19 arens aas 13ce tif 19 PDF

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Chapter 19 Audit Reports on Financial Statements19 Explain the auditor's reporting responsibilities The most common type of audit report contains A) an adverse opinion. B) a disclaimer of opinion. C) a qualified opinion. D) an unqualified opinion. Answer: D Diff: 1 Type: MC Page Ref: 577 Learning Ob...

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Test Item File for Arens, Auditing, 13CE

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Chapter 19 Audit Reports on Financial Statements 19.1 Explain the auditor's reporting responsibilities 1) The most common type of audit report contains A) an adverse opinion. B) a disclaimer of opinion. C) a qualified opinion. D) an unqualified opinion. Answer: D Diff: 1 Type: MC Page Ref: 577 Learning Obj.: 19-1 Explain the auditor's reporting responsibilities 19.2 Specify the conditions required to issue the standard unqualified audit report 1) According to CAS 700, the standard unqualified report's title should be A) "Unqualified Report of the Auditor." B) "Audited Financial Statements." C) "Auditor's Report." D) "Independent Auditor's Report." Answer: D Diff: 2 Type: MC Page Ref: 577 Learning Obj.: 19-2 Specify the conditions required to issue the standard unqualified audit report 2) Bianca Jones was engaged to conduct the audit of Smilicor Company (a toy distributor) three months after its year-end date. Bianca was unable to conduct an audit of opening inventory but was able to satisfy herself with respect to the opening balances. She was also able to conduct audit procedures for other opening balances; for example, by observing fixed assets. What type of audit opinion would Smilicor receive? A) disclaimer B) adverse C) qualified D) unqualified Answer: D Diff: 2 Type: MC Page Ref: 577-579 Learning Obj.: 19-2 Specify the conditions required to issue the standard unqualified audit report

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Test Item File for Arens, Auditing, 13CE

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3) PA firm has been auditing Big Manufacturing Company (BMC) for several years. Last year, BMC converted its inventory and purchasing systems to a new system effective December 31, the date of the year-end. To their horror, the PA firm discovered at the beginning of the current year that there was a cutoff error in the accounts payable system of $25 million dollars LAST YEAR. Neither the client nor the firm had detected that the purchases of December 31 had been omitted from the old computer system transaction processing and had been recorded only in the new computer system, understating last year's expenses. Last year's financial statements have been restated and the error disclosed in the notes to both last year's and this year's financial statements. What type of audit opinion will BMC receive this year? A) qualified B) disclaimer C) adverse D) unqualified Answer: D Diff: 3 Type: MC Page Ref: 577-579 Learning Obj.: 19-2 Specify the conditions required to issue the standard unqualified audit report 4) One of the most controversial parts of the auditor's report is the meaning of the term "presents fairly." What does the auditor's opinion mean when these words are used? A) The values in the financial statements represent the net realizable values of the assets of the entity. B) The financial statements are accurate and provide a true and fair representation of the entity's current financial position. C) The values in the financial statements represent the value of the entity now, if it were liquidated on an open market. D) The financial statements are fairly presented in accordance with the financial reporting framework described in the opinion paragraph. Answer: D Diff: 2 Type: MC Page Ref: 579 Learning Obj.: 19-2 Specify the conditions required to issue the standard unqualified audit report

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Test Item File for Arens, Auditing, 13CE

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5) There are five conditions that must be met before an auditor can issue a standard unqualified report. Discuss each of these five conditions. Answer: The five conditions that justify issuing a standard unqualified report are: 1. An audit engagement has been undertaken. 2. The general standard of GAAS has been followed in all respects on the engagement. 3. Sufficient appropriate audit evidence has been accumulated, and the three examination standards have been met. 4. All statements—balance sheet, income statement, statement of retained earnings, and statement of cash flows—are included in the financial statements (along with the notes to the financial statements), and are presented in accordance with an appropriate disclosed basis of accounting, which is usually an acceptable financial reporting framework. 5. There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report. Diff: 1 Type: ES Page Ref: 577-579 Learning Obj.: 19-2 Specify the conditions required to issue the standard unqualified audit report 19.3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate. 1) Under Canadian Auditing Standards, the introductory paragraph of the independent auditor's report indicates that the auditor has audited the balance sheet, the income statement, the cash flow, a summary of accounting policies and notes, and A) the statements of retained earnings. B) the statement of changes in equity. C) management's discussion and analysis letter. D) the internal controls of the company. Answer: B Diff: 2 Type: MC Page Ref: 579 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 2) The scope paragraph of the standard unqualified audit report in the auditor responsibility section states that the audit is designed to A) discover all errors and/or irregularities. B) discover material errors and/or irregularities. C) obtain reasonable assurance of whether the statements are free of material misstatement. D) conform to a generally accepted financial reporting framework. Answer: C Diff: 1 Type: MC Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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3) Management has several responsibilities that are important to the auditor. One of these is that management is responsible for A) internal controls that prevent material misstatements due to fraud or error. B) maintaining control of evidence (such as confirmations) until assessed by the auditor. C) evaluating evidence against acceptable criteria. D) providing reasonable assurance that the financial statements are fairly stated. Answer: A Diff: 2 Type: MC Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 4) In the scope paragraph of the audit report, the use of the term "reasonable assurance" is intended to indicate that A) no misstatements exist in the financial statements. B) no material misstatements exist in the statements. C) there is some possibility that material misstatements still exist in the financial statements. D) there is a possibility that immaterial misstatements still exist in the financial statements. Answer: C Diff: 2 Type: MC Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 5) The use of the term "reasonable assurance" is intended to indicate that an audit cannot be expected to A) completely eliminate the possibility that a material error or fraud exists. B) consider or search for minor errors. C) be compliant with the generally accepted accounting principles for every account. D) provide assurance of no material errors or irregularities to investors who are using the financial statements for investment decisions. Answer: A Diff: 2 Type: MC Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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6) It is management's responsibility to select the accounting policies that are used in the preparation of the financial statements. What is the auditor's responsibility with respect to these accounting policies? A) approve the accounting policies that are used, so that an opinion can be stated on the fairness of the financial statements B) evaluate the appropriateness of the accounting policies that are used and of the associated estimates made C) tell management which accounting policies should be selected so that accurate estimates can be made for year-end adjustments D) recalculate the estimates that are used for the accounting policies (such as bad debt allowance and warranty expenses) Answer: B Diff: 3 Type: MC Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 7) The independent auditor's opinion explains how much evidence the auditor collects during the independent audit. How much evidence is collected? A) sufficient and appropriate evidence to provide a basis for the audit opinion B) sufficient evidence to state that there are no material errors in the financial statements C) appropriate evidence to be able to evaluate the exact accuracy of the accounting estimates D) sufficient and appropriate evidence to conclude the financial statements present a true and fair view of the economic events of the organization Answer: A Diff: 2 Type: MC Page Ref: 580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 8) The phrase "in our opinion" indicates that A) the auditor performed the audit on a test basis. B) the auditor's judgment can be relied upon. C) the auditor relied on his or her knowledge to perform the audit. D) there may be some information risk associated with the financial statements. Answer: D Diff: 2 Type: MC Page Ref: 580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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9) Clark Kent is a PA partner at the firm of Kent, Lane, and Lang, a limited liability partnership. Kent's firm has just completed the audit of a client with a March 31, 2015, year end. How should the audit report be signed? A) Clark Kent, PA B) Kent, Lane, and Lang, LLP C) Clark Kent, LLP D) Kent, Lane, and Lang, PAs Answer: B Diff: 3 Type: MC Page Ref: 580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 10) The appropriate date for the audit report for a public company is the date on which the A) client's fiscal year ended. B) auditor and client entered into a contract. C) board of directors approved the financial statements. D) auditor prepares and delivers the report to the client. Answer: C Diff: 1 Type: MC Page Ref: 580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 11) The audit report date is important to users because it indicates the last day A) of the fiscal period. B) on which the financial statements may be filed with the provincial securities commission. C) on which users may institute a lawsuit against either the client or auditor. D) of the auditor's responsibility for the review of significant events that occurred after the date of the financial statements. Answer: D Diff: 1 Type: MC Page Ref: 580-581 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 12) If the balance sheet of a company is dated December 31, 2015, the audit report is dated March 6, 2016, and both are released to the public on March 15, 2016, this indicates that the auditor has searched for material unrecorded transactions and events that occurred up to A) December 31, 2015. B) March 6, 2016. C) March 15, 2016. D) December 31, 2016. Answer: B Diff: 2 Type: MC Page Ref: 580-581 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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13) Double dating a report is done when A) the parent company and its subsidiaries have different year-ends. B) the auditor finishes his work later than planned. C) a material event occurs after the date of the auditor's report and affects the period that was audited. D) a material event occurs after the date of the auditor's report and before the date the report is issued. Answer: D Diff: 2 Type: MC Page Ref: 580-581 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 14) The ASPE (Accounting Standards for Private Enterprises) financial reporting framework normally requires the auditor to report using the corresponding figures approach. This means that the auditor reports on A) the current year's financial statements. B) both periods under audit: the current and prior year. C) three years: the current and prior year, and the effects of the prior year. D) only the ending balances of the general ledger accounts. Answer: A Diff: 2 Type: MC Page Ref: 581 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate 15) Publicly listed organizations and those using IFRS (International Financial Reporting Standards) must have audit reports that use the comparative financial statements approach. This means that the auditor reports on A) the current year's financial statements. B) both periods under audit, the current and prior year. C) three years, the current and prior year, and the effects of the prior year. D) only the ending balances of the general ledger accounts. Answer: B Diff: 2 Type: MC Page Ref: 581 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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16) Analyze the "Auditor Responsibility Section" of the standard Independent Auditor's Report. Explain the intended purpose of the sentences in this section. Answer: The auditor responsibility paragraph starts with a summary statement that explains the purpose of the audit - the expression of an opinion on the financial statements described in the first sentence. Then, further detail is provided, stating that the auditor followed generally accepted auditing standards during the performance of the audit. It tells the reader what those standards comprise: The audit is designed to obtain reasonable assurance of whether the statements are free of material misstatement. The inclusion of the word "material" conveys that auditors search for significant misstatements, not minor errors that do not affect users' decisions. The use of the term "reasonable assurance" is intended to indicate that an audit cannot be expected to completely eliminate the possibility that a material error, fraud, or other irregularity exists in the financial statements. In other words, an audit provides a high level of assurance, but not a guarantee. The remainder briefly describes important aspects of what an audit does and does not include. It starts with the basis of the audit - that is, the auditor's use of professional judgment in the context of a risk assessment (considering risks of error or fraud) to select audit procedures for the conduct of the audit. It includes assessing internal controls over financial systems that affect the financial statements but does not provide an opinion over those controls (as internal controls can and do change over time). While the management responsibility paragraph of the report states that management is responsible for the preparation and content of the financial statements, this paragraph explains how the auditor evaluates what management has done. It states that the auditor has the responsibility to evaluate the appropriateness of the accounting policies that are used and of the estimates made, as well as of the overall presentation of those financial statements. The auditor cannot simply accept management's representations about appropriateness. The final sentence refers to the quality of the evidence collected and whether it is sufficient and appropriate (i.e., that enough high-quality evidence has been obtained to allow the auditor to provide an opinion on the financial statements). Diff: 3 Type: ES Page Ref: 579-580 Learning Obj.: 19-3 Describe the component parts of the standard unqualified audit report. Understand the relevance of the audit report date and when dual dating is appropriate

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Test Item File for Arens, Auditing, 13CE

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19.4 Describe financial statement audits when the auditor decides it is important or necessary to provide additional information 1) A deviation from the standard unqualified report will cause knowledgeable users of financial statements to recognize that the A) auditor intends to communicate additional or limiting information. B) financial statements contain a material error. C) financial statements contain an error. D) Canadian Auditing Standards were not followed. Answer: A Diff: 2 Type: MC Page Ref: 581 Learning Obj.: 19-4 Describe financial statement audits when the auditor decides it is important or necessary to provide additional information 2) The "unqualified report with explanatory paragraph" or the "unqualified report with modified wording" A) arise as a result of an incomplete audit. B) arise when the financial statements are not quite "presented fairly." C) meet the criteria of a complete audit with satisfactory results but further explanation is required. D) meet the criteria of a complete audit but with unsatisfactory results. Answer: C Diff: 3 Type: MC Page Ref: 581-582 Learning Obj.: 19-4 Describe financial statement audits when the auditor decides it is important or necessary to provide additional information 3) Your client has experienced a major data breach with lawsuits and fines pending of significant and uncertain amounts. These events are disclosed in the client's financial statements and are clearly explained in the notes. How do these events affect the independent auditor's report? A) The auditor would use a standard unqualified auditor's report. B) The auditor would use an emphasis of matter paragraph titled "Data Breach" to highlight the events. C) The auditor would use an "other matters" paragraph titled "Data Breach" to highlight the amounts. D) The auditor would use a qualified audit opinion due to the size of the uncertainty. Answer: B Diff: 3 Type: MC Page Ref: 581-583 Learning Obj.: 19-4 Describe financial statement audits when the auditor decides it is important or necessary to provide additional information

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Test Item File for Arens, Auditing, 13CE

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4) Your client has two sets of financial statements. One set is in compliance with IFRS, while the other set is in compliance with local tax legislation and will be used only with the tax returns. How do these events affect the independent auditor's report? A) The auditor would use an unqualified audit rep...