Audit Reports Flashcards
A non-issuer uses FIFO method of costing for its international subsidiary and LIFO fo its domestic subsidiary. Under these circumstances the auditor’s report should express an:
- Opinion qualified because of lack of consistency
- Unmodified
- Opinion qualified because if a departure in GAAP
- Adverse opinion
Option 2 is correct
GAAP allows the use of different methods of costing different inventories as long as the methods are disclosed. Thus, the report is Unmodified; there is no departure from GAAP
A scope limitation sufficient to preclude an Unmodified opinion always will result when management:
- Engages the auditor after year-end physical inventory is completed
- Prevents the auditor from reviewing the audit documentation of the predecessor auditor
- Request that certain material accounts receivable not be confirmed
- Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP
Option 4 is correct
The introductory paragraph of the standard Unmodified report includes a statements that financial statements are the responsibility of the company’s management. Management’s refusal to accept responsibility for the fair presentation of the financial statements therefore precludes the issuance of the standard report
When disclaiming an opinion due to a client-imposed scope limitation in an audit of a nonissue, an auditor should indicate in a separate paragraph why the audit did not comply with generally accepted auditing standards. The auditor should also omit the:
- Auditor’s responsibility paragraph and the opinion paragraph
- Not the auditor’s responsibility paragraph but the opinion paragraph
- Neither of the auditor’s responsibility paragraph and the opinion paragraph
- Auditor’s responsibility paragraph bit not the opinion paragraph
Option 3
When disclaiming an opinion because of scope limitations, the auditors should indicate in a separate paragraph(s) the reasons that the audit did not comply with GAAS. The Auditor’s Responsibility paragraph is revised to mention the disclaimer, but it is not omitted. The Opinion paragraph is not omitted, however it indicates that no opinion is expressed
An auditor may issue a qualified opinion under which of the following circumstances?
- Both lack of sufficient appropriate audit evidence and restriction of the scope for the audit
- Lack of sufficient appropriate audit evidence but no restriction of the scope of the audit
- Neither lack of sufficient appropriate audit evidence and restriction of the scope of the audit
- No lack of sufficient appropriate audit evidence but restriction of the scope of the audit
Option 1
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
In certain audit engagements, the auditor may be required to comply with auditing standards in addition to GAAS. The auditor may conduct the audit in accordance with:
- Either GAAS as issued by the AICPA or PCAOB Standards, but nor both
- Both GAAS and government auditing standards (GAGAS)
- Only GAAS or PCAOB, but not auditing standards of another jurisdiction or country
- International Standards on Auditing, but only if the audit is being conducted in another country outside the USA
Option 2
While GAAS do not override laws or regulations that govern an audit of financial statements, an audit may be conducted in accordance with two sets of auditing standards in their entirety. In this case, the auditor should add additional language to the Auditor’s Responsibility paragraph to state that the audit was conducted in accordance with both sets of auditing standards
When unaudited financial statements of a nonissue are presented in comparative form with audited financial statements in the subsequent year, the unedited financial statements should be clearly marked to indicate their status and:
I. The report on the unaudited financial statements should be reissued
II. The report on the audited financial statements should include a separate paragraph describing the responsibility assumed for the unaudited financial statements
- II only
- I only
- Both I and II
- Either I or II
Option 4
When audited financial statements are presented in comparative form with unaudited financial statements from a prior year, the auditor should wither reissue his or her report on the unaudited financial statements or include a separate paragraph in the current year report describing the responsibility assumed for the unaudited 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 auditor should:
- Explain to the client that comparative financial statements may not be presented under the circumstances
- Issue an updated comparative audit report indicating the division responsibility
- Express an opinion only on the current year’s financial statements and make no reference on the prior year’s financial statements
- Indicate the substantive reasons for the qualification in the predecessor auditor’s report
Option 4
When the predecessor auditor’s report is not presented, the successor auditor should indicate the following items:
- That the statements were audited by a predecessor auditor. The predecessor auditor should not be named unless the practice of the predecessor was acquired by or merged with that of the successor
- The type of opinion expressed by the predecessor auditor and if the opinion was modified, the reason for the modification
- The nature of any emphasis-of-matter, other-matter or explanatory paragraph included in the predecessor auditor’s report
- The date of the predecessor auditor’s report
When issuing a disclaimer opinion what paragraphs need to be changed?
The introductory paragraph, the auditor’s responsibility paragraph, the opinion paragraph and the basis of opinion paragraph is included before the opinion paragraph
An auditor is engaged to provide an opinion on the complete financial statements and an opinion on accounts receivables for DLU Company. The complete financial statements received a qualified opinion due to accounts receivable being materially understated. Which opinion would the auditor most likely issue for the audit report on accounts receivables?
An adverse opinion
Because the modified opinion (qualified) on the complete financial statements is relevant to the audit of the specific element (accounts receivable), the audit opinion on accounts receivable should be modified. The audit opinion issued should be adverse because the modification on the complete financial statements is due to accounts receivable being materially misstated
Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor’s report included a statement that the current asset portion of the entity’s balance sheet was fairly stated. The inclusion of this statement is:
- Not appropriate because if may tend to overshadow the auditor’s disclaimer of opinion
- Not appropriate because the auditor is prohibited from reporting on only one basis financial statement
- Appropriate provided the auditor’s Basis for Disclaimer of Opinion paragraph adequately describes the scope limitation
- Appropriate provided the statement is in a separate paragraph preceding the disclaimer opinion paragraph
Option 1
Piecemeal opinions (opinions on parts of the financial statements, when those parts constitute a major portion of the financial statements) are not appropriate if the auditor has disclaimed an opinion or issued an adverse opinion, because they may overshadow the auditor’s opinion on the financial statements taken as a whole. An opinion on specified elements that does not constitute a piecemeal opinion may be expressed, but should not accompany the disclaimer of opinion or adverse opinion
The client’s financial statements includes supplementary information outside the basic financial statements but required by the FASB. Which of the following statements is correct regarding the auditor’s responsibility for this supplementary information?
- The auditor should perform limited procedures
- The auditor should apply tests of details of transactions
- The auditor is not required to report omissions
- The auditor should read the supplementary financial information
Option 1
An auditor should perform limited procedures on required supplementary information
To obtain reasonable assurance an auditor should:
- Examine all available corroborating evidence supporting management’s assertions
- Plan the work to properly supervise any assistant
- Design the audit to detect all instances of illegal acts
- Ensure that management does not conceal any fraudulent activities on the part of employees
Choice “2” is correct. To obtain reasonable assurance, an auditor must plan the work and properly supervise assistants, as well as determine and apply appropriate materiality levels, identify and assess risks of material misstatement whether due to fraud or error, and obtain sufficient appropriate audit evidence.
Choice “1” is incorrect. An auditor examines some (but not all) available corroborating evidence supporting management’s assertions. Examination of all evidence would not be feasible.
Choice “3” is incorrect. An auditor has a reasonable responsibility to design the audit to detect material instances of illegal acts, errors, and irregularities. It would not be feasible to design an audit to detect all instances of illegal acts.
Choice “4” is incorrect. It would not be possible for the auditor to ensure that management does not conceal any fraudulent activities of employees.
The responsibilities of an auditor include all of the following except which one?
- A minimum amount of technical knowledge of an experience in the industry in which the audit client operates
- Appropriate competence and capabilities to perform the audit
- Complying with relevant ethical requirements
- Maintain professional skepticism and exercising professional judgment throughout the planning and performance of the audit
Choice “1” is correct. This is not a responsibility of the auditor. The appropriate amount of technical knowledge of the industry can be obtained by the auditor. Experience in the industry is not required.
Choices “2”, “3”, and “4” are incorrect, as they do represent auditor responsibilities regarding the audit.
