Exam 12: Reports on Audited Financial Statements

Which of the following is an example of a material accounting change that requires recognition in an unmodified opinion on the entity's financial statements?

Holmes, CPA, assisted Williams Corporation in preparing its financial statements and gave Williams permission to use Holmes's name in communications containing these financial statements. If Holmes did not audit the financial statements, what type of opinion should be expressed?

When auditors qualify their opinion on the entity's financial statements because of inadequate disclosure, the auditors should describe the nature of the omission and modify

How do auditors make the following representations when issuing the standard (unmodified) auditors' report? Consistent Independence Application of Requirement Accounting Principles A. Implicitly Explicitly B. Explicitly Implicitly C. Implicitly Explicitly D. Explicitly Explicitly

When a circumstance-imposed scope limitation has a material but not pervasive effect on the sufficiency of the auditors' evidence, the auditors' report will

In which of the following circumstances would a qualified opinion not be appropriate?

Which of the following is true with respect to the auditors' report on condensed financial statements?

Which of the following guidelines should be followed when a disclaimer of opinion is issued?

Auditors will issue an adverse opinion when

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. The entity's financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor's report is required to include an explanatory paragraph that specifically uses the phrase(s). "Except for the Effects "Possible Discontinuance of the of Such Adjustments" Entity's operations" A. Yes Yes B. Yes No C. No Yes D. No No

Murray & Co., CPAs completed the audit of Classic, Inc., a non-issuer, 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. Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Classic Inc., which comprise the balance sheet as of January 31, 2021 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.In our opinion, the accompanying financial statements present fairly, the financial position of Classic, Inc. as of January 31, 2021 and the results of its operations and its cash flows for the year then ended. Basis for OpinionWe conducted our audit in accordance with generally accepted auditing standards. We are required to be independent of Classic Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial StatementsManagement 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.In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Classic Inc.'s ability to continue as a going concern for one year following the issuance of the financial statements. Auditor's Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. In performing an audit in accordance with GAAS, we: [detail omitted; assume all elements of the GAAS audit are appropriately worded] Murray & Co, CPAs January 31, 2021 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.

Murray & Co., CPAs completed the audit of Classic, Inc., an issuer, on March 1, 2021 for a January 31, 2021 fiscal year end. The audit team encountered no significant issues and found no material misstatements. The audit team partner determined that a standard report on Classic, Inc.'s financial statements was appropriate. The auditors' report, drafted by I.M. Nu, a staff assistant, is provided below. (Nu has decided to present separate reports on the financial statements and on internal control over financial reporting). Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Classic, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of Classic Inc. (the Company) as of December 31, 2020 and the related statements of comprehensive income, stockholders' equity, and cash flows for the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020. Basis for Opinion Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("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 Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee. Because we are expressing an unqualified opinion, PCAOB standards do not require communication of critical audit matters in our report. Murray & Co, CPAs January 31, 2021 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.

When disclaiming an opinion due to a client-imposed scope limitation, auditors should describe the nature of the scope limitation and modify the

During the year under audit, Forrest Corporation experienced significant losses due to a pervasive fraud scheme. Because of the lack of documentary evidence and inability to perform appropriate auditing procedures, the auditors were unable to determine the total amount of the loss. What type of report should the auditors issue?

Charlie Company's comparative financial statements include the financial statements of the prior year that were audited by predecessor auditors whose report on those financial statements is not presented. If the predecessor's report was qualified, the successor auditors should

Independent auditors must consider whether the entity has the ability to continue as a going concern. If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, the auditors would normally

Which of the following situations would not result in auditors adding an emphasis-of-matter paragraph or section to their report without modifying the remainder of the report?

The issuance of a disclaimer of opinion generally indicates

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the misstatements have a material and pervasive effect on the financial statements?

When a previously expressed opinion is updated from qualified to unqualified, the auditors' report on comparative financial statements should