Ch. 18: Reports on Audited Financial Statements

T/F: When an auditor reports on an entity's compliance with certain contractual agreements or regulatory requirements, the auditor uses the words "In our opinion...." in the audit report.

False

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

When other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements the auditor must ______. a. include an explanatory paragraph in the audit report b. ensure the financial statements included with the other information c. are marked "Unaudited" d. disclaim an opinion of the financial statements

a

Select all that apply The auditor's standard unqualified audit report for a public company contains the ______. a. "Critical Audit Matters" section b. "Opinion" section c. name and signature of the audit firm d. breakdown of fees billed to the client e. how long the auditor has served

a, b, c, e

Select all that apply The new PCAOB reporting standards include ______. a. a Basis of Opinion section b. the retention of the binary, pass/fair reporting approach c. a reduction of information related to management's responsibilities d. laying out the key features of an audit more clearly

a, b, d

Select all that apply 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, c

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

a, c

Select all that apply When a circumstance such as a fire restricts the scope of the engagement, ______. a. the auditor can issue a standard unqualified opinion b. the auditor must issue a qualified opinion with explanatory paragraph c. alternative procedures can be used to gather sufficient appropriate evidence d. the auditor should disclaim an opinion

a, c

Select all that apply 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. no opinion on ICFR is being expressed b. the auditor takes no responsibility as related to ICFR c. the company was not required to have an audit of its ICFR

a, c

Select all that apply With regard to other information in documents containing audited financial statements, the auditor is required to ______. a. read the other information b. perform audit procedures to corroborate the other information c. consider whether such information is consistent with the information in the audited financial statements d. take responsibility for information that is not financial in nature

a, c

Select all that apply An auditor issues a standard unqualified audit report when ______. a. the auditor believes the financial statements conform to GAAP in all material respects b. the auditor has received payment for services rendered in order to issue the audit report c. the audit has been performed in accordance with applicable auditing standards d. sufficient appropriate evidence has been gathered by the auditor

a, c, d

Select all that apply The auditor's standard unqualified audit report for a public company contains the ______. a. report title b. name of the engagement partner c. "Basis for Opinion" section d. audit report date e. the addressee

a, c, d, e

Select all that apply An auditor issues a qualified opinion when there is ______. a. a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP b. a lack of independence c. insufficient appropriate evidence d. a scope limitation e. a GAAP departure that materially affects the financial statements overall such that the statements are not fairly presented

a, d

The new PCAOB reporting standards include ______. a. a clearer description of management and auditor responsibilities b. an implicit statement that the auditor is independent c. reporting the opinion section last d. separate disclosure of critical audit matters

a, d

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should: a. not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards. b. not describe the reason for lack of independence but should state specifically that the CPA is not independent. c. clearly state the specific reasons for lack of independence. d. include a middle paragraph clearly describing the CPA's association with the entity and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.

b

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

b

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n): a. "except for" opinion. b. unqualified opinion. c. disclaimer of opinion. d. adverse opinion.

b

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

b

When a client significantly restricts the scope of the engagement ______. a. alternative procedures must be used to gather sufficient appropriate evidence b. the auditor should consider disclaiming an opinion c. the audit fee should be adjusted since less work will be performed d. the auditor should issue a qualified opinion with explanation

b

When required supplementary information (RSI) is omitted or departs materially from the requirements of the applicable financial reporting framework the auditor must ______. a. issue an adverse opinion b. include an explanatory paragraph in the audit report c. make no mention of RSI in the audit report d. disclaim an opinion of the financial statements

b

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

b

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

b

Select all that apply If an auditor is not independent, the auditor ______. a. must describe any audit procedures performed b. issues a two sentence report c. must withdraw from the engagement or disclaim an opinion d. must state the reason(s) for the lack of independence

b, c

Select all that apply 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. accepts full responsibility for the work done and conclusions drawn by other auditors c. is satisfied as to the professional reputation and independence of the other auditor

b, c

Select all that apply When a scope limitation exists but overall the financial statements present fairly in conformity with GAAP the auditor will ______. a. explain the impact of the faulty accounting b. use the word "except for" in the report c. issue a qualified opinion d. issue an adverse opinion e. issue an unqualified opinion with explanation

b, c

Auditing standards define special purpose financial statements as including those prepared under the following base(s): a. tax basis. b. contractual basis. c. regulatory basis, tax basis, and contractual basis. d. regulatory basis.

c

The auditor is required to read the other information and consider whether such information is consistent with the information in the audited financial statements when ______. a. prior-period financial statements have been audited but the predecessor's report will not be included b. prior-period financial statements have been audited and the predecessor's report will be included with the current-year statements c. an entity publishes documents that contain other information in addition to the audited financial statements

c

When an entity has a departure from GAAP judged to be immaterial by the auditor, the auditor will most likely issue a(n) ______. a. opinion qualified for a scope limitation b. disclaimer of opinion c. standard unqualified opinion d. opinion qualified for a GAAP departure

c

When an entity issues comparative financial statements, the date on the auditor's report is normally ______. a. the date of the first completed audit b. dual dated for the date of the first and most recent completed audits c. the date of the most recently completed audit

c

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

c, d, e

Special purpose financial statements prepared under a(n) _____________ basis comply with an agreement between the entity and one or more third parties other than the auditor.

contractual

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

Management believes, and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should issue a(an): a. qualified report due to a departure from GAAP. b. standard unmodified auditor's report. c. qualified report due to a scope limitation. d. unqualified report with an explanatory paragraph.

d

When an auditor is not independent, the reason(s) for the lack of independence should ______ ASB standards. a. be stated under PCAOB standards, but should not be stated under b. be stated under both PCAOB and c. not be stated under PCABOB or d. not be stated under PCAOB standards, but may be stated under

d

When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the nature and impact of the faulty accounting or misstatement in the auditor's report and express a(n): a. adverse opinion or a disclaimer of opinion. b. qualified opinion or an unqualified opinion. c. qualified opinion or a disclaimer of opinion. d. qualified opinion or an adverse opinion.

d

Which of the following parties is responsible for the fairness of the representations made in financial statements? a. Independent auditor. b. AICPA. c. Audit committee. d. Entity's management.

d

Under ASB standards, when an auditor makes reference in the audit report to an issue that has been appropriately presented or disclosed in the financial statements, the auditor is using a(n) __________-of-___________ paragraph.

emphasis-of-matter

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

modified

When an auditor reports on an entity's compliance with certain contractual agreements or regulatory requirements, the auditor provides __________ ____________ as to the entity's compliance with the requirements.

negative assurance

Under the new PCAOB reporting standards, the __________ section of the report is now presented first.

opinion

Under ASB standards, when an issue other than those presented or disclosed in the financial statements is relevant to understanding the audit, the auditor's responsibilities, or the auditor's report a(n) _______________-____________ paragraph can be included in the audit report.

other-matter

Auditing standards use the term ___________ to describe the potential effects of a scope limitation or departure from GAAP on the auditor's report.

pervasive

When an insurance company reports in compliance with the rules of a state insurance commission, the financial statements have been prepared under a(n) ____________ basis.

regulatory

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