AUDITING & ASSURANCE SERVICES CONNECT AC
10th Edition
ISBN: 9781259292057
Author: MESSIER
Publisher: MCG
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Chapter 18, Problem 18.14MCQ
To determine
Concept Introduction:
Audit report includes the opinion of the auditor on the financial statements. Auditers providetheir opinions based on the audit evidences obtained during the
To choose: Thereason for issuance of a qualified opinion.
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Some auditors claim that increased exposure under creates a litigation environment that is unfairly risky for auditors. Do you think that the inability of auditors to detect a financial statement misstatement due to gross deficiencies in internal controls over financial reporting should expose auditors to litigation? Why or why not? Include reference to appropriate ethical standards in your response.
An auditor issued an unqualified opinion on financial statements that failed to disclose that a significant portion of the accounts receivable was uncollectible. The auditor also failed to follow professional auditing standards with respect to inventory. The auditor knew that the client would use the financial statements to obtain a loan. The client subsequently declared bankruptcy. Under what concepts might a creditor, who loaned money to the client based on the financial statements, recover losses from the auditor?
1) Using the categories included in the professional standards, inappropriately and intentionally failing to expense expired amounts of the prepaid insurance is an example of a)misappropriation of assets. b)other illegal acts. c)fraudulent financial reporting. d)direct effect illegal act
2)A financial statement audit should be designed to obtain reasonable assurance that the financial statements are free of material misstatement due to: a)misappropriation of assets only. b)fraudulent financial reporting only.c)neither fraudulent financial reporting nor misappropriation of assets. d)both fraudulent financial reporting and misappropriation of assets
Chapter 18 Solutions
AUDITING & ASSURANCE SERVICES CONNECT AC
Ch. 18 - Prob. 18.1RQCh. 18 - Prob. 18.2RQCh. 18 - Prob. 18.3RQCh. 18 - Prob. 18.4RQCh. 18 - Prob. 18.5RQCh. 18 - Prob. 18.6RQCh. 18 - Prob. 18.7RQCh. 18 - Prob. 18.8RQCh. 18 - Prob. 18.9RQCh. 18 - Prob. 18.10MCQ
Ch. 18 - Prob. 18.11MCQCh. 18 - Prob. 18.12MCQCh. 18 - Prob. 18.13MCQCh. 18 - Prob. 18.14MCQCh. 18 - Prob. 18.15MCQCh. 18 - Prob. 18.16MCQCh. 18 - Prob. 18.17MCQCh. 18 - Prob. 18.18MCQCh. 18 - Prob. 18.19MCQCh. 18 - Prob. 18.20MCQCh. 18 - Prob. 18.21MCQCh. 18 - Prob. 18.22PCh. 18 - Prob. 18.23PCh. 18 - Prob. 18.24PCh. 18 - Prob. 18.25PCh. 18 - Prob. 18.26PCh. 18 - Prob. 18.27PCh. 18 - Prob. 18.28P
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- When creditors who relied on an entity’s audited financial statements suffer monetary lossesafter a customer (the auditors’ client) goes bankrupt, what must the plaintiff creditors in alawsuit for damages show in a court that follows the doctrine in Credit Alliance?a. The auditors knew and specifically acknowledged identification of the creditors.b. The auditors could reasonably foresee them as beneficiaries of the audit because entitiessuch as this client use financial statements to obtain credit from vendors.c. The plaintiffs were foreseen users of the audited financial statements because they werevendors of long standing.d. All of the abovearrow_forwardStatement 1: If management fails to list an unasserted claim in the letter of inquiry to a lawyer, the lawyer is not required to inform the auditors of the omission. Statement 2: Normally, general risk contingencies need not be disclosed in the financial statements. Statement 3: If not adjusted, a situation in which the total likely misstatement in the financial statements exceeds a material amount is likely to lead to an audit report modification. A. only one statement is true B. only two statements are true C. All are true D. All are falsearrow_forwardWhich of the following best describes the reason why an independent auditorreports on financial statements?(1) A misappropriation of assets may exist, and it is more likely to be detected byindependent auditors.(2) Different interests may exist between the company preparing the statementsand the persons using the statements.(3) A misstatement of account balances may exist and is generally corrected as theresult of the independent auditor’s work.(4) Poorly designed internal controls may be in existencearrow_forward
- An auditor would issue an adverse opinion if: * The audit was begun by other O independent auditors who withdrew from the engagement. A qualified opinion cannot be given O because the auditor lacks independence. A restriction on the scope of the audit was significant. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.arrow_forward4. In which of the following instances would an auditor most likely issue a standard unqualified opinion WITHOUT an explanatory paragraph? a. Management disclosures are missing or inadequate. b. There is substantial doubt about the entity's ability to continue as a going-concern. c. Due to staffing issues, the audit report was issued later than in previous years. d. There is an material deviation from GAAP related to capitalizing repairs. e. None of the above.arrow_forwardQuestion 8 Tech Co. has an uncertainty because of pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by which of the following? In consistent application of GAAP Inability to estimate the amount of the loss. The client's lack of experience with such litigation Adequacy of disclosures.arrow_forward
- What is meant by a “colorable claim”? Do you believe auditors should be liable for investor losses even if they follow generally accepted auditing standards?arrow_forward2. A client has departed from GAAP for what you, the auditor, considers to be justifiable. The financial statements would have been misleading if the client had not departed from GAAP. Circumstance: Type of Opinion:arrow_forwardA company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. a. Explain why expected loss and gain are treated differently in accounting in the situation of a lawsuit. b. Give an example of a company that experienced an expected loss and gain due to a lawsuit. Provide the disclosure in their financial statements on gains and losses.arrow_forward
- What type of auditor report would be issued in each of the following cases? Justify your choice. Bowles Company is engaged in a hazardous trade and cannot obtain insurance coverage from any source. A material portion of the company’s assets could be destroyed by a serious accident. Drave Company owns substantial properties that have appreciated significantly in value since the date purchase. The properties were appraised and are reported in the balance sheet at the appraised values with full disclosure. The CIAs believe that the appraised values reported in the balance sheet reasonably estimate the assets current values. The CIA firm is auditing the financial statement that are to be included in the annual report to the stockholder of Eagle Company, A regulated company Eagle’s Financial Statement are prepared as prescribed by a regulatory agency of the Pakistan Government and some items are not presented in accordance with generally accepted accounting principles. The amounts…arrow_forwardEagle Company, a public company, had a computer failure and lost part of its financial data As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle's inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either Multiple Choice a qualified opinion with no explanatory paragraph or a qualified opinion with an explanatory paragraph. a qualified opinion or an adverse opinion a qualified opinion or a disclaimer of opinion. an unqualified opinion with no explanatory paragraph or an unqualified opinion with an explanatory paragraph.arrow_forwardWhich one of the following is other indicator or events or conditions that may cast significant doubt on the entity's ability to continue as a going concern? t of Labour strikes and unrest. estion Noncompliance with terms in loan agreement Non-Compliance with statutory requirements Loss of major market of suppliers 9: If the auditor found misstatements in financial statements resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit. the auditor shall : at of estion Auditing and Cont.pdf A EN 10:37earrow_forward
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