AUD 1 - Modified Opinions Due to Audit Issues

Question 1

Define modified opinion as it relates to materiality for qualified opinion and disclaimer opinion?

Answer 1

Qualified opinion - material BUT NOT pervasive

Disclaimer opinion - material AND pervasive (very material)

Question 2

What are three common scope limitations (GAAP problems)?

Answer 2

1) Insufficient evidence
2) Going concern
3) Not independent

Question 3

Describe the inability to perform an audit procedure and what that means on auditor’s opinion?

Answer 3

Inability to perform an audit procedure does not mean there is a scope limitation (GAAS problem) as long as the auditor can perform alternative procedures

Question 4

Define when association with financial statements occurs as it relates to unaudited financial statements?

Answer 4

Association occurs when an accountant:

1) consents to the use of his or her name in connection with the financial statements

OR

2) has prepared the financial statements, even if the accountant’s name is not used

Question 5

Define disclaimer on unaudited financial statements?

Answer 5

1) The accountant must read the financial statements
2) Unaudited financial statements should be clearly marked on each page of the financial statements
3) If client refuses to correct an obvious error, the auditor should add a paragraph modifying the disclaimer to describe the nature and effect of the departure from GAAP
4) If client refuses to accept modified disclaimer, the auditor should WITHDRAW from the engagement

Question 6

Define the following in a qualified opinion for nonissuer (GAAS problem):

• Introductory paragraph

- Management’s responsibility paragraph

Answer 6

Introductory paragraph

• stays the same

Management’s responsibility paragraph

• stays the same

Question 7

Define the following in a qualified opinion for nonissuer (GAAS problem):

• Auditor’s responsibility paragraph

- Basis for qualified opinion paragraph

Answer 7

Auditors responsibility paragraph

• Modify the paragraph to state: “Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the QUALIFIED audit opinion”

Basis for qualified opinion paragraph
* placed immediately BEFORE the opinion paragraph

• this paragraph should describe the reasons for the inability to obtain sufficient appropriate audit evidence

Question 8

Define the following in a qualified opinion for nonissuer (GAAS problem):

• Qualified opinion paragraph

Answer 8

Qualified opinion paragraph

• should state that in the auditor’s opinion, EXCEPT FOR the effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are PRESENTED FAIRLY

Question 9

Define the following in a disclaimer of opinion for nonissuer (GAAS problem):

• Introductory paragraph

- Management’s responsibility paragraph

Answer 9

Introductory paragraph

• modify the paragraph to state that the auditor was engaged to audit the financial statements

Management’s responsibility paragraph

• stays the same

Question 10

Define the following in a disclaimer of opinion for nonissuer (GAAS problem):

• Auditor’s responsibility paragraph

- Basis for disclaimer of opinion paragraph

Answer 10

Auditor’s responsibility paragraph

• BECAUSE OF the matter(s) described in the basis for the disclaimer of opinion paragraph, WE WERE NOT ABLE to obtain sufficient appropriate audit evidence

Basis for disclaimer of opinion paragraph
* placed immediately BEFORE the opinion paragraph

• this paragraph should describe the reasons for the inability to obtain sufficient appropriate audit evidence

Question 11

Define the following in an disclaimer of opinion for nonissuer (GAAP problem):

• Disclaimer of opinion paragraph

Answer 11

Disclaimer of opinion paragraph

• BECAUSE OF the significance of the matter(s) described in the basis for disclaimer of opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence
• the auditor DOES NOT EXPRESS AN OPINON