Question 4 Respond to each of the following independent situations involving auditor reports. For each scenario (1) identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3) identify any requiredmodifications of the standard auditor's report. b The auditor determines that a material uncertainty existsregarding the ability of the audit client to remain in business for the foreseeable future. However, the auditor believes that the use of normal GAAP reporting is still appropriate. Managem ent has adequately disclosed the material uncertainty in the footnotes to the financial- 7. statements. The client has a significant going concern problem, and the auditor believes that going concern accounting is no longer appropriate. However, management disagrees and has insisted on issuing normal GAAP (going concern) financial statements. 8.

Question 4 Respond to each of the following independent situations involving auditor reports. For each scenario (1) identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3) identify any requiredmodifications of the standard auditor's report. b The auditor determines that a material uncertainty existsregarding the ability of the audit client to remain in business for the foreseeable future. However, the auditor believes that the use of normal GAAP reporting is still appropriate. Managem ent has adequately disclosed the material uncertainty in the footnotes to the financial- 7. statements. The client has a significant going concern problem, and the auditor believes that going concern accounting is no longer appropriate. However, management disagrees and has insisted on issuing normal GAAP (going concern) financial statements. 8.

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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STATEMENT 1: Audit documentation provide the principal support for the auditor's opinion on the fairness of the financial statements. STATEMENT 2: Audit documentation aid in planning and conducting for future audits. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct
S1: When an Other Matter paragraph is included to draw users' attention to a matter relevant to their understanding of the audit of the financial statements, the paragraph is included immediately after the Opinion paragraph and any Emphasis of Matter paragraph. S2: The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements S1 is True, S2 is False S1 is False, S2 is True Both statements are True Both statements are False
Which item regarding an Emphasis of Matter paragraph is true? a. The auditor will use the E of M to restrict distribution of the audit report. b. The auditor will use the E of M when the client has corrected an error in the previous financial statements. c. An E of M will be used when a material error exists in the current financial statements. d. The E of M paragraph is usually located immediately before the opinion paragraph. e. The E of M paragraph would be used to discuss a client's change in the method to estimate bad debts.
An auditor has concluded that substantial doubt exists and that the client will not be able to meet its obligations as they become due for a reasonable period of time. Financial statement and footnote disclosures are adequate, detailing the conditions, events, and management's plans to alleviate the doubt. However, the CPA believes that substantial doubt remains. The CPA must add a Going Concern section to the audit report, discussing the Substantial Doubt. How should the audit opinion be modified? a. No modification. b. A qualified opinion. c. An adverse opinion. d. A disclaimer of opinion.
The reporting principle requires auditors to express their opinion through the issuance of a written report. Required: a. What is the purpose of the. auditors' opinion and report? b. What are the major sections in the auditors' report on the examination of an issuer? What are the major contents of each of these sections? c. What are the four types of opinions that auditors can issue? d . How does the concept of materiality influence the auditors' report?
Audit situations 1 through 10 present various independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue, and List B represents the report modifications (if any) that would be necessary. For each situation, select one response from List A and one from List B. Select, as the best answer for each item, the action the auditor normally would take. Items from either list may be selected once, more than once, or not at all. Assume the following: The auditor is independent The auditor previously expressed an unqualified opinion on the prior-year financial statements unless otherwise noted Only single-year (not comparative) statements are presented for the current year (unless otherwise stated) The conditions for an unqualified opinion exist unless contradicted in the factual scenario The conditions stated in the factual scenario are material No report modifications are to be made except in…
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.
Which of the following is a key change to audit reports per SAS No. 134? O a. It alters the look forward period for evaluating going concern uncertainty. O b. It explicitly assigns responsibility for evaluating going concern to the auditors. Oc. Reporting language related to substantial doubt about an entity's ability to continue as a going concern was eliminated. O d. Reporting language related to substantial doubt about an entity's ability to continue as a going concern was enhanced.
Question 4 Respond to each of the following independent situations involving auditor reports. For each scenario (1)identify the reporting issue involved; (2) explain the type of opinion that should be issued; (3) identify any requiredmodifications of the standard auditor'sreport. The auditor has a disagreem ent with a client overthe adequacy of the recorded bad debt expense and allowance for doubtful accounts. The auditor is convinced that the expense and allowance are understatedby amaterial (but not highly material) amount, but the client has refused to adjust the accounts. 1.4 The auditor has issued a report on a client's financial statem ents prepared on a regulatory basis of accounting. The auditor is also preparing to issue a separate report- on the same client's GAAP financial statements, which will be issued to the public. The auditor feels that the issuance of the report on the regulatory basis statements should be disclosed in the report on the GAAP statements. The auditor…
Question 4 Respond to each of the following independent situations involving auditor reports. For each· scenario (1)identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3)identify any requiredmodifications of the standard auditor'sreport.b The audit client has engaged in a significant number of related party transactions during the year. The auditor-believes that disclosure of these transactions is essentialto: comply with GAAP, and that the transactions have a highly material and pervasive effect on the financial statem ents. However, the client has refusedto make the required- financial statement disclosures. 4.4 A client refusesto allowthe auditors to confirm the accounts receivable. The potential· effects of relatedmisstatements on the financial statements are highly material and- pervasive. The auditors are unable to satisfy themselvesregarding the receivable and- sales balances by using alternative auditing procedures. 5. The auditor has…
Which items are matters of governance interest that an auditor would wish to discus with those charged with govenance! C a The general approach and overall scope of the audit. Og The potential effect on the financial statement of any material risks and exposures, a Material uncertainties related to events and conditions that may cast Significant doubt on the entity's ability to continue as a going concern. 04 all of above
(i) To obtain absolute assurance about whether the financial statements have no fraud or error, thereby enabling the auditor to ensure the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and(ii) To prepare the financial statements, and communicate as required by the HKASS.Q) Is the assurance level correct? If yes, what should the auditors do to achieve it? If no, state the correct assurance level and the reasons why only such level is achievable for audit purpose.