Exam 3: Audit Reports

Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms? I. A combined report on financial statements and internal control over financial reporting II. Separate reports on financial statements and internal control over financial reporting

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

PCAOB standards use the term "unqualified opinion" to refer to the standard unmodified opinion audit report.

Subsequent to the close of Spacely Sprockets fiscal year ending October 31, 2019, a major debtor has declared bankruptcy due to a series of events. The receivable is significantly material in relation to the financial statements, and recovery is doubtful. The debtor had confirmed the full amount due to Spacely Sprocket at the balance sheet date. Because the account was confirmed at the balance sheet date, Spacely refuses to disclose any information in relation to this subsequent event. The CPA believes that all other accounts were stated fairly at the balance sheet date. In addition, Spacely changed their method of inventory valuation from FIFO to LIFO. This change was disclosed in Note X to the financial statements. Accordingly, what type of opinion should be expressed?

AICPA auditing standards provide uniform wording for the auditor's report to enable users of the financial statements to understand the audit report.

Indicate which change(s) would require an explanatory paragraph in the audit report.

The term "explanatory paragraph" was replaced in the AICPA auditing standards with

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

The auditor's responsibilities section of the standard unmodified opinion audit report states that the audit is designed to

Discuss how materiality affects audit reporting decisions.

An auditor will issue a disclaimer when he or she concludes that the financial statements are not fairly presented.

Examples of unmodified opinions which contain modified wording (without adding an emphasis-of-matter paragraph) include

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.

When analyzing the various types of audit reports,

The phrase "accounting principles generally accepted in the United States of America" can be found in the auditor's opinion paragraph of a standard unmodified opinion report.

When there is a justified departure from GAAP which is considered material, the auditor should issue a(n)

For the report containing a disclaimer for lack of independence, the disclaimer is in the

When a client fails to follow GAAP, the audit report can be unmodified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider?

A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred II. When the auditor lacks independence III. When generally accepted accounting principles have not been used

Which of the following statements is true? I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem.