cpa audit review ch17 review 1

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Joens1313
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cpa audit review ch17 review 1
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2014-10-21 22:57:26
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cpa audit review ch17 review 1
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  1. An auditor’s report expresses an unmodified opinion and includes an emphasis-of-matter paragraph. The auditor’s report is deficient if the emphasis-of-matter paragraph states that the entity  

    Is significantly affected by a major catastrophe.  

    Has omitted a statement of cash flows.

    Has significant related party transactions.

    Has had an unusually important subsequent event.
    Has omitted a statement of cash flows.  

    The statement of cash flows is a basic financial statement. Its omission when financial position and results of operations are presented is a material misstatement that requires the auditor to modify the opinion. An emphasis-of-matter paragraph is used when (1) the matter is fundamental to users’ understanding of the statements, (2) the auditor considers that drawing users’ attention to the matter is necessary, and (3) the matter is appropriately presented and disclosed in the statements.
  2. Which of the following situations concerning consistency should the auditor not recognize in the report?  

    A change in the percentage used to calculate the provision for warranty expense.  

    A change in the specific subsidiaries included in the group of companies for which consolidated statements are presented.

    The correction of a mistake in the application of an accounting principle required by the applicable financial reporting framework.

    A change from an accounting principle that is not generally accepted to one that is generally accepted.
    A change in the percentage used to calculate the provision for warranty expense. 

    .A change in the calculation of warranty expense is a change in accounting estimate. Changes that affect comparability but not the consistent application of accounting principles do not require recognition in the auditor’s report.
  3. William Halsey is auditing the consolidated financial statements of Rex, Inc. Abbey Lincoln is the auditor who has audited and reported on the financial statements of a wholly owned subsidiary of Rex, Inc. Halsey’s first concern with respect to the Rex financial statements is to decide whether he

    Obtain an understanding of Lincoln’s professional competence.  

    May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.  

    Should resign from the engagement because an unmodified opinion cannot be expressed on the consolidated financial statements.

    May refer to the work of Lincoln in his report on the consolidated financial statements.
    May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.  

    The first objective of the group engagement partner is to determine whether to serve as the auditor of the group statements. If so, the objectives are to (1) determine whether to refer to the component auditor’s report, (2) communicate clearly with the component auditor or auditors, and (3) obtain sufficient appropriate evidence about the financial information of the components and the consolidation process. Thus, the group engagement partner should evaluate whether sufficient appropriate evidence can be obtained to serve as the auditor of the group statements. Factors relevant to the decision to act as the group auditor also include (1) the financial significance of individual components for which responsibility will be assumed, (2) the significant risks of material misstatement of the group statements from assuming responsibility for components, and (3) the group engagement team’s knowledge of the overall financial statements.
  4. Green Company uses the first-in, first-out method of costing for its international subsidiary’s inventory and the last-in, first-out method of costing for its domestic inventory. The different costing methods will cause Green’s auditor to issue a report with a(n)

    Qualified opinion.  

    Opinion modified as to consistency.  

    Unmodified opinion.

    Emphasis-of-matter paragraph as to consistency.
    Unmodified opinion.  

    The objective of the evaluation of consistency for the periods presented is to communicate in the report when the comparability of financial statements between periods has been materially affected by a change in accounting principles or by adjustments to correct a material misstatement in previous statements. Thus, the use of two different cost flow assumptions does not, by itself, affect the comparability of the entity’s financial statements between periods if no accounting changes have occurred.

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