Exam 19: Audit Reports on Financial Statements

Explain four different variations that could occur in unqualified audit reports. For each variation, state how the auditor's report is affected and provide an example.

Discuss how materiality affects audit reporting decisions.

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 dollar amount of some misstatements cannot be accurately measured. If, for example, the client was unwilling to disclose an existing lawsuit, the materiality question the auditor must evaluate in such a situation is

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?

Both disclaimers of opinion and adverse opinions are used

The primary auditor who relies on a secondary auditor