Question 4 Respond to each of the following independent situations involving auditor reports. For each scenario (1) identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3) identify any requiredmodifications of the standard auditor's report. b The auditor determines that a material uncertainty existsregarding the ability of the audit client to remain in business for the foreseeable future. However, the auditor believes that the use of normal GAAP reporting is still appropriate. Managem ent has adequately disclosed the material uncertainty in the footnotes to the financial- 7. statements. The client has a significant going concern problem, and the auditor believes that going concern accounting is no longer appropriate. However, management disagrees and has insisted on issuing normal GAAP (going concern) financial statements. 8.

Question 4 Respond to each of the following independent situations involving auditor reports. For each scenario (1) identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3) identify any requiredmodifications of the standard auditor's report. b The auditor determines that a material uncertainty existsregarding the ability of the audit client to remain in business for the foreseeable future. However, the auditor believes that the use of normal GAAP reporting is still appropriate. Managem ent has adequately disclosed the material uncertainty in the footnotes to the financial- 7. statements. The client has a significant going concern problem, and the auditor believes that going concern accounting is no longer appropriate. However, management disagrees and has insisted on issuing normal GAAP (going concern) financial statements. 8.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter5: Professional Auditing Standards And The Audit Opinion Formulation Process

Section: Chapter Questions

Problem 40MCQ

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Question 23 The auditors determined that the entity is suffering financial difficulty and its going concern status is serious in doubt. Assuming the entity adequately disclosed this matter in the financial statements, the auditor must choose between which of the following report alternatives? Unmodified opinion with a reference to going concern or disclaimer of opinion. Standard unmodified report or a disclaimer of opinion. Qualified or adverse opinion. Standard (unmodified) report or adverse opinion.
S1: Regarding communications between auditors, the predecessor auditor has the duty to initiate communications with the successor auditor. S2: Planning means developing a general audit plan and a detailed audit strategy for the expected nature, timing and extent of the audit. S3: The primary objective of an auditor to study and evaluate existing internal control is to obtain a basis for the expression of an auditor's opinion. A. Only 1 statement is True B. Only 2 statements are True C. All statements are True D. All statementS are False
Question 24 Which of the following is true regarding the auditor's responsibility related to reporting? Sufficient appropriate evidence should be obtained to afford a reasonable basis for the opinion regarding financial statements under audit. The audit opinion relates only to the client's financial statements, and does not relate to required footnotes. If the auditor has reservations about the fairness of presentation of the financial statements, the auditor does not need to provide the reason for this reservation. All of the statements provided are true.
Problem 10: For the following scenarios, assume you are the CPA reporting on the client's financial statements Determine the circumstance that applies to the situation and the type of opinion that needs to be issued for this nonpublic company. You may use all, some, or none of the circumstances and opinions. the Circumstance the Type of Opinion ConsistencyUnmodified Emphasis of Matter or other-matter paragraphQualified Going ConcernDisclaimer Justified departure from GAAPAdverse Other auditors Scope limitation Unjustified departure from GAAP No circumstance applies 1. A client has departed from GAAP for what you, the auditor, considers to be not justifiable. It has caused the financial statements to be materially misstated. Circumstance: Type of Opinion: 2. 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…
Q. Explain how the three types of modification to an auditor’sopinion on financial statements according to ISA705‘Modifications to the Opinion in the Independent Auditor’sReport’ are determined.
Q. Identify the three types of modification to an auditor’sopinion on financial statements according to ISA705‘Modifications to the Opinion in the Independent Auditor’sReport’ and explain how these are determined.
If the auditor concludes that management’s use of the going concern basis of accounting is appropriate in the circumstances but a material uncertainty exists, the auditor shall: i) Determine whether financial statements disclose clearly that there is a material uncertainty ii) Determine whether the financial statements adequately disclose the principal conditions that may cast significant doubt on the entity’s ability to continue as a going concern. iii) Determine whether the financial statements adequately disclose management’s plans to deal with these events or conditions. A. i) and ii) B. i) and iii) C. Only i) D. i) , ii) and iii)
Assume that items 1–8 are situations that Blas, CPA, has encountered during his audit of GELAY, Inc., a private company. List A represents the types of opinions the auditor ordinarily would issue, and List B represents a portion of the needed report modifications — whether an additional paragraph will be included. For each situation, select one response from List A and one (1) from List B. Select the best answers for each item the action the auditor would normally take. The types of opinions in List A and the report modifications in List B may be selected once, more than once, or not at all. Assume the following: The auditor is The auditor previously expressed an unmodified opinion on the prior year’s financial Only single-year (not comparative) statements are presented for the current The conditions for an unmodified opinion exist unless contradicted by the The conditions stated in the items to be answered are material, unless otherwise Each item to be answered is independent of the…
QUESTION 1 1) To obtain reasonable assurance about whether the financial statements as a whole are free frommaterial misstatement, the auditor must fulfill several performance responsibilities, including A) obtaining sufficient, appropriate audit evidence. .B) exercising professional judgment .C) verifying that all audit work is performed by a CPA with a minimum of three years'experience. D) providing an opinion on the financial statements 4 points QUESTION 2 2) When assessing the risk of material misstatements in the financial statements, A. company management is responsible for determining materiality levels. B. the auditor must understand the client's business and industry. C. GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. D. inadequate internal control procedures will mitigate client business risk 4 points QUESTION 3 In order…
Consider each situation below independently and describe the interactions between them and descriptions of KAM in the Auditor’s Reporti. The relevant matter requires the Auditor to modify the opinion in accordance with ISA 705 (Revised)Modifications to the Opinion of the Independent Auditor’s Report. ii. The auditor has expressed an Adverse Opinion on the financial statements. iii. The auditor has expressed a Disclaimer Opinion on the financial statements. iv. A Material Uncertainty Related to Going Concern Exists. v. The relevant matter should be highlighted/emphasised. vi. The auditor of this listed entity is unable to determine at least one KAM