Exam 19: Audit Reports on Financial Statements

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

Your client is a large financial institution in Canada. Canadian regulators require that financial statements for such institutions have an audit report that provides an opinion on the consistency of accounting policies. How do these events affect the independent auditor's report?

If a misstatement is immaterial relative to the financial statements of the entity for the current period and is not expected to have a material effect in future periods, it is appropriate to issue

Double dating a report is done when

Your client, Huge Telephone Company (HTC), has encountered troubled times, due to deregulation. There is competition for local telephone business and long distance telephone business. The high speed lines for internet access provided via the telephone network have not been selling as well as expected. A new quirk is that many large cities are going to provide free wireless services by installing wireless transmitters on telephone poles, and is only offering to pay a pittance for the use of the telephone poles. HTC has been able to retain reasonable profits by cutting staff to a bare minimum and outsourcing many services. However, due to several labour contracts and federal legislation that will increase services, you have doubts about the ability of the company to renew a major bond issue this coming year. Required: How does the above information affect the audit report?

Analyze the "Auditor Responsibility Section" of the standard Independent Auditor's Report. Explain the intended purpose of the sentences in this section.

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

Three of the following conditions would, by themselves, require the auditor to issue a report other than an unqualified report. Which condition would permit a standard unqualified report?

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

Discuss how materiality affects audit reporting decisions.

According to CAS 700, the standard unqualified report's title should be

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) 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 with 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.

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?

The independent auditor's opinion explains how much evidence the auditor collects during the independent audit. How much evidence is collected?

The least severe type of report for disclosing departures from an unqualified report is the

The scope paragraph of the standard unqualified audit report in the auditor responsibility section states that the audit is designed to

When a material uncertainty exists, the auditor must

The use of the term "reasonable assurance" is intended to indicate that an audit cannot be expected to

The primary auditor who relies on a secondary auditor

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