6.01 - UNMODIFIED AUDIT REPORT OPINION Flashcards
6.01 - UNMODIFIED AUDIT REPORT OPINION
Which of the following events occurring after the issuance of an auditor’s report most likely would cause the auditor to make further inquiries about the previously issued financial statements?
A) The entity sells a subsidiary that accounts for 35% of the entity’s consolidated sales.
B) A technological development occurs that affects the entity’s ability to continue as a going concern.
C) New information is discovered concerning undisclosed related party transactions of the prior year.
D) A lawsuit is resolved that is explained in a separate paragraph of the prior-year’s auditor’s report.
C) New information is discovered concerning undisclosed related party transactions of the prior year.
Undisclosed related party transactions in the prior year represent a GAAP departure, which, depending on the
materiality, might have resulted in a modified report.
Upon learning of them, the auditor would investigate to determine if the report should be relied upon.
Resolution of a prior year’s lawsuit simply results in a change in accounting estimate in the period of settlement and would not cause the auditor to make inquiries.
A technology development affecting an entity’s ability continue as a going concern would require consideration in the period in which it occurs, but would not require the auditor to make inquiries regarding the prior period.
The sale of a subsidiary after year-end would be disclosed if it occurred prior to the issuance of the financial statements but would not cause the auditor to make inquiries regarding the prior year if it occurred after issuance
6.01 - UNMODIFIED AUDIT REPORT OPINION
An auditor’s standard report on nancial
statements should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP) in which paragraphs?
Auditor responsibility paragraph in GAAS, Opinion paragraph in GAAP.
Introductory paragraph in GAAS, Opinion paragraph in GAAP.
Introductory paragraph in GAAS, Auditor responsibility paragraph in GAAP.
Auditor responsibility paragraph in both GAAS and GAAP.
Auditor responsibility paragraph in GAAS, Opinion paragraph in GAAP.
Explanation:
The management’s responsibility paragraph and the opinion paragraph refer to GAAP.
Only the auditor’s responsibility section makes reference to GAAS.
6.01 - UNMODIFIED AUDIT REPORT OPINION
Which of the following statements is a basic element of the auditor’s standard report?
The disclosures provide reasonable assurance that the financial statements are free of material misstatement.
The financial statements are consistent with those of the prior period.
The auditor tested the overall internal control.
An audit includes evaluating the reasonableness of significant estimates made by management.
An audit includes evaluating the reasonableness of significant estimates made by management.
Explanation:
The audit report will indicate that an audit also includes evaluating the appropriateness of accounting policies used an the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
The audit, not disclosures, provides reasonable assurance that the financial statements are free of material
misstatement.
The auditor only tests those controls that are expected to be relied upon and there is no mention of the testing of internal control in the audit report.
The consistency of financial statements with those of the prior period is implied in the audit report and only mentioned when they are not consistent.
6.01 - UNMODIFIED AUDIT REPORT OPINION
When issuing an unmodified opinion, the auditor who evaluates the audit findings
should be satisfied that the…
Estimate of the total likely misstatement includes the adjusting entries already recorded by the client.
Estimate of the total likely misstatement is less than a material amount.
Amount of known misstatement is acknowledged and recorded by the client.
Amount of known misstatement is documented in the management representation letter.
Estimate of the total likely misstatement is less than a material amount.
Explanation:
When issuing an unmodified opinion, the auditor is indicating that the financial statements do not contain any material
misstatements.
Known misstatements are measured to make certain that, both individually and in the aggregate, they are not material to the financial statements, taken as a whole.
If the financial statements contain a known or likely misstatement, the client should be required to modify the financial statements to eliminate the misstatement or the report will be modified.
It is not sufficient to document known misstatements in the management representation letter. Nor is it sufficient for the client to acknowledge and record the amount of known misstatements, the financial statements must be adjusted if they are material.
In determining if the opinion requires modification, the auditor will consider known misstatements that were not corrected. Those that were corrected would not require consideration.
