Exam 3: Audit Reports

The audit report is normally addressed to the company's president or chief executive officer.

An item with a "psychic" effect (e.g., where the item maintains an increasing earnings trend)is a qualitative factor that may affect the auditors decision regarding materiality.

When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n):

A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements.If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n):

An audit provides a high level of assurance, but is not a guarantee that a material misstatement will exist in the financial statements.

The first step to be followed when deciding the appropriate audit report in a given set of circumstances is to:

Auditing standards in the United States allow an auditor to perform an audit of a U.S.entity in accordance with both generally accepted auditing standards in the U.S.and the ISAs.

The auditor's responsibility section of the standard unqualified audit report states that the audit is designed to:

An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph.The auditor should also modify the:

Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes.

Which of the following statements are true for the audit report of a non-public entity? I.The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II.The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management.

Which of the following is not explicitly stated in the standard unqualified audit report?

When a pervasive scope limitation exists:

Your CPA firm has completed the fieldwork for the 2012 audit of Sharp Corporation, a private company with an October year-end.You were preparing to draft a standard, unqualified audit report when you discovered that the audit manager on the Sharp engagement owns 10 shares of Sharp's common stock.Prepare the appropriate report.

If the balance sheet of a private company is dated December 31, 2011, the audit report is dated February 8, 2012, and both are released on February 15, 2012, this indicates that the auditor has searched for subsequent events that occurred up to:

In the case of a disclaimer due to lack of independence, the entire scope paragraph is excluded from the report.

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.If the client refuses to properly disclose the item, the auditor will most likely issue:

When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified.

An audit report prepared by Garrett and Brown, CPAs, is provided below.The audit for the year ended December 31, 2012 was completed on March 1, 2013, and the report was issued to Javlin Corporation, a private company, on March 13, 2013.List any deficiencies in this report.Do not rewrite the report. We have examined the accompanying financial statements of Dalton Corporation as of December 31, 2012.These financial statements are the responsibility of the company's management. Management's Responsibility for the Financial Statements: Management is responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted auditing standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from all misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to give an opinion on these financial statements based on our audit.We conducted our audits in accordance with auditing standards generally accepted throughout the world.Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on management's judgment, including the assessment of the risks of material misstatement of the income statement, whether due to fraud or error.In making those risk assessments, the auditor considers internal control relevant to the auditor's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.An audit also includes evaluating the appropriateness of accounting policies and the accuracy of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present accurately the financial position of Javlin Corporation as of December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Garrett and Brown, CPAs March, 2013

The independent auditor must issue a qualified opinion when which of the financial(s)are missing? I.Balance Sheet II.Income Statement III.Statement of Cash Flows