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: South-Western College Pub
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Chapter 4, Problem 2TFQ
To determine
Introduction: The independent examination of the financial statements of an entity is termed as an audit. In an audit engagement, the auditor provides an opinion on the true and fair view of the financial statements.
To identify: Whether the given statement is true or false.
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If the auditors discover that the carrying amount of a client’s investments is overstated because of a loss in value that is other than a temporary decline in market value, they should insist thata. The approximate market value of the investments be shown in parentheses on the face of the balance sheet.b. The investments be classified as long term for balance-sheet purposes with full disclosure in the footnotes.c. The loss in value be recognized in the financial statements.d. The equity section of the balance sheet separately show a charge equal to the amount of the loss.
Which of the following situations would raise an auditor's concern about the risk of fraudulent reporting? Inability to generate positive cash flows from operations, while reporting large increases in earnings, Management's lack of interest in increasing the dividend paid on common stock, Large amounts of liquid assets that are easily convertible into cash, Inability to borrow necessary capital without obtaining waivers on debt covenants
Why is the risk that the auditor might make a mistake in expressing a modified opinion on financial statements, which are in reality, free from material misstatements and are fairly presented considered a business risk?
Chapter 4 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 4 - Prob. 1TFQCh. 4 - Prob. 2TFQCh. 4 - Prob. 3TFQCh. 4 - Prob. 4TFQCh. 4 - Prob. 5TFQCh. 4 - Prob. 6TFQCh. 4 - Prob. 7TFQCh. 4 - Prob. 8TFQCh. 4 - Utilitarian theory holds that what is ethical is...Ch. 4 - Prob. 10TFQ
Ch. 4 - Prob. 11TFQCh. 4 - Prob. 12TFQCh. 4 - Prob. 13MCQCh. 4 - Prob. 14MCQCh. 4 - Prob. 15MCQCh. 4 - Prob. 16MCQCh. 4 - Prob. 17MCQCh. 4 - Prob. 18MCQCh. 4 - Prob. 19MCQCh. 4 - Prob. 20MCQCh. 4 - Prob. 21MCQCh. 4 - Prob. 22MCQCh. 4 - Prob. 23MCQCh. 4 - Prob. 24MCQCh. 4 - Prob. 25RSCQCh. 4 - Prob. 26RSCQCh. 4 - Prob. 27RSCQCh. 4 - Prob. 28RSCQCh. 4 - Prob. 29RSCQCh. 4 - Prob. 30RSCQCh. 4 - Refer to the Focus on Fraud feature “Moss Adams...Ch. 4 - Prob. 32RSCQCh. 4 - Prob. 33RSCQCh. 4 - Prob. 34RSCQCh. 4 - Prob. 35RSCQCh. 4 - Prob. 36RSCQCh. 4 - Prob. 37RSCQCh. 4 - Prob. 38RSCQCh. 4 - Prob. 39RSCQCh. 4 - Prob. 40RSCQCh. 4 - Prob. 41RSCQCh. 4 - Prob. 42RSCQCh. 4 - Prob. 43RSCQCh. 4 - Prob. 44RSCQCh. 4 - Prob. 45RSCQCh. 4 - Prob. 46RSCQCh. 4 - Prob. 47RSCQCh. 4 - Prob. 48RSCQCh. 4 - Prob. 49RSCQCh. 4 - Prob. 50RSCQCh. 4 - Prob. 51RSCQCh. 4 - Refer to Exhibit 4.4. Briefly explain the seven...Ch. 4 - Prob. 53RSCQCh. 4 - Prob. 54RSCQCh. 4 - Prob. 55RSCQCh. 4 - Prob. 56RSCQCh. 4 - Prob. 57RSCQCh. 4 - Prob. 58RSCQCh. 4 - Prob. 59RSCQCh. 4 - Prob. 60RSCQCh. 4 - Prob. 61RSCQCh. 4 - Prob. 62RSCQCh. 4 - Prob. 63RSCQCh. 4 - Prob. 64RSCQCh. 4 - KPMG (LO 1, 2, 3) KPMG LLP served as the external...Ch. 4 - Prob. 66FF
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Similar questions
- a. It is impossible for an auditor to "guarantee" that a company's finanical statements are free of all errors because the cost to the company to achieve absolute accuracy (even if that were possible) and the cost of the auditor's verfication would be prohibitively expensive. How does the auditors' opinion recognize this absence of absolute accuracy? b. To what extent is the auditors' opinion an indicator of a company's future financial success and future cash dividends to stockholders?arrow_forwardwould you say that material mistakes found in a financial statement could lead to the auditors being held liable?arrow_forwardIf the auditor expresses an adverse or disclaimer of opinion on the complete set of financialstatements, she or he is not permitted to:a. Express an unmodified opinion on a single financial statement.b. Express an unmodified opinion on an element of the financial statements.c. Express a similar opinion on a single financial statement.d. Perform any of the abovearrow_forward
- Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least likely to cause concern is that management a. Operating and financing decisions are made by numerous individuals b. Commits to unduly aggressive forecasts c. Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices d. In interested in inappropriate methods of minimizing earnings for tax purposesarrow_forwardAn investor seeking to recover stock market losses from a CPA firm associated with aninitial offering of securities based on an unmodified opinion on financial statements thataccompanied a registration statement must establish thata. The audited financial statements contain a false statement or omission of material fact.b. The investor relied on the financial statements.c. The CPA firm did not act in good faith.d. The CPA firm would have discovered the false statement or omission if it had exerciseddue care in its examination.arrow_forwardAn auditor’s analytical procedures indicate a lower than expected return on an equity methodinvestment. This situation most likely could have been caused bya. An error in recording amortization of the excess of the investor’s cost over the investment’s underlying book value.b. The investee’s decision to reduce cash dividends declared per share of its commonstock.c. An error in recording the unrealized gain from an increase in the fair value of availablefor sale securities in the income account for trading securities.d. A substantial fluctuation in the price of the investee’s common stock on a national stockexchange.arrow_forward
- When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: Withdraw from the engagement. Issue an unmodified opinion with a basis for modification paragraph. Issue an "except for" qualification or a disclaimer of opinion. Issue an "except for" qualification or an adverse opinion.arrow_forwardWhen an event impacts a financial statement element, it should be recognized in the accounting records even if reliability of the amount is questionable. True Falsearrow_forwardWhat type of opinion is issued by the auditorr if he or she is unable to determine the overall fairness of the financial statements?arrow_forward
- When investors sue auditors for damages under section 11 of the Securities Act of 1933,they must allege and provea. Scienter on the part of auditors.b. The audited financial statements contained a material misstatement.c. They relied on the materially misstated financial statements.d. Their reliance on the materially misstated financial statements was the direct cause oftheir loss.arrow_forwardWhich type of audit report specifies that financial statements do not present fairly the financial position, results of operations, and cash flows in conformity with accounting standards? A. Qualified report B. Adverse report C. Unqualified report D. Disclaimer of opinionarrow_forwardDefine materiality. How does materiality come into play when assessing financial statement restatements? Other than materiality, what is the one word that might be the most distinguishing factor between ethical earnings management and unethical earnings management?arrow_forward
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