Exam 19: Audit Reports on Financial Statements

Publicly listed organizations and those using IFRS (International Financial Reporting Standards)must have audit reports that use the comparative financial statements approach.This means that the auditor reports on

Give examples of circumstances in which an Emphasis of Matter paragraph in an audit report may be necessary.

The auditor's report of the Samcorp Company indicates that the auditor is unable to form an opinion on whether the financial statements of the company are fairly presented due to scope restrictions and unavailable and incomplete records.The auditor's report

It is management's responsibility to select the accounting policies that are used in the preparation of the financial statements.What is the auditor's responsibility with respect to these accounting policies?

A PA finds that the client has not capitalized a material amount of leases in the financial statements.When considering the materiality of this departure from IFRS,the PA's reporting options are

Bianca Jones was engaged to conduct the audit of Smilicor Company (a toy distributor)three months after its year-end date.Bianca was unable to conduct an audit of opening inventory but was able to obtain evidence to satisfy herself with respect to the opening balances.She was also able to conduct audit procedures for other opening balances;for example,by observing fixed assets.What type of audit opinion would Smilicor receive?

Your client has two sets of financial statements.One set is in compliance with IFRS,while the other set is in compliance with local tax legislation and will be used only with the tax returns.How do these events affect the independent auditor's report?

Double dating a report is done when

A company has changed its method of inventory valuation from an unacceptable one to one that complies with ASPE (Accounting Standards for Private Enterprises).The auditor's report on the financial statements of the year of the change should include

Analyze the "Responsibilities for the Audit of Financial Statements" section of the unmodified Independent Auditors' Report.Explain the intended purpose of the sentences in this section.

The following are two unrelated situations.For each situation,outline possible deviations (if any)from an unmodified auditor's report that may be necessary and give reasons.State your assumptions.A)Queen Lake Construction Ltd.uses an aggressive revenue recognition policy under the percentage of completion method for long-term construction contracts.Your review of this year's contracts indicates that several projects look as if they will be high in revenue for the first two years and then have negligible earnings for the next three years.B)Maple Manufacturing Limited constructs furniture out of maple wood.The furniture is prized for its durability and craftsmanship.Last year,the company received a letter from a government agency advising that it had been found that Maple's factory was located on contaminated land that leached hazardous chemicals into the air.This was a preliminary letter stating that a full investigation into the health effects was underway.Management has stated that everything is okay and the investigation was terminated.However,the lawyer refused to sign the legal letter with respect to several lawsuits regarding employee claims for long-term disability due to a nervous disorder that affected employees' ability to work.Neither the investigation nor the lawsuits are disclosed in the notes to the financial statements.

The appropriate date for the audit report for a public company is the date on which the

Fractal Software Limited has acquired a 100% subsidiary in Malaysia that produces keyboards and other types of computer hardware.Fractal is refusing to consolidate its financial statements,as this would increase the debt to equity ratio to the point that Fractal would violate its debt agreement,although it would benefit the current ratio with a sizeable increase in inventory.Instead,Fractal would like to record the investment in the Malaysian subsidiary at cost.What type of effect does the non-consolidation have upon the financial statements?

When determining whether an exception is highly material,the extent to which the exception affects different parts of the financial statements must be considered.This is referred to as

Clark Kent is a PA partner at the firm of Kent,Lane,and Lang,a limited liability partnership.Kent's firm has just completed the audit of a client with a March 31,2018,year end.How should the audit report be signed?

The "unmodified report with Emphasis of Matter paragraph" or the "unmodified report with an Other Matter paragraph"

The dollar amount of some misstatements cannot be accurately measured.If,for example,the client was unwilling to disclose an existing lawsuit,the materiality question the auditor must evaluate in such a situation is

The auditor would most likely issue a disclaimer of opinion because of

Give examples of circumstances in which an Other Matters paragraph in an audit report may be considered by an auditor.

The ASPE (Accounting Standards for Private Enterprises)financial reporting framework normally requires the auditor to report using the corresponding figures approach.This means that the auditor reports on