A1 Audit Reports M1-M6

Question 1

Where is GAAP referred to in an Auditor’s report?

Answer 1

Opinion AND Mgmt’s responsibility sections

Question 2

Where is GAAS referred to in an Auditor’s report?

Answer 2

Basis for opinion AND Auditor’s responsibility sections

Question 3

The statement “do not present fairly” would be used in

Answer 3

an adverse opinion

Question 4

The auditor’s Opinion section indicates:

Answer 4

• the nature of the engagement (i.e., audit)
• the financial statements covered in the (audit) engagement
• the name of the entity whose financial statements have been audited
• the dates covered by each financial statement
• (GAAP)

Question 4

The Basis for Opinion section references:

Answer 4

• GAAS
• auditor independence
• states whether or not the auditor believes sufficient appropriate evidence was obtained to provide a basis for the auditor’s opinion.

Question 6

Emphasis-of-matter paragraphs are used when:

Answer 6

• required by SAS
• OR when the auditor believes they are necessary

They are used when referring to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to the users’ understanding of the financial statements.
This paragraph does not affect the auditor’s opinion.

Question 6

An auditor most likely would issue a disclaimer of opinion because of:

A.	The omission of the statement of cash flows.

B.	Management's refusal to furnish written representations.

C.	A material departure from generally accepted accounting principles.

D.	Inadequate disclosure of material information.

Answer 6

Choice “B” is correct. Management’s refusal to furnish written representations is a significant client imposed restriction on the scope of an audit, ordinarily warranting a disclaimer of opinion.

Choice “A” is incorrect. A qualified report would be appropriate when a “statement of cash flows” is omitted and the scope of the audit is not restricted.

Choice “C” is incorrect. A departure from GAAP would result in either a qualified or adverse opinion, depending on materiality.

Choice “D” is incorrect. Inadequate disclosure would result in a qualified or adverse opinion.

Question 7

An auditor may issue a qualified opinion under which of the following circumstances?

Lack of sufficient appropriate audit evidence / Restrictions of the scope of the audit

A.	No       Yes

B.	Yes      Yes

C.	Yes      No

D.	No       No

Answer 7

Choice “B” is correct. Yes - Yes.

An auditor may issue a qualified opinion (or a disclaimer, depending on materiality) when there is a lack of sufficient appropriate audit evidence, or when there are restrictions on the scope of the audit.

Choice “A” is incorrect. A qualified opinion can be issued when there is a financial statement issue that is determined to be material, but not pervasive, to the financial statements.

Choice “C” is incorrect. A qualified opinion can be issued when a scope limitation exists and it is determined to be material, but not pervasive, to the financial statements.

Choice “D” is incorrect. A qualified opinion can be issued when material, but not pervasive, audit or financial statement issues are identified.

Question 8

When is it appropriate to give a “qualified opinion”?

Answer 8

WHEN A MATERIAL, BUT NOT PERVASIVE, ISSUE IS IDENTIFIED IN:
* AUDIT
* SCOPE
* OR FINANCIAL STMTS

Question 9

A scope limitation believed to be material results in this kind of opinion:

Answer 9

Either a
Qualified Opinion
OR
A Disclaimer of Opinion

Question 10

Which of the following terms used within standards indicates a presumptively mandatory requirement?

A.  Must

B.	Might

C.  May

D.	Should

Answer 10

Choice “D” is correct. The term “should” indicates a presumptively mandatory requirement, which must be followed in all cases in which the requirement is relevant, except in rare circumstances when departure from the requirement is permitted if there is appropriate justification, performance of sufficient alternative procedures, and thorough documentation.

Choice “A” is incorrect. The term “must” indicates an unconditional requirement, which must be followed in all cases in which the requirement is relevant.

Choice “B” is incorrect. The term “might” indicates explanatory material that does not impose a professional requirement for performance.

Choice “C” is incorrect. The term “may” indicates explanatory material that does not impose a professional requirement for performance.

Question 11

Which of the following best describes what is meant by the term generally accepted auditing standards?

A.	Rules acknowledged by the accounting profession because of their universal application.

B.	Measures of the quality of the auditor's performance.

C.	Pronouncements issued by the Auditing Standards Board.

D.	Procedures to be used to gather evidence to support financial statements.

Answer 11

Choice “B” is correct. Generally accepted auditing standards (“GAAS”) are measures of the quality of the auditor’s performance, and guide the auditor in the performance of a properly planned and executed audit.

Choice “A” is incorrect. GAAS are not “rules,” nor are they universally applicable. GAAS are measures of the quality of an auditor’s performance.

Choice “C” is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) “Statements on Auditing Standards” (SASs). While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS.

Choice “D” is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts.

Question 12

An auditor of a nonissuer should disclose the substantive reasons for expressing an adverse opinion in a Basis for Adverse Opinion section:

Answer 12

Following the “Opinion” section