Exam 17: Auditors Report

Doe,an independent auditor,was engaged to perform an audit of the financial statements of Ally Incorporated one month after its fiscal year had ended.Although the inventory count was not observed by Doe,and accounts receivable were not confirmed by direct communication with debtors,Doe was able to obtain sufficient appropriate audit evidence by applying alternative auditing procedures.Doe's audit report will probably contain:

When financial statements are affected by a material departure from generally accepted accounting principles,the auditors should:

Regulation S-X governs the form and content of financial statements filed with the SEC.

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements.The auditor will have access to all information underlying the basic financial statements.Under these circumstances,the auditor:

Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public?

A public company's financial statements should be prepared following standards of the Public Company Accounting Oversight Board.

It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an):

After performing all necessary procedures the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording.The predecessor auditors should:

The auditors include an emphasis-of-matter paragraph in report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise.The inclusion of this paragraph:

If an accounting change has no material effect on the financial statements in the current year,but the change is reasonably certain to have a material effect in later years,the change should be:

Use the accompanying solution sheet to reply to the eight situations below that relate to the audit of financial statements of nonpublic companies.Unless indicated otherwise,assume that material amounts are involved.Do not consider including an emphasis of matter paragraph in an "auditor discretionary" circumstance. Situations: 1.A company has departed from GAAP. 2.A company's inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures.She is satisfied that she has sufficient appropriate evidence. 3.In auditing a client,an auditor has determined that substantial doubt exists about an entity's ability to continue as a going concern. 4.A group auditor decides not to take responsibility for the work of the component auditor who audited a 70% owned subsidiary and issued an unmodified opinion.The total assets and revenues of the subsidiary are 5% and 8%,respectively,of the total assets and revenues of the entity being audited. 5.A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change.The change has a material effect on the comparability of the entity's financial statements this year,but is expected to have an immaterial effect in the future. 6.Inadequate record retention policies by the client have resulted in a situation in which a CPA is unable to obtain sufficient appropriate audit evidence with respect to a material account. 7.A CPA has decided to emphasize in the audit report that the company she audited is a component of XYZ Company,its parent. 8.A client has changed its estimate of likely doubtful accounts from 2% of credit sales to 3%.The auditor believes the change to be reasonable. Reply as to the type of opinion and other modification to the audit report as follows:

When the auditor is unable to determine the amounts associated with noncompliance with a law by client personnel due to a scope limitation,the auditor should issue a(an):

Which of the following is least likely to result in qualification of the auditors' opinion due to a scope limitation?

When the auditors are unable to comply with generally accepted auditing standards,they should issue an opinion that is unmodified,but include an additional emphasis-of-matter paragraph in the report.

Audit reports should be dated the date on which sufficient appropriate audit evidence has been collected.

In which of the following circumstances will it be most likely that an adverse opinion is considered appropriate?

A basis for modification paragraph in the audit of the financial statements of a nonpublic company:

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period,the continuing auditor is responsible for:

Under which of the following set of circumstances might the auditors disclaim an opinion?

William & Plaud are group auditors for the Lowell Corporation.One of the subsidiaries of Lowell Corporation,Wilson Manufacturing Co.,is audited by Lyle & Adams. a.If William & Plaud make reference in their report to reliance on the report of the component auditors are they qualifying their opinion? Explain. b.Regardless of whether William & Plaud make reference to reliance on the report of the component auditors,they should perform certain procedures with respect to Lyle and Adams' audit.What are these procedures?