cpa audit review ch 16 review 3

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cpa audit review ch 16 review 3
2014-10-18 23:50:22
cpa audit review 16

cpa audit review ch 16 review 3
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  1. Zag Co. presents financial position and results of operations but not the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows, although Brown’s access to all of the information underlying the basic financial statements will not be limited. Under these circumstances, Brown most likely would

    Prepare the statement of cash flows as an accommodation to Zag and express an unqualified opinion.  

    Add an emphasis-of-matter paragraph to the auditor’s report that justifies the reason for the omission.  

    Refuse to accept the engagement as proposed because of the client-imposed scope limitation.

    Explain to Zag that the omission requires a qualification of the auditor’s opinion.
    Explain to Zag that the omission requires a qualification of the auditor’s opinion.  .An entity that reports financial position and results of operations should provide a statement of cash flows. Thus, the omission of the cash flow statement is normally a basis for modifying the opinion. If the statements fail to disclose required information, the auditor should provide the information in the report, if practicable. However, the auditor is not required to prepare a basic financial statement. Accordingly, (s)he should qualify the opinion and explain the reason in a basis for qualified opinion paragraph.
  2. If an accountant concludes that unaudited financial statements of an issuer on which the accountant is disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate revision. If the client does not accept the accountant’s suggestion, the accountant should  

    Express an adverse opinion and describe the appropriate revision in the report.

    Accept the client’s inaction because the statements are unaudited and the accountant has disclaimed an opinion.  

    Refer to the appropriate revision and issue a modified report expressing limited assurance.

    Describe the appropriate revision to the financial statements in the accountant’s disclaimer of opinion.
    Describe the appropriate revision to the financial statements in the accountant’s disclaimer of opinion.  

    PCAOB auditing standards apply to engagements involving issuers. Under these standards, inadequate disclosure is a departure from U.S. GAAP. When an accountant who is associated with the unaudited statements of an issuer suggests revision because of such a departure and the client declines to provide the necessary disclosures, the disclaimer should be modified to describe the departure. The description should refer specifically to the nature of the departure and, if practicable, state the effects on the financial statements or include the necessary information for adequate disclosure (PCAOB Interim Auditing Standards).
  3. An auditor’s opinion reads as follows: “In our opinion, except for the above-mentioned limitation on the scope of our audit...” This is an example of an  

    Acceptable review opinion.

    Acceptable qualified opinion.  

    Acceptable emphasis of a matter.

    Unacceptable reporting practice.
    Unacceptable reporting practice. 

    When an opinion is qualified because of a scope limitation, the opinion paragraph should indicate that the qualification pertains to the possible effects on the statements of undetected misstatements (AU-C 705). The language given in the question bases the qualification on the restriction itself and is unacceptable.
  4. An auditor’s decision concerning whether to dual date the audit report is based upon the auditor’s willingness to  

    Extend auditing procedures.  

    Assume responsibility for events subsequent to the issuance of the auditor’s report.  

    Permit inclusion of a note captioned “event (unaudited) subsequent to the date of the auditor’s report.”

    Accept responsibility for subsequent events.
    Extend auditing procedures. 

    When a subsequent event disclosed in the financial statements occurs after the date of the auditor’s report but before the release of the auditor’s report, the auditor may use dual dating. (S)he may date the report as of the original report date except for the matters affected by the subsequent event, which would be assigned the appropriate later date. In that case, the auditor’s responsibility for events after the original report date would be limited to the specific event. If the auditor is willing to accept responsibility to the later date and accordingly extends subsequent events procedures to that date, the auditor may choose the later date as the date for the entire report.
  5. The auditor’s report refers to the U.S. GAAP-based financial statements, which are customarily considered to include the balance sheet and the statements of  

    Income, changes in retained earnings, and cash flows.

    Income and cash flows.  

    Income and changes in equity.

    Income, changes in equity, and cash flows.
    Income, changes in equity, and cash flows.  

    The balance sheet, statement of income, statement of changes in equity, and statement of cash flows are the financial statements upon which the auditor customarily reports. Furthermore, provided that the entity has items of other comprehensive income, U.S. GAAP require that comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements. The format may be (1) one continuous statement consisting of net income and other comprehensive income (OCI) or (2) two separate but consecutive statements. The introductory paragraph identifies the titles of the entity’s financial statements. However, the statement of changes in equity and a separate statement of comprehensive income are not separately reported on the opinion paragraph. The reason is that changes in equity and comprehensive income are included in financial position, results of operations, and cash flows.