Chapter 1 Set 4

Question 1

Restrictions imposed by a client prohibit the observation of physical inventories, which account for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all other items in the financial statements. The auditor should issue a?

Answer 1

Restrictions of scope imposed on the audit of such a large (35%) asset would require a disclaimer of opinion

Question 2

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 2

• Unmodified with emphasis-of-matter paragraph, or

- Disclaimed

Question 3

How long is the going concern period under the International Standards on Auditing?

Answer 3

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

Question 4

What are the three opinions that could be used when Financial Statements are Materially Misstated (GAAP issues)?

Answer 4

1) Unmodified (none or immaterial)
2) Qualified Opinion (material but not pervasive)
3) Adverse Opinion (material and pervasive)

Question 5

What are the three opinions that could be used when an auditor has the Inability to Obtain Sufficient Appropriate Audit Evidence (GAAS issues)?

Answer 5

1) Unmodified (none or immaterial)
2) Qualified Opinion (material but not pervasive)
3) Disclaimer of Opinion (material and pervasive)

Question 6

What does the introductory paragraph include?

Answer 6

• The nature of the engagement (i.e. the audit)
• Financial Statements covered
• Name of the entity
• Dates covered

Question 7

What is the earliest date for an auditor’s report?

Answer 7

The date the auditor has obtained sufficient appropriate audit evidence to support the opinion

Question 8

Before reissuing the prior year’s audit report on the financial statements of a former client, the auditor should?

Answer 8

1) read the financial statements of the current period
2) compare the prior period information that the auditor reported on with the financial statements to be presented for comparative purposes
3) obtain letters of representation from management of the former client and from the successor

Question 9

When prior-period financial statements are restated in the current period to conform with GAAP, the auditor’s updated report on the prior-period financial statements should express what?

Answer 9

An unmodified opinion concerning the restated financial statements

Question 10

When a predecessor auditor’s report is not presented, the successor auditor should indicate what items?

Answer 10

1) That the statements were audited by a predecessor auditor. The predecessor auditors should not be named unless the practice of the predecessors was acquired by or merged with that of the successor.
2) The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reason for the modification.
3) The nature of any emphasis-of-matter or other-matter paragraph included in the predecessor auditor’s report.
4) The date of the predecessor auditor’s report.

Question 11

What procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Answer 11

Inquiring as to whether any unusual adjustments were made after year-end

Question 12

When financial statements are prepared in accordance with a financial reporting framework generally accepted in the parent’s country and are for use only in that country, the auditor may report using what?

Answer 12

either a U.S.-style report modified to report on the financial reporting framework of the parent’s country or the report form of the parent’s country

Question 13

When audited financial statements are presented in a client’s document containing other information, the auditor should what?

Answer 13

Read the other information to determine that it is consistent with the audited financial statements

Question 14

If management (of a governmental body) declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a?

Answer 14

Unmodified opinion with an other-matter paragraph

Question 15

When information accompanies audited financial statements in a client-prepared document, the auditor is required to read the information. If such information is materially inconsistent with the financial statements and the financial statements do not require revision, the auditor should?

Answer 15

request that the information (in this case the letter of transmittal) be revised.

Question 16

What does the term generally accepted auditing standards mean?

Answer 16

measures of the quality of the auditor’s performance, and guide the auditor in the performance of a properly planned and executed audit

Question 17

What is an example of a qualified opinion phrase in an opinion paragraph?

Answer 17

A qualified opinion phrase is, “in our opinion, except for [explanation of problem] as discussed in the preceding paragraph . . .”

Question 18

What is management responsible for?

Answer 18

(a) preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework
(b) the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement due to error or fraud
(c) providing the auditor with access to information and persons within the entity needed to complete the audit

Question 19

What is the auditor responsible for?

Answer 19

In order to obtain reasonable assurance:

(a) plan the work and properly supervise any assistants; (b) determine and apply appropriate materiality levels; (c) identify and assess risks of material misstatement, whether due to error or fraud
(d) obtain sufficient appropriate audit evidence

Question 20

What phrase would an adverse opinion include?

Answer 20

“…do not present fairly…”