Module 6 -D,E
What is a service auditor's responsibility, if any, with regard to other information presented in a document containing management's description of its system and the service auditor's report?
To read the other information in order to identify material inconsistencies or misstatements
When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive:
negative assurance on capsule information.
When audited financial statements are presented in a client's document containing other information, the auditor should:
read the other information to determine that it is consistent with the audited financial statements.
Before reporting on the financial statements of a U.S. entity that have been prepared in conformity with another country's accounting principles, an auditor practicing in the United States should:
understand the accounting principles generally accepted in the other country.
Comfort letters ordinarily are addressed to the client's ________ and signed by the client's ________.
underwriter of securities; independent accountant
For which of the following events would an auditor issue a report that omits any reference to consistency?
A change in the useful life used to calculate the provision for depreciation expense
When an accountant compiles a client's financial statements accompanied by supplemental information, which of the following is a required element of the accountant's separate report on the supplemental information?
A statement that the information has been compiled from information that is the representation of management without audit or review
The practitioner's examination report on compliance should include which of the following?
A statement that the practitioner believes the examination provides a reasonable basis for his or her opinion
Which of the following items should be included in an auditor's report for financial statements prepared in conformity with a special-purpose framework?
A title that includes the word "independent"
A practitioner is asked to attest on an entity's compliance with terms of a contract with a third party, and the practitioner does not audit the financial statement of the entity. Which of the following types of attestation engagements may be performed related to compliance?
Agreed-upon procedures or examination
AU-C 800.07 defines a special-purpose framework as all of the following except:
All of the answer choices are included in a special purpose framework.
In which of the following should an auditor's report refer to the lack of consistency when there is a change in accounting principle that is significant?
An emphasis-of-matter paragraph following the opinion paragraph
If an entity makes a material change in accounting principle, how is the audit report impacted?
An emphasis-of-matter paragraph is required to be added to reference the footnote discussing the change.
Which of the following matters is covered in a typical comfort letter?
An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC
If an auditor has issued an adverse opinion on a complete set of financial statements, the auditor is precluded from expressing which of the following in an audit report on a single financial statement of the nonissuer entity?
An unmodified opinion
Reports are considered special reports when issued in conjunction with:
compliance with aspects of regulatory requirements related to audited financial statements.
Which of the following statements is correct regarding the auditor's responsibilities for supplementary information required by the FASB?
Because the supplementary information is not a required part of the basic financial statements, the auditor should apply only certain limited procedures.
When the basic financial statements are accompanied by information presented for supplementary analysis purposes in a compilation or review engagement, the accountant may do which of the following? Refer to the other data in an other-matter paragraph Issue a separate report on the other data
Either I or II
In the standard report on condensed financial statements that is derived from an issuer's audited financial statements, a CPA should indicate that the:
CPA has audited and expressed an opinion on the complete financial statements.
When the basic financial statements are accompanied by information presented for supplementary analysis purposes in a compilation or review engagement, the accountant should do which of the following?
Clearly indicate the degree of responsibility, if any, he or she is taking with respect to the supplemental information
A practitioner has examined a client's compliance with debt covenants associated with a bank loan and is ready to issue a report. Which of the following standards apply to the report?
Compliance attestation standards
For a performance audit in accordance with GAGAS, if certain pertinent information is excluded from the audit report due to the confidential or sensitive nature of the information, then the auditor should do which of the following?
Disclose in the report that certain information has been omitted and the reasons that make the omission necessary
Which of the following elements is required in order for an auditor to form an opinion as to whether supplementary information accompanying financial statements is fairly stated?
Either an unmodified or qualified audit opinion on the related financial statements is issued.
Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if:
Hardy also performs procedures on Gold's financial position and results of operations.
Jewel, CPA, audited Infinite Co.'s prior-year financial statements. These statements are presented with those of the current year for comparative purposes without Jewel's auditor's report, which expressed a qualified opinion. In drafting the current year's auditor's report, Crain, CPA, the successor auditor, should: not name Jewel as the predecessor auditor. indicate the type of report issued by Jewel. indicate the substantive reasons for Jewel's qualification.
I, II, and III
The practitioner's report on agreed-upon procedures on an entity's compliance with specified requirements should include which of the following?
Identification of the responsible party
The auditor is asked to report on supplementary information as a part of a financial statement audit. How should the report on supplementary information be communicated to financial statement users?
In either an other-matter paragraph or separate report
Which of the following should the auditor of a nonissuer do when reporting on supplementary information that is required by a designated accounting standard setter, presented with the basic financial statements?
Include a paragraph after the opinion paragraph that references the required supplementary information
A reporting entity reclassifies debt from long-term to short-term due to a correction of a misapplication of accounting principles in the previous released financial statements. What is the impact on the auditor's report?
Include an emphasis-of-matter in the auditor's report related to the reclassification
Which of the following is a true statement related to supplementary information?
It is not necessary in order for the financial statements to be fairly presented in accordance with the applicable financial reporting framework.
Under which of the following circumstances would a disclaimer of opinion not be appropriate?
Management does not provide reasonable justification for a change in accounting principles.
Shaylee CPA is engaged to audit the balance sheet only. Which of the following is most likely the method in which materiality will be determined?
Materiality is determined based on the balance sheet only, such as total assets.
Stone CPA is asked to furnish a compliance report giving negative assurance relative to debt covenants (i.e., "nothing came to our attention that..."). Which of the following statements is true?
Negative assurance on debt covenant compliance may only be provided if the related financial statements are audited.
Which of the following statements best serves as management's assertion of consistency in an MD&A presentation?
Nonfinancial data have been accurately derived from related records.
When an audit firm includes a report on compliance with aspects of contractual agreements in the auditor's report on the nonissuer's financial statements, in which paragraph of the audit report should the report on compliance be included?
Other-matter paragraph
After performing a compliance audit of an entity that received federal funds, what conclusion would the auditor draw if the entity does not have adequate documentation to support $5 million in operating expenses paid from federal program funds?
Questioned costs of $5 million for operating expenses have been identified.
A former client requests a predecessor auditor to reissue the prior year's audit report in connection with the issuance of comparative financial statements by the client. What is the predecessor auditor's responsibility?
Read the current report, compare it to the previous report, and obtain a letter of representation from the successor auditor.
Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a nonissuer?
Read the minutes of the board of directors' meeting
An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?
Request that the client revise the letter of transmittal
Which of the following types of engagements is not permitted under the professional standards for reporting on an entity's compliance?
Reviewing compliance with specified requirements
Which of the following would be an appropriate title for a statement of revenue and expenses prepared using a special-purpose framework?
Statement of income—regulatory basis
Which of the following titles would be considered suitable for financial statements that are prepared on a cash basis?
Statement of revenues collected and expenses paid
Which of the following statements describes the auditor's responsibility for other information contained in a client-prepared document that includes the audited financial statements?
The auditor must read the other information and consider if it is materially inconsistent with the audited financial statements.
What is an auditor's responsibility for supplementary information, such as segment information, which is outside the basic financial statements, but required by the FASB?
The auditor should apply certain limited procedures to the required supplementary information and report deficiencies in, or omissions of, such information.
What is an auditor's responsibility for supplementary information, such as the disclosure of pension information, which is outside the basic financial statements but required by the GASB?
The auditor should apply certain limited procedures to the supplementary information and report deficiencies in, or omissions of, such information.
The client's financial reporting includes supplementary financial information outside the basic financial statements but required by the Financial Accounting Standards Board (FASB). Which of the following statements is correct regarding the auditor's responsibility for this supplementary financial information?
The auditor should perform limited procedures.
In its annual report to shareholders, Lake Co. (a nonissuer) included a separate management report that contained an assertion about the effectiveness of its internal control over financial reporting. Lake's auditor is expressing an unmodified opinion on Lake's financial statements but has not been engaged to examine and report on this management assertion. What is the auditor's responsibility concerning such report?
The auditor should read the management report and consider whether it contains a material misstatement of fact.
What is an auditor's responsibility when engaged to report on supplementary information accompanying the basic financial statements?
The auditor should report on the accompanying information in either (1) an other-matter paragraph following the opinion paragraph in the auditor's report on the financial statements or (2) in a separate report on the supplementary information.
Which of the following best describes the auditor's responsibility when engaged to report on supplementary information accompanying the basic financial statements?
The auditor should report the supplementary information in either an other-matter paragraph following the opinion paragraph in the auditor's report or in a separate report on the supplementary information.
Which of the following statements concerning a compilation of specific elements, accounts, or items of a financial statement is correct?
The compilation cannot be relied upon to disclose errors, fraud, or illegal acts.
When an independent U.S. auditor is engaged to report on financial statements prepared for use in another country, the auditor should perform audit procedures that are necessary to comply with:
U.S. GAAS and the auditing standards of the other country or International Standards on Auditing (ISAs) when specifically requested to do so.
Walstone CPA is engaged to audit financial statements of a nonissuer prepared in accordance with a national variant of International Financial Reporting Standards (IFRS). These financial statements are intended to be used in the United States. Which of the following is true related to the form of the audit report?
Use the U.S. form of report only.
In reading the annual report that contains the audited financial statements, the auditor discovers a material inconsistency that management refuses to correct. What action should the auditor take in response?
Withhold the auditor's report until the correction is made
An auditor's report would be designated an audit of a special-purpose financial statement when it is issued in connection with:
a basis of accounting that the entity uses to comply with an agreement between the entity and one or more third parties other than the auditor.
AU-C 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, requires an auditor to determine the acceptability of the financial reporting framework applied to the special-purpose financial statements for all of the following, except:
a basis of accounting that uses a definite set of logical criteria.
An auditor's report on financial statements prepared on the cash receipts and disbursements basis of accounting should include all of the following, except:
a statement that the cash receipts and disbursements basis of accounting is not a comprehensive basis of accounting.
If information accompanying the basic financial statements has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in:
all material respects in relation to the basic financial statements taken as a whole.
An auditor's report on financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles should include all of the following, except:
an opinion as to whether the basis of accounting used is appropriate under the circumstances.
In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the application of accounting principles to a specific transaction. The accountant's report should include a statement that:
any difference in the facts, circumstances, or assumptions presented may change the report.
An auditor may report on condensed financial statements that are derived from complete financial statements if the:
auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.
An auditor may report on condensed financial statements that are derived from complete audited financial statements if the:
auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects.
An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should:
be limited to data derived from the audited financial statements.
An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should:
be limited to data derived from the entity's audited financial statements.
An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances, the auditor should:
compare the required supplementary information for consistency with the audited financial statements.
Reporting standards for financial audits under Government Auditing Standards differ from reporting standards under generally accepted auditing standards in that Government Auditing Standards require the auditor to:
describe the scope of the auditor's tests of compliance with laws and regulations.
When the auditor is performing an audit of financial statements prepared in conformance with a regulatory basis of accounting, and the financial statements are intended for general use, the auditor's report should be modified to:
express an opinion about whether the special-purpose financial statements are presented fairly, in all material respects, in accordance with GAAP, as well as a separate opinion about whether the financial statements are presented fairly, in all material respects, in conformance with the regulatory basis of accounting.
Hill, CPA, is auditing the financial statements of Helping Hand, a not-for-profit organization that receives financial assistance from governmental agencies. To detect misstatements in Helping Hand's financial statements resulting from violations of laws and regulations, Hill should focus on violations that:
have a direct and material effect on the amounts in the organization's financial statements.
An auditor is reporting on condensed financial statements for an annual period that are derived from the audited financial statements of an issuer. The auditor's opinion should indicate whether the information in the condensed financial statements is fairly stated in all material respects:
in relation to the complete financial statements.
When an auditor is asked to report on the fair presentation of financial statements of a regulated entity that are prepared in accordance with a basis of accounting prescribed by a regulatory agency, the auditor's report should:
include a standard audit report modified as appropriate because of the departures from generally accepted accounting principles and in an additional paragraph express an opinion on whether the financial statements are presented in conformity with the regulatory basis of accounting.
When an auditor submits a document that contains information in addition to audited financial statements to a client or to others, his responsibility:
includes reporting on all the information included in the document.
Comparative financial statements include the prior year's statements that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was unmodified, the successor should:
indicate in the auditor's report that the predecessor auditor expressed an unmodified opinion on the prior year's financial statements.
An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should:
indicate the substantive reasons for the qualification in the predecessor auditor's opinion.
An auditor may report on condensed financial statements that are derived from a complete set of audited financial statements only if the auditor:
indicates whether the information is fairly stated in all material respects in relation to the complete financial statements.
A review of interim financial statements performed in accordance with generally accepted auditing standards:
is principally comprised of inquiries and analytical procedures.
If an auditor undertakes an engagement to audit a nonissuer's complete financial statements and also to audit a specific element of the financial statements, then the auditor should:
issue separate audit reports for the complete financial statements and the specific element of the financial statements.
Gole, CPA, is engaged to review the 20X2 financial statements of North Co., a nonissuer. Previously, Gole audited North's 20X1 financial statements and expressed an unmodified opinion. Gole decides to include a separate paragraph in the 20X2 review report because North plans to present comparative financial statements for 20X1 and 20X2. This separate paragraph should indicate that:
no auditing procedures were performed after the date of the 20X1 auditor's report.
When a broker-dealer or other financial intermediary, besides an underwriter or other party with a due diligence defense under section 11 of the Securities Act of 1933, requests a comfort letter but does not provide a representation letter, the accountant should:
not provide a comfort letter but may provide another form of letter.
When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should:
not refer to the change in the auditor's report.
An entity prepares its financial statements on its income tax basis. A description of how that basis differs from GAAP should be included in the:
notes to the financial statements.
Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Green audited the financial statements in accordance with generally accepted auditing standards and concluded that the financial statements were fairly presented on the prescribed basis. Green should issue an audit report:
on special-purpose financial statements.
Financial statements are considered special purpose financial statements when:
prepared in accordance with either a contractual or an other comprehensive basis of accounting.
When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion of the prior year's financial statements if the:
prior year's financial statements are restated to conform with an applicable financial reporting framework.
When single-year financial statements are presented, an auditor ordinarily would express an unmodified opinion in an unmodified report if the:
prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented.
When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the audit's report. In addition to indicating that the matter does not modify the opinion, this paragraph should describe the change and:
provide a reference to the entity's disclosure.
An auditor may express an opinion on an entity's accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole, provided the:
report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.
Information that a designated accounting standard requires to accompany an entity's basic financial statements, but is not considered to be a part of the basic financial statements, is commonly referred to as ___________________ with professional standards.
required supplementary information
An auditor concludes, prior to the audit report release date, that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise the other information to eliminate the inconsistency, the auditor should communicate the matter to those charged with governance and may:
revise the auditor's report to include an other-matter paragraph describing the material inconsistency.
Investment and property schedules are presented for purposes of additional analysis in an auditor-submitted document. The schedules are not required parts of the basic financial statements but accompany the basic financial statements. When reporting on such additional information, the measurement of materiality is the:
same as that used in forming an opinion on the basic financial statements taken as a whole.
A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entity's:
schedule of accounts receivable and schedule of royalties.
When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should:
state that the basis of presentation is a comprehensive basis of accounting other than GAAP.
When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should:
state that the basis of presentation is a comprehensive basis of accounting other than generally accepted accounting principles.
Hart, CPA, is engaged to review the Year 2 financial statements of Kell Co., a nonissuer. Previously, Hart audited Kell's Year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include a separate paragraph in the Year 2 review report because comparative financial statements are being presented for Year 2 and Year 1. This separate paragraph should indicate the:
substantive reasons for the prior year's qualified opinion.
When issuing letters for underwriters, commonly referred to as comfort letters, an accountant may provide negative assurance concerning:
the conformity of the entity's unaudited condensed interim financial information in accordance with the applicable financial reporting framework and/or if the unaudited interim financial information complies as to form in all material respects with the applicable accounting requirements of the Securities Act of 1933 and the related rules and regulations adopted by the SEC.
An auditor's report on financial statements of a regulated entity prepared in accordance with provisions of a government regulatory agency to whose jurisdiction the entity is subject should be issued by an auditor only if:
the financial statements are intended solely for filing with one or more regulatory agencies to whose jurisdiction the entity is subject.
If the financial statements of a prior period have been audited by a predecessor auditor whose report is not presented, the successor auditor should indicate in the introductory paragraph of his report all of the following, except:
the name of the predecessor auditor and the length of time he or she was associated with the client.
When the auditor reissues a report of the financial statements, the date of the reissued report should be:
the same as the original report.
An auditor is engaged to report on selected financial data that is included in a client-prepared document containing audited financial statements. Under these circumstances:
the selected data should be derived from the underlying accounting and other records used to prepare the audited financial statements.
A CPA is reporting on comparative financial statements of a nonissuer. The CPA audited the prior year's financial statements and reviewed those of the current year in accordance with Statements on Standards for Accounting and Review Services (SSARS). The CPA has added a separate paragraph to the review report to describe the responsibility assumed for the prior year's audited financial statements. This separate paragraph should indicate:
the type of opinion expressed previously.
In May 20X3, an auditor reissues the auditor's report on the 20X1 financial statements at a continuing client's request. The 20X1 financial statements are not restated, and the auditor does not revise the wording of the report. The auditor should:
use the original report date on the reissued report.
