ch 12

Which items are explicitly and implicitly reported in a standard auditor’s report?

GAAP and the audit opinion are explicitly reported, while consistency and going concern are implicitly reported.

How is the auditors’ responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonissuer?

Stated explicitly in the Auditor’s Responsibility for the Audit of the Financial Statements section.

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

An emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.

Which of the following statements is not true with respect to the audit examinations and reports for issuers and nonissuers?

Auditors are required to express an opinion on internal control in the audit of nonissuers but not in the audit of issuers.

The audit team found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose between which reporting options?

Qualified opinion or adverse opinion.

Which of the following situations would not ordinarily require auditors to modify the Opinion section of the report on the financial statements of a nonissuer?

A change from one generally accepted accounting principle to another.

In which of the following instances would a qualified opinion be an appropriate option (assuming no other issues have been encountered)?

A qualified opinion is appropriate for a scope limitation but not simply because group financial statements are audited.

If audit teams are unable to apply an auditing procedure to an account balance or class of transactions and the impact has a material effect on the audit, the audit team should first:

Attempt to determine whether alternative auditing procedures are available and can be applied.

Which sections of the standard report on the financial statements of a nonissuer would be modified in response to a material departure from GAAP?

The Basis for Opinion section would be modified, but the Auditor’s Responsibilities section would not.

When referred-to auditors are involved in the audit of group financial statements, the group auditors may issue a report that:

Refers to the referred-to auditors, describes the extent of the referred-to auditors’ work, and expresses an unmodified opinion.

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

The audit team has determined that the entity uses the NIFO (next-in, first-out) inventory costing method.

The audit team determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming the entity adequately disclosed this matter in the financial statements, the auditors must choose between which reporting alternatives?

Unmodified opinion with a reference to going-concern or disclaimer of opinion.

Which of these situations would require auditors to include an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?

Entity changed its inventory costing method from FIFO to LIFO.

When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following?

An emphasis-of-matter paragraph.

Which of the following would not be addressed in an emphasis-of-matter or other-matter paragraph?

The financial statement effects of a material departure from generally accepted accounting principles.

R. Wolfe became the new auditor for Royal Corporation, succeeding C. Mason, who audited the financial statements last year. Wolfe needs to report on Royal’s comparative financial statements and should disclose in the report an explanation about other auditors having audited the prior year:

To describe the prior audit and the opinion but not name Mason as the predecessor auditor.

When financial statements are presented in comparative form and another firm audited prior-year financial statements, the report should:

The report should refer to the predecessor auditor’s report and indicate the type of opinion expressed on the prior years’ financial statements. [Wording not fully visible in the recording.]

If the opinion issued on prior years’ financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors’ current report should:

Reference the type of opinion issued on prior years’ financial statements and state that the current opinion differs from the previous opinion. [Ending reconstructed.]

When a predecessor auditor has examined comparative financial statements and that report is not presented with the successor auditor’s report, the successor auditor should:

Refer to the prior-year audit and the predecessor auditor’s report and opinion without assuming responsibility for that audit.

If auditors examine all years presented in comparative form, which of the following best describes their responsibility for prior years’ financial statements in their current report?

Auditors should consider whether information has come to their attention that might affect their previous opinion on the prior years’ financial statements.

Which of the following would not be included in an auditors’ report on financial statements prepared using a special purpose framework?

An opinion on the appropriateness of the special purpose framework.

Auditors may accept an engagement and express an unmodified opinion on an element, account, or item of the financial statements if they:

Conduct the engagement in accordance with generally accepted auditing standards. [Exact answer wording not fully visible.]

Which of the following sections or paragraphs of the auditors’ report would be modified if the report expresses an opinion on financial statements prepared using the cash basis of accounting?

The Opinion section would be modified, but the Auditor’s Responsibility section would not.

Which of the following statements is not true regarding an auditors’ report on compliance with contractual provisions conducted in conjunction with a GAAS audit?

The auditors’ report expresses an opinion on the financial statements and on compliance with contractual provisions.