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Auditing and Assurance Services, 16e (Arens/Elder/Beasley) Chapter 3 Audit Reports
3.1 Learning Objective 3-
Which of the following is a correct statement regarding the standard unmodified opinion audit report? A) The format of the audit report for public and nonpublic entities are identical. B) The auditor's responsibility paragraph includes a statement that the auditors are responsible for selecting the appropriate accounting principles. C) The audit report includes the name of the lead partner on the audit. D) The scope paragraph includes a statement that the auditor considers internal controls when designing the audit procedures performed. Answer: D Terms: Audit reports issued for financial statements of private company; Scope paragraph; Generally accepted auditing standards Diff: Moderate Objective: LO 3- AACSB: Reflective thinking
Auditing standards require that the audit report must be titled and that the title must A) include the word "independent." B) indicate if the auditor is a CPA. C) indicate if the auditor is a proprietorship, partnership, or corporation. D) indicate the type of audit opinion issued. Answer: A Terms: Auditing standards require audit report title Diff: Easy Objective: LO 3- AACSB: Reflective thinking
could be A)
Company Controller Shareholders Board of Directors No Yes Yes
B)
Company Controller Shareholders Board of Directors No No Yes
C)
Company Controller Shareholders Board of Directors Yes Yes No
D)
Company Controller Shareholders Board of Directors Yes No No
Answer: A Terms: Audit report addressee Diff: Easy Objective: LO 3- AACSB: Reflective thinking
- The auditor's responsibility section of the standard unmodified opinion audit report states that the audit is designed to A) discover all errors and/or irregularities. B) discover material errors and/or irregularities. C) conform to generally accepted accounting principles. D) obtain reasonable assurance whether the statements are free of material misstatement. Answer: D Terms: Scope paragraph of standard unqualified audit report states Diff: Easy Objective: LO 3-
AACSB: Reflective thinking
Terms: Standard unqualified audit report for nonpublic entities; GAAS and GAAP Diff: Challenging Objective: LO 3- AACSB: Reflective thinking
Which of the following is not explicitly stated in the standard unmodified opinion audit report? A) The financial statements are the responsibility of management. B) The audit was conducted in accordance with generally accepted accounting principles. C) The auditors believe that the audit evidence provides a reasonable basis for their opinion. D) An audit includes assessing the accounting estimates used. Answer: B Terms: Standard unmodified opinion audit report Diff: Easy Objective: LO 3- AACSB: Reflective thinking
The standard unmodified opinion audit report for a nonpublic entity must A) have a report title that includes the word "CPA." B) be addressed to the company's stockholders and creditors. C) be dated. D) include an explanatory paragraph. Answer: C Terms: Standard unqualified audit report for a nonpublic entity; eight parts of the report Diff: Easy Objective: LO 3- AACSB: Reflective thinking Topic: Public
The management's responsibility section of the standard unmodified opinion audit report for a nonpublic company states that the financial statements are A) the responsibility of the auditor. B) the responsibility of management. C) the joint responsibility of management and the auditor. D) none of the above.
- The introductory paragraph of the standard unmodified opinion audit report for a nonpublic
company performs which functions? I. It states the CPA has performed an audit. II. It lists the financial statements being audited. III. It states the financial statements are the responsibility of the auditor. A) I and II B) I and III C) II and III D) I, II and III Answer: A Terms: Introductory paragraph of auditor's report Diff: Moderate Objective: LO 3- AACSB: Reflective thinking
Which of the following statements are true for the standard unmodified opinion audit report of a nonpublic entity? I. The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II. The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. A) I only B) II only C) I and II D) Neither I nor II Answer: B Terms: Introductory paragraph and scope paragraph Diff: Moderate Objective: LO 3- AACSB: Reflective thinking
The auditor's responsibility section of the standard unmodified opinion audit report states that the auditor is
- If the balance sheet of a private company is dated December 31, 2016, the audit report is
dated February 8, 2017, and both are released on February 15, 2017, this indicates that the auditor has searched for subsequent events that occurred up to A) December 31, 2016. B) January 1, 2017. C) February 8, 2017. D) February 15, 2017. Answer: C Terms: Audit report subsequent event dating Diff: Moderate Objective: LO 3- AACSB: Reflective thinking
The appropriate audit report date for a standard unmodified opinion audit report for a nonpublic entity should be A) the date the financial statements are given to the Board of Directors. B) the date of the financial statements. C) the date the auditor completed the auditing procedures in the field. D) 60 days after the date of the financial statements as required by the SEC. Answer: C Terms: Standard unqualified audit report for a nonpublic entity; eight parts of the report Diff: Moderate Objective: LO 3- AACSB: Reflective thinking
Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP, and that it is also necessary to A) determine that they are not in violation of FASB statements. B) examine the substance of transactions and balances for possible misinformation. C) review the statements using the accounting principles promulgated by the SEC. D) assure investors that net income reported this year will be exceeded in the future. Answer: B
- An audit report prepared by Garrett and Brown, CPAs, is provided below. The audit for the
year ended December 31, 2016 was completed on March 1, 2017, and the report was issued to Javlin Corporation, a private company, on March 13, 2017. List any deficiencies in this report. Do not rewrite the report.
We have examined the accompanying financial statements of Dalton Corporation as of December 31, 2016. These financial statements are the responsibility of the company's management.
Management's Responsibility for the Financial Statements:
Management is responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted auditing standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from all misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to give an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted throughout the world. Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on management's judgment, including the assessment of the risks of material misstatement of the income statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the auditor's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies and the accuracy of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
Answer: The audit report contains the following deficiencies:
- The report title is missing. The title must include the word independent.
- The audit report address is missing. The report should be addressed to stockholders and the board of directors.
- The introductory paragraph should refer to an "audit," not an "examination."
- The introductory paragraph should list the financial statements that were audited.
- The introductory paragraph refers to the wrong company.
- The introductory paragraph should not state that the financial statements are the responsibility of management. This belongs in the next section- management's responsibility.
- The management's responsibility section should state that the financial statements are in accordance with "accounting principles generally accepted in the Unites States of America" not in accordance with generally accepted auditing standards."
- The management's responsibility section should state that the financial statements are free from "material misstatement", not free from "all misstatement."
- The auditor's responsibility section should state that our responsibility is to "express" an opinion, not "give" an opinion.
- The auditor's responsibility section should state the audit was conducted in accordance with "auditing standards generally accepted in the United States of America", not "throughout the world."
- The auditor's responsibility section should state that the audit was planned and performed to obtain "reasonable" assurance, not "absolute "assurance.
- The auditor's responsibility section should state that the financial statements are free of "material misstatements," not simply "misstatement."
- The scope paragraph of the auditor's responsibility section should state that the procedures selected depend on the "auditor's" judgment, not "management's" judgment.
- The scope paragraph of the auditor's responsibility section should state risk of material misstatement in the "financial statements," not the "income statement."
- The scope paragraph of the auditor's responsibility section should state the auditor considers internal control relevant to management's preparation, not the auditor's preparation.
- The scope paragraph of the auditor's responsibility section is missing the sentence "Accordingly, we express no such opinion." This should be placed right before the last sentence.
- The scope paragraph of the auditor's responsibility section should state " reasonableness" of significant accounting estimates," not " accurate. "
- The auditor's opinion section should state that the financial statements present " fairly , in all material respects," not present accurately.
- The auditor's opinion section should include "and the results of their operations and cash
flows for the year then ended."
- The audit report should be dated March 1, 2017. Terms: Audit report deficiencies Diff: Challenging Objective: LO 3- AACSB: Analytic thinking
