A1 - Audited Financial Statements - Reports on Audited Financial Statements

Question 1

When qualifying an opinion of an insufficiency of audit evidence, an auditor should refer to the situation in the:

Answer 1

“Auditor’s responsibility paragraph. It should then be discussed later in an explanatory paragraph before the opinion paragraph.

An auditor should not refer to the situation in the notes to the financials. Mgmt (not the auditor) prepares the notes to the financial statements. “

Question 2

What are some mitigating factors that an auditor should consider in regards to management’s plan in dealing with substantial doubt about an entity’s ability to continue as a going concern?

Answer 2

“Plans to borrow money or restructure debt.
Plans to sell assets.
Plans to delay or reduce expenditures.
Plans to increase ownership equity.”

Question 3

The auditor’s report should include reference to the United States as the country of origin of:

Answer 3

Both the accounting principles used to prepare the financials and the auditing standards the auditor followed in performing the audit.

Question 4

Under GAAP, what are some issues that may result in a qualified or adverse opinion?

Answer 4

“Accounting Policy change
Presentation
Disclosures
Estimates”

Question 5

Under GAAS, what are some issues that may result in a qualified or dislaimer of opinion?

Answer 5

“Qualified: Insufficient evidence

Disclaimer: Insufficient evidence, significant going concern uncertainty, Lack of Independence.”

Question 6

An auditor who is unable to form an opinion on a new client’s opening inventory balances may issue an unmodified opinion on the current year’s”

Answer 6

Balance sheet only.

Question 7

If the auditor lacks independence with respect to an audit client, the auditor must:

Answer 7

Disclaim an opinion on the financial statements.

Question 8

The auditors should address their report to:

Answer 8

The entity that engaged them

Question 9

When an accountant is associated with the financial statements of a public entity, but has not audited or reviewed such statements:

Answer 9

The accountant must issue a report disclaiming any opinion (DISCLAIMER OF OPINION) on the statements.

Question 10

Reference in a group engagment partner’s report to the fact that part of the audit was performed by another auditor most likely would be an indication of the:

Answer 10

Divided responsibility between the auditors who conducted the audits of the components of the overall financial statements.

Question 11

Which paragraphs of an auditor’s report on financial statements under U.S. auditing standards should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP)?

Answer 11

“GAAS - Auditor’s responsibility paragraph

GAAP - Opinion paragraph”

Question 12

When an auditor qualifies an opinion because of a scope limitation, the wording in the opinion should:

Answer 12

Indicate that the qualification pertains to the possible effects on the financial statements and not to the scope limitation itself.

Question 13

If company issues statements that purport to present financial position and results of operations but omits the related statement of cash flows, the auditor will normally conclude that:

Answer 13

The omission requires qualification of opinion.

Question 14

If, after considering identified conditions and events and management’s plans, the auditor concludes that substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time remains, the audit report should include:

Answer 14

An emphasis-of-matter paragraph to reflect that conclusion.

Question 15

When a change in accounting principle materially affects the comparability of the comparative FS, the auditor should:

Answer 15

Refer to the change in an emphasis-of-matter paragraph following the unmodified opinion paragraph.

Question 16

If an auditor concludes that there is substantial doubt about an entity’s ability to continue as a going concern and that the entity’s disclosures are adequate, then the audit report may be either:

Answer 16

Unmodified with emphasis-of-matter paragraph, or

Disclaimed

Question 17

An auditor should disclose the substantive reasons for expressing an adverse opinion in a basis for modification paragraph:

Answer 17

Preceding the opinion paragraph

Question 18

An auditor reporting on the audit of financial statements of an issuer should indicate in the auditor’s responsibility paragraph that the engagement was conducted in accordance with ___________ standards, and should refer to ___________ in the opinion paragraph.

Answer 18

PCAOB

GAAP

Question 19

Under International Standards on Auditing, the going concern period is:

Answer 19

At least one year from the date of the financial statements being audited.

Question 20

In regards to going concern, the wording in the explanatory paragraph must include the terms:

Answer 20

“substantial doubt”

and

“going concern”

Question 21

If an auditor is unable to determine whether management’s estimate of the effects of future events is reasonable, and the effect of those events is believed to be material, he or she should express:

Answer 21

A qualified opinion or a disclaimer of opinion.

This is a scope limitation, which results in either a qualified opinion or disclaimer of opinion.

Question 22

In which paragraph should an auditor’s report refer to the lack of consistency when there is a change in accounting principle that is significant?

Answer 22

An emphasis-of-matter paragraph following the opinion paragraph.