Chapter 18 – Reports on Audited Financial Statements
1. A going concern issue requires a modification of the wording to the three-paragraph standard
unqualified audit report (public company).
2. An opinion based in part on the report of another auditor requires an
explanatory/emphasis-of-matter paragraph be added to the standard unqualified/unmodified
audit report.
3. A basic assumption that underlies financial reporting is that an entity will continue as a going
concern.
Chapter 18 – Reports on Audited Financial Statements
4. A change in accounting estimate is an example of an accounting change that affects
comparability and requires an explanatory/emphasis-of-matter paragraph in the audit report.
5. A change in reporting entity is an example of an accounting change that affects comparability
and requires an explanatory/emphasis-of-matter paragraph in the audit report.
6. Changes that do not affect consistency are normally disclosed in the footnotes but do not
require an explanatory/emphasis-of-matter paragraph in the audit report.
Chapter 18 – Reports on Audited Financial Statements
7. An auditor may be unable to express an unqualified opinion if an immaterial departure from
GAAP is present in the financial statements.
8. An auditor must disclaim an opinion when the auditor lacks independence.
9. The choice of which audit report to issue depends on the condition and the materiality of any
departure.
Chapter 18 – Reports on Audited Financial Statements
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10. A scope limitation results from an inability to obtain sufficient appropriate evidence about
some component of the financial statements.
11. Which of the following parties is responsible for the fairness of the representations made in
financial statements?
Chapter 18 – Reports on Audited Financial Statements
12. Which of the following situations will not result in modification of the auditor’s report
because of a scope limitation?
13. 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
Chapter 18 – Reports on Audited Financial Statements
14. Management believes and the auditor is satisfied, that a material loss probably will occur
when pending litigation is resolved. Management is unable to make a reasonable estimate of the
amount or range of the potential loss, but fully discloses the situation in the notes to the
financial statements. If the auditor wishes to call attention to the matter and management does
not make an accrual in the financial statements, the auditor should issue a(an)
15. For which of the following events would an auditor issue a report that does not include any
reference to consistency?
Chapter 18 – Reports on Audited Financial Statements
16. If the auditor believes that there is minimal likelihood that resolution of an uncertainty will
have a material effect on the financial statements, the auditor would issue a(n)
17. When comparative financial statements are presented, the fourth standard of reporting,
which refers to financial statements “taken as a whole,” should be considered to apply to the
financial statements of the
Chapter 18 – Reports on Audited Financial Statements
18. A predecessor auditor should complete the following before reissuing a report on
statements presented on a comparative basis:
19. In connection with the examination of the consolidated financial statements of Mott
Industries, Frazier, CPA, plans to refer to another CPA’s examination of the financial
statements of a subsidiary company. Under these circumstances, Frazier’s report must disclose
Chapter 18 – Reports on Audited Financial Statements
20. If the principal auditor decides to make reference to the other auditor’s examination, the
introductory paragraph must specifically indicate the
21. When a question arises about an entity’s continued existence, the auditor should consider
factors tending to mitigate the significance of negative information concerning the entity’s
means for maintaining adequate cash flow. An example of such a factor is the
Chapter 18 – Reports on Audited Financial Statements
22. The adverse effects of events causing an auditor to believe there is substantial doubt about
an entity’s ability to continue as a going concern would most likely be mitigated by evidence
relating to the
23. Which of the following auditing procedures most likely would assist an auditor in
identifying conditions and events that may indicate substantial doubt about an entity’s ability to
continue as a going concern?
Chapter 18 – Reports on Audited Financial Statements
24. Which of the following would be considered a change that affects consistency?
25. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
26. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
Chapter 18 – Reports on Audited Financial Statements
27. An auditor was unable to obtain audited financial statements or other evidence supporting
an entity’s investment in a large foreign subsidiary. Between which of the following reports
should the auditor choose?
28. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize
that the entity being reported on had significant transactions with related parties. The inclusion
of this separate paragraph
Chapter 18 – Reports on Audited Financial Statements
29. When the auditor is unable to determine the amounts associated with the illegal acts of
client personnel because of an inability to obtain adequate evidence, the auditor should issue
a(n)
30. Which of the following circumstances normally does not affect the consistency phrase in
the auditor’s standard report?
Chapter 18 – Reports on Audited Financial Statements
31. Which of the following circumstances should be recognized as a consistency modification
in the auditor’s report, whether or not the item is fully disclosed in the financial statements?
32. When the client fails to include information that is necessary for the fair presentation of
financial statements in the body of the statements or in the related footnotes, it is the
responsibility of the auditor to present the information, if practicable, in the auditor’s report and
express a(n)
Chapter 18 – Reports on Audited Financial Statements
33. When an auditor expresses an adverse opinion, the opinion paragraph should include
34. An auditor would issue an adverse opinion if
Chapter 18 – Reports on Audited Financial Statements
35. Other bases of accounting (special purpose frameworks) include all of the following
except:
36. An auditor is reporting on cash basis financial statements. These statements are best
referred to in his or her report by which one of the following descriptions?
Chapter 18 – Reports on Audited Financial Statements
37. An accountant has been engaged to report on an entity’s internal controls without
performing an audit of the financial statements. What restrictions, if any, should the accountant
place on the use of this report?
38. Which of the following would be considered a change that does not affect consistency?
Chapter 18 – Reports on Audited Financial Statements
39. Abbot, CPA, as principal auditor for consolidated financial statements, is using a qualified
report of another auditor. Abbot does not consider the qualification material relative to the
consolidated financial statements and Abbot is willing to accept responsibility for the work of
the other auditor. What recognition, if any, must Abbot make in his report to the report of the
other audit?
40. The predecessor auditor, after properly communicating with the successor auditor, has
reissued a report because the audit client desires comparative financial statements. The
predecessor auditor’s report should make
Chapter 18 – Reports on Audited Financial Statements
41. In the auditor’s report, the principal auditor decides not to make reference to another CPA
who audited a client’s subsidiary. The principal auditor could justify this decision if, among
other requirements, the principal auditor
42. An auditor concludes that there is substantial doubt about an entity’s ability to continue as a
going concern for a reasonable period of time. If the entity’s financial statements adequately
disclose its financial difficulties, the auditor’s report is required to include an
explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s)
Chapter 18 – Reports on Audited Financial Statements
43. Comparative financial statements include the financial statements of a prior period that
were examined by a predecessor auditor whose report is not presented. If the predecessor
auditor’s report was qualified, the successor auditor must
44. When an auditor concludes there is substantial doubt about an entity’s ability to continue as
a going concern for a reasonable period of time, the auditor’s responsibility is to