Question 1

For each of the sentences or phrases below,indicate,by letter,in which section of the standard (unmodified)report on the entity's financial statements the sentence or phrase would appear.
A.Introductory paragraph
B.Management's Responsibility section
C.Auditor's Responsibility section
D.Opinion paragraph
1___.Our responsibility is to express an opinion on these financial statements based on our audits.2___.The financial statements referred to above present fairly,in all material respects,the financial position of...3___.We have audited the accompanying financial statements of...4___.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.5___.Management is responsible for the preparation and fair presentation of these financial statements...

Accepted Answer

The answer of For each of the sentences or phrases...

Question 2

When reporting on financial statements that include only summarized totals of account balances,the auditors' conclusion should state whether the information in the summary financial statements
A)Is complete with respect to disclosures required by the SEC.
B)Is fairly stated,in all material respects,in accordance with generally accepted accounting principles.
C)Is consistent,in all material respects,with the prior years' summary financial statements.
D)Is fairly stated,in all material respects,in relation to the complete financial statements.

Accepted Answer

When reporting on financial statements that include only summarized totals of account balances, the auditor's conclusion should state whether the information in the summary financial statements is fairly stated, in all material respects, in relation to the complete financial statements. Option A is incorrect because disclosing information required by the SEC is the responsibility of the preparer of financial statements, not the auditor. Option B is incorrect because summarizing account balances does not constitute financial statements, and GAAP requires complete financial statements. Option C is incorrect because consistency with prior years' summary financial statements is not sufficient for providing assurance on the financial statements.

Question 3

In each of the circumstances listed below,indicate,by appropriate letter,which of the following types of opinions should be rendered on the entity's financial statements?
A.Unmodified
B.Qualified
C.Adverse
D.Disclaimer
1___.Departure from generally accepted accounting principles that is material but not pervasive.2___.Going-concern uncertainties that may have a material (but not pervasive)effect on the financial statements.3___.Emphasis of a matter,no GAAP departure.4___.Material,but not pervasive,scope limitation.5___.Material and pervasive departure from GAAP.

Accepted Answer

The answer of In each of the circumstances listed below,indicate,by...

Question 4

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations.What reporting options are available to auditors when scope limitations are encountered during the engagement?

Accepted Answer

The answer of Define a scope limitation and distinguish between...

Question 5

Murray & Co.,CPAs completed the audit of Classic,Inc.,a nonpublic entity,on March 1,2018 for a January 31,2018 fiscal year end.The audit team encountered no significant issues and found no material misstatements.Murray & Co.has audited Classic,Inc.for several years and past audits did not reveal any significant issues or material misstatements.The audit team partner determined that a standard (unmodified)report on Classic,Inc.'s financial statements was appropriate.The auditors' report,drafted by I.M.Nu,a staff assistant,is provided below.
Independent Auditor's Report
To the Board of Directors and Shareholders
Classic,Inc.
We have audited the accompanying financial statements of Classic Inc.,which comprise the balance sheet as of January 31,2018 and the related statements of changes in shareholders' equity and cash flows for the year then ended,and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the financial statements.
Opinion
In our opinion,the financial statements referred to above present fairly,the financial position of Classic,Inc.as of January 31,2018 and the results of its operations and its cash flows for the year then ended.
Murray & Co,CPAs
January 31,2018
Required:
Identify the deficiencies and errors in the draft report.Do not rewrite the report,but be specific as to what is incorrect or omitted.Organize your answer by paragraph or section.

Accepted Answer

The answer of Murray & Co.,CPAs completed the audit of...

Question 6

Harris is auditing the financial statements of Cole Corp.,an energy company.The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information.If this required information is materially misstated,what type of report should Harris issue?
A)Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information.
B)Adverse opinion on the financial statements and mineral reserve information due to the misstatement.
C)Unmodified opinion on the financial statements with an other-matter paragraph expressing an adverse opinion on the mineral reserve information.
D)Qualified opinion on the financial statements and mineral reserve information due to the misstatement.

Accepted Answer

The answer of Harris is auditing the financial statements of...

Question 7

The standard (unmodified)report issued in the audit of a nonpublic entity includes a(n)
A)Management's responsibility section providing a general description of an audit conducted in accordance with the applicable auditing standards.
B)Introductory paragraph identifying the responsibility of management and auditors in the financial reporting process.
C)Internal control paragraph indicating the effectiveness of the entity's internal control over financial reporting.
D)Opinion paragraph providing the auditors' conclusion as to the fair presentation of the financial statements.

Accepted Answer

The standard (unmodified) report issued in the audit of a nonpublic entity includes an opinion paragraph providing the auditors' conclusion as to the fair presentation of the financial statements. This is the only paragraph that is required by the auditing standards to be included in an unmodified report. While management's responsibility and the effectiveness of internal control are often discussed in the report, they are not required components of the standard report.

Question 8

Listed below are words and phrases from the auditors' standard (unmodified)report on the entity's financial statements.For each of the words and phrases indicate by letter in which paragraph of the standard (unmodified)report they should appear:
A.Introductory paragraph
B.Management Responsibility section
C.Auditor's Responsibility section
D.Opinion paragraph
1___.Audit provides a reasonable basis for an opinion.2___.The financial statements present fairly,in all material respects.3___.Auditors' responsibility is to express an opinion.4___.Auditors perform the audit to obtain reasonable assurance.5___.Financial statements are in accordance with accounting principles generally accepted in the United States of America.6___.Responsibility of the entity's management for the financial statements.7___.Results of its operations and its cash flows.8___.Conducted our audits in accordance with the auditing standards generally accepted in the United States of America.9___.Management is responsible for the design,implementation,and maintenance of internal control.10___.We have audited the accompanying financial statements.

Accepted Answer

The answer of Listed below are words and phrases from...

Question 9

For each of the situations below,indicate,by letter,the type of report most likely to be issued.
A.Unmodified opinion,no modification.
B.Unmodified opinion,emphasis-of-matter paragraph for consistency.
C.Unmodified opinion,emphasis-of-matter paragraph for a going-concern uncertainty.
D.Qualified opinion.
E.Disclaimer of opinion
1___.The entity has a lawsuit pending against them.There is significant uncertainty about the outcome of the lawsuit,which could have a highly material impact on the viability of the entity.Management has provided adequate disclosure of the lawsuit in the footnotes accompanying the financial statements.2___.The entity has a lawsuit pending against them.It is probable that the entity will lose the suit.Management has accrued the best estimate of the loss and provided adequate disclosure.It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern.3___.The entity has a lawsuit pending against them.It is probable that the entity will lose the suit.Management has not accrued the best estimate of the loss,but has provided information in the footnotes.It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern.4___.Based on recent analysis of usage,the entity has changed the useful life of its office equipment from five to four years.This change is reflected in the depreciation amounts computed for the current year.5___.The entity's management has not provided written representations requested by the auditors.The failure to provide these representations is considered to be a significant limitation on the scope of the auditors' work...

Accepted Answer

The answer of For each of the situations below,indicate,by letter,the...

Question 10

When other information is presented in a document with audited financial statements,the auditors' report should
A)State that the auditor read the other information for inconsistencies and misstatements with the financial statements and identified no discrepancies.
B)Provide limited assurance as to whether the other information is presented in accordance with generally accepted accounting principles.
C)Reference the other information only if inconsistencies or material misstatements are identified between this information and the financial statements.
D)Be expanded to express an opinion that the other information is consistent with the financial statements and not materially misstated.

Accepted Answer

According to AU-C Section 720, the auditor's responsibility is limited to reading the other information and considering whether it contains precisely stated factual information and is otherwise appropriate in relation to the financial statements. If the auditor identifies inconsistencies or material misstatements in the other information, the auditor should communicate the matter to management and request appropriate revisions. Therefore, the auditors' report should only reference the other information if inconsistencies or material misstatements are identified between this information and the financial statements.

Question 11

Below are two independent situations.
A.Grinner and Greeter,CPAs,were engaged to perform an audit of the financial statements of Happy,Inc.Happy's management would not allow Grinner and Greeter to confirm any of the accounts receivable.All other auditing procedures were performed as considered necessary by Grinner and Greeter and no issues were encountered.However,Grinner and Greeter were unable to satisfy themselves with regard to the balance in accounts receivable.
B.Tick and Tie,CPAs,were performing their annual audit of Johnson Manufacturing Company.Johnson is currently being sued for $2,000,000 related to an alleged defective product that they sold to a customer.Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and have to pay the entire $2,000,000.Johnson's management has included information in the footnotes about the lawsuit.However,they have not recorded any loss or liability in the income statement or balance sheet.Required:
For each of the independent situations presented above,state what type of opinion should be issued on the company's financial statements.Briefly explain your rationale.Finally,state which paragraphs,if any,of the standard report would be modified.

Accepted Answer

The answer of Below are two independent situations.
A.Grinner and Greeter,CPAs,were...

Quiz 12: Reports on Audited Financial Statements

When reporting on financial statements that include only summarized totals of account balances,the auditors' conclusion should state whether the information in the summary financial statements

Define a scope limitation and distinguish between client-imposed and circumstance-imposed scope limitations.What reporting options are available to auditors when scope limitations are encountered during the engagement?

Harris is auditing the financial statements of Cole Corp.,an energy company.The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information.If this required information is materially misstated,what type of report should Harris issue?

The standard (unmodified) report issued in the audit of a nonpublic entity includes a(n)

When other information is presented in a document with audited financial statements,the auditors' report should