Deck 18: Audit reporting

Question 1

Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:

A) is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
B) does not believe the report is prepared or presented fairly in all material respects in accordance with an applicable accounting framework.
C) does not know if the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
D) is satisfied that the report is prepared and presented fairly except for a specific aspect of it.

Answer 1

A

Question 2

Which of the following is NOT a category of audit or attestation report?

A) an audit of internal controls
B) an audit of financial reports
C) agreed-upon audit procedures
D) a review engagement

Answer 2

A

Question 3

The audit report date indicates the:

A) last day of the financial period.
B) date on which the financial report was filed with ASIC.
C) last date on which users may institute a lawsuit against either the client or the auditor.
D) last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial report.

Answer 3

D

Question 4

The appropriate date for the audit report is the one on which the:

A) auditor signs the report.
B) auditor and client entered into a contract.
C) client's financial year ended.
D) auditor types and delivers the report to client.

Question 5

In the auditor's responsibility paragraph of the audit report, the use of the term 'reasonable assurance' is intended to indicate that:

A) no misstatements exist in the financial statements.
B) there is a possibility that material misstatements still exist in the financial statements.
C) no material misstatements exist in the financial statements.
D) there is a possibility that immaterial misstatements still exist in the financial statements.

Question 6

ASA 700 requires that the title of the audit report:

A) indicate whether the author is a member of a professional body.
B) not include any discriminatory language.
C) indicate whether the author is a proprietorship, partnership, or incorporated.
D) include the word 'independent'.

Question 7

Auditing standards require that an audit report be issued whenever a public accounting firm:

A) is associated with financial reports.
B) does ASIC-regulated work.
C) performs an audit.
D) is engaged to perform any services of any nature.

Question 8

The most common type of audit report is the 'standard unmodified audit report'.It is used when which three of the following conditions have been met?
1)The financial report is presented fairly, in all material respects, in accordance with the applicable financial reporting framework (usually Australian accounting standards).
2)The financial report is presented fairly, in all material respects, in accordance with the relevant statutory requirements (usually the Corporations Act).
3)The financial information complies with relevant statutory and other requirements.
4)The view presented by the financial report is consistent with the auditor's understanding of the entity and its environment.

A) 1, 3, 4
B) 2, 3, 4
C) 1, 2, 3
D) 1, 2, 4

Question 9

Under certain circumstances, the auditor is required to provide additional information regarding the financial report even though he or she intends to express an unmodified opinion.Normally, such explanatory information should be included in:

A) the opinion paragraph.
B) the scope paragraph.
C) the introductory paragraph.
D) an emphasis of matter paragraph.

Question 10

What condition requires departure from an unmodified report?

A) a materially misstated financial report
B) inability to obtain sufficient appropriate audit evidence
C) both A and B
D) none of the above

Question 11

The introductory paragraph of the standard unmodified audit report states that the financial report:

A) is the responsibility of management.
B) identifies the financial report examined.
C) is the joint responsibility of management and the auditor.
D) is the responsibility of the auditor.

Question 12

Which auditing standard requires an expression of an opinion about the overall financial report?

A) ASA 700
B) ASA 705
C) both A and B
D) none of the above

Question 13

The auditor's conclusions are stated as opinion rather than a statement of fact:

A) to avoid the possibility of legal action against the auditor.
B) to allow for a margin of error.
C) because conclusions are based on professional judgement.
D) all of the above

Question 14

If the balance sheet of a company is dated 30 June 2012, the audit report is dated 6 September 2012, and both are released to the public on 15 September 2012, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to:

A) 6 September 2012.
B) 30 June 2012.
C) 15 September 2012.
D) none of the above

Question 15

The Corporations Act 2001 requires the auditor of a financial report to form an opinion about whether the:

A) auditor has been given all necessary information, explanation, and assistance.
B) financial report complies with accounting standards and presents a true and fair view.
C) entity has kept sufficient records for the financial report to be prepared and audited.
D) all of the above

Question 16

The auditor's responsibility section of the standard unmodified report does NOT include:

A) the auditor's responsibility for designing, implementing, and maintaining relevant internal controls.
B) that the audit was conducted in accordance with Australian auditing standards.
C) a discussion of the audit evidence accumulated and the factors considered in forming the audit opinion.
D) the auditor's responsibility for expressing an opinion on the financial report based on an audit.

Question 17

The accounting profession recognises the need for uniformity in reporting:

A) as a means of avoiding confusion.
B) because ASA 700 and ASA 705 have defined and enumerated the types of audit reports that should be included with general-purpose financial reports.
C) because users would have considerable difficulty interpreting the meaning of an auditor's report if each were an original creation.
D) all of the above

Question 18

A public accounting firm is associated with the financial report of its client:

A) only when it does a financial audit.
B) even if the firm only assists a client in preparing the financial report but does not do an audit.
C) only when it does attestation services, such as a review or an audit.
D) if it performs any services at all for the client.

Question 19

Which of the following representations does an auditor make when he or she issues an unmodified audit opinion?

A) The financial report has been prepared in accordance with applicable accounting standards.
B) The financial report has been prepared in accordance with Australian auditing standards.
C) The financial report has been prepared in accordance with Australian Securities Exchange listing requirements.
D) The financial report has been audited at the lowest materiality level possible.

Question 20

An audit report is appropriate:

A) whenever a public accounting firm assists a client in preparing financial reports.
B) only when an audit is conducted.
C) whenever a public accounting firm is associated with financial reports.
D) none of the above

Question 21

If a misstatement exists, but is unlikely to affect the decisions of a reasonable user, it is appropriate to issue:

A) an unmodified opinion.
B) an adverse opinion.
C) a qualified opinion.
D) an ability to form an opinion.

Question 22

Because the auditor was engaged to undertake the audit after the year-end and was unable to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.The auditor must depart from the unmodified audit report because the:

A) scope of the audit has been restricted by circumstances beyond either the client's or the auditor's control.
B) auditor has lost independence.
C) financial report has not been prepared in accordance with accounting standards.
D) scope of the audit has been limited.

Question 23

When an adverse, qualified, or disclaimer of opinion is issued, ASA 705 requires that the auditor's report includes:

A) a clear description of all the substantive reasons for the opinion.
B) where practicable, a quantification of the possible effect on the financial report.
C) both A and B
D) none of the above

Question 24

Of the two major categories of scope limitations, (1)those caused by client and (2)those caused by conditions beyond the control of either the client or the auditor, the effect on the auditor's report is:

A) negligible.
B) more serious for (1) than for (2).
C) the same for both.
D) more serious for (2) than for (1).

Question 25

Which one of the following is NOT a condition requiring departure from an unmodified opinion?

A) a materially misstated financial report
B) inability to obtain sufficient appropriate audit evidence
C) both A and B
D) none of the above

Question 26

Which of the following types of opinion is a report other than an unmodified report?

A) disclaimer of opinion
B) adverse
C) qualified
D) all of the above

Question 27

When a misstatement in the financial report would affect a user's decision but the overall statements are still fairly stated, it would be appropriate to issue:

A) a qualified opinion.
B) an inability to form an opinion.
C) an adverse opinion.
D) an unmodified opinion.

Question 28

If the preparers of the financial report believe that the application of an accounting standard may mislead the users of those statements, and the auditor concurs with this view:

A) a scope limitation will arise.
B) a standard unmodified opinion can be issued.
C) the accounting standard need not be followed.
D) an emphasis of matter paragraph will be added to the audit report.

Question 29

The primary concern in measuring materiality when a client has failed to follow an accounting standard is usually:

A) whether it can materially affect some future period.
B) the total dollar error in the accounts involved, compared with some base.
C) the nature of the item in error.
D) measurability of the dollar error.

Question 30

When amounts are so material that an adverse opinion is required, the opinion statement must clearly state that the financial report:

A) does not present a true and fair view.
B) should not be relied on.
C) could not be audited.
D) is not free from material error.

Question 31

Misstatements must be compared with some measurement base before a decision can be made about the materiality of the failure to follow accounting standards.A commonly accepted measurement base is:

A) profit.
B) total assets.
C) current assets.
D) all of the above

Question 32

An adverse opinion is issued when the auditor believes:

A) some parts of the financial report are materially misstated or misleading.
B) the audit firm is not independent.
C) the misstatements are material and pervasive to the financial report.
D) the financial report will be found to be misleading or misstated, if an adequate investigation is performed.

Question 33

Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial report is issued.These matters are referred to as:

A) significant uncertainties.
B) non sequiturs.
C) in suspense matters.
D) inestimable matters.

Question 34

The need to issue a disclaimer of opinion arises when there is a:

A) material scope limitation.
B) material and pervasive scope limitation.
C) conflict between reporting frameworks.
D) conflict with management.

Question 35

The LEAST severe type of report for disclosing departures from an unmodified report is the:

A) adverse opinion.
B) qualified opinion.
C) disclaimer of opinion.
D) report on unaudited financial statements.

Question 36

The dollar amount of some misstatements cannot be accurately measured.For example, if the client were unwilling to disclose an existing legal action, the auditor must estimate its effect on:

A) the auditor's exposure to lawsuits.
B) users of the financial report.
C) management's future decisions.
D) net income.

Question 37

A disclaimer of opinion is issued whenever the auditor:

A) believes that some material part of the financial report is not presented fairly.
B) believes that the overall financial report is not presented fairly.
C) has determined that the financial report is presented fairly.
D) has been unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the possible effects on the financial report could be both material and pervasive.

Question 38

In an adverse or disclaimer of opinion report, the auditor:

A) believes that the effects are material.
B) believes that the effects are pervasive.
C) both A and B
D) none of the above

Question 39

Which one of the following is NOT a departure from an unmodified opinion?

A) a qualified opinion
B) an adverse opinion
C) an emphasis of matter section
D) none of the above

Question 40

It is appropriate to issue an opinion that contains the phrase 'except for' when:

A) there has been a material misstatement on a particular matter that is material and pervasive.
B) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
C) there has been a material misstatement on a particular matter that is material.
D) none of the above

Question 41

When there is a material inconsistency between the financial report and other information in the annual report, and the client refuses to change the information, the auditor should:

A) do nothing as the audit opinion is confined to the financial report.
B) include an emphasis of matter section in the audit report.
C) advise ASIC and the ASX.
D) issue a qualified opinion.

Question 42

Angel Pty Ltd's financial report includes two balance sheets and profit and loss accounts.One set is drawn up in accordance with applicable accounting standards, and the other set is drawn up without complying with one standard, which the directors consider to make the accounts misleading.The auditors concur.The audit report should, therefore, contain:

A) an adverse opinion.
B) a qualified opinion with an emphasis of matter section.
C) a disclaimer of opinion.
D) an unmodified opinion with an emphasis of matter section.

Question 43

Auditing standards require that an audit report include the word 'independent' in the report's title.

Question 44

It is more difficult to evaluate the materiality of potential errors resulting from a scope limitation than from a:

A) misstatement in the financial report.
B) going concern disclosure.
C) both A and B
D) none of the above

Question 45

The intent in the opinion statement is to indicate that the conclusion reached is based on fact.

Question 46

The phrase 'generally accepted accounting principles' can be found in the auditor's responsibility paragraph of a standard unmodified report.

Question 47

The appropriate date for the report is the one on which the auditor completes the most important auditing procedures in the field.

Question 48

It is appropriate to issue an opinion that contains the phrase 'because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph' when:

A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material and pervasive.
C) there has been a material misstatement on a particular matter that is material.
D) none of the above

Question 49

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, and this has been adequately disclosed in the financial statements, the appropriate audit report is:

A) an adverse opinion with an emphasis of matter section.
B) a qualified opinion with an emphasis of matter section.
C) an unmodified opinion with no emphasis of matter section.
D) an unmodified opinion with an emphasis of matter section.

Question 50

The most common case in which conditions beyond both the client's and the auditor's control cause a scope limitation is an engagement:

A) agreed upon after the client's balance sheet date.
B) where the auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries.
C) where the client is going through bankruptcy.
D) where the client won't allow the auditor to confirm receivables for fear of offending its customers.

Question 51

When a significant uncertainty exists and this has NOT been disclosed:

A) a scope limitation will need to be reported.
B) an inability to form an opinion must be used.
C) a qualified or an adverse opinion is required, depending on materiality.
D) an unmodified opinion with an emphasis of matter section is appropriate.

Question 52

Goods Pty Ltd's financial report shows a profit increase of 20% on the previous year.The chairman's report in Goods Pty Ltd's annual report boasts of a 50% increase in profit from the previous year.The auditor's report should include:

A) an 'except for' qualified opinion.
B) an adverse opinion.
C) an emphasis of matter section.
D) a qualified opinion.

Question 53

Professional standards require that a report be issued whenever a public accounting firm is associated with financial statements.

Question 54

Whenever an auditor adds an emphasis of matter section to an unmodified audit report, the implication is that the auditor:

A) does not know if the report is presented fairly.
B) is satisfied that the report is presented fairly 'except for' a specific aspect of it.
C) does not believe the report is presented fairly.
D) is satisfied that the report is presented fairly.

Question 55

The most common type of audit report is the standard unmodified audit report.

Question 56

The signature section of the audit report identifies the public accounting firm that has performed the audit.

Question 57

The audit report is normally addressed to the company's president or chief executive officer.

Question 58

The Corporations Act requires that the financial report of a company must present a true and fair view of its state of affairs and profit (or loss)only.

Question 59

It is appropriate to issue an opinion that contains the phrase 'does not present a true and fair view' when:

A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) none of the above

Question 60

The phrase 'auditing standards require that we...plan and perform the audit to obtain reasonable assurance whether the financial report is free of material misstatement' is included in the opinion paragraph of an audit report.

Question 61

What are 'significant uncertainties', and should they always be referred to in the audit report?

Question 62

An adverse opinion is used when there has been a material and pervasive misstatement.

Question 63

It is usually more difficult to evaluate the materiality of potential errors resulting from a disagreement with management than from a scope limitation.

Question 64

What three conditions must be met in order for a standard unmodified audit report to be appropriate?

Question 65

On discovering a significant uncertainty affecting the financial report, an auditor should immediately qualify the audit report.

Question 66

Discuss how materiality affects audit reporting decisions.

Question 67

The audit of a half-year financial report requires the same audit procedures as those performed during the annual financial report audit.

Question 68

Under what conditions is a disclaimer of opinion issued?

Question 69

When a qualified opinion is issued, a clear description of all the substantive reasons should be given.

Question 70

What are the two main causes of scope limitations?

Question 71

A disclaimer of opinion resulting from a client limitation requires a 'basis' section to describe the limitation.

Question 72

An adverse opinion is used when there has been a material and pervasive scope restriction caused by the client.

Question 73

What are the nine distinct parts of a standard audit report?

Question 74

Whenever an auditor discovers a material and pervasive violation of an accounting standard in the financial report, and the client refuses to correct it, the auditor should issue a disclaimer of opinion.

Question 75

An example of an indicator of a business's inability to continue as a going concern is an arrears or discontinuance of dividends.

Question 76

If an audit report is qualified, the qualification is included in the opinion paragraph.

Question 77

The most common case in which conditions beyond both the client's and the auditor's control cause a scope limitation is an engagement agreed upon after the client's balance sheet date.

Question 78

What are the two conditions under which a qualified opinion may be issued?

Question 79

An emphasis of matter paragraph is included in an audit report if the auditor is uncertain about whether a report has been fairly presented.

Question 80

Where there are scope limitations, the size of potential errors is important in determining the appropriate form of the audit report.