Exam 3: Audit Reports

A qualified audit report is issued when all auditing conditions have been met,no significant misstatements have been discovered,and it is the auditor's opinion that the financial statements are fairly stated in accordance with GAAP.

Whenever the client imposes restrictions on the scope of the audit,the auditor should be concerned that management may be trying to prevent discovery of misstatements.In such cases,the auditor will likely issue a:

Client imposed restrictions on the audit always require a disclaimer of opinion.

Under AICPA auditing standards,the primary auditor issuing the opinion on the financial statements is called the:

When dealing with materiality and scope limitation conditions:

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):

The phrase "generally accepted accounting principles" can be found in the opinion paragraph of a standard unqualified report.

After the auditor determines whether any conditions exist which require a departure from a standard unqualified report,the next step in the decision process for audit reports is to:

Assume you are the partner in charge of the 2012 audit of Becker Corporation,a private company.The audit report has not yet been prepared.In each independent situation following (1-8),indicate the appropriate action (a-g)to be taken.The possible actions are as follows: a.Issue a standard unqualified report. b.Qualify both the scope and opinion paragraphs. c.Qualify the opinion paragraph. d.Issue an unqualified opinion with an explanatory paragraph. e.Issue an unqualified opinion with modified wording (no explanatory paragraph). f.Issue an adverse opinion. g.Disclaim an opinion. The situations are as follows: ________ 1.Becker Corporation carries its property,plant,and equipment accounts at current market values.Current market values exceed historical cost by a highly material amount,and the effects are pervasive throughout the financial statements. ________ 2.Management of Becker Corporation refuses to allow you to observe,or make,any counts of inventory.The recorded book value of inventory is highly material. ________ 3.You were unable to confirm accounts receivable with Becker's customers.However,because of detailed sales and cash receipts records,you were able to perform reliable alternative audit procedures. ________ 4.One week before the end of fieldwork,you discover that the audit manager on the Becker engagement owns a material amount of Becker's common stock. ________ 5.You relied upon another CPA firm to perform part of the audit.Although you were the principal auditor,the other firm audited a material portion of the financial statements.You wish to refer to (but not name)the other firm in your report. ________ 6.You have substantial doubt about Becker's ability to continue as a going concern. ________ 7.Becker Corporation changed its method of computing depreciation in 2012.You concur with the change and the change is properly disclosed in the financial statement footnotes. ________ 8.Ten days after the balance sheet date,one of Becker's buildings was destroyed by a fire.Becker refuses to disclose this information in a footnote to the financial statements,but you believe disclosure is required to conform with GAAP.The amount of the uninsured loss was material,but not highly material.

In the scope paragraph of the audit report issued for financial statements of a non-public company,the auditor expresses an opinion about the internal controls of the company.

The following is the introductory paragraph,and the Basis for Qualified Opinion paragraph for Fast Times Corporation,a non-public company. Independent Auditor's Report To the shareholders of Fast Times Corporation We have audited the accompanying balance sheet of Fast Times Corporation as of September 30,2012,and the related statements of income,retained earnings,and cash flows for the year then ended,and the related notes to the financial statements. Basis for Qualified Opinion We were unable to obtain audited financial statements supporting the company's investment in a foreign affiliate stated at $1,040,000,or its equity in earnings of that affiliate of $501,000,which is included in net income,as described in Note 14 to the financial statements.Because of the nature of the company's records,we were unable to satisfy ourselves as to the carrying value of the investment or the equity in its earnings by means of other auditing procedures. Required: Prepare the opinion paragraph for the above audit report.Do not date or sign the report.

The audit report date on a standard unqualified report indicates:

Misstatements must be compared with some measurement base before a decision can be made about materiality.A commonly accepted measurement base includes:

Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph)include:

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

When a qualified opinion is issued,an explanatory paragraph is added immediately after the opinion paragraph to explain the nature of the qualification that affects the opinion.

The standard audit report for non-public entities refers to GAAS and GAAP in which sections?

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

Section 404(b)of the Sarbanes Oxley Act requires that the auditor of a public company attest to management's report on the efficiency of internal controls over financial reporting.

Changes in accounting estimates requires the auditor to issue a modified unqualified audit report with a consistency paragraph inserted after the opinion paragraph.