Rogers Questions

Question 1

The following emphasis of matter paragraph was included in the auditors report due to lack of consistency:
‘As discussed in the note T to FS, the company chained in computing depreciation in year 201X. How should the auditor have reported the matter?

Answer 1

Unmodified Opinion - After the opinion paragraph.
__________________
Nothing in this question indicates that the principal was not justified. Therefore, the auditor can issue an unmodified opinion but draw attention to the matter in the emphasis of matter paragraph which comes after the opinion paragraph.

Question 2

An auditor may reasonably issue an ‘Except for’ qualified opinion for a (n)
I. Scope Limitation
II. Unjustified accounting change

Answer 2

I. Scope Limitation: precludes an auditor from issuing an unmodified opinion. Depending on the materiality, the auditor will either issue a disclaimer of an opinion or a qualified opinion.
II. Unjustified change in accounting is a departure from GAAP, requires an adverse opinion or qualified opinion depending on the materiality,

Question 3

Which event would an auditor issue a report that omits any reference to consistency :

Answer 3

A. A change in useful life used to calculate the provision for depreciation expense.
_____________________
Whenever there is a change in accounting principles, good to bad or vice versa.. The auditor MAKES a REFERENCE to CONSISTENCY

Question 4

Karanja CPA is engaged to audit the FS of Starbucks without the statement of cash flows. However, he will have access to all underlying basic financial information. Karanja should:

Answer 4

Explain to Starbucks that the omission requires a QUALIFICATION of Auditor opinion.
______________
Omission is a departure from GAAP. It is not a scope limitation, An explanatory paragraph providing the basis would be added BEFORE the OPINION paragraph… It explains the departure and not Justify it.

Question 5

An auditor who is unable to form an opinion on new clients opening balance amy issue an unmodified opinion on the current years:

Answer 5

Balance Sheet only
____________
* He can express an opinion on ending balances.
_____________
I/S, Cashflow he cannot make reference to any due to prior year inventory etc

Question 6

Karanja CPA is aware that the name Karanja will be included in an interim report of National company Quarterly FS. Karanja has not audited the report. He should

I. Request Karanja not be included in the report
II. Request that the FS Be marked as ‘Unaudited’ with a notation that opinion is expressed not hem

Answer 6

Either I or II

Question 7

A scope limitation sufficient to precluse an unmodified opinion alway will result when management

Answer 7

Managements refusal to acknowledge FS are presented in conformity with GAAP

Question 8

In the First audit of a client, an auditor was not able to gather sufficient evidence about consistent application of accounting principles between current year and prior year as well as assets and liabilities due to client retention policies, If the items in question could have material effect on current audit, the auditor would

Answer 8

Be unable to express an opinion on current results of operations and cash flows

Question 9

An auditor may report on a SUMMARY Financial Statements that are derived from a complete set of audited FS only if

Answer 9

He has not expressed and Adverse opinion or issued a disclaimer of opinion from the statement where he got the condensed financial statement

Question 10

An auditor should disclose reasons for expressing an adverse opinion in a basis for adverse opinion paragraph which is located

Answer 10

Preceding the Opinion paragraph
___________________
Think of it this way: You give a qualified/ adverse opinion or disclaimer of an opinion. This decision is reached early thus a basis for paragraph is included.

Question 11

Management believes and the auditor is satisfied that the chance of material loss from the resolution of a lawsuit is more remote but less that probable. Which would he consider in the emphasis of matter paragraph
I. likelihood that the loss is closer to probable than remote
II. Magnitude by which the loss exceeds auditor materiality

Answer 11

Both I&II

the emphasis of matter is use to draw attention do something that is properly accounted for and adequately disclosed,

Question 12

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not occur after year end. The events may be important to the auditor because:

Answer 12

Require DISCLOSURE to keep the financials from being misleading.
___________________
Only events providing evidence of conditions that exist at the financial statement date will result in adjustment and contingencies, not subsequent events that may have been recorded in the basis of estimates, year end tests

Question 13

Karanja CPA, decides to serve as a group auditor of Apple, Ndemo CPA audits one of Apples subsidiaries, in which situation should Apple make reference to Ndemo CPA

Answer 13

I. Karanja is unable to review Ndemo’s work papers; however, Karanja inquiries indicate that Ndemo has excellent reputation for progressional competence and integrity.
__________________________
Karanja CPA as principal auditor (2 situations)
a) Karanja CPA ABLE to review Ndemo’s reports but does not want to assume responsibility of Ndemo’s work:
WILL MAKE REFERENCE TO THE WORK PERFORMED BY THE COMPONENT AND DISCUSS THE DIVISION OF RESPONSIBILITY
b) Karanja CPA UNABLE to review Ndemo’s reports WANTS to assume responsibility of Ndemo’s work:
HE WOULD NOT MAKE REFERENCE TO THE COMPONENT AUDITOR

Question 14

Karanja CPA concludes that Apple Co. ability to continue is a going concern. If the FS adequately make reference, the then Karanja should state what in this audit report:

Answer 14

I. Include an emphasis of Matter FOLLOWING the opinion
II. Specify the use of the words, ‘Going Concern’
III.Specify the use of the words ‘Substantial Doubt’

Question 15

An auditor would express an UNMODIFIED opinion with an explanatory paragraph added to the auditor report for

1. Unjustified accounting change
2. Material weakness to internal control

Answer 15

Neither 1 or 2
___________________
1. Unjustified accounting change : Adverse or qualified
2. Material weakness to internal control: A verbal unmodified opinion can be given to management but not on the report if there is material weakness in the I/C

Question 16

The use if LIFO in international subsidiary and FIFO domestic inventory if consistent would receive what kind if opinion

Answer 16

UNMODIFIED

Question 17

How does an auditor name the following representations when issuing the standard auditors report on comparative financial statements?

Answer 17

IMPLICITLY consistent application of accounting principles and EXPLICITLY evaluate the overall presentation of Financial statements

Question 18

When does an auditor employ the use of the word, ‘Consistency’

Answer 18

1. Change in account principles
   2 Change in methods of accounting for inventories ..even change in unacceptable to acceptable
2. A change that management cannot reasonably justify

Question 19

When can an auditor omit the use of ‘consistency’ in an audit report

Answer 19

A change in the useful life used to calculate the provision for depreciation expense.

Question 20

Which paragraph of an auditors standard report on Financial statements of a non issuer should refer to ‘auditing standards generally accepted in the US’ and ‘Principles generally accepted in the US’

Answer 20

Auditing Standards in Auditor responsibility
Principles in Opinion
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Think of the basic unmodified audit report for a non issuer
1. Introductory paragraph
2.Managements Responsibilities
3. Auditors Responsibility
4. Opinion

Question 21

In which paragraph of a standard Unmodified report is a disclaimer on Internal Control Mentioned

Answer 21

Auditors Responsibility.
_____________
mentions that the auditors responsibly considers internal control relevant to the entities preparation and fair presentation of FS in order to design audit precedes that are appropriate in the circumstance but not for the purpose of expressing such an opinion.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
dis·claim·er
disˈklāmər/Submit
noun
a statement that denies something, especially responsibility.
"the novel carries the usual disclaimer about the characters bearing no relation to living persons"
synonyms:	denial, refusal, rejection
"a disclaimer of responsibility"
antonyms:	acceptance, acknowledgment

Question 22

If a client has not appropriately accounted for material, illegal act (non compliance) the auditor report must reflect this departure from GAAP by issuing

Answer 22

A DISCLAIMER reflects the inability to obtain sufficient appropriate evidence, not a departure from GAAP

Question 23

Karanja CPA audited Apple Co.s FS last year. Kaleke CPA is the predecessor auditor who is preparing current year audit reports. If Karanja’s option was Qualified, Kaleke should

I. Name Karanja as the Predecessor auditor
II. Indicate the type of report issued by Karanja
III. Indicate the substantive reasons for Karanja’s qualifications

Answer 23

I, II & III

For comparative Form without presenting the predecessors reports.. this is in the ‘Other matters paragraph

Question 24

In which situation would an auditor most likely add and emphasis-of-matte paragraph to the standard report while not affecting the unmodified opinion.

Answer 24

There is substantial count about the entity’s ability to continue.

Question 25

When an auditor qualifies an opinion in an audit issue under PCAOB because of inadequate disclosure, the auditor should pain the nature of the omission in a separate explanatory paragraph and modify the

Answer 25

OPINION
________________
For an issuer, in a qualified report due to disclosure, the auditor issues a standard introductory paragraph and would NOT modify the Scope because ‘inadequate disclosure is a departure from GAAP not GAAS’. The audio would modify the opinion with an except for qualified opinion.

Question 26

Which situation would a group auditor least make reference to the component auditor who audited a subsidiary of the entity

Answer 26

‘The component was retained by the group auditor and the work was perfumed under the group auditors guidance and control.
_______________

If a group auditor decides not to refer to the work of a component auditor, the group auditor assumes responsibility of the components auditors work

Question 27

An auditor may reasonably issue an ‘Except for’ qualified opinion for a (an)

I. Scope limitation
II. Unjustified accounting change

Answer 27

Both I & II
Why?

I. Scope limitation: A significant scope limitation precludes the auditor from issuing an unmodified opinion, depending on the materiality, the auditor wield issue an adverse or qualified opinion.

II. Unjustified accounting change: is a departure from GAAP that requires an Adverse or qualified opinion. Either case a qualified opinion will be issued and expressed that the Financial Reports present fairly in the basis for qualified opinion paragraph

PRECLUDE: prevent from happening; make impossible.
“the secret nature of his work precluded official recognition”
synonyms: prevent, make it impossible for, rule out, stop, prohibit, debar, bar, hinder, impede, inhibit, exclude
“his difficulties preclude him from leading a normal life”
(of a situation or condition) prevent someone from doing something.
“his difficulties preclude him from leading a normal life”

Question 28

Which of the following is a basic element of the standard auditors report

Answer 28

An audit includes evaluating the reasonableness of significant estimates made by management

…………………..
AUDITORS RESPONSIBILITY PARAGRAPH :….an auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management

Question 29

Apple Co. issues FS that present the financial position of operations but omit the Cash flow. Apple would like to engage Karanja CPA to audit without the Cash flows but Karanja has access to all other underlying statements. Karanja would :

Answer 29

Explain to Apple that omission requires a qualification of the auditors opinion.
____________
Omission of the Cash flows is a departure from GAAP = qualified opinion. An explanatory paragraph would be added explaining the opinion and not justifying it

Question 30

Restrictions imposed by a retail client prevents an auditor from observing inventories account for 40% of the entities assets. Alternative audit precedes CANNOT be applied due to the nature of the entities records. Th auditor should issue

Answer 30

DISCLAIMER of an OPINION

Question 31

When an auditor qualifies an opinion because of inadequate discloses, the auditor should describe the nature of the omission in a basis of qualification and modify the

Answer 31

OPINION PARAGRAPH
___________________
The auditor would not modify the auditor responsibility paragraph
He would modify the opinion paragraph to except for

Question 32

If a client will NOT permit inquiry of outside legal council, the auditor will report a

Answer 32

DISCLAIMER
_________________
Client imposed scope limitation

Question 33

Which procedure would a group auditor make after deciding to reference a component auditor who audited subsidiary

Answer 33

Make inquiries about the professional reputation and independence of the component auditor

Question 34

When issuing standard reports on comparative Financial Statements the auditor

Answer 34

Implicitly consistent application of accounting principles
Explicitly evaluate the overall presentation of the Financial Statement

Explicitly Dfn. : Fully and clearly expressed; leaving nothing implied. b. Fully and clearly defined or formulated: “generalizations that are powerful, precise, and explicit” (Frederick Turner). 2. Forthright and unreserved in expression: They were explicit in their criticism.

Implicitly Dfn. : im·plic·it·ly
imˈplisitlē/
adverb
1.
in a way that is not directly expressed; tacitly.
“she implicitly suggested that he was responsible for the error”
synonyms: completely, absolutely, totally, wholeheartedly, utterly, unconditionally, unreservedly, without reservation
“a man in whom they implicitly believed”
2.
without qualification: absolutely.
“he trusted Sarah implicitly”

__________________
Audit standard report explicitly states in the auditor responsibility paragraph that an auditor includes evaluating the overall prevention of FS
Consistency on the other hand is is only mentioned when there is an exception, but when the isn’t it is implied and not mentioned in the standard report

Question 35

Scenario & Opinion:

I. Management does not provide reasonable explanation for a change in accounting principles
II. Auditor is unable to obtain Financial Statement of a consolidated investee
III. Company Failed to make its physical investors count during year end and the auditor was unable to apply alternative procedures
IV. Management refuses to allow the auditor to have access to companies cancelled checks and banks statements

Answer 35

I. Management does not provide reasonable explanation for a change in accounting principles: QUALIFIED OPINION SINCE IT IS A DEPARTURE FROM GAAP
II. Auditor is unable to obtain Financial Statement of a consolidated investee; PERFORM ADDITIONAL PROCEDURES
III. Company Failed to make its physical investors count during year end and the auditor was unable to apply alternative procedures
IV. Management refuses to allow the auditor to have access to companies cancelled checks and banks statements : DISCLAIMER OF AN OPINION, because auditor is unable to obtain sufficient appropriate evidence

Question 36

Comparative Financial Statements include the FS of prior year that were audited by a predecessor auditor. If the predecessors report was QUALIFIED , the successor should

Answer 36

If prior period reports are being presented in comparative form without presenting the predecessors reports, the successors report should include an ‘Other matters paragraph that indicates a) the prior years report was audited by a predecessor auditor b) The type of opinion c) reasons for any modifications d) nature of emphasis of matter or other matter that had been included e) the date of the report

_______________

• *The predecessor would not be named.
• ** The predecessor not the client would give permission to reassure the predecessors report
• *** Sucessor would not issue a comparative report unless the successor had performed audit on prior periods