Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. For a public company these considerations will affect the audit report as follows: ) If a loss meets these criteria, the auditor may issue an unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report. ) If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but should consider adding an explanatory paragraph as a means of emphasizing the disclosure. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion.

Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. For a public company these considerations will affect the audit report as follows: ) If a loss meets these criteria, the auditor may issue an unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report. ) If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but should consider adding an explanatory paragraph as a means of emphasizing the disclosure. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications and paragraph modifications that would be necessary. For each situation, select the best answer for the type of opinion and modifications the auditor would normally select. Assume all amounts are material to the financial statements and may or may not be pervasive. If different reports might be required, list them both. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient competent evidential matter regarding this investment cannot be obtained. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. A…
How is the auditors’ responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonpublic company?a. Stated explicitly in the Auditor’s Responsibility section.b. Unstated but understood in the Auditor’s Responsibility section.c. Stated explicitly in the opinion paragraph.d. Stated explicitly in the introductory paragraph.
The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors’ report alternatives?a. Unmodified opinion with a reference to going-concern or disclaimer of opinion.b. Standard (unmodified) report or a disclaimer of opinion.c. Qualified opinion or adverse opinion.d. Standard (unmodified) report or adverse opinion.
What do auditors consider when determining the extent to which the internal auditors’ work will affect the auditors’ procedures? A. The materiality of the account balance or transaction, the risk of material misstatement of the assertions, and the amount of subjectivity involved in evaluating the evidence gathered. B. Only the risk of material misstatement of the assertions related to the account balance, transaction, or disclosure and the amount of subjectivity involved in evaluating evidence gathered. C. Only the amount of subjectivity involved in evaluating the evidence gathered. D. Only the materiality of the account balance or transaction and the risk of material misstatement of the assertions.
Which of the following statements are not true about auditors responsibilities? a) The financial statements are auditors responsibility b) The auditor's responsibility for the audited financial statements is confined to the expression of his or her opinion on them c) To identify and assess the risks of material mis-statement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain sufficient appropriate audit evidence to provide a basis for the auditor’s opinion d) To obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances and for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Only a) and c) All a) , b) , c) and d) Only a) and d) Only a)
b) Which of the following statements regarding additional information that is included in a document containing audited financial statements is not true? Group of answer choices 1: Additional information can be subject to certain limited procedures by the auditor. 2: Additional information can be the subject of another information opinion. 3: Additional information can be the subject of an in-relation-to opinion. 4: Additional information can be subject to a limited review by the auditor.
When financial statements are presented in comparative form and another firm audited the prior years’ financial statements (but the other firm’s report is not presented with the financial statements), the auditors’ report on the current-year financial statements shoulda. Disclaim an opinion on the prior years’ financial statements.b. Not refer to the prior years’ financial statements.c. Refer to any procedures performed by the current auditor to verify the opinion on the prior years’ financial statements.d. Refer to the report and type of opinion issued by the other firm on the prior years’ financial statements.
When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: Withdraw from the engagement. Issue an unmodified opinion with a basis for modification paragraph. Issue an "except for" qualification or a disclaimer of opinion. Issue an "except for" qualification or an adverse opinion.
Negative Assurance in Review Reports. One portion of the report on a review services engagement is the following: “Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformitywith generally accepted accounting principles [or another framework for financial reporting].”Required:a. Is this paragraph a “negative assurance” given by the accountants?b. Why is negative assurance generally prohibited in audit reports?c. What justification is there for permitting negative assurance in a review services report on unaudited financial statements and on interim financial information?
S1: After conducting an audit and release of the audit report, the primary responsibility on the fairness of the financial statements remains with the management and those charged with governance of the entity. S2: In recurring audits, the auditor may not send a new engagement letter unless warranted by the circumstances. S3: For financial reporting purposes, an entity's risk assessment process includes its identification, analysis, and management of risks relevant to the preparation of financial statements in accordance with applicable financial reporting framework. S4: The risk of material misstatement is broader in scope compared to business risks. S5: Analytical procedures used as substantive test focuses on detecting material misstatements. S6: The responsible party always prepare a representation that will be subjected to the validation of the practitioner. Identify which statements are correct