Auditing - Gleim

The date of the audit report is important because

The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained.

The auditor's report in an audit of an issuer may be addressed to

The board of directors and shareholders.

Adequate disclosure means that sufficient information is presented so that financial statements are not misleading. The decisions about adequate disclosure should reflect the needs of

Users with a reasonable knowledge of business.

When financial statements are presented fairly, they are

Free from material misstatement, whether due to fraud or error.

An external auditor finds that the financial statements contain material misstatements that are not pervasive. Which audit opinion is appropriate?

Qualified opinion

If an auditor of a nonissuer is satisfied that sufficient appropriate evidence supports management's assertions about an uncertainty, the auditor should

Express an unmodified opinion.

In an audit of an issuer's financial statements, the auditor determined that there was substantial doubt about the issuer's ability to continue as a going concern for a reasonable period of time. If there were no other significant audit findings, which of the following indicates the proper form of the audit report that should be issued?

An unqualified opinion with an explanatory paragraph. An audit report on an issuer's financial statements when a substantial doubt exists about an issuer's ability to continue as a going concern results in an unqualified opinion with explanatory language if no other significant findings were made. By itself, a substantial doubt does not require a modified opinion.

Julian, the auditor for MVP, Inc., requests a list of customers to perform accounts receivable confirmations. MVP's management refuses to provide the list, claiming that it does not want to damage customer relations by disclosing its customers' names and addresses. If Julian determines that any potential misstatements in accounts receivable could be material and pervasive to the financial statements, which audit outcome should occur?

Disclaimer of opinion. If an auditor encounters a scope limitation, and the potential misstatements could be material and pervasive to the financial statements, then the auditor should issue a disclaimer of opinion.

When a scope limitation has precluded the auditor from obtaining sufficient appropriate evidence to determine whether certain client acts are illegal, (s)he would most likely express

Either a disclaimer of opinion or a qualified opinion. The auditor may be unable to determine the legality of certain acts or the amounts associated with them because of an inability to gather sufficient appropriate evidence; e.g., the internal control may have been circumvented, resulting in failure to record or properly document the acts, or client's legal counsel may have refused to give advice. In these circumstances, the scope limitation requires a qualified opinion or a disclaimer, although a client-imposed scope limitation ordinarily results in a disclaimer.

The objective of the audit of GAAP-based financial statements is to

Express an opinion on the fairness with which the statements present financial position, results of operations, and cash flows in accordance with generally accepted accounting principles.

On February 13, Year 2, Fox, CPA, met with the audit committee of the Gem Corporation to review the draft of Fox's report on the company's financial statements as of and for the year ended December 31, Year 1. On February 16, Year 2, Fox completed all remaining field work and obtained sufficient appropriate evidence to support the opinion on the financial statements. On February 28, Year 2, the final report was mailed to Gem's audit committee. What date most likely would be used on Fox's report?

February 16, Year 2. The report should be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence. February 16, Year 2, is the date that Fox obtained sufficient appropriate evidence to support the opinion on the financial statements. The auditor is not responsible for making any inquiries or carrying out any audit procedures for the period after the date of the report (but see AU-C 925).

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of

Generally accepted accounting principles.

In which of the following circumstances would an auditor usually choose between expressing a qualified opinion or disclaiming an opinion?

Inability to obtain sufficient appropriate audit evidence. Scope limitations may require a qualification of the opinion or a disclaimer. The choice depends on whether the possible effects of undetected misstatements are material and pervasive.

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following reports should the entity's auditor choose?

Qualified and disclaimer. An auditor's inability to obtain sufficient appropriate evidence may arise from, among other things, circumstances related to the nature or timing of the auditor's work. An example is an inability, not resulting from a management-imposed limitation, to obtain audited financial statements of a long-term investee. If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness (AU-C 705).

Just before the client's annual physical inventory count at year-end, circumstances made the auditor's attendance impracticable. The auditor determined that alternative audit procedures did not provide sufficient appropriate audit evidence of the existence and condition of the inventory at year-end. The possible effects on the financial statements are material. But they are confined to specific accounts and are not a substantial proportion of the financial statements. Assuming the financial statements are otherwise fairly presented, the auditor should express a(n)

Qualified opinion. The auditor expresses a qualified opinion because of an inability to obtain sufficient appropriate evidence if the possible effects on the financial statements are material but not pervasive. The possible effects of not observing the inventory count are material but not pervasive. They are confined to specific elements, accounts, or items of the financial statements and are not a substantial proportion of the financial statements.

Auditor A was engaged to audit the financial statements for the most recent year of Company Y, a nonissuer. At the end of the audit, the auditor determines that either a qualified opinion or a disclaimer of opinion will be expressed. The most likely reason is that

The auditor was unable to obtain sufficient appropriate evidence to conclude the statements are presented fairly. If the auditor is unable to obtain sufficient appropriate audit evidence to conclude with reasonable assurance that the financial statements as a whole are free from material misstatement, a qualified opinion or disclaimer of opinion should be expressed.

Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities?

The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management. The auditor is responsible for the opinion on financial statements, but management is responsible for the representations made in the financial statements.

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. The opinion of a suitably qualified, independent, outside party lends credibility to the financial statements and provides some protection to third parties who may rely upon them when making investment decisions. The opinion contained in the audit report, which accompanies audited financial statements, is the result of the auditor's performance of the attest function, that is, the gathering of evidence during the audit and the issuance of an opinion on the fairness of the presentation of the statements.

Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is

Unmodified and describe the departure in an other-matter paragraph.

Which of the following occasions is the earliest an audit report may be dated?

When the auditor has obtained sufficient appropriate audit evidence to support an opinion. The audit report should be dated no earlier than when the auditor has obtained sufficient appropriate evidence to support the opinion. This date is important because users expect the auditor to perform subsequent events procedures to that date.