Chapter 18 Assignment Questions

Question 1

What five circumstances are required for an unqualified opinion?

Answer 1

1. The balance sheet, income statement, statement of retained earnings, and statement of cash flows are included in the financial statements. (all four)
2. The generally accepted auditing standards have been followed in all respects on the engagement.
3. Sufficient appropriate evidence has been accumulated and the auditor has conducted the engagement in a manner that enables him or her to conclude that the examination standards have been met.
4. The financial statements, which include the balance sheet, the income statement, the statement of cash flow, and the notes to the financial statements, are fairly presented in accordance with an appropriate financial reporting framework, such as ASPE or IFRS.
5. The auditor is independent and complies with the relevant ethical standards.

Question 2

Example situation of which non-standard opinion? (3)

Material physical inventories not observed and the inventory, which has a significant impact on the financial statements, cannot be verified through other procedures

Answer 2

Disclaimer

Question 3

Example situation of which non-standard opinion? (3)

A highly material departure from the financial reporting framework in use that has rendered the financial statements meaningless

Answer 3

Adverse

Question 4

Example situation of which non-standard opinion? (3)

Inability to confirm the existence of an asset that is material in value or material departure from the financial reporting framework principal use

Answer 4

Qualified

Question 5

Definition of Level of Materiality:

That is, a reader’s decisions are unlikely to be affected by the misstatement if the misstatement is immaterial.

Which level of materiality is this? Is a paragraph needed?

Answer 5

LoM: Immaterial
Paragaph needed: No

Question 6

Definition of Level of Materiality:

That is, decisions are likely to be affected only if the information in question is important to the specific decision being made. The overall financial statements are considered to be fairly stated.

Which level of materiality is this? Is a paragraph needed?

Answer 6

LoM: Material
Paragraph needed: Yes

Question 7

Definition of Level of Materiality:

That is, most or all decisions which are based on the financial statements are likely to be significantly affected.

Which level of materiality is this? Is a paragraph needed?

Answer 7

LoM: Material and pervasive
Paragraph needed: Yes

Question 8

An inappropriate use of an accounting principle would require
an ________________________________ to state the nature of the deviation and its effect on the financial statements, including the amount of the misstatement, if known.

Answer 8

An inappropriate use of an accounting principle would require
an explanatory paragraph between the scope paragraph and the opinion paragraph to state the nature of the deviation and its effect on the financial statements, including the amount of the misstatement, if known.