Exam 12: Reports on Audited Financial Statements

After considering management's plans,an auditor concludes that there is substantial doubt about a client's ability to continue as a going concern for a reasonable period of time.The auditor's responsibility includes

For each of the sentences or phrases below,indicate,by letter,in which section of the standard (unmodified)report on the entity's financial statements the sentence or phrase would appear. A.Introductory paragraph B.Management's Responsibility section C.Auditor's Responsibility section D.Opinion paragraph 1___.Our responsibility is to express an opinion on these financial statements based on our audits.2___.The financial statements referred to above present fairly,in all material respects,the financial position of...3___.We have audited the accompanying financial statements of...4___.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.5___.Management is responsible for the preparation and fair presentation of these financial statements...

When financial statements contain a departure from GAAP,the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is

The auditors conclude that there is a material inconsistency in the "other information" in an annual report to shareholders containing audited financial statements.If the auditors conclude that the financial statements do not require revision,but the entity refuses to revise or eliminate the material inconsistency,the auditors may

Which of the following best reflects the auditors' reporting responsibility under generally accepted auditing standards? Other Information Required Accormparlying the Supplemeritary Finarucial Staterments Information A Exception Required B. Exception Exception C. Required Required D. Required Exception

Which of the following is an example of a material accounting change that requires recognition in an unmodified opinion on the entity's financial statements?

Auditors would not normally issue a qualified opinion on the entity's financial statements when

The auditors have determined that there is substantial doubt about an entity's ability to continue as a going concern.When considering the appropriateness of management's disclosures and severity of the uncertainty,all of the following reports could be issued,except

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

Which of the following is not an appropriate reporting option when component auditors are involved in the audit of group financial statements,assuming that the component auditors' work did not identify any issues affecting the group auditors' report?

The issuance of a disclaimer of opinion generally indicates

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?

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?

Holmes & Smith LLP were engaged to audit the financial statements of Sodolak Reality for the year ended December 31.During the engagement,Sodolak filed a lawsuit against Holmes & Smith LLP.What effect,if any,will this lawsuit have on the auditors' report?

The auditors include an emphasis-of-matter paragraph in an otherwise unmodified report on the entity's financial statements to emphasize that the entity being reported on had significant transactions with related parties.The inclusion of this separate paragraph

Murray & Co.,CPAs completed the audit of Classic,Inc.,a nonpublic entity,on March 1,2018 for a January 31,2018 fiscal year end.The audit team encountered no significant issues and found no material misstatements.Murray & Co.has audited Classic,Inc.for several years and past audits did not reveal any significant issues or material misstatements.The audit team partner determined that a standard (unmodified)report on Classic,Inc.'s financial statements was appropriate.The auditors' report,drafted by I.M.Nu,a staff assistant,is provided below. Independent Auditor's Report To the Board of Directors and Shareholders Classic,Inc. We have audited the accompanying financial statements of Classic Inc.,which comprise the balance sheet as of January 31,2018 and the related statements of changes in shareholders' equity and cash flows for the year then ended,and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the entity'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.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the financial statements. Opinion In our opinion,the financial statements referred to above present fairly,the financial position of Classic,Inc.as of January 31,2018 and the results of its operations and its cash flows for the year then ended. Murray & Co,CPAs January 31,2018 Required: Identify the deficiencies and errors in the draft report.Do not rewrite the report,but be specific as to what is incorrect or omitted.Organize your answer by paragraph or section.

Which of the following would not be communicated to users in the auditors' report on an entity's financial statements and related disclosures?

A client has capitalizable leases but refuses to capitalize them in the financial statements.Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

The group auditors decide not to refer to the audit of component auditors who audited a subsidiary of the group financial statements.After making inquiries about the component auditors' professional reputation and independence,the group auditor most likely would

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time.The entity's financial statements adequately disclose its financial difficulties.Under these circumstances,the auditor's report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s) "Possible "Except for the effects discontiruarce of the of such adjustrnerts" ertity's operations" A Yes Yes B. Yes No C. No Yes D. No No