Exam 15: Audit Reports on Financial Statements

Types of Audit Opinions For the past five years,Clark CPAs has audited the financial statements of a manufacturing company.During this period,the audit scope was limited by the client as to the observation of the annual physical inventory.Because Clark CPAs considers the inventories to be material and was not able to satisfy the audit requirements by using other auditing procedures,the firm was unable to express an unqualified opinion on the financial statements in each of the five years. The CPA was allowed to observe physical inventories for the current year ended December 31,2014,because the client's bank would no longer accept the audit reports.However,to minimize audit fees,the client requested that the CPA not extend audit procedures to the inventory as of the beginning of the year,January 1,2014. REQUIRED: Which type of audit report would you suggest be issued this year and why?

The auditor is only concerned about the aggregate internal control deficiencies when determining the appropriate opinion on internal control over financial reporting (ICFR).

In which one of the following instances would an auditor most likely issue an adverse opinion?

Andrews Corporation adopted an accounting principle that is a material departure from GAAP.The auditor determined that the financial statements are fairly presented,except for this specifically identifiable GAAP departure,and therefore would issue a disclaimer of opinion.

Which of the following is an example of circumstances that would not limit the audit scope?

Which of the following phrases should not be used when the auditor is qualifying the audit opinion?

A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.

Types of Audit Opinions A CPA has completed an audit of the financial statements of a long-haul trucking company for the year ended December 31,2014.Prior to 2014,the company depreciated its trucks over 10 years.However,during 2014,the company determined that a more realistic estimated life for its trucks was 8 years and computed the 2014 depreciation on the basis of the revised estimate.The CPA is satisfied that the 8 year estimate is reasonable,but the change will have a material effect on the comparability of the company's financial statements.The company adequately disclosed the change in estimated useful lives of its trucks and the effect of the change on 2014 income in a note to the financial statements. REQUIRED: Which type of audit report would you suggest be issued on the 2014 financial statements and why?

The opinion paragraph of the audit report for Schnook Co.states that the financial statements "do not present fairly".Which type of audit report is this?

Adverse opinions Under what circumstances would an auditor issue an adverse opinion?

The audit report is modified to five paragraphs as a result of another audit firm performing part of the financial statement audit.

If scope limitations that are not client-imposed exist make it impossible for the auditor to form an opinion,the auditor should render an adverse opinion.

According to the AICPA,the auditor needs to clearly express an opinion based on audit evidence obtained in the form of a written report.This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?

Types of Audit Opinions Aloe Products is an online retailer of lotions and other beauty supplies.The company records revenues at the time that the customer orders are placed on the website,rather than when goods are shipped.Goods are typically shipped two days after the order is places.The auditor determines that the amount of orders placed but not shipped as of the balance sheet date is not material. REQUIRED: Which type of audit report would you suggest be issued and why?

An important component of an audit report is that the title includes the word "competent."

When there is a restriction on the scope of the internal control over financial reporting (ICFR)engagement,what should the auditor do?

A reference to another auditor under U.S.auditing standards may result in which of the following?

When there is an uncertainty surrounding the financial statements,the auditor may still be able to give an unqualified opinion.

Disclaimers Discuss what a disclaimer is,when it is issued,and how it would affect the format of a standard three paragraph audit report.

When the auditor wishes to emphasize a matter in the financial statements,which of the following would the audit report contain?