Auditing, Last 20 Questions Ch 17

The correct answer is B) Completion of the auditor's most recent field work. This is because the auditor's report should be dated as of the date when the auditor has completed their field work, which includes gathering sufficient evidence and conducting necessary procedures to form an opinion on the financial statements. The date of completion of field work is important as it signifies the point at which the auditor has obtained enough information to support their opinion on the financial statements.

The auditor would issue an unqualified opinion with an appropriate explanatory paragraph because the client's financial statements have properly disclosed all of its solvency problems. This means that the auditor believes the financial statements are fairly presented, but wants to highlight the substantial doubt about the client's ability to continue as a going concern. The explanatory paragraph provides additional information to the users of the financial statements, ensuring that they are aware of the potential risks involved.

The correct answer is the magnitude of the portion of the financial statements examined by the other auditor. This is because when the principal auditor decides to make reference to the other auditor's audit, it is important to indicate the extent of the financial statements that were examined by the other auditor. This information helps provide transparency and clarity to the users of the financial statements regarding the involvement of multiple auditors in the audit process.

An adverse opinion is issued when the financial statements are not in conformity with the generally accepted accounting principles (GAAP). In this case, the auditor would express an adverse opinion if the statements are not in conformity with the FASB Statements regarding the capitalization of leases. This means that the company has not followed the required accounting standards for leases, which is a serious violation and can significantly impact the financial statements.

When the auditor is unable to determine the amounts associated with illegal acts of client personnel due to inadequate evidence, they should issue a disclaimer of opinion. This means that the auditor cannot express an opinion on the financial statements as a whole. A disclaimer of opinion is typically issued when the auditor is unable to obtain sufficient evidence to form an opinion or when there are significant uncertainties or limitations that prevent the auditor from expressing an opinion.

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The auditor may accept the engagement because in this situation, they are only required to report on the balance sheet of Kane Company and not on the other basic financial statements. The auditor will still have access to all the information underlying the basic financial statements, so they can perform their duties within the limited reporting objectives.

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The fourth reporting standard requires the auditor's report to contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. This standard aims to prevent misinterpretations regarding the degree of responsibility that the auditor is assuming. By requiring the auditor to either express an opinion or state that an opinion cannot be expressed, it ensures that stakeholders do not mistakenly assume a higher or lower level of responsibility on the part of the auditor. This helps maintain clarity and transparency in the reporting process.

The auditor, Doe, was able to gain satisfaction by applying alternative auditing procedures, even though the inventory count was not observed and accounts receivable were not confirmed. This suggests that Doe was able to gather sufficient evidence to support the financial statements and did not identify any material misstatements. Therefore, Doe's audit report will likely contain a standard unqualified opinion, indicating that the financial statements are presented fairly in all material respects.

The correct answer is B) Reliance placed upon the report of other auditors. This option does not result in a scope limitation because relying on the report of other auditors is a common practice in auditing and does not restrict the auditor's ability to obtain sufficient evidence. Scope limitation occurs when there are restrictions imposed by the client, inability to obtain sufficient competent evidential matter, or inadequacy in the accounting records, which hinder the auditor's ability to perform necessary audit procedures.

The principal auditor should modify the introductory, scope, and opinion paragraphs of the report to indicate the division of responsibility. This is because the principal auditor is satisfied with the independence and professional reputation of the other auditor who audited a subsidiary. Modifying these paragraphs will provide transparency and clarity regarding the roles and responsibilities of each auditor in the audit process.

The correct answer is D) Be applied on a basis consistent with those followed in the prior year. This means that the accounting principles used in the current financial statements should be consistent with those used in the previous year's financial statements. This consistency allows for comparability and helps users of the financial statements make informed decisions. However, it is not required that the principles be appropriate for the particular entity, reflect transactions within a range of acceptable limits, or present information in a reasonable manner.

Morgan, as the principal auditor, has the option to refer to the audit of the other CPA in their report on the consolidated financial statements. However, it is not mandatory for Morgan to do so. If Morgan does choose to refer to the other CPA's audit, they must include a qualified opinion in their report, indicating any reservations or limitations regarding the other auditor's work.

When a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to each of the years in the two-year period. This means that the auditors' opinion would cover both the current year under audit as well as the preceding year. This is because the auditors need to provide their opinion on the financial statements for both years in order to give a complete and accurate assessment of the client's financial position and performance over the two-year period.

The continuing auditor is responsible for updating the report on the previous financial statements regardless of the opinion previously issued when financial statements of a prior period are presented on a comparative basis with financial statements of the current period. This means that even if the previous report was qualified or had a different opinion, the auditor still needs to update the report to reflect any changes or updates in the financial statements.

If an accounting change has no material effect on the financial statements in the current year but is reasonably certain to have a material effect in later years, it should be disclosed in the notes to the financial statements of the current year. This allows users of the financial statements to be aware of the potential impact of the change in future periods and make informed decisions. It is important for transparency and to provide a complete and accurate representation of the financial position and performance of the company.

When issuing an unqualified opinion on public company financial statements, an auditor explicitly states that they have conducted an audit in accordance with generally accepted auditing standards and that the financial statements present a true and fair view of the company's financial position. This is the explicit representation made by the auditor. Implicitly, the auditor is also stating that they have considered all relevant evidence, exercised professional judgment, and have not encountered any significant issues or limitations during the audit process. This implicit representation indicates that the auditor believes the financial statements are reliable and can be relied upon by users.

The successor auditor should indicate in the report the type of opinion expressed by the predecessor auditor. This is important because it provides transparency and allows the users of the financial statements to understand the nature of the predecessor auditor's opinion and any potential impact it may have on the current year's financial statements. It helps to establish the credibility and reliability of the financial information presented.

An adverse opinion would be appropriate when the statements are not in conformity with generally accepted accounting principles regarding pension plans. This means that the financial statements do not accurately represent the financial position and performance of the company in relation to its pension plans. An adverse opinion indicates a significant departure from the required accounting standards and raises doubts about the reliability and accuracy of the financial statements.