CPA Auditing and Attestation (AUD) › Audit Opinions
Of the following factors, which should most influence an auditor’s decision to modify the audit opinion of an issuer’s financial statements?
The type of users expected to rely on the financial statements
Whether the auditor’s opinion is based in part on the report of another auditor
The effect of a misstatement on the financial statements taken as a whole
Uncertainties related to management’s estimates as of the reporting date that are adequately disclosed in the financial statements
The effect of a misstatement on the financial statements taken as a whole should most likely influence an auditor’s decision to modify the audit opinion.
Which statement is true regarding a compilation report?
Provides assurance that the financial statements are fairly presented
Requires the auditor to be independent
The accountant is required to comply with AR C 60 General Principles
Requires an assessment of the internal control environment
AR-C Section 60 of the identifies “General Principles for Engagements Performed in Accordance with Statements on Standards for Accounting and Review Services. Compilation Engagements are required to comply with this section.
John Ryan, CPA needs to research guidance for the engagement of his client. The client is a private unaudited non-issuer and wants a compilation completed. In which of the following sections of various literature sources would John find relevant guidance?
ET
AR-C
GAGAS
PCAOB
AR-C is a section of the AICPA's guidance on SSARS. As this engagement is a compilation for an unaudited non-issuer, it would be considered SSARS.
In the course of auditing Litmus, Inc., the auditors have uncovered a scheme by management to overvalue inventory in order to adhere to bond covenants. The firm approached management and indicated the practice would stop; however, they did not want to correct this year’s financial statements. The auditor should:
Correct the company financial statements and issue an unqualified opinion
Issue a disclaimer of opinion based on the misstatement
Issue and adverse opinion based on the material misstatement
Issue the unqualified opinion with the promise that the company will correct the practice next year.
According to AU-C Section 75: “ The auditor should express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.”
In the formation of a financial statement opinion, the auditor would least likely evaluate whether:
Accounting estimates made by management are reasonable
Earnings forecasts by investors are met
The terminology used in the financial statements is appropriate
Financial statements provide adequate disclosures to enable intended users to understand the effect of material events and transactions
When forming an audit opinion of financial statements, the auditor is least likely to evaluate whether earnings forecasts made by investors are met.
Alfa Inc. operates a chain of restaurants in highly populated tourist destinations in the southern United States. Because of recent events, beyond the control of management, it is likely that Alfa will not survive the year. The auditors should report Alfas situation as
A note to the financial statements
As an adverse opinion
In emphasis of matter paragraph within the unqualified report
With a disclaimer of opinion
An emphasis of matter paragraph is used to support the auditor’s judgment concerning an event that needs to be highlighted. An emphasis of matter paragraph is required when the auditor has doubts about the entity's ongoing concern.