financial statements of a wholly owned subsidiary of Rex, Inc. Halsey's first concern with respect to the Rex financial statements is to decide whether he

May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc

In using the work of an auditor's external specialist, an auditor may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor

Modifies the opinion because of a material misstatement with effects that are not pervasive.

A group auditor has decided to assume responsibility and not make reference to a component auditor. The report of the component auditor expressed a qualified opinion, but the group auditor believes the qualification to be immaterial in regard to the consolidated financial statements. Accordingly, the group auditor

Need not refer to the audit of the component auditor

When performing procedures to identify and assess the risks of material misstatement for accounting estimates, the auditor should

Obtain an understanding of how management developed its estimates

Which of the following procedures would an auditor ordinarily perform first in evaluating the reasonableness of management's accounting estimates?

Obtain an understanding of how management makes its estimates

In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are

Reasonable in the circumstances

An auditor who uses the work of an auditor's external specialist may refer to the specialist in the auditor's report if the

Reference is needed for an understanding of a modification of the opinion

A CPA firm has decided to rely on the audit work performed by another audit firm. Which of the following procedures should the CPA firm perform when taking responsibility for the other firm's audit work?

Review the other firm's audit workpapers and reperform a subset of audit testing to validate the firm's conclusions

An auditor intends to use the work of an actuary. Under these circumstances, the auditor

Should assess the actuary's competence and objectivity

Grauer, Inc., accounts for its investment in Salvemini Corporation using the equity method. Grauer's investment in Salvemini equals 45% of the total assets of Grauer. The two entities are not audited by the same CPA. For Grauer's auditor to express an unmodified opinion regarding the value of Grauer's investment in Salvemini and the income derived from it, Grauer's auditor

Should obtain Salvemini's audited financial statements and make inquiries about the professional reputation and independence of Salvemini's auditor

Auditors should evaluate significant accounting estimates included in the financial statements. The auditor

Should understand how management developed the estimate but may adopt a variety of approaches to evaluating its reasonableness

In evaluating the reasonableness of an entity's accounting estimates, an auditor normally is concerned about assumptions that are

Susceptible to bias

In using the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist as to the nature of the specialist's work. This agreement most likely should include

The applicability of the same confidentiality requirements to the auditor and the specialist

When a management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's work is acceptable if

The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory.

Which of the following statements is correct concerning an auditor's use of the work of an actuary in assessing a client's pension obligations?

The auditor is required to understand the objectives and scope of the actuary's work

Which of the following statements is true about the use of the work of an auditor's specialist?

The auditor should obtain an understanding of the methods and assumptions used by the specialist

Which of the following statements is correct regarding accounting estimates?

The auditor's objective is to evaluate whether accounting estimates are reasonable in the circumstances

Which of the following statements concerning the auditor's use of the work of an auditor's external specialist is true?

The auditor's specialist should observe the same confidentiality requirements as the auditor

In which of the following situations will a group auditor be most likely to refer to a component auditor who audited a subsidiary of the entity?

The component auditor performed an audit in accordance with PCAOB standards

The group engagement partner has identified a significant component of the group that is being audited by a component auditor. The group auditor intends to assume responsibility for the work of the component auditor. Accordingly,

The group engagement team should either audit the component directly or have the component auditor audit the information on its behalf

The opinion paragraph of an independent auditor's report begins, "In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position . . ." This language states a(n)

Unmodified opinion

During the audit of fair value estimates and disclosures, the auditor most likely should

Use the understanding of the audited entity's process for determining fair value estimates to assess the risks of material misstatement