Auditing simulated exam

Deficiency exists when

Auditing final exam simulation

11 of 100
An auditor is reporting on condensed financial statements for an annual period that are derived from the audited financial statements of a publicly-held entity.  The auditor's opinion should indicate whether the information in the condensed financial statements is fairly stated in all material respects:
a.  In conformity with accounting principles generally accepted in the United States of America.
b.  In relation to the complete financial statements.
c.  In conformity with an other comprehensive basis of accounting.
d.  In relation to supplementary filings under federal security statutes.

Answer:  "b" is correct.  The auditor should report whether the information in the condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived.

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Audit Reports, Topic 3: Reports on Audited Financial Statements

12.  Under which of the following circumstances would a disclaimer of opinion not be appropriate?

a.  The auditor is unable to determine the amounts associated with an employee fraud scheme.
b.  Management does not provide reasonable justification for a chance in accounting principles.
c.  The client refuses to permit the auditor to confirm certain accounts receivable or apply alternative procedures to verify their balances.
d.  The chief executive officer is unwilling to sign the management representation letter.

Answer:  b.

Audit Reports, Topic 3: Reports on Audited Financial Statements

A scope limitation sufficient to preclude an unqualified opinion always will result when management:
a.  Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
b.  Engages the auditor after the year-end physical inventory is completed.
c.  Requests that certain material accounts receivable not be confirmed.
d.  Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP.
Answer:  d

Audit Reports

Logan, CPA, audits Go Cars Inc.   Another CPA has audited a wholly-owned subsidiary of Go Cars.  The total assets and revenues of the subsidiary represent 17% and 18%, respectively, of the total assets and revenues of Go Cars.

For each of the situations listed in the table below, identify the appropriate opinion type and report modification by double-clicking on the shaded cells and selecting from the options provided.

Opinion type | Introductory Paragraph | Scope Paragraph | Opinion Paragraph | Explanatory Paragraph
Situation:

1. Assume Logan decides to take responsibility for the work of the other CPA, who previously issued an unqualified opinion.  
2. Assume Logan does not wish to assume responsibility for the work of the other CPA, who previously issued an unqualified opinion.
3. Assume Logan decides to take responsibility for the work of the other CPA, who previously issued a qualified opinion on the subsidiary's financial statements.  The subject of the qualification is very material to the subsidiary, but is not material in relation to the overall consolidated financial statements.
4. Assume Logan does not wish to assume responsibility for the work of the other CPA, who previously issued a qualified opinion on the subsidiary's financial statements.  The subject of the qualification is very material to the subsidiary, but is not material in relation to the overall consolidated financial statements.

1.   Unqualified  |  No change  |  No change  |  No change  |  None required

Involvement of another auditor does not prevent the issuance of an unqualified opinion.

2.   Unqualified  |  Modify  |  Modify  |  Modify  |  None required

A division of responsibility affects all three paragraphs of the auditor's standard opinion, but does not require inclusion of an explanatory paragraph.

3.   Unqualified  |  No change  |  No change  |  No change  |  None required

Involvement of another auditor does not prevent the issuance of an unqualified opinion.  If the other auditor's opinion is qualified, but the subject of the qualification is not material in relation to the overall consolidated statements, Logan need not make reference to the qualification in their report.

4.   Unqualified  |  Modify  |  Modify  |  Modify  |  None required

A division of responsibility affects all three paragraphs of the auditor's standard opinion, but does not require inclusion of an explanatory paragraph.  If the other auditor's opinion is qualified, but the subject of the qualification is not material in relation to the overall consolidated statements, Logan need not make reference to the qualification in their report.

Audit Reports

In auditing the long-term investments account, Levine, CPA, is unable to obtain audited financial statements for an investee located in a foreign country.  Levine concludes sufficient appropriate audit evidence regarding this investment cannot be obtained.

For each of the situations listed below, identify the appropriate opinion type and report modification by double-clicking on the shaded cells and selecting from the options provided.

Opinion Type    Introductory Paragraph     Scope Paragraph     Opinion Paragraph   Explanatory Paragraph

Situation:
1.  Assume the potential effect on the financial statements is immaterial
2.  Assume the potential effect on the financial statements is moderate.
3.  Assume the potential effect on the financial statements is high.

1.   Unqualified | No change | No change | No change | None required

Since the potential effect on the financial statements is immaterial, no change to the standard unqualified opinion is required.

2.   "Except for" qualified | No change | Modify | Modify | Insert preceding opinion

A scope limitation that has a material effect on the financial statements results in a qualified opinion.

3.   Disclaimer | Modify | Omit | Modify | Insert preceding opinion

A scope limitation that has a very material effect on the financial statements results in a disclaimer of opinion.