Exam 19: Audit Reports on Financial Statements

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

Under Canadian Auditing Standards, the introductory paragraph of the independent auditor's report indicates that the auditor has audited the balance sheet, the income statement, the cash flow, a summary of accounting policies and notes, and

As a result of management's refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with ASPE (Accounting Standards for Private Enterprises). The auditor must depart from the unqualified audit report because

The auditor's report of the Huge Mega Company indicates that the financial statements are fairly presented except for the goodwill balance, which does not comply with International Financial Reporting Standards. The auditor's report is

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

A deviation from the standard unqualified report will cause knowledgeable users of financial statements to recognize that the

The primary concern in measuring materiality when a client has failed to follow an acceptable financial reporting framework is usually

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?

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

The following are two unrelated situations. For each situation outline possible deviations (if any) from a standard auditor's report that may be necessary and give reasons. State your assumptions. A) During 2015, 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 scope paragraph of the audit report, the use of the term "reasonable assurance" is intended to indicate that

The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that everything, with the exception of the missing statement, is presented fairly. As a result, the auditor would likely issue

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?

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

The most common type of audit report contains

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

Dussault & Montgomery, the auditors of Greenwich Corp., relied on Groves & Padden, another PA firm, to audit the Quebec subsidiaries of Greenwich. The responsibility for the opinion to issue on the financial statements is the responsibility of

If inventory is the largest balance on the financial statements, a large misstatement would be so material that the auditor should issue

Both disclaimers of opinion and adverse opinions are used

Management has several responsibilities that are important to the auditor. One of these is that management is responsible for