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MULTIPLE CHOICE:
ANSWER: D
ANSWER: D
ANSWER: B
231
232 Chapter 14 Audit Reports
ANSWER: B
ANSWER: A
ANSWER: C
Chapter 14 Audit Reports 233
ANSWER: A
ANSWER: C
ANSWER: C
ANSWER: D
ANSWER: D
12. Soon after Boyd's audit report was issued, Boyd learned of
certain related party transactions that occurred during the
year under audit. These transactions were not disclosed in
the notes to the financial statements. Boyd should
a. Plan to audit the transactions during the next
engagement.
b. Recall all copies of the audited financial statements.
c. Determine whether the lack of disclosure would affect
the auditor's report.
d. Ask the client to disclose the transactions in
subsequent interim statements.
ANSWER: C
ANSWER: A
Chapter 14 Audit Reports 235
ANSWER: D
ANSWER: B
ANSWER: C
17. When the audited financial statements of the prior year are
presented together with those of the current year, the
continuing auditor's report should cover
a. Both years.
b. Only the current year.
c. Only the current year, but the prior year's report
should be presented.
d. Only the current year, but the prior year's report
should be referred to.
ANSWER: A
ANSWER: A
ANSWER: C
ANSWER: A
ANSWER: B
22. After issuing the audit report, the auditor may become aware
of information that would have affected the audit report had
it been known at the time. Given discovery of such
information, the auditor must take appropriate action. Which
of the following actions would be considered inappropriate
under these circumstances?
a. Determine whether the information is reliable and
whether the facts existed at the date of the audit
report.
b. Request the client to disclose, to financial statement
users, the newly discovered facts and their impact on
the financial statements.
c. If the client refuses to inform third parties, the
auditor should notify the board of directors and
regulatory agencies having jurisdiction over the client
that the auditors' report can no longer be relied upon.
d. Draft a revised audit report expressing a qualified or
adverse opinion, depending on the materiality of the
effect, and transmit the report to the stockholders.
ANSWER: D
ANSWER: B
ANSWER: D
ANSWER: A
ANSWER: B
ANSWER: A
ANSWER: C
ANSWER: D
ANSWER: A
ANSWER: C
ANSWER: C
ANSWER: B
c. Unqualified opinion.
d. Disclaimer of opinion.
ANSWER: A
ANSWER: B
ANSWER: D
ANSWER: B
ANSWER: D
ANSWER: D
ANSWER: A
ANSWER: A
ANSWER: C
ANSWER: D
ANSWER: B
Chapter 14 Audit Reports 245
a. Explicitly Explicitly
b. Implicitly Implicitly
c. Implicitly Explicitly
d. Explicitly Implicitly
ANSWER: A
ANSWER: B
ANSWER: A
ANSWER: D
ANSWER: C
ANSWER: A
ANSWER: C
Chapter 14 Audit Reports 247
ANSWER: C
ANSWER: B
ANSWER: D
COMPLETION:
ANSWER: SCOPE
248 Chapter 14 Audit Reports
58. The two relevant dates in a dual-dated audit report are the
date of completion of audit field work and the date of the
.
ANSWER: ADVERSE
ANSWER: INTRODUCTORY
63. A CPA who audited the financial statements for the preceding
year, and will also be auditing the current year, is said to
be a auditor.
ANSWER: CONTINUING
Chapter 14 Audit Reports 249
ANSWER: DISCLAIMER OF
MATCHING:
67. From the following types of audit reports, select the one
that best fits each of the listed situations. A given selection
may be used once, more than once, or not at all.
_____6. The auditors did not review the quarterly financial data
of Client A, a publicly held company. The data is
included in the annual report to stockholders as
part of the supplemental financial data.
_____9. Client F has suffered recurring losses over the past few
years, along with negative cash flows. In the auditors’
opinion, management has not demonstrated a viable plan
for getting the company “back on track.” The financial
statements adequately disclose the company’s financial
position, results of operations, and cash flows.
SOLUTION:
1. E
2. A
3. A
Chapter 14 Audit Reports 251
4. C
5. B
6. F
7. D
8. F
9. F
10. A
PROBLEM/ESSAY
68. Jonathon Hershey, CPA, is the senior auditor for Web Stores,
Inc., a company that markets products on the Internet. The
current year-end is January 31, 2003. Last year's audit report
contained an explanatory paragraph because of doubt regarding the
ability of Web Stores to continue as a going concern. The
company had defaulted on two major loan agreements, and appeared
to be losing the race to develop a solid commercial presence on
the Internet. Since the date of last year's audit report,
however, company management has changed. A new advertising
campaign and innovative marketing techniques, have proven
successful. Creditors have agreed to major debt restructuring
agreements, and the client appears to be "out of the woods."
Required:
SOLUTION:
Last year’s audit report covering the year ended January 31,
2002, included a fourth paragraph following the opinion
paragraph. Explanatory in nature, this paragraph expressed the
auditor’s doubt as to the ability of Web Stores, Inc. to continue
as a going concern. Given the favorable developments during the
past year, the current report should omit the fourth paragraph.
Required:
252 Chapter 14 Audit Reports
SOLUTION:
Required:
a. Describe the conditions under which one might expect to
find an explanatory paragraph following the opinion paragraph of
the audit report.
b. Describe the conditions under which an explanatory
paragraph is mandatory.
c. Draft an explanatory paragraph for the following
situation:
SOLUTION: