Exam 19: Audit Reports on Financial Statements

When a material uncertainty exists,the auditor must

The auditor has set materiality at XYZ Company of $50 000 based upon a percentage of net assets.The company currently has a small profit (only $3500).Which of the following items would the auditor most likely consider to be material and request an account balance adjustment?

There are two conditions requiring a departure from an unmodified audit report.Discuss each of these conditions and state the appropriate audit report for each condition.

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)During 2018,your client was sued by a customer who had a serious car accident as a result of scrap metal that had been dumped in the parking lot.The customer drove over the scrap metal,which became embedded in the tires of her vehicle.The tires blew and the car went out of control on a major highway.The amount in dispute is $400 000,with estimated legal bills of about $20 000.The client does not wish to disclose the suit in the financial statements.B)During the current year,your client leased a large amount of equipment.As the lease qualifies as a capital lease,the equipment has been recorded as an asset,with the corresponding liabilities recorded on the financial statements.The implicit interest rate in the lease is 7 percent.The annual payments due over the terms of the lease have been disclosed in the notes to the financial statements.

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

A deviation from the unmodified audit report will cause knowledgeable users of financial statements to recognize that the

When Dussault & Montgomery relies on Groves & Padden,another PA firm,to audit the Quebec subsidiaries of one of their audit clients,Dussault & Montgomery should

PA firm has been auditing Big Manufacturing Company (BMC)for several years.Last year,BMC converted its inventory and purchasing systems to a new system effective December 31,the date of the year-end.To their horror,the PA firm discovered at the beginning of the current year that there was a cut-off error in the accounts payable system of $25 million dollars last year.Neither the client nor the firm had detected that the purchases of December 31 had been omitted from the old computer system transaction processing and had been recorded only in the new computer system,understating last year's expenses.Last year's financial statements have been restated and the error disclosed in the notes to both last year's and this year's financial statements.What type of audit opinion will BMC receive this year?

An adverse opinion is issued when the auditor believes

When the auditor knows that the financial statements may be misleading because they were not prepared in accordance with an acceptable financial reporting framework,he or she must issue

Mafah Distribution Limited has requested that the audited financial statements be completed by January 5,five days after the December 31 year-end.This means that the auditor will be unable to verify subsequent payments on accounts receivable and will be unable to determine whether accounts payable have been set up correctly.What type of audit report should Mafah receive if the auditor is unable to use alternative procedures for these two audit areas?

One of the most controversial parts of the auditor's report is the meaning of the term "fairly stated." What does the auditor's opinion mean when these words are used?

ProForce Inc.is facing a large lawsuit from its employees.The contingency is significant and may lead to a going concern issue if ProForce is found guilty.ProForce took the adequate measures,as prescribed by IFRS (International Financial Reporting Standards),to account,disclose,and present the contingency in the financial statements.The auditor should

Your client is not using either ASPE or IFRS.Instead,it is using current value accounting with no use of historical cost,because your client is in a country with about 50% inflation per year.Local legislation requires that all resident organizations use current value accounting.How do these events affect the independent auditor's report?

What level of assurance is provided by the auditor in an audit engagement?

There are five conditions that must be met before an auditor can issue an unmodified report.Discuss each of these five conditions.

CAS 700 is the overarching standard for auditing reporting.Outline the relevant standards that come under it.

What is an unmodified audit opinion,sometimes also called an unqualified audit opinion?

When a misstatement in the financial statements exists but is unlikely to affect the decisions of a reasonable user,it would be appropriate to issue

According to CAS 700,the unmodified audit report's title should be