I75 STILL INCORECT JUNE 10 2024 Flashcards
According to SAS 134, which of the following is correct regarding an audit report?
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A. The auditor’s report should include the manual, not printed signature of the auditor’s firm.
B. The auditor’s report should name the city and state where the audit firm is headquartered.
C. The report should be dated no earlier than the date the auditor takes responsibility for the financial statements.
D. The second section of the report includes a statement that the auditor is required to be independent.
Correct Answer
D
.
The second section of the report includes a statement that the auditor is required to be independent.
Explanation
According to SAS 134, the second section of the auditor’s report includes a statement that the auditor is required to be independent of the entity and to meet the auditor’s other ethical responsibilities. As for the other choices,
The auditor’s report should be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements, including evidence that all the statements and disclosures that the financial statements comprise have been prepared and evidence that Management (not the auditor) has asserted that it has taken responsibility for those financial statements. The auditor’s report should name the city and state where the auditor’s report is issued, not necessarily where the audit firm is headquartered.
The auditor’s report should include the manual or printed signature of the auditor’s firm.
When an entity changes its method of accounting for inventory, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor’s report. This paragraph should identify the nature of the change and
Your answer
A. Explain why the change is justified under generally accepted accounting principles.
B. Refer to the financial statement note that discusses the change in detail.
C. State the auditor’s explicit concurrence with or opposition to the change.
D. Describe the cumulative effect of the change on the audited financial statements.
Correct Answer
B
Refer to the financial statement note that discusses the change in detail.
Explanation
When an entity changes its method of accounting for inventory, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor’s report. This paragraph should identify the nature of the change and refer to the financial statement note that discusses the change in detail and indicate that the audit opinion is not modified with respect to this matter.
Under SAS 134, in a standard unmodified opinion, where the auditor is engaged to report on “key audit matters” which of the following is correct?
Your answer
A. The inclusion of the key audit matters section means that no separate communication to governance of key audit matters is required.
B. The auditor does not issue an opinion on key audit matters
C. Both of these
D. Neither of these
Correct Answer
B
.
The auditor does not issue an opinion on key audit matters
Explanation
Even when engaged to report on key audit matters, the auditor does not issue an opinion on key aud
According to SAS 134, which of the following is correct with regard to an audit report for a non-issuer as it relates to key audit matters?
A. The auditor would likely NOT include in the report a section on key audit matters unless agreed to do so in the engagement letter.
B. The audit report should include a section on key audit matters or a sentence that no key audit matters were discovered.
C. A report on key audit matters would include the auditor’s opinion on key audit matters.
D. Key audit matters are those matters that were NOT previously communicated to those charged with governance.
Correct Answer
A
.
The auditor would likely NOT include in the report a section on key audit matters unless agreed to do so in the engagement letter.
Explanation
According to SAS 134, The auditor would likely NOT include in the report a section on key audit matters unless agreed to do so in the engagement letter
An auditor of a non-issuer must not have rendered an adverse opinion or disclaimer on the basic financial statements if they are to report on
A. key audit matters
B. supplementary information
C. summary financial information
D. Any of these
Correct Answer
D
.
Any of these
Explanation
An auditor of a non-issuer must not have rendered an adverse opinion or disclaimer on the basic financial statements if they are to report on any of the following, key audit matters, summary financial information, or supplementary information. A qualified or unmodified opinion is necessary on the basic financial statements for the auditor to report on key audit matters, summary financial information, or supplementary information.
If management declines to present required supplementary information, the auditor should issue
A. Unmodified opinion on the financial statements and include a section on Required Supplementary Information.
B. Qualified opinion on the financial statements with an “other matters” paragraph
C. An adverse opinion on the financial statements and include a section on Required Supplementary Information.
D. An adverse opinion on the financial statements and Not include a section on Required Supplementary Information.
Correct Answer
A
.
Unmodified opinion on the financial statements and include a section on Required Supplementary Information.
Explanation
If management declines to present required supplementary information, the auditor should issue an unmodified opinion on the financial statements and include a section on Required Supplementary Information in which the auditor will disclaim an opinion on the supplemental information but mention that its required and omitted.
Which of the following conditions or events will cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
A. Usual trade credit is denied.
B. Significant related party transactions.
C. Both of these
D. Neither of these
Correct Answer
A
.
Usual trade credit is denied.
Explanation
Losing trade credit means that the entity no longer has 30 days to pay for its supplies. This means that if sufficient cash is not already on hand, they cannot place an order. Related party transactions do not point to going concern issues. Many companies have learned to purchase their supplier to ensure a continuous flow of materials needed in production.
An auditor may report on summary financial statements that are derived from a complete set of financial statements only if the auditor
Your answer
A. Expresses an unmodified or qualified opinion on the complete set of financial statements
B. Determines that the summary financial statements include all the disclosures necessary for the complete set of financial statements.
C. Both of these
D. Neither of these
Correct Answer
A
.
Expresses an unmodified or qualified opinion on the complete set of financial statements
Explanation
An auditor may report on summary financial statements that are derived from a complete set of financial statements only if the auditor expresses an unmodified or qualified opinion on the complete set of financial statements. There is no requirement that that the summary financial statements include all the disclosures necessary for the complete set of financial statements because if all the disclosures were included, they would not be summary financial statements. Its expected that the summary financial statements do not include all the disclosures.
An auditor should be aware of signs that might possibly indicate that substantial doubt exists that a company can remain a going concern for 12 months from the balance sheet date. Which of the following would be warning signs?
A. Negative cash flows from financing activities
B. A loan that although the entity is current with the payments, contains a debt covenant that has been violated.
C. Both of these
D. Neither of these
Correct Answer
B
.
A loan that although the entity is current with the payments, contains a debt covenant that has been violated.
Explanation
A loan that although the entity is current with the payments, contains a debt covenant that has been violated could lead to the entire loan being payable immediately. Debt covenants are an important going concern issue to the auditor even if the company is not behind on the payments. Negative cash flows from financing activities is not an auditor concern, it means that principal on outstanding loans have been repaid and that is likely a positive sign. Negative cash flows from operating activities is a going concern issue.
When an auditor’s opinion the financial statements is adverse, the auditor would still be permitted to report on
A. Supplementary information of a non-issuer.
B. Summary financial information of an issuer.
C. Both of these
D. Neither of these
Correct Answer
D
.
Neither of these
Explanation
When the auditor’s report on the audited financial statements contains an adverse opinion or a disclaimer of opinion, the auditor may not report on summary financial statements or supplemental information or key audit matters.
Which of the following is correct regarding financial statements prepared using a special purpose framework?
A. Should include a summary of significant accounting policies that discusses the basis used and how it differs from GAAP.
B. Must not be available for general use.
C. Both of these
D. Neither of these
Correct Answer
A
.
Should include a summary of significant accounting policies that discusses the basis used and how it differs from GAAP.
Explanation
Financial statements prepared using a special purpose framework should include a summary of significant accounting policies that discusses the basis used and how it differs from GAAP. Certain special purpose frameworks allow for general use financial statements, cash basis, modified cash and income tax basis.
