Question 1

What type of reports can an auditor issue if they cannot provide an unqualified audit report?
The three types of reports other than unqualified are:
1.Qualified.The auditor's opinion is qualified because of either a scope limitation or a non-pervasive departure from Generally Accepted Accounting Principles (GAAP), but overall the financial statements were presented fairly.
2.Disclaimer.The auditor disclaims an opinion on the financial statements either because there is insufficient appropriate evidence to form an opinion on the overall financial statements or because there is a lack of independence.
3.Adverse.The auditor's opinion states that the financial statements are not presented fairly in conformity with GAAP because the departure materially affects the overall financial statements.

Accepted Answer

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Question 2

The following four situations require a modification to the standard unqualified audit report.Identify the modification required for each.
I.Opinion based in part on the report of another auditor
II.Going concern
III.Lack of consistency
IV.Subsequent event

Accepted Answer

The answer of The following four situations require a modification...

Question 3

For each of the following situations, indicate what type of audit report is most appropriate:
I.The auditor lacks independence in fact, but not necessarily in appearance.
II.There is a scope limitation and it is material, but the overall financial statements are still presented fairly.
III.The uncorrected misstatements are immaterial.
IV.There is a departure from Generally Accepted Accounting Principles (GAAP), and it is pervasively material.

Accepted Answer

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Question 4

During the compilation engagement for Cozy Couches Company, CPA Jim Bryce becomes aware that the accounting records and other information provided by management are incomplete and inaccurate.What should Jim Bryce do in this situation?

Accepted Answer

The answer of During the compilation engagement for Cozy Couches...

Question 5

Assume you completed your fieldwork on the XYZ Company audit of the December 31, 2025 financial statements on February 15, 2026.The financial statements were released on February 28, 2026.On March 16, 2026, you discovered that XYZ's largest customer filed for bankruptcy, which you believe could have caused you to change the audit report.How is your responsibility as an auditor, and the steps that should be taken, different than if you had been made aware of the subsequently discovered fact before February 28, 2026?

Accepted Answer

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Question 6

Assume you completed your fieldwork on the XYZ Company audit of the December 31, 2025 financial statements on February 11, 2026.On February 13, 2026, you discovered that XYZ's largest customer filed for bankruptcy.XYZ has not yet released the financial statements.What is your responsibility as an auditor and what steps should be taken, if any?

Accepted Answer

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Question 7

Compare the two scenarios that would cause auditors to modify the audit opinion and provide an example of each.

Accepted Answer

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Question 8

An audit involves performing _______ to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.

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Question 9

The purpose of a/an _______ is to provide financial statement users with an opinion by an independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework.

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Question 10

Sally Jones is a staff accountant and has been assigned to the audit of Pipeline Services, Inc.
Subsequent to the completion of fieldwork Sally was assigned to draft the audit report.The content of one of the paragraphs she has drafted reads as follows:
As explained in Note 2 to the financial statements, Pipeline has charged goodwill and certain other intangible assets acquired in two separate acquisitions directly to shareholders' equity.Under generally accepted accounting principles, these intangibles should have been recorded as assets and amortized to income over future periods.Had these intangibles been capitalized, total assets would have increased by $500,000 as of December 31, 2017 and net income and earnings per share would be increased by $250,000 and $2.25, respectively (assuming a 20-year amortization period).
a.Based on the contents of the paragraph above, which condition requiring a departure from a standard unqualified opinion exists in the engagement?
b.Assuming that the engagement partner agrees with the paragraph Sally has drafted, where in the auditor's report should the paragraph be placed?
c.How would the materiality of the condition above affect the final choice of opinion?

Accepted Answer

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Question 11

It is the responsibility of the _______ to ensure that the work completed by a component auditor meets the auditing requirements and standards.

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Question 12

When the auditor cannot complete some portion of the planned audit procedures, this is referred to as _______.

Accepted Answer

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Question 13

A company's internal control over financial reporting is a _______ designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Accepted Answer

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Question 14

In a financial statement audit, which level of assurance provides that no material modifications should be made to the financial statements for them to be in accordance with the applicable financial reporting framework?
A)Reasonable assurance
B)Limited assurance
C)No assurance
D)None of the answers are correct.

Accepted Answer

Reasonable assurance is the highest level of assurance provided in a financial statement audit. It provides that the financial statements are free from material misstatements and that no material modifications should be made to them for them to be in accordance with the applicable financial reporting framework. This level of assurance provides the users of financial statements a high level of confidence in the financial information provided.

Question 15

If a change in accounting principle has a material effect on the comparability of the financial statements, then AU-C 708 requires auditors to add an_______ paragraph to the auditor's report.

Accepted Answer

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Question 16

In the paragraph below, there are three errors in the basis for opinion paragraph of the unqualified opinion on the effectiveness of ICFR for public companies.Rewrite the paragraph to correct the errors.
Basis for Opinion
The auditor is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.Our responsibility is to express a certification on the Company's internal control over financial reporting based on our audit.We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the AICPA.

Accepted Answer

The answer of In the paragraph below, there are three...

Question 17

The auditors of BZ Manufacturing completed their fieldwork on February 15, 2022.However, they became aware of a subsequently discovered fact requiring revision on February 20, 2022.Compare and contrast the two options auditors have for dating the audit report in relation to performing audit procedures on subsequently discovered facts that become known before the report release date.

Accepted Answer

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Question 18

Small Town Bank would like to gain a degree of comfort regarding the financial statements of Home Town Builders, Inc., a company for which Small Town Bank provides a line of credit.The cost of an audit would be prohibitive for Home Town Builders.Compare two other types of services that accounting firms can provide to Home Town Builders that may be acceptable to Small Town Bank.

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Quiz 15: Reporting on the Audit

The following four situations require a modification to the standard unqualified audit report.Identify the modification required for each. I.Opinion based in part on the report of another auditor II.Going concern III.Lack of consistency IV.Subsequent event