cpa audit review ch 17 review 5

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cpa audit review ch 17 review 5
2014-06-11 00:12:15
cpa audit review 17

cpa audit review ch 17 review 5
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  1. In what circumstance would an auditor most likely add an emphasis-of-matter paragraph to the auditor’s report while expressing an unmodified opinion?
    There is substantial doubt about the entity’s ability to continue as a going concern.

    If the auditor reaches this conclusion after (1) identifying conditions and events that create such doubt and (2) evaluating management’s plans to mitigate their effects, (s)he should consider the adequacy of disclosure and include an emphasis-of-matter paragraph (after the opinion paragraph) in the report. The auditor must use language in the emphasis-of-matter paragraph that includes the words “substantial doubt” and “going concern.” By itself, however, the substantial doubt is not a basis for modifying the opinion.
  2. When a group auditor decides to refer to a component auditor’s audit, the group auditor’s report should indicate clearly, in the auditor’s responsibility section, the
    Magnitude of the portion of the financial statements audited by the component auditor.

    When the group engagement partner decides to refer to the report of a component auditor, the report on the group statements should clearly indicate that the component was not audited by the group auditor. It also should state (1) that the component was audited by the component auditor and (2) the magnitude of the portion of the statements audited. This language is included in the auditor’s responsibility section of the report.
  3. Comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose opinion is not presented. If the predecessor’s opinion was qualified, the auditor should
    Indicate the reasons for the qualification in the predecessor auditor’s opinion.

    When the predecessor’s report is not presented, the auditor’s report should include in an other-matter paragraph (1) a statement that the financial statements of the prior period were audited by another auditor, (2) the date of the report, (3) the opinion expressed, (4) the reasons if the opinion was modified, and (5) the nature of any emphasis-of-matter or other-matter paragraph.
  4. An auditor’s report included the following paragraph relative to substantial doubt about a client’s ability to continue as a going concern:

    “The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. If the Company is not able to renew the contract described in Note X, there may be substantial doubt about the company’s ability to continue as a going concern.”

    what, if anything is wrong with this
    The report should not contain conditional language.

    The report should not contain conditional language. “If the Company is not able to renew the contract . . .” is not permissible language.
  5. In auditing the financial statements of Star Corp., Land discovered information leading Land to believe that Star’s prior-year financial statements, which were audited by Tell, require substantial revisions. Under these circumstances, Land should
    Request Star to arrange a meeting among the three parties to resolve the matter.

    Because the prior year’s financial statements appear to require restatement, the auditor should discuss the matter with the predecessor auditor. (S)he should communicate any information that the predecessor auditor may need to meet the responsibilities imposed by AU-C 560, Subsequent Events and Subsequently Discovered Facts. A meeting of the three parties should be requested.
  6. In what should an auditor’s report stating an unmodified opinion refer to the lack of consistency when a material change in accounting principle has occurred?
    An emphasis-of-matter paragraph following the opinion paragraph.

    The auditor should evaluate a change in principle to determine whether (1) the new principle and the method of accounting for the effect of the change are in accordance with the applicable framework, (2) the disclosures related to the change are adequate, and (3) the entity has justified that the alternative principle is preferable. If the criteria stated above are met, and the change in principle is material, the auditor should include an emphasis-of-matter paragraph in the report. This paragraph (1) describes the change, (2) refers to the entity’s disclosures, and (3) follows the opinion paragraph.