Deck 6: The Auditors Report

Question 1

Which of these would not be considered a scope limitation?

A)Access to the board of directors meetings was limited to those meetings taking place before the balance sheet date.
B)The auditor is appointed to the engagement too late to observe the client's counting of the inventory.
C)The auditor is forced to call upon an outside expert to properly value antiques that are held in the client's vault as investments.
D)The client would not permit confirmation of receivables with their best customers for fear of annoying the customers.

Answer 1

C

Question 2

A standard unqualified audit report is not required to have which of the elements set out below?

A)A heading 'Auditors Opinion'.
B)An opinion paragraph.
C)Matters the auditor wishes to emphasise.
D)The opinion of the auditor on the financial statements.

Answer 2

C

Question 3

Which of these factors could not be the cause of a material misstatement?

A)Selection of inappropriate accounting policies.
B)Inadequate disclosure.
C)Disagreement with those charged with governance in relation to the financial statements.
D)None of the above, i.e.all could be the cause of material misstatement.

Answer 3

D

Question 4

An emphasis of matter section in an audit report is:

A)used very commonly.
B)not a qualification.
C)a qualification.
D)an adverse opinion.

Question 5

Which of the following is not one of the recent changes made to the standards for the new auditor report?

A)Introduction of KAMs.
B)Audit opinion paragraph is required to go at the bottom of the auditor's report to give greater prominence to this information.
C)An affirmative statement on auditor's independence.
D)Enhanced reporting related to going concern responsibilities.

Question 6

ASA 700 provides explanatory guidance on all of these points except:

A)the form and content of the auditor's report.
B)the auditor's reporting on other reporting responsibilities.
C)the training of junior audit staff.
D)the auditor's performance and reporting responsibilities.

Question 7

Comparatives refer to amounts or disclosures of one or more previous periods that are presented on a comparative basis with those of the current period.ASA 710 (ISA 710) states that the auditor:

A)is not required to investigate the comparatives.
B)is required to add an 'emphasis of matter' to the audit report.
C)is required to determine whether the comparatives take into account the change of auditor.
D)is required to determine whether the comparatives meet the requirements of the applicable financial reporting framework.

Question 8

An adverse opinion is most likely to be appropriate when there is:

A)a scope limitation.
B)a misstatement confined to a specific item.
C)a disagreement with those charged with governance which is material and pervasive.
D)inconsistent other information.

Question 9

The form and content of the auditor's report is specified within:

A)ASA 700.
B)AUS 708.
C)charter of the CAANZ.
D)sec 295 of the Corporations Act.

Question 10

Which of these items does not form part of the financial report, as defined in the Corporations Act ?

A)The directors' report.
B)A statement of cash flows for the year.
C)Notes required by Accounting Standards.
D)Any additional disclosures necessary to give a true and fair view.

Question 11

The addition of an emphasis of matter paragraph in an audit report:

A)is required by the standards to be included in all audit reports.
B)is only included for going concern uncertainties.
C)does not affect the auditor's opinion.
D)does affect the auditor's opinion.

Question 12

The emphasis of matter paragraph in an audit report would normally refer to the fact that the auditor's opinion is:

A)an adverse opinion.
B)a disclaimer of opinion.
C)qualified in this respect.
D)not qualified in this respect.

Question 13

An auditor is most likely to issue an 'adverse' opinion because of:

A)a significant uncertainty exists that should be brought to the reader's attention.
B)an extreme scope limitation.
C)a material departure from the applicable accounting standards.
D)the omission of the statement of cash flows.

Question 14

Which statement would not be found in a directors' declaration?

A)That the financial statements and notes give a true and fair view.
B)That the financial statements are free from material misstatement whether due to fraud or error.
C)That in the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.
D)That in the directors' opinion the financial statements and notes are in accordance with the law.

Question 15

Which of the following is not a modified audit opinion?

A)An unqualified opinion.
B)An adverse opinion.
C)A disclaimer of opinion.
D)A qualified opinion.

Question 16

Circumstances where the auditor is justified in qualifying the audit report because of an inability to obtain sufficient appropriate audit evidence would not include which of the following?

A)The auditor is appointed after the count of physical inventories has occurred.
B)The auditor runs out of time to follow normal auditing procedures because it has scheduled too many clients for audit in the final month of the audit period.
C)Where a fire has destroyed the entity's accounting records.
D)The auditor is not able to obtain sufficient appropriate audit evidence about an associated entity.

Question 17

According to the Corporations Act notes to the financial statements do not include:

A)notes required by accounting standards.
B)disclosures required by regulations.
C)a statement of changes in equity.
D)any other information necessary to give a true and fair view.

Question 18

If the previous period's financial statements are unaudited, and sufficient appropriate evidence is unavailable, then the current auditor's report will be:

A)qualified on the basis of scope limitation.
B)unqualified on the basis that the comparatives are unaudited and no opinion is expressed on them.
C)qualified on the basis that the comparatives are unaudited and an opinion is expressed on them.
D)qualified on the basis that the comparatives are unaudited and no opinion is expressed on them.

Question 19

When the auditor issues a disclaimer of opinion on a set of financial statements, the audit report should:

A)have a paragraph headed 'disclaimer of opinion'.
B)express an adverse opinion.
C)begin with the term "except for".
D)be unqualified.

Question 20

In addition to the requirements of ASA and the ISA standards, the Corporations Act also prescribes the auditor's reporting duties.Which of the following does not constitute one of those duties?

A)Forming an opinion on whether the financial reports are presented fairly.
B)Forming an opinion as to whether financial records have been kept to enable the preparation and audit of the financial reports.
C)Forming an opinion that all information, explanation and assistance necessary for the conduct of the audit have been provided.
D)Forming an opinion that the records and registers have been kept as required by law.

Question 21

Outline the reporting standards provided in ASA 700 Forming an Opinion and Reporting on a Financial Report.

Question 22

Which of the following statements is not true?

A)The auditor does not have to report KAMs in the audit report.
B)Where the auditor decides to modify the audit report, they do not include this matter in the KAM section.
C)Communication of KAMs is a substitute for disclosures that management are required to make as part of the financial report.
D)all of the above are true.

Question 23

What is a key audit matter (KAM)? Provide two examples of possible KAMs.

Question 24

Toady.com is a new public phone and internet company heavily financed by the Eastpac Bank.During your audit of Toady.com you have found that the business is in the practice of signing up new customers with very little in the way of credit checks.You are concerned that the disclosure of bad and doubtful debts may not accurately reflect the true situation of the company.You notice that if you apply the standards correctly the bad and doubtful debts will have such an effect on the financial statements that capital adequacy requirements may be breached.
When you approached management about the adequacy of these disclosures they told you that they were happy with the bad and doubtful debts at their current level, and that they would not be changing their method of application of the standard.
What is your first obligation? What type of auditor's report will you issue, and why?

Question 25

Which of the following statements is not true in relation to 'other matter' paragraphs?
a.An 'other matter' paragraph may include confidential information.
b.An 'other matter' paragraph may be used by the auditor to explain why he/she could not withdraw from the engagement.
c.An 'other matter' paragraph does not include KAMs.
d.The inclusion of an 'other matter' paragraph does not affect the auditor's opinion.

Question 26

Imaginary Services Co Pty Ltd started trading last year, and has undergone a recent surge of growth due to increased demand for their Imaginary Service.Your firm was appointed auditor for Imaginary Services Co Pty Ltd in August 2019.As a result of this timing, you did not get the opportunity to observe the physical inventory count as of 30 June 2019, as it was done prior to your appointment.Owing to the nature of the company's records, you have not been able to satisfy yourself as to inventory quantities.
The inventory balance is material, however, you have found that controls over inventory are good, and that there is a low risk of misstatement for this asset.What type of audit report would you issue, and why?
If the company was Imaginary Consumables Co Pty Ltd, and the controls over inventory were not so good, would this affect the audit report, and why?