Question 1

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern and this has been adequately disclosed in the financial statements , the appropriate audit report would be:

Accepted Answer

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern but this has been adequately disclosed in the financial statements, an unmodified opinion with an emphasis of matter section is the appropriate audit report. This emphasizes the disclosure about going concern in the financial statements without changing the overall opinion on the financial statements themselves.

Question 2

If a misstatement exists, but is unlikely to affect the decisions of a reasonable user, it is appropriate to issue:

Accepted Answer

An unmodified opinion is appropriate if the misstatement is not material, meaning it is unlikely to affect the decisions of a reasonable user. This is the most common type of opinion issued.

Question 3

The LEAST severe type of report for disclosing departures from an unmodified report is the:

Accepted Answer

A qualified opinion is the least severe type of report for disclosing departures from an unmodified report, as it indicates that except for certain issues, the financial statements are presented fairly.

Question 4

Of the two major categories of scope limitations, (1) those caused by client and (2) those caused by conditions beyond the control of either client or auditor, the effect on the auditor's report:

Accepted Answer

The effect on the auditor's report is the same for both categories of scope limitations, as both can lead to a qualified opinion or a disclaimer of opinion depending on the materiality and pervasiveness of the limitation.

Question 5

It is appropriate to issue an opinion that contains the phrase 'except for' when:

Accepted Answer

An 'except for' opinion, also known as a qualified opinion, is issued when there is a material misstatement that is not pervasive, meaning it is material but not widespread throughout the financial statements.

Question 6

An adverse opinion is issued when the auditor believes:

Accepted Answer

An adverse opinion is issued when the auditor believes that the misstatements in the financial report are both material and pervasive, meaning they affect a significant portion of the financial report and cannot be easily corrected. Choices A, C, and D do not accurately reflect the criteria for issuing an adverse opinion.

Question 7

Goods Pty Ltd's financial report shows a profit increase of 20% on the previous year. The chairman's report in Goods Pty Ltd's annual report boasts of a 50% increase in profit from the previous year. The auditor's report should include:

Accepted Answer

The auditor's report should include an emphasis of matter section to draw attention to the discrepancy between the chairman's report and the financial report. The 50% increase in profit stated by the chairman may have factors, such as non-recurring income, that were not considered in the financial report's 20% increase. It is the auditor's responsibility to ensure that the financial report accurately represents the company's financial position, and the emphasis of matter section will inform readers of the potential misinterpretation.

Question 8

In the auditor's responsibility paragraph of the audit report, the use of the term 'reasonable assurance' is intended to indicate that:

Accepted Answer

The term 'reasonable assurance' indicates that while the auditor has conducted the audit in accordance with the appropriate auditing standards, there is still a possibility that material misstatements may exist in the financial statements. Therefore, it is not a guarantee that the financial statements are free from material misstatements.

Question 9

Which one of the following is NOT a condition requiring departure from an unmodified opinion?

Accepted Answer

None of the conditions mentioned in the options require departure from an unmodified opinion. Option A states that if the financial report is materially misstated, the auditor would need to modify their opinion. Option B states that if the auditor is unable to obtain sufficient appropriate audit evidence, they would need to modify their opinion. However, absence of any such condition mentioned above would not require a departure from an unmodified opinion.

Question 10

When a significant uncertainty exists and this has NOT been disclosed:

Accepted Answer

A qualified or adverse opinion is required when a significant uncertainty exists and has not been disclosed, as it affects the reliability of the financial statements. The choice between a qualified or adverse opinion will depend on the materiality of the uncertainty.

Question 11

The profession recognises the need for uniformity in reporting:

Accepted Answer

All three options are valid reasons why the profession recognises the need for uniformity in reporting. Avoiding confusion, complying with professional standards (such as ASA 700 and ASA 705), and facilitating interpretation by users are all important considerations. Having a standard format for audit reports also enhances the credibility of the auditing profession and helps to ensure consistent quality in the audit process.

Question 12

Which one of the following is NOT an example of a departure from unmodified?

Accepted Answer

An emphasis of matter section is not a modification of the auditor's opinion; it is used to draw attention to a matter that is fundamental to users' understanding of the financial statements.

Question 13

The auditor's responsibility section of the standard unmodified report does NOT include:

Accepted Answer

The auditor's responsibility for designing, implementing and maintaining relevant internal controls is not included in the auditor's responsibility section of the standard unmodified report. Instead, this is typically included in the management's responsibility section of the report.

Question 14

The audit report date indicates:

Accepted Answer

The audit report date indicates the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial report. This means that the auditor's responsibilities extend up to this date, and any events occurring after this date are not considered in the audit report.

Question 15

The introductory paragraph of the standard unmodified audit report states that the financial report:

Accepted Answer

The introductory paragraph of the standard unmodified audit report identifies the financial report that has been examined by the auditor.

Question 16

In an adverse or disclaimer of opinion report, the auditor:

Accepted Answer

In an adverse or disclaimer of opinion report, the auditor believes that the effects on the financial statements are both material and pervasive. Materiality implies that the effects are significant enough to influence the economic decisions of users of the financial statements, while pervasiveness implies that the effects are widespread and affect many aspects of the financial statements. Therefore, both A and B are correct.

Question 17

If the balance sheet of a company is dated 30 June 2012, the audit report is dated 6 September 2012 and both are released to the public on 15 September 2012, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to:

Accepted Answer

The audit report is dated 6 September 2012, which indicates that the auditor has completed their audit procedures up to that date. The release of the balance sheet and audit report to the public on 15 September 2012 indicates that the auditor has no material unrecorded transactions or events that occurred between 6 September 2012 and the release date. Therefore, the auditor has searched for material unrecorded transactions and events up to 6 September 2012.

Question 18

Angel Pty Ltd's financial report includes two balance sheets and profit and loss accounts. One set is drawn up in accordance with applicable accounting standards and the other set is drawn up without complying with one standard, which the directors consider makes the accounts misleading. The auditors concur. The audit report should, therefore, contain:

Accepted Answer

The auditors agree with the directors that compliance with the standard would make the accounts misleading, so they would issue an unmodified opinion but include an emphasis of matter section to highlight the issue.

Question 19

An audit report is appropriate:

Accepted Answer

An audit report is a formal opinion on the financial statements of an entity, provided by an independent auditor after examination of the entity's financial records and operations. Therefore, an audit report is only appropriate when an audit is conducted. Option A refers to a compilation or review report, while option B is too broad and vague.

Question 20

The need to issue a disclaimer of opinion arises when there is:

Accepted Answer

A disclaimer of opinion is issued when there is a material and pervasive scope limitation, meaning that the auditor was unable to obtain sufficient evidence to support their opinion on the financial statements as a whole. This limitation must be significant enough to impact the overall reliability and accuracy of the financial statements. The other options given (conflict between reporting frameworks, conflict with management, and material scope limitation) may also impact the audit report, but they would typically result in a qualified or adverse opinion, rather than a disclaimer.

Quiz 18: Audit Reporting