Accy 360 ch 18
Terms in this set (27)
In which of the following situations would an auditor ordinarily issue an unqualified/unmodified financial statement audit opinion with no explanatory (or emphasis-of-matter/other matter) paragraph?
The auditor decides to refer to the report of another auditor as a basis in part, for the auditor's opinion
A public entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years. The client's financial statements contain no material misstatements and the auditor concurs with this change. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n):
An auditor includes a separate paragraph in an otherwise unmodified financial statement audit report to emphasize that the entity being reported upon had significant transactions with related parties. The inclusion of this separate paragraph
Is appropriate and would not negate the unmodified opinion
Eagle Company, a public company, had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle's inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either:
A qualified opinion or a disclaimer of opinion
Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion on Tech's financial statements would most likely result from:
Lack of sufficient evidence
In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or an adverse opinion on a client's financial statements?
Departure from generally accepted accounting principles
King, CPA, was engaged to audit the financial statements of Chang Company, a private company, after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King's financial statement audit report most likely contained a(n):
Comparative financial statements for a public company include the prior year's statements, which were audited by a predecessor auditor. The predecessor's report is not presented along with the comparative financial statements. If the predecessor's report was unqualified, the successor should:
Indicate in the auditor's report that the predecessor auditor expressed an unqualified opinion.
When reporting on comparative financial statements for a private company, which of the following circumstances should ordinarily cause the auditor to change the previously issued opinion on the prior year's financial statements?
a departure from generally accepted accounting principles caused an adverse opinion on the prior year's financial statements and those statements have properly restated
Which of the following best describes the auditor's responsibility for "other information" included in the annual report to stockholders that contains financial statements and the auditor's report?
The auditor has no obligation to corroborate the "other information" but should read the "other information" to determine whether it is materially inconsistent with the financial statements.
When reporting on financial statements prepared on the basis of accounting used for income tax purposes, the auditor should include in the report a paragraph that:
States that the income tax basis of accounting is a basis of accounting other than generally accepted accounting principles.
When an auditor is asked to express an opinion on an entity's rent and royalty revenues, he or she may:
Accept the engagement provided the auditor's opinion is expressed in a special report
The existence of audit risk is best recognized by the statement in the standards auditor's report that the:
Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement
The basic elements of a standard unqualified/unmodified report include all of the following except:
A statement that although estimates are believed to be reasonable, there are normally differences between actual and estimated results
If the principal auditor decides to make reference to other auditors used in the engagement, the audit report must make reference to:
the portion or parts of the financial statements examined by the other auditors
In which of the following situations is an auditor permitted to issue an unqualified/unmodified report?
The client failed to make a large debt payment during the subsequent event period
An auditor notifies management that there is a material inconsistency between information in the audited financial statements and other information provided in the annual report. If management refuses to correct the material inconsistency, the auditor is not permitted to:
Issue a qualified opinion
Which of the following is true with respect to a scope limitation?
The auditor will generally issue a qualified report or disclaim an opinion
An auditor decides to issue a qualified opinion on an entity's financial statements because a major inadequacy in the entity's electronic accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to
The possible effects of the inadequacy in the client's records on the financial statements
An auditor has previously expressed a qualified opinion on the financial statements of a prior period because of a departure from generally accepted accounting principles. The prior-period financial statements are restated in the current period to conform to generally accepted accounting principles. The auditor's updated report on the prior-period financial statements for this public company should
Express an unqualified opinion concerning the restated financial statements
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinon or an adverse opinion?
The inventory account is misstated due to improper application of the lower-of-cost or market principle
Nationwide Life Insurance Co. prepares it financial statements using an accounting basis required according to the rules of its state insurance commission. Fagan, Nationwide's independent auditor, discovers that the financial statements are not titled properly. Nationwide refuses to correct the error. Fagan should:
Qualify the opinion and disclose his reservations in an explanatory/ emphasis-of-matter paragraph
Which of the following is a change that does not affect consistency of the financial statements?
Change in accounting estimate
Which of the following is a change that affects the consistency of the financial statements?
Change in reporting entity
What type of report is issued when the financial statements are not presented fairly?
Which of the following is not a situation that would require explanatory language in an unqualified/ unmodified report?
The auditor is unable to apply necessary procedures concerning the client's share of an investee's earnings recognized on the equity method
Which of the following is not a major element of an unqualified/unmodified report?