Chapter 12: Reports on Audited Financial Statements

Question 1

SEC filing and audit requirements apply to:
- private entities only
- public entities only
- both public and private entities

Answer 1

public entities only

Question 2

When no material issues are encountered during the audit and the financial statements are prepared in accordance with GAAP a(n) _ audit report is appropriate.

Answer 2

unmodified/standard

Question 3

AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as _ opinions.

Answer 3

modified

Question 4

A departure from GAAP ____.
- may be ignored if immaterial
- will always result in a qualified opinion
- must always be mentioned in the auditor’s report

Answer 4

may be ignored if immaterial

Question 5

When a scope limitation is immaterial, a(n) ___.
- unmodified opinion is appropriate but the scope limitation must be referenced
- standard report can be issued only if the limitation was circumstance-imposed
- qualified opinion must be issued
- standard report can be issued

Answer 5

standard report can be issued

Question 6

Required SEC financial information: (Select all that apply)
- is filed using Form 10-K
- must be filed within 60 to 90 days of the end of the fiscal year
- must be filed by both public and nonpublic entities
- includes audited financial statements

Answer 6

• is filed using Form 10-K
• must be filed within 60 to 90 days of the end of the fiscal year
• includes audited financial statements

Only public entities are required to file with the SEC

Question 7

If group auditors are satisfied with the independence and professional reputation of the component auditors, a standard report may be issued ______.
- with the group auditors assuming full responsibility for the audit.
- but the report must state that other, unnamed auditors participated in the audit.
- but the component auditors must be mentioned by name.

Answer 7

with the group auditors assuming full responsibility for the audit

Question 8

The standard auditors’ report on the financial statements for nonpublic entities ______.
- must be addressed to the board or directors and shareholders
- is appropriate even if material issues are encountered during the audit
- is also referred to as the ASB report
- should have a title that stresses auditor independence

Answer 8

• is also referred to as the ASB report
• should have a title that stresses auditor independence

Question 9

Paragraphs that provide information fundamental to understanding the entity’s financial statements are known as ___ -of- ___ paragraphs

Answer 9

emphasis of matter

Question 10

The phrase “except for” is used in:

• adverse opinions only.
• both qualified and adverse opinions.
• qualified opinions only.
• disclaimers of opinion only.

Answer 10

qualified opinions only

Question 11

When other information is presented along with the financial statements, the auditors’ report includes an Other Information section that includes ______. (Select all that apply)
- a statement that management is responsible for the other information.
- a description of any material misstatements of the other information, if found.
- the audit team’s responsibility with respect to the information.
- an indication that the audit team expresses an opinion on the other information

Answer 11

• a statement that management is responsible for the other information.
• a description of any material misstatements of the other information, if found.
• the audit team’s responsibility with respect to the information.

Question 12

When the auditor finds a departure from GAAP, a(n) ___.
- adverse or disclaimer of opinion must be issued.
- standard report may still be appropriate.
- the qualified opinion must be issued.

Answer 12

standard report may still be appropriate

This is true when the departure is immaterial

Question 13

With respect to required supplementary information included with the basic financial statements, auditors are required to ___.
- obtain written representations from management.
- issue an opinion with regard to the fairness of the information.
- compare information with the financial statements for consistency.

Answer 13

• obtain written representations from management.
• compare information with the financial statements for consistency.

Question 14

When a scope limitation is material and alternative procedures cannot be performed, a(n):

• standard report can be issued only if the limitation was circumstance-imposed.
• qualified or disclaimer of opinion must be issued.
• unmodified opinion is appropriate but the scope limitation must be referenced.
• adverse opinion must be issued.

Answer 14

qualified or disclaimer of opinion must be issued

Question 15

When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______.
- may add additional paragraphs to their report
- must modify the Basis for Opinion paragraph to reference item(s) to be emphasized
- should ask management to discuss the matter in their Responsibilities paragraph
- must modify the Opinion paragraph to include reference to item(s) to be emphasized

Answer 15

may add additional paragraphs to their report

Question 16

When group auditors decide to refer to the work and reports of component auditors ___.
- it is considered a scope limitation
- the component auditors should be mentioned by name
- the extent of the component auditors’ work must be disclosed
- it is referred to as a division of responsibility

Answer 16

• the extent of the component auditors’ work must be disclosed
• it is referred to as a division of responsibility

Question 17

Presenting balance sheets for two years and statements of income, changes in shareholders’ equity and cash flow for three years in comparative format is required for ______.
- non-issuers only
- neither issuers or non-issuers
- both issuers and non-issuers
- issuers only

Answer 17

issuers only

Question 18

Paragraphs that provide information relating to understanding the audit, auditor responsibility, or audit report are known as ___ __ paragraphs.

Answer 18

other matter

Question 19

Both prior-year audits and information that has come to the auditor’s attention since then (particularly in the most recent audit) are the basis for a(n) ____ report.

Answer 19

updated

Question 20

When an annual report contains other information such as a president’s letter or MD & A, the auditor ______.
- must read the information and determine if it is consistent with audited financial statements
- must read and audit the information
- has no obligation to read the information or refer to it in the audit report

Answer 20

must read the information and determine if it is consistent with audited financial statements

Question 21

When companies present required supplementary information, auditors are required to expand their report to include an ___.

Answer 21

other matter paragraph