Exam 19: Audit Reports on Financial Statements

Beem & Lord, a PA firm, audited the financial statements of Frazer Inc. Since this was a first time audit, Beem & Lord did not audit the comparative financial statements, as this was done by the previous auditor. Beem & Lord should expand their report to include an explanation in

When a misstatement in the financial statements would affect a user's decision but the overall statements are still fairly stated, it would be appropriate to issue

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) Rosebud Ltd. is a construction company that builds and repairs greenhouses for nurseries. An architect does the design and three different small construction companies are used to build the greenhouses. You are concerned that some of the projects that span the April year-end may result in material losses, even though income has been reported in the coming year. Management has refused permission for you to enter construction sites, as they feel that the construction sites will be dangerous and they do not want to be exposed to such liability. B) Save Our Trees is a charitable organization devoted to maintaining national woodland and green space. Fundraising is handled primarily by means of electronic mail and door-to-door canvassing by volunteers. Canvassing volunteers provide receipts at the door using prenumbered receipts. Donors who give money by email are sent receipts by email.

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

In the scope paragraph of the audit report, the use of the term "reasonable assurance" is intended to indicate that

The phrase "in our opinion" indicates that

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

Clark Kent is a PA partner at the firm of Kent, Lane, and Lang, a limited liability partnership. Kent's firm has just completed the audit of a client with a March 31, 2015, year end. How should the audit report be signed?

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

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

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

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?

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?

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.

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

Your client has two sets of financial statements. One set is in compliance with IFRS, while the other set is in compliance with local tax legislation and will be used only with the tax returns. How do these events affect the independent auditor's report?

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?

Julia is in the process of auditing the legal liability section of the financial statements. The controller indicated that he did not want her to contact their external lawyers and he is refusing to grant her access to the detail of the legal expense for the year and any legal invoices. What should Julia do in this situation? Indicate the steps she should take.

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned about the possibility that management is trying to prevent discovery of misstated information. In such cases, which type of report should be issued?

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