Exam 3: Audit Reports

Which of the following statements are true? I. The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II. The scope paragraph states that the auditor evaluates the appropriateness of those accounting principles, estimates, and financial statement disclosures.

A pervasive exception is one that affects different parts of the financial statements.

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to:

In certain circumstances, an auditor will issue modified unqualified report. Discuss each of the five circumstances when an auditor would issue an unqualified report with an explanatory paragraph or modified wording.

Indicate which changes would require an explanatory paragraph in the audit report.

When an adverse opinion is issued, a scope paragraph would be:

In which of the following situations would the auditor most likely issue an unqualified report?

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of:

An auditor should issue a qualified opinion with an explanatory paragraph whenever there is a material uncertainty affecting the financial statements.

When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n):

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.

An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued?

The following is a portion of an adverse audit report issued for a public company. (Note: A separate report was issued on the effectiveness of internal control over financial reporting.) Independent Auditor's Report To the shareholders of Wallace Corporation We have audited the accompanying balance sheet of Wallace Corporation as of December 31, 2012, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The company has excluded from property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be capitalized in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be increased by $14,500,000, long-term debt by $13,200,000, and retained earnings by $1,300,000 as of December 31, 2012, and net income and earnings per share would be increased by $1,300,000 and $2.25, respectively, for the year then ended. Required: Complete the above adverse audit report by preparing the opinion paragraph. Do not date or sign the report.

The phrase "The audit is designed to obtain reasonable assurance about whether the statements are free of material misstatements" is included in the introductory paragraph of an audit report.

A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred. II. When the auditor lacks independence. III. When generally accepted accounting principles have not been used.

Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit?

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

Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report.

The appropriate audit report date for a standard nonqualitifed audit report for a non-public entity should be the: