Exam 12: Reports on Audited Financial Statements

Which of the following situations would not result in auditors adding an additional paragraph to their report without modifying the introductory,scope,or opinion paragraphs of that report?

In which of the following circumstances would a qualified opinion not be appropriate?

How do auditors make the following representations when issuing the standard (unmodified)auditors' report?

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of

When qualifying an opinion because of an insufficiency of audit evidence,an auditor should refer to the situation in the

Zag Co.issues financial statements that present financial position and results of operations,but Zag omits the related statement of cash flows.Zag would like to engage Brown,CPA,to audits its financial statements without the statement of cash flows although Brown's access to all of the information underlying the basic financial statements would not be limited.Under the circumstances,Brown most likely would

Shown below are a number of situations that may be encountered during the audit examination.For each,indicate how the auditors' standard (unmodified)report would be modified (each reporting situation may result in more than one modification to the auditors' standard (unmodified)report). A. Modification to introductory paragraph. B. Modification to Management's Responsibility section. C. Modification to Auditor's Responsibility section. D. Modification to opinion paragraph. E. Additional paragraph added to report. F. No modifications to the standard (unmodified) report are necessary. ___ 1. Departure from GAAP that does not materially affect the financial statements. ___ 2. Inability of auditors to confirm accounts receivable with customers; while the scope limitation is material, the auditors still believe an opinion may be expressed on the entity's financial statements. ___ 3. Group auditors decide to refer to the work of component auditors in their report. ___ 4. Entity has changed from FIFO to LIFO accounting for inventories. ___ 5. Auditors wish to highlight an event that occurred following the date of the financial statements. ___ 6. Departure from GAAP that has a material, but not pervasive, effect on the financial statements. ___ 7. Group auditors decide to assume full responsibility for the work of component auditors and not refer to component auditors' work in their report. ___ 8. Scope limitation that precludes auditors from expressing an opinion. ___ 9. Auditors would like to disclose potential going-concern uncertainties in their report (these uncertainties have been appropriately disclosed in the entity's financial statements and related disclosures). ___ 10. Departure from GAAP that has a material and pervasive effect on the financial statements.

When auditors are engaged to examine an entity's financial statements but decide to issue a disclaimer of opinion because of a scope limitation,the report would not

Listed below are words and phrases from the auditors' standard (unmodified)report on the entity's financial statements.For each of the words and phrases indicate by letter in which paragraph of the standard (unmodified)report they should appear: A. Introductory paragraph B. Management Responsibility section C. Auditor's Responsibility section D. Opinion paragraph ___ 1. Audit provides a reasonable basis for an opinion. ___ 2. The financial statements present fairly, in all material respects. ___ 3. Auditors' responsibility is to express an opinion. ___ 4. Auditors perform the audit to obtain reasonable assurance. ___ 5. Financial statements are in accordance with accounting principles generally accepted in the United States of America. ___ 6. Responsibility of the entity's management for the financial statements. ___ 7. Results of its operations and its cash flows. ___ 8. Conducted our audits in accordance with the auditing standards generally accepted in the United States of America. ___ 9. Management is responsible for the design, implementation, and maintenance of internal control. ___ 10. We have audited the accompanying financial statements.

When an entity will not permit inquiry of outside legal counsel,the auditors' report on the entity's financial statements will ordinarily contain a(n)

An auditor may report on summary financial statements that are derived from a complete set of audited financial statements only if the auditor

Which of the following paragraphs or sections of the group auditors' report is modified to identify the extent of component auditor involvement in the audit of group financial statements?

The auditors conclude that an entity's illegal act,which has a material effect on the financial statements,has not been properly accounted for or disclosed.Depending on the overall materiality and pervasiveness of the effect of this illegal act on the financial statements,the auditors should express either a(n)

When a predecessor auditor has examined the prior-years' financial statements presented in comparative format,the current auditors' report should

An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's

The standard (unmodified)report issued in the audit of a nonpublic entity includes a(n)

In which of the following circumstances may auditors issue the standard (unmodified)report on the entity's financial statements?

Hart,CPA is auditing the year 2 financial statements of Kell Co.Previously,Hart audited Kell's year 1 financial statements and expressed a qualified opinion due to a scope limitation.Hart decides to include an other-matter paragraph in the year 2 report because comparative financial statements are being presented for year 2 and year 1.This paragraph should indicate the

For each of the situations below,indicate,by letter,the type of report most likely to be issued. A. Unmodified opinion, no modification. B. Unmodified opinion, emphasis-of-matter paragraph for consistency. C. Unmodified opinion, emphasis-of-matter paragraph for a going-concern uncertainty. D. Qualified opinion. E. Disclaimer of opinion. ___ 1. The entity has a lawsuit pending against them. There is significant uncertainty about the outcome of the lawsuit, which could have a highly material impact on the viability of the entity. Management has provided adequate disclosure of the lawsuit in the footnotes accompanying the financial statements. ___ 2. The entity has a lawsuit pending against them. It is probable that the entity will lose the suit. Management has accrued the best estimate of the loss and provided adequate disclosure. It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern. ___ 3. The entity has a lawsuit pending against them. It is probable that the entity will lose the suit. Management has not accrued the best estimate of the loss, but has provided information in the footnotes. It is not expected that this lawsuit will have a significant effect on the entity's ability to continue as a going concern. ___ 4. Based on recent analysis of usage, the entity has changed the useful life of its office equipment from five to four years. This change is reflected in the depreciation amounts computed for the current year. ___ 5. The entity's management has not provided written representations requested by the auditors. The failure to provide these representations is considered to be a significant limitation on the scope of the auditors' work.

In which of the following circumstances would auditors most likely add an emphasis-of-matter paragraph to the standard (unmodified)report without modifying the opinion on the entity's financial statements?