Exam 12: Reports on Audited Financial Statements

When auditors render an adverse opinion on the entity's financial statements,the

If separate reports on the entity's financial statements and internal control over financial reporting are presented,the auditors' report on the financial statements should reference the report on internal control over financial reporting.

When auditors lack independence,which of the following is true about the report on the entity's financial statements that should be issued?

Following are two independent situations. A. Grinner and Greeter, CPAs, were engaged to perform an audit of the financial statements of Happy, Inc. Happy's management would not allow Grinner and Greeter to confirm any of the accounts receivable. All other auditing procedures were performed as considered necessary by Grinner and Greeter and no issues were encountered. However, Grinner and Greeter were unable to satisfy themselves with regard to the balance in accounts receivable. A. The company has imposed a scope limitation on Grinner and Greeter. Although it is possible to issue a qualified opinion for a less material scope limitation, disclaimers of opinion are more appropriately issued for client-imposed scope limitations than for circumstance-imposed scope limitations. For the disclaimer of opinion, (1) the introductory paragraph would be modified to state that auditors were engaged to audit the financial statements and delete the sentence referring to the auditors' responsibility for the financial statements, (2) the scope paragraph would be omitted, (3) an additional paragraph would be added to describe the scope limitation, and, (4) the opinion paragraph would be modified to express a disclaimer of opinion. B. Because Johnson Manufacturing has not properly recorded a loss and a liability, the financial statements are not in conformity with generally accepted accounting principles. Therefore, depending on the overall materiality and pervasiveness of the misstatement, Tick and Tie should issue either a qualified or adverse opinion. In each case, a third paragraph would be added to the report to explain the departure from GAAP and the opinion paragraph would be modified to express either a qualified opinion or an adverse opinion. B. Tick and Tie, CPAs, were performing their annual audit of Johnson Manufacturing Company. Johnson is currently being sued for $2,000,000 related to an alleged defective product that they sold to a customer. Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and have to pay the entire $2,000,000. Johnson's management has included information in the footnotes about the lawsuit. However, they have not recorded any loss or liability in the income statement or balance sheet. Required: For each of the two independent situations, state what type of opinion should be issued on the company's financial statements. Briefly explain your rationale. Finally, state which paragraphs, if any, of the standard report would be modified.

An engagement in which auditors express opinions on both the client's financial statements and internal control over financial reporting are referred to as a(n)_____________________________________.

The situation in which predecessor auditors allow a previously issued report to be used but have not conducted any auditing procedures to verify that this report is still appropriate is referred to as a(n)_____________________________ report.

The introductory paragraph of the auditors' report indicates that an audit has been conducted and identifies the financial statements the auditors examined.

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?

The first paragraph of the standard report on the entity's financial statements is referred to as the scope paragraph.

How is the auditors' own responsibility for expressing the opinion on financial statements disclosed in the report?

If a going-concern uncertainty exists,auditors may not issue which of the following reports on the entity's financial statements?

Under which of the following conditions can a disclaimer of opinion never be issued?

When there has been a change in accounting principles but its effect on the comparability of the financial statements is not material,the auditors should

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)

Which of the following is not included in the standard report on the financial statements?

If financial statements contain a material but nonpervasive departure from generally accepted accounting principles,the auditors should render a(n)

How would the auditors' opinion on the entity's financial statements be affected if a material weakness in internal control over financial reporting is identified?

The _____________________________ paragraph indicates the character of auditors' work in the examination of the entity's financial statements.

If the auditors encounter a material scope limitation in the examination of an entity's financial statements,which of the following types of opinions could be issued?

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