Question 1

The most common type of audit report is the standard unmodified audit report. It is used when which three of the following conditions have been met: 1. The financial report is presented fairly, in all material respects, in accordance with the applicable financial reporting framework (usually Australian accounting standards).
2) The financial report is presented fairly, in all material respects, in accordance with the relevant statutory requirements (usually the Corporations Act).
3) The financial information complies with relevant statutory and other requirements.
4) The view presented by the financial report is consistent with the auditor's understanding of the entity and its environment.
A) 1, 2 & 3
B) 2, 3, & 4
C) 1, 2 & 4
D) 1, 3 & 4

Accepted Answer

D

Question 2

It is appropriate to issue an opinion that contains the phrase 'Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph' when:
A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) None of the above

Accepted Answer

This phrase is used in a disclaimer of opinion when the auditor is unable to obtain sufficient appropriate evidence, which is significant enough to prevent forming an opinion on the financial statements.

Question 3

It is more difficult to evaluate the materiality of potential errors resulting from a scope limitation than from a:
A) misstatement in the financial report.
B) going concern disclosure.
C) both A and B
D) neither A nor B

Accepted Answer

Misstatements in financial reports are typically easier to identify and evaluate than potential errors resulting from a scope limitation, which could have a more indirect impact on the financial statements. Going concern disclosures may also be difficult to evaluate, as they depend on management's judgments about future events.

Question 4

What condition/s require/s departure from an unmodified report?
A) The financial report is materially misstated.
B) Inability to obtain sufficient appropriate audit evidence
C) Both A and B
D) None of the above

Accepted Answer

If the financial report is materially misstated or there's an inability to obtain sufficient appropriate audit evidence, the auditor must modify their report to indicate these issues. Therefore, either A or B alone can require a departure from an unmodified report, and together they definitely do. Option D is incorrect because both A and B can result in modified audit opinions.

Question 5

Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:
A) does not know if the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
B) does not believe the report is prepared or presented fairly in all material respects in accordance with an applicable accounting framework.
C) is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
D) is satisfied that the report is prepared and presented fairly except for a specific aspect of it.

Accepted Answer

When an auditor issues a standard unmodified opinion, it means that the auditor is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework. This is the best choice.

Question 6

The auditor's conclusions are stated as opinion rather than a statement of fact, as:
A) to allow for a margin of error.
B) conclusions are based on professional judgement.
C) to avoid the possibility of legal action against the auditor.
D) all of the above

Accepted Answer

Auditor's conclusions are based on professional judgement, which involves subjective assessment and interpretation of evidence.

Question 7

As the auditor was enagaged to undertake the audit after the year- end, and he was unable to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly. The auditor must depart from the unmodified audit report because:
A) the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control.
B) the auditor has lost independence.
C) the financial report has not been prepared in accordance with accounting standards.
D) the scope of the audit has been limited.

Accepted Answer

The auditor's inability to physically examine inventory limits the scope of the audit since inventory is a material account on the financial report. As a result, the auditor cannot accumulate sufficient appropriate evidence to provide reasonable assurance that the financial report is presented fairly in all material respects. Therefore, the auditor must depart from the unmodified audit report due to the scope limitation.

Question 8

Where the preparers of the financial report believe that the application of an accounting standard may mislead the users of those statements, and the auditor concurs with this view:
A) a standard unmodified opinion can be issued.
B) an emphasis of matter paragraph will be added to the audit report.
C) a scope limitation will arise.
D) the accounting standard need not be followed.

Accepted Answer

An emphasis of matter paragraph will be added to the audit report to draw the users' attention to the matter where the application of an accounting standard may mislead them. The audit report will be modified, but the opinion will still be unmodified. The other options are not applicable in this situation.

Question 9

Under certain circumstances, the auditor is required to provide additional information regarding the financial report even though he or she intends to express an unmodified opinion. Normally, such explanatory information should be:
A) included in the opinion paragraph.
B) included in the scope paragraph.
C) included in an emphasis of matter paragraph.
D) included in the introductory paragraph.

Accepted Answer

Explanatory information that the auditor is required to provide even though an unmodified opinion is expressed should be included in an emphasis of matter paragraph. This paragraph should be placed after the opinion paragraph and before the signature and date of the auditor's report.

Question 10

Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial report is issued. These matters are referred to as:
A) non sequiturs.
B) inestimable matters.
C) in suspense matters.
D) significant uncertainties.

Accepted Answer

These matters are referred to as significant uncertainties.

Question 11

When amounts are so material that an adverse opinion is required, the opinion statement must clearly state that the financial report:
A) does not present a true and fair view.
B) could not be audited.
C) are not free from material error.
D) should not be relied on.

Accepted Answer

An adverse opinion indicates that the financial statements do not present a true and fair view of the company's financial position, results of operations, or cash flows.

Question 12

Whenever an auditor adds an emphasis of matter section to an unmodified audit report, the implication is that the auditor:
A) does not believe the report is presented fairly.
B) does not know if the report is presented fairly.
C) is satisfied that the report is presented fairly.
D) is satisfied that the report is presented fairly 'except for' a specific aspect of it.

Accepted Answer

An emphasis of matter section is added to highlight a matter that is fundamental to users' understanding of the financial statements, but it does not affect the auditor's opinion that the financial statements are presented fairly.

Question 13

It is appropriate to issue an opinion that contains the phrase 'does not present a true and fair view' when:
A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) None of the above.

Accepted Answer

When there has been a material misstatement on a particular matter that is material and pervasive, it means that the misstatement is both significant and widespread enough to affect the overall fairness of the financial statements. In this case, it would be appropriate for the auditor to issue an opinion that states that the financial report 'does not present a true and fair view'. Option A is incorrect because a lack of sufficient evidence does not necessarily imply that the financial report does not present a true and fair view. Option B is not the best choice because a material misstatement on a particular matter may not necessarily affect the overall fairness of the financial statements. Option D is incorrect because one of the other options is the best choice.

Question 14

Auditing Standards require that an audit report be issued whenever a public accounting firm:
A) performs an audit.
B) is engaged to perform any services of any nature.
C) does ASIC regulated work.
D) is associated with financial reports.

Accepted Answer

The answer of Auditing Standards require that an audit report...

Question 15

The most common case in which conditions beyond the client's and auditor's control cause a scope limitation is an engagement:
A) where the auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries.
B) agreed upon after the client's balance sheet date.
C) where the client won't allow the auditor to confirm receivables for fear of offending its customers.
D) where the client is going through bankruptcy.

Accepted Answer

If an engagement is agreed upon after the client's balance sheet date, it may not be possible for the auditor to obtain sufficient audit evidence for all transactions and events for the entire period under audit. This would result in a scope limitation that is beyond the control of both the client and the auditor. Choices A, C, and D may also result in scope limitations, but they are not the most common causes of scope limitations.

Question 16

Which of the following types of opinion is a report other than an unmodified report?
A) Adverse
B) Disclaimer of opinion
C) Qualified
D) All of the above

Accepted Answer

A report other than an unmodified report can be any of the three types of opinions, which are adverse, disclaimer of opinion, or qualified.

Question 17

ASA 700 requires that the title of the audit report:
A) include the word 'independent'.
B) not include any discriminatory language.
C) indicate whether the author is a proprietorship, partnership or incorporated.
D) indicate whether the author is a member of a professional body.

Accepted Answer

ASA 700 requires that the title of the audit report includes the word 'independent' to highlight the auditor's independence in performing the audit. This helps to increase the credibility of the audit report and assure users of the audit report that the auditor was independent in his/her assessment of the entity's financial statements.

Question 18

When an adverse, qualified or disclaimer of opinion is issued, ASA 705 requires that the auditor's report includes:
A) a clear description of all the substantive reasons for the opinion.
B) where practicable, a quantification of the possible effect on the financial report.
C) both A and B
D) neither A nor B

Accepted Answer

According to ASA 705, both a clear description of all the substantive reasons for the opinion and, where practicable, a quantification of the possible effect on the financial report are required to be included in the auditor's report when an adverse, qualified, or disclaimer of opinion is issued.

Question 19

When a misstatement in the financial report would affect a user's decision but the overall statements are still fairly stated, it would be appropriate to issue:
A) an inability to form an opinion.
B) an unmodified opinion.
C) an adverse opinion.
D) a qualified opinion.

Accepted Answer

A misstatement that would affect a user's decision but does not materially misstate the financial statements would result in a qualified opinion. A qualified opinion indicates that there is a limitation to the scope of the audit or a departure from accounting principles, but overall the financial statements are fairly presented.

Question 20

The Corporations Act 2001 requires the auditor of a financial report to form an opinion about whether:
A) the auditor has been given all necessary information, explanation and assistance.
B) the entity has kept sufficient records for the financial report to be prepared and audited.
C) the financial report complies with accounting standards and presents a true and fair view.
D) all of the above

Accepted Answer

The Corporations Act 2001 requires the auditor of a financial report to form an opinion about all three items listed in answer choices A, B, and C. Therefore, the best choice is D - all of the above.

Quiz 18: Audit Reporting

It is appropriate to issue an opinion that contains the phrase 'Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph' when:

It is more difficult to evaluate the materiality of potential errors resulting from a scope limitation than from a:

What condition/s require/s departure from an unmodified report?

Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:

The auditor's conclusions are stated as opinion rather than a statement of fact, as:

Where the preparers of the financial report believe that the application of an accounting standard may mislead the users of those statements, and the auditor concurs with this view:

Under certain circumstances, the auditor is required to provide additional information regarding the financial report even though he or she intends to express an unmodified opinion. Normally, such explanatory information should be:

Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial report is issued. These matters are referred to as:

When amounts are so material that an adverse opinion is required, the opinion statement must clearly state that the financial report:

Whenever an auditor adds an emphasis of matter section to an unmodified audit report, the implication is that the auditor:

It is appropriate to issue an opinion that contains the phrase 'does not present a true and fair view' when:

Auditing Standards require that an audit report be issued whenever a public accounting firm:

The most common case in which conditions beyond the client's and auditor's control cause a scope limitation is an engagement:

Which of the following types of opinion is a report other than an unmodified report?

ASA 700 requires that the title of the audit report:

When an adverse, qualified or disclaimer of opinion is issued, ASA 705 requires that the auditor's report includes:

When a misstatement in the financial report would affect a user's decision but the overall statements are still fairly stated, it would be appropriate to issue:

The Corporations Act 2001 requires the auditor of a financial report to form an opinion about whether: