II. Financial Statement Audits - Overview of Auditor's Report

Question 1

The auditor makes explicit reference to “auditing standards generally accepted in the United States of America” in which paragraph of the standard unmodified audit report?

Answer 1

The second sentence of the Auditor’s Responsibility section states as follows: “We conducted our audits in accordance with auditing standards generally accepted in the United States of America.”

Question 2

GAAS requires the auditor’s report to contain either an expression of opinion regarding the financial statements or an assertion to the effect that an opinion cannot be expressed. The objective of this requirement is to prevent

Answer 2

Misinterpretations regarding the degree of responsibility the auditor is assuming.

Note: The objective of the requirement is to prevent misinterpretations regarding the degree of responsibility the auditor is assuming when his name is associated with financial statements.

Question 3

How does an auditor make the following representations when issuing the standard auditor’s report on comparative financial statements?

Examination of evidence

Consistent application of accounting principles

Answer 3

Explicitly

Implicitly

Note: standard auditor’s report on comparative financial statements states explicitly that evidence is obtained (and therefore examined) and implies that accounting principles have been consistently applied. Such application is assumed unless the report indicates otherwise.

Question 4

An auditor’s responsibility to express an opinion on the financial statements is

Answer 4

Explicitly represented in the responsibility paragraphs of the auditor’s unmodified report.

Note: GAAS require an auditor to express an opinion on the financial statements. That responsibility is EXPLICITLY represented in the Auditor’s Responsibility paragraphs of the auditor’s unmodified report which states that the auditor’s responsibility is to express an opinion.