Exam 2: Financial Statement Audits and

In most cases, when disclosure in the financial statements is considered inadequate, the auditor's report must include the necessary disclosures.

If an extremely material scope limitation exists, the auditor should express:

The auditors report on internal control over financial reporting that goes to the public must report material weaknesses in internal controls.

Fair presentation of financial statements in accordance with GAAP is not a guarantee of the continuation of an entity as a going concern.

The ten generally accepted auditing standards are listed below in paraphrased form. Indicate the category to which each statement belongs by placing the following letters in the spaces provided:G:General, F:Field work, or R:Reporting, 1.An understanding of the internal control structure is to be obtained. 2.The auditor should be unbiased during the examination. 3.The financial statements should be in conformity with GAAP. 4.The financial statements contain adequate disclosures. 5.The auditor should have adequate technical training and proficiency as an auditor. 6.Sufficient competent evidential matter is to be obtained. 7.Due professional care is to be exercised by the auditor. 8.The work should be adequately planned and assistants should be properly supervised. 9.The report shall contain an expression of opinion. 10.Circumstances in which GAAP have not been consistently observed should be identified.

When a user sees that a standard unqualified opinion has been expressed by an external auditor, he or she may correctly infer that:

Auditors are responsible for planning and performing an audit to obtain reasonable assurance that the financial statements are free of material misstatement.

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, and this fact is adequately disclosed in the notes to the financial statements, the auditor's report should express:

SAS 82 essentially makes the audit report a guarantee.

Which one of the following is not an example of fraud?

A significant aspect of conducting an audit with due professional care is the auditor's attitude of professional:

The accounting profession is developing a narrower array of assurance services.

Auditing is not possible in the absence of verifiable data.

The auditor's standard report on internal control over financial reporting has six main paragraphs. Listed below are excerpts from each of the six main paragraphs. Identify which paragraph each statement is from. 1.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 2.We have also audited, in accordance with the standards of the Public Companies Accounting Oversight Board(United States), the balance sheet of XYZ Co. as of December 31, 2005 and related statements of income, cash flows, and equity for the years then ended… 3.…management's assessment that XYZ Co. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects… 4.We have audited managements assessments…. 5.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting… 6.We conduct our audit in accordance with auditing and related professional practice standards established by the standards of the Public Companies Accounting Oversight Board (United States).

The auditing standards are more applicable to audits of public companies than to audits of nonpublic companies.

Auditing procedures are the methods used and the acts performed by the auditor during an audit.

The training called for by the first general standard comes solely from practical experience.

Required auditor communication to the Audit Committee concerning illegal acts detected includes:

The primary purpose of the audit is to provide reasonable assurance that the financial statements are fairly presented in accordance with

If management concludes adequate disclosures in the financial statements concerning the entity's ability to continue as a going concern, the auditor would issue a qualified opinion on the financial statements with an additional paragraph explaining the going concern uncertainty.