Question 1

Which of the following report modifications would not be necessary if group auditors indicate a division of responsibility?
A) A reference to component auditors' work in the introductory paragraph.
B) A reference to the report of component auditors providing a basis for the opinion in the scope paragraph.
C) A reference to the report of component auditors in the opinion paragraph.
D) An additional paragraph summarizing the components (and dollar and percentage magnitudes of the components) examined by component auditors.

Accepted Answer

If group auditors indicate a division of responsibility, an additional paragraph summarizing the components examined by component auditors is required to provide the users of the report with information about the areas of the financial statements that were audited by the component auditors. A reference to the component auditors' work in the introductory paragraph, a reference to the report of component auditors providing a basis for the opinion in the scope paragraph, and a reference to the report of component auditors in the opinion paragraph are necessary modifications in the case of a division of responsibility.

Question 2

When auditors issue a report on the current-year financial statements shown in comparative form,they should _____________________________ the report they previously issued on the prior-year financial statements.

Accepted Answer

The answer of When auditors issue a report on the...

Question 3

If a departure from GAAP is material (but not pervasive),a(n)_____________________________ opinion on the entity's financial statements should be issued.

Accepted Answer

The answer of If a departure from GAAP is material...

Question 4

If financial statements contain an immaterial departure from accounting principles,the auditors can render a(n)
A) Qualified opinion.
B) "Subject to" opinion.
C) Unqualified opinion.
D) Unqualified opinion with explanatory paragraph.

Accepted Answer

If the departure from accounting principles is immaterial, the auditors can still issue an unqualified opinion. An unqualified opinion indicates that the financial statements are presented fairly in all material respects in accordance with the applicable accounting framework.

Question 5

When a scope limitation exists and the auditors have not been able to obtain sufficient appropriate evidence on a particular account balance or disclosure,the auditors must choose between a(n)_____________________________ opinion and a(n)_____________________________ of opinion on the entity's financial statements.

Accepted Answer

The answer of When a scope limitation exists and the...

Question 6

Changing from one GAAP method to another GAAP method may require auditors to modify their report because of matters related to the _____________________________ of the accounting principles used to prepare the entity's financial statements.

Accepted Answer

The answer of Changing from one GAAP method to another...

Question 7

The opinion paragraph of the standard report on the entity's financial statements identifies and describes omitted or inadequate ____________________________.

Accepted Answer

The answer of The opinion paragraph of the standard report...

Question 8

If the auditors encounter a material scope limitation in the examination of an entity's financial statements,which of the following types of opinions could be issued?
A) Adverse opinion or disclaimer of opinion.
B) Adverse opinion or qualified opinion.
C) Unqualified opinion with explanatory language or qualified opinion.
D) Disclaimer of opinion or qualified opinion.

Accepted Answer

If auditors encounter a material scope limitation, they are unable to obtain sufficient evidence to provide an opinion on the financial statements. This situation can lead to either a disclaimer of opinion (meaning no opinion is given) or a qualified opinion (meaning an opinion is given, but with a modification to reflect the scope limitation). Therefore, choice D is the best answer because it includes both options that could be issued in this scenario.

Question 9

A(n)____________________________ scope limitation represents a situation in which management refuses to permit auditors to perform certain auditing procedures or examine certain evidence.

Accepted Answer

The answer of A(n)____________________________ scope limitation represents a situation in...

Question 10

Rule 203 provides for the possibility that adherence to a pronouncement of the FASB might create _____________________________ financial statements.

Accepted Answer

The answer of Rule 203 provides for the possibility that...

Question 11

The _____________________________ paragraph indicates the character of auditors' work in the examination of the entity's financial statements.

Accepted Answer

The answer of The _____________________________ paragraph indicates the character of...

Question 12

If a going-concern uncertainty exists,auditors may not issue which of the following reports on the entity's financial statements?
A) An unqualified opinion with an additional paragraph explaining the going-concern problem.
B) An adverse opinion because of a pervasive departure from GAAP.
C) A disclaimer of opinion resulting from an uncertainty about the ability of the entity to continue in existence.
D) An opinion qualified for a GAAP departure if the auditors believe the disclosures about going-concern problems are inadequate.

Accepted Answer

If a going-concern uncertainty exists, auditors may issue an unqualified opinion with an additional paragraph explaining the going-concern problem, an opinion qualified for a GAAP departure if the auditors believe the disclosures about going-concern problems are inadequate, or a disclaimer of opinion resulting from an uncertainty about the ability of the entity to continue in existence. However, auditors cannot issue an adverse opinion solely because of a going-concern uncertainty. An adverse opinion is reserved for situations where there is a pervasive departure from GAAP.

Question 13

Auditors' addition of one or more paragraph(s)to a report on the entity's financial statements to highlight information to users that does not affect the opinion on the financial statements is referred to as __________________________________.

Accepted Answer

The answer of Auditors' addition of one or more paragraph(s)to...

Question 14

If the auditors present a combined report on an entity's financial statements and internal control over financial reporting,in which paragraph of the report is the opinion on the entity's financial statements shown?
A) Introductory paragraph.
B) Scope paragraph.
C) Opinion paragraph.
D) Explanatory paragraph.

Accepted Answer

The opinion on the entity's financial statements is shown in the opinion paragraph of the combined report.

Question 15

When indicating a division of responsibility in the audit of ___________________________________,the group auditors may choose to refer to the work of component auditors in their report.

Accepted Answer

The answer of When indicating a division of responsibility in...

Question 16

Auditors' opinion begins with "We were engaged to audit ..." when auditors issue a(n)_______________________________________.

Accepted Answer

The answer of Auditors' opinion begins with "We were engaged...

Question 17

The _____________________________ paragraph of the auditors' report on the entity's financial statements indicates that an audit has been conducted and identifies the financial statements the auditors examined.

Accepted Answer

The answer of The _____________________________ paragraph of the auditors' report...

Question 18

When a GAAP departure is pervasive,affecting numerous accounts and financial statement relationships,the auditors must issue a(n)_____________________________ opinion on the entity's financial statements.

Accepted Answer

The answer of When a GAAP departure is pervasive,affecting numerous...

Question 19

A(n)________________________ is a situation in which auditors are unable to gather sufficient appropriate evidence.

Accepted Answer

The answer of A(n)________________________ is a situation in which auditors...

Question 20

When the auditors lack independence,a(n)______________________________________ is issued on the fairness of the entity's financial statements.

Accepted Answer

The answer of When the auditors lack independence,a(n)______________________________________ is issued...

Quiz 12: Reports on Audited Financial Statements

Which of the following report modifications would not be necessary if group auditors indicate a division of responsibility?