Exam 15: Audit Reports on Financial Statements

Types of Audit Opinions For each of the following independent situations, determine the type of opinion that will most likely be issued by the firm auditing the financial statements of a U.S. company. 1.The client will not allow the auditor to view the minutes for the entire year under audit and beyond. 2.The auditor finds that the firm is not independent of the client on the last day of fieldwork. 3.The client declines to include a statement of cash flow in the financial statements. 4.The client fails to record an immaterial amount of insurance paid in advance as an asset. 5.The client does not record impairment of goodwill and will not depreciate property and equipment. Both are considered very material. 6.There is substantial doubt about the client's ability to continue as a going concern.

Qualified opinions. Under what circumstances would an auditor issue a qualified opinion?

Which one of the following is an instance where the auditor would add a paragraph after the opinion paragraph?

Types of Audit Opinions On January 2, 2014, the Zoom Detail Shoppe received notice from its primary supplier that all wholesale prices were being increased by 10%, effective immediately. Based on this notice, Zoom revalued is December 31, 2013 inventory to reflect the higher costs. The inventory is a large proportion of the total assets. The effect of the revaluation was material to current assets, but not to total assets or net income. The increase is adequately disclosed in the footnotes. REQUIRED: Which type of audit report would you suggest be issued this year and why?

When circumstances preclude an auditor from performing certain procedures and the auditor can be satisfied using other alternative procedures, a disclaimer of opinion will be rendered.

In which one of the following instances would an auditor most likely issue a disclaimer of opinion?

A justified departure from GAAP will result in the issuance of an adverse opinion.

When there is an uncertainty surrounding the financial statements, the auditor may still be able to give an unqualified opinion.

For the last several years, both the Financial Accounting Standards Board (FASB) and the International Auditing and Assurance Standards Board (IAASB) have been considering possible changes to the standard unqualified audit report.

An auditor is not required to tell the reader of an audit report when there has been a change in accounting principles that materially affects the financial statements.

When the financial statements contain a material departure from GAAP that the auditor believes is justified, where should the justification appear?

The failure of a client to include a statement of cash flows will result in the issuance of a disclaimer of opinion by the auditor.

Which of the following would not result in an unqualified audit report with an explanatory paragraph?

In which of the following situations would the auditor modify the audit report on ICFR?

When an auditor issues an adverse opinion, which of the following should be included in the opinion paragraph?

For some engagements, the financial statements might be audited in accordance with multiple auditing standards.

The substantial doubt about an entity's ability to continue as a going concern is a phrase that is used in an unqualified opinion with a certain type of explanatory language.

A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion.

The audit report delineates the responsibility of client management and that of the audit firm.