Exam 18: Reports on Audited Financial Statements

When expressing an opinion on a specified account or item in the financial statements,the auditor need only consider that account or item.However,the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's

Auditing standards define special purpose financial statements as including those prepared under the following base(s)

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records.Cravens has observed the current inventory but has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance,which is not auditable,is a material factor in the determination of cost of goods sold for the current year.Cravens will probably

Abbot,CPA,as principal auditor for consolidated financial statements,is using a qualified report of another auditor.Abbot does not consider the qualification material relative to the consolidated financial statements and Abbot is willing to accept responsibility for the work of the other auditor.What recognition,if any,must Abbot make in his report to the report of the other audit?

A special report related to compliance with contractual provisions provides

Jeff Johns is a staff accountant and has been assigned to the audit of Worldwide Enterprises,Inc.Subsequent to the completion of fieldwork; Jeff was assigned to draft the audit report.The content of one of the paragraphs he has drafted reads as follows: As explained in Note 2 to the financial statements,Worldwide Enterprises has charged goodwill and certain other intangible assets acquired in two separate acquisitions directly to shareholders' equity.Under generally accepted accounting principles,these intangibles should have been recorded as assets and amortized to income over future periods.Had these intangibles been capitalized,total assets would have increased by $400,000 as of December 31,2011 and net income and earnings per share would be increased by $380,000 and $2.25,respectively (assuming a 20-year amortization period). a.Based on the contents of the paragraph above,which condition requiring a departure from a standard unqualified opinion exists in the engagement? b.Assuming that the engagement partner agrees with the paragraph Jeff has prepared above,where in the auditor's report should the paragraph be placed? c.How would the materiality of the condition above affect the final choice of opinion?

A change in reporting entity is an example of an accounting change that affects comparability and requires an explanatory/emphasis-of-matter paragraph in the audit report.

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence,the auditor should issue a(n)

If the principal auditor decides to make reference to the other auditor's examination,the introductory paragraph must specifically indicate the

An auditor is reporting on cash basis financial statements.These statements are best referred to in his or her report by which one of the following descriptions?

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in an entity's annual report except:

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large foreign subsidiary.Between which of the following reports should the auditor choose?

An auditor would issue an adverse opinion if

When a question arises about an entity's continued existence,the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow.An example of such a factor is the

A basic assumption that underlies financial reporting is that an entity will continue as a going concern.

When the audited financial statements of the prior year are presented together with those of the current year,the continuing auditor's report should cover

An engagement to express an opinion on a system of internal control will generally

Discuss the conditions that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit. There are three circumstances that may require a departure from an unqualified/unmodified audit report: 1.Scope limitation.A scope limitation results from an inability to collect sufficient appropriate evidence,such as when management prevents the auditor from conducting an audit procedure considered necessary. 2.Departure from GAAP.The financial statements are affected by a departure from GAAP. 3.Lack of auditor independence.The auditor must comply with the second general standard and the Code of Professional Conduct in order to issue an unqualified/unmodified opinion.

Which of the following circumstances should be recognized as a consistency modification in the auditor's report,whether or not the item is fully disclosed in the financial statements?

The following four situations require a modification to the standard unqualified audit report.Identify the modification required for each. a.Opinion based in part on the report of another auditor. b.Going concern. c.Lack of consistency. d.Additional emphasis.