Audit Reports 2013

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Becker 2013 A1:Audit reports

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the

Scope Paragraph: Yes
Notes to the F/S: NO
When a qualified opinion is issued due to a lack of sufficient audit evidence, the lack of evidence should be disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a scope limitation, the scope paragraph should also be modified to refer to the limitation and to the explanatory paragraph that discusses it.

Under U.S. auditing standards, when an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all of the following should be included in the audit documentation, except:

Management's conclusion regarding whether substantial doubt remains or is alleviated

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to:

Increase ownership equity.

The auditor's standard report should include reference to the United States as the country of origin of:

I.The accounting principles used to prepare the financial statements.
II.The auditing standards the auditor followed in performing the audit.

Both I and II.

A scope limitation sufficient to preclude an unqualified opinion always will result when management:

Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP.
The introductory paragraph of the standard unqualified report includes a statement that the financial statements are the responsibility of the company's management. Management's refusal to accept responsibility for the fair presentation of the financial statements therefore precludes issuance of this standard report.

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed.
Inadequate disclosure of the substantial doubt about an entity's ability to continue as a going concern is a departure from GAAP, resulting in either a qualified or adverse opinion.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Usual trade credit from suppliers is denied.
Indications of possible financial difficulties, such as denial of usual trade credit from suppliers, may cause an auditor to have substantial doubt about an entity's ability to continue as a going concern.

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically uses the phrase(s):

Reasonable period of time, not to exceed one year" NO
"Going concern" YES

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

Be unable to express an opinion on the current year's results of operations and cash flows.
Since the auditor was unable to gather sufficient evidence on the beginning balances of the balance sheet accounts, the auditor would be unable to express an opinion on the current year's results of operations and cash flows. The auditor could express an opinion on the statement of financial position.

Pell, CPA, decides to serve as principal auditor in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell make reference to Smith's audit under U.S. GAAS?
I.Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements.

II.Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrit

II only. Under U.S. GAAS, the principal auditor makes reference in the audit report to the work of the other auditor when the principal auditor is unable to review the other auditor's audit documentation. This is because the principal auditor will be unable to be satisfied concerning the work performed by the other auditor. Even though the other auditor has an excellent reputation, the principal auditor must see the work to be able to assume responsibility for it. Note that under ISAs, no reference is made to the other auditor unless required by law or regulation.

For which of the following events would an auditor issue a report that omits any reference to consistency?
a.A change from an accounting principle that is not generally accepted to one that is generally accepted.
b.A change in the method of accounting for inventories.
c.A change in the useful life used to calculate the provision for depreciation expense.
d.Management's lack of reasonable justification for a change in accounting principle.

A change in accounting estimate (such as a change in the useful life of a depreciable asset) is accounted for prospectively and does not affect the comparability of financial statements between periods. Since the auditor's standard report implies that consistency exists, no modification to the report is necessary.

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