Deck 16: Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Question 1

Known misstatements ________.

A)are those actually identified during the audit,so there is no uncertainty about their existence
B)are those that probably exist,based on audit evidence examined
C)are those that could exist over and above the total of known and likely misstatements because of the fundamental limitations of auditing
D)are those for which the amount of possible misstatement cannot be precisely quantified

Answer 1

A

Question 2

________ paragraphs relate to information that is not required to be disclosed in the financial statements.

A)Scope
B)Other Matter
C)Opinion
D)Emphasis of Matter

Answer 2

B

Question 3

________ paragraphs refer only to information presented or disclosed in the financial statements.

A)Scope
B)Other Matter
C)Opinion
D)Emphasis of Matter

Answer 3

D

Question 4

The most common reporting framework in Canada is the ________.

A)fair presentation framework
B)special purpose framework
C)compliance framework
D)general purpose framework

Question 5

Which of the following is NOT one of the four categories of acceptable financial reporting frameworks?

A)Special purpose,compliance presentation framework.
B)General purpose,fair presentation framework.
C)General purpose,compliance framework.
D)Compliance purpose,fair presentation framework.

Question 6

Auditors consider materiality at each of the following stages of an audit EXCEPT ________.

A)at the planning stage
B)at the interim audit to assess internal controls
C)while performing the year-end audit
D)at the final evaluation stage when forming the audit opinion

Question 7

Auditors have a responsibility to perform audit procedures ________.

A)after the report date
B)until the report date
C)after the report issuance date
D)after the report date for events between the report date and a later dual dated event

Question 8

Likely misstatements ________.

A)are those actually identified during the audit,so there is no uncertainty about their existence
B)are those that probably exist,based on audit evidence examined
C)are those that could exist over and above the total of known and likely misstatements because of the fundamental limitations of auditing
D)are those for which the amount of possible misstatement cannot be precisely quantified

Question 9

Which of the following statements regarding management estimates is FALSE?

A)Complications in audit evaluation can arise from measurements involving management estimates.
B)Auditors typically do not keep track of the differences between management estimates and the most reasonable estimates supported by audit evidence.
C)They also identify estimates with high risk due to forecast errors,and assess whether these are fairly presented in the circumstances.
D)In areas where GAAP are evolving,the auditor needs to exercise judgment,guided by general principles and reporting objectives,to assess fair presentation.

Question 10

Which of the following statements about forming an audit opinion is FALSE?

A)Auditors need to form an opinion on whether the financial statements are presented fairly in all material respects and in accordance with GAAP.
B)The auditor must make a number of professional judgments as set out in CAS 700.
C)The auditor must decide whether the audit team has obtained sufficient appropriate audit evidence providing reasonable assurance that the financial statements as a whole are free from material misstatement due to fraud or error.
D)The auditor must decide if any uncorrected misstatements are material individually but not in aggregate.

Question 11

To assess fair presentation,the audit engagement partner considers the results of the final overall financial statement analysis,and assesses whether the overall presentation,structure,and content of the financial statements and notes represent the underlying transactions and events fairly,from the perspective of users.The auditor must be satisfied that the information presented in the financial statements is all of the following EXCEPT ________.

A)relevant
B)reliable
C)confidential
D)understandable

Question 12

The summary of misstatements schedule is used to record and summarize ___________.

A)all non-trivial misstatements only
B)any and all misstatements identified during the course of the audit
C)all non-trivial misstatements identified and projected likely misstatements
D)all material misstatements and projected likely misstatements

Question 13

CAS 200 provides a framework for the key principles that guide the conduct of a financial statement audit in accordance with generally accepted auditing standards.It defines all of the following with respect to Canadian Auditing Standards EXCEPT their ________.

A)scope
B)authority
C)interrelationship
D)structure

Question 14

In the current CAS 700 audit report,the description of an auditor's responsibilities and the work performed is covered in ________.

A)three paragraphs
B)half a paragraph
C)one paragraph
D)two paragraphs

Question 15

If an audit report contains information relating to a company's MD&A,it would be found in a(n)________ paragraph.

A)Opinion
B)Scope
C)Other Matter
D)Emphasis of Matter

Question 16

Which of the following statements regarding fair presentation is FALSE?

A)Fair presentation also requires the financial statements to adequately disclose the significant accounting policies applied so that users can understand the effect of transactions and events on the information.
B)The auditor assesses whether the terminology used and the titles of financial statements are appropriate and understandable.
C)The final analysis considers the qualitative aspects of the accounting used.
D)The final analysis does not consider indications of management bias in selecting accounting policies and making accounting estimates.

Question 17

Before adjusting entries proposed by the auditors are included in financial statements,they must be approved by the ________.

A)client's management
B)audit manager
C)engagement partner
D)cold review partner

Question 18

Further possible misstatements ________.

A)are those actually identified during the audit,so there is no uncertainty about their existence
B)are those that probably exist,based on audit evidence examined
C)are those that could exist over and above the total of known and likely misstatements because of the limitations of the testing concept of auditing
D)are those for which the amount of possible misstatement cannot be precisely quantified

Question 19

The three criteria for fairness of presentation reporting suggest ________ reasoning for accounting.

A)compliance-based
B)principles-based
C)engagement-based
D)fairness-based

Question 20

Arithmetical mistakes,use of inappropriate accounting principles,incorrect application of accounting principles,and disagreements about valuation or other estimates are the causes of ________.

A)fraud
B)misstatements
C)materiality
D)adjustments

Question 21

An Other Matter paragraph can be used to alert the user to a material misstatement in the financial statements.

Question 22

Dual dating is used to cut off the subsequent event procedural responsibility at the earlier date.

Question 23

Likely misstatements are those that probably exist,based on audit evidence examined.

Question 24

Auditors are responsible to search for both types of subsequent events between ________.

A)the financial statement year-end date and the audited financial statement issue date
B)the audit report date and the audited financial statement issue date
C)the financial statement year-end date and the audit report date
D)the interim audit date and the audit report date

Question 25

Emphasis of Matter paragraphs refer only to information presented or disclosed in the financial statements.

Question 26

A reply to a lawyer's letters should be issued ________.

A)at the audit report date
B)near the end of the audit
C)before the engagement
D)throughout the audit

Question 27

The auditor actively seeks audit evidence up to the date of the audit report.After that date,the auditor does not seek new evidence.

Question 28

Further possible misstatements are those that could exist over and above the total of known and likely misstatements because of the fundamental limitations of auditing.

Question 29

In the audit of Longwind Ltd.'s January 31 financial statements,subsequent to the approval of the financial statements by the board of directors on March 11,2016 and prior to the issuance of the audit report,the auditor became aware of a lawsuit that should have been disclosed but was not.The auditor was able to conduct separate work related to the material lawsuit and note 17 related to this item was added.The additional work and change to the statement was completed April 2,2016.How should the audit report be dated?

A)March 11.
B)March 11,except for Note 17,April 2.
C)April 2.
D)An audit report cannot be issued until additional fieldwork is completed on fully revised and reissued financial statements.

Question 30

If prior year's financial statements were audited by a different audit firm,this information would appear in a(n)________ paragraph in the audit report.

A)Scope
B)Other Matter
C)Opinion
D)Emphasis of Matter

Question 31

A management representation letter is usually obtained at what time during the audit?

A)Before the engagement begins.
B)At the beginning of the audit.
C)At the audit report date.
D)At the interim,or as control deficiencies are discovered.

Question 32

Dual dating refers to instances of dating the audit report as of the date that financial statements are approved by the auditee's responsible parties (e.g. ,the company's board of directors)and attaching an additional later date to disclosure of a significant subsequent event that requires financial statements to be amended.

Question 33

An auditor evaluates fair presentation in the financial statements from the auditee's perspective.

Question 34

An Other Matter is like an Emphasis of Matter paragraph except that it relates to information that is not required to be disclosed in the financial statements.

Question 35

The auditor typically writes a letter to the audit committee concerning material weaknesses in internal controls.

Question 36

The auditor must decide if any uncorrected misstatements are material individually but not in aggregate.

Question 37

Which of the following statements regarding auditor communication with audit committees is FALSE?

A)Both the auditor and management should be present in meetings with the audit committee to discuss these reports,which may be written or oral.
B)The auditor and management should,in advance,review the information to be covered with the audit committee.
C)On all matters,management should report to the audit committee first,and the auditor then comments.
D)When the auditor communicates in writing,the report should indicate that it is intended solely for use by the audit committee.

Question 38

Auditors typically do not keep track of the differences between management estimates and the most reasonable estimates supported by audit evidence.

Question 39

Subsequent to the issuance of the audit report,the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts.After determining that the information is reliable,the auditor should ________.

A)determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information
B)request that management disclose the newly discovered information by issuing revised financial statements
C)issue revised pro forma financial statements taking into consideration the newly discovered information
D)give public notice that the auditor is no longer associated with the financial statements

Question 40

The Orange Corporation was audited for the year-ended December 31,the fieldwork was completed on January 25,and the audit report was delivered on February 15.The auditor learned about a two-for-one stock split on February 1.How should the report be dated?

A)December 31 and January 25.
B)January 25 and February 1.
C)January 25 and February 15.
D)February 1and February 15.

Question 41

Explain how the wording of a standard audit report varies between statements prepared using a fair presentation framework and statements prepared using a compliance framework.

Question 42

You are auditing Green Corporation for the calendar year 20X2.Among other items related to the audit,Green is being sued for personal injury resulting from the malfunction of one of its products.Sue Ewe filed the lawsuit 8 years earlier in September 20W4.The officers of the company and its outside legal counsel estimate that the loss from the suit will be approximately $250,000.This amount has been accrued and properly disclosed in the footnotes of the financial statements.You have no reason to believe that the estimate is wrong.You completed your audit and dated your report March 2,20X3.The financial statements were issued on March 14,20X3.The trial was in progress at that date.On March 20,20X3,you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million.
Required:
Discuss the nature of these events and what responsibility the auditor has,if any,regarding the news of March 20.

Question 43

What is "dual dating" in the audit report?

Question 44

What are the three categories of uncorrected misstatements?

Question 45

What is an Emphasis of Matter (EOM)paragraph?

Question 46

Briefly explain the auditor's responsibility for the subsequent discovery of facts that occurred between the date of the financial statements and the date of the auditor's report.

Question 47

What is an Other Matter (OM)paragraph?

Question 48

What are the various causes of misstatements? Are they intentional?