Emphasis or Other - that is the question, plus a little group
When an audit firm includes a report on compliance with aspects of contractual agreements in the auditor’s report on the nonissuer’s financial statements, in which section or paragraph of the audit report should the report on compliance be included?
A) Auditor’s responsibility section.
B) Opinion section.
C) Other-matter paragraph.
D) Emphasis-of-matter paragraph.
C) Other-matter paragraph.
An auditor’s report contains the following: “We did not audit the financial statements of JK Co., a wholly owned subsidiary whose statements reflect total assets and revenues constituting 17% and 19%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for JK Company, is based solely on the report of the other auditors.” These sentences
A) Disclaim an opinion.
B) Qualify the opinion.
C) Assume no responsibility for the audit of JK Co.
D) Are an improper form of reporting.
C) Assume no responsibility for the audit of JK Co.
Which of the following is not a responsibility of a group engagement team?
A) Choose one member to be the group engagement partner.
B) Develop a group audit plan.
C) Establish an overall audit strategy.
D) Determine materiality for the group as a whole.
A) Choose one member to be the group engagement partner.
If an auditor includes an emphasis-of-matter paragraph to draw users’ attention to a matter relevant to the users’ understanding of the financial statements of a nonissuer, then the auditor should
A) Indicate in the audit report that the emphasis-of-matter paragraph is required by law or regulation.
B) Notify the appropriate regulatory authority if the auditor’s opinion was modified on the basis of the matter.
C) Modify the opinion section to direct the reader to the emphasis-of-matter paragraph.
D) Place the paragraph in a separate section with an appropriate heading.
D) Place the paragraph in a separate section with an appropriate heading.
The group engagement partner has identified a significant component of the group that is being audited by a component auditor. The group auditor intends to assume responsibility for the work of the component auditor. Accordingly,
A) A qualified opinion should be expressed on that component.
B) The component auditor should become a member of the group engagement team.
C) The group engagement team should either audit the component directly or have the component auditor audit the information on its behalf.
D) The group engagement team should obtain a representation letter from component management.
C) The group engagement team should either audit the component directly or have the component auditor audit the information on its behalf.
When the report of a group auditor refers to the audit by a component auditor, the component auditor may be named if express permission to do so is given and if the
A) Report of the group auditor names the component auditor in the opinion section.
B) Group auditor accepts responsibility for the work of the component auditor.
C) Report of the component auditor is presented together with the report of the group auditor.
D) Component auditor is not a member of the group engagement team whose work is done at the request of the group engagement team.
C) Report of the component auditor is presented together with the report of the group auditor.
May Dey, CPA, is the group auditor of Baron Corp. A component auditor has audited a wholly owned subsidiary of Baron and expressed a qualified opinion. Dey
A) Must, whatever her opinion, refer to the component auditor’s qualified opinion.
B) May still express an unmodified opinion without referring to the component auditor’s opinion.
C) May still express an unmodified opinion but must refer to the component auditor’s opinion.
D) May express only a qualified or an adverse opinion.
B) May still express an unmodified opinion without referring to the component auditor’s opinion.
An auditor may issue an unmodified audit report when the
A) Auditor refers to the findings of an auditor’s specialist.
B) Financial statements are derived from audited financial statements but contain less detail.
C) Financial statements are prepared on the cash receipts and disbursements basis of accounting chosen by management.
D) Group engagement partner assumes responsibility for the work of a component auditor.
D) Group engagement partner assumes responsibility for the work of a component auditor.
A CPA firm has decided to rely on the audit work performed by another audit firm. Which of the following procedures should the CPA firm perform when taking responsibility for the other firm’s audit work?
A) Review the other firm’s audit workpapers and reperform a subset of audit testing to validate the firm’s conclusions.
B) Reference the reliance on the other firm’s work in a footnote disclosure to the financial statements.
C) Reference the reliance on the other firm’s work in the opinion in the audit report.
D) Obtain and attach a copy of the other firm’s representation letter and audit report to the opinion that the CPA firm issues.
A) Review the other firm’s audit workpapers and reperform a subset of audit testing to validate the firm’s conclusions.
In some circumstances, the auditor of a nonissuer includes an emphasis-of-matter paragraph in the audit report but expresses an unmodified opinion. Circumstances justifying this method of reporting do not include
A) A change in the reporting entity.
B) An auditor’s opinion on revised financial statements different from the previous opinion.
C) Disagreement by the auditor with management’s determination of a material estimate.
D) Significant transactions with parties related to the entity being audited.
C) Disagreement by the auditor with management’s determination of a material estimate.
In which of the following situations will a group auditor be most likely to refer to a component auditor who audited a subsidiary of the entity?
A) The component auditor performed an audit in accordance with PCAOB standards.
B) The component auditor issued a restricted use report.
C) The financial statements audited by the component auditor are prepared using a financial reporting framework different from that used in the group statements.
D) The component auditor is not independent.
A) The component auditor performed an audit in accordance with PCAOB standards.
An auditor expresses an unmodified opinion on the financial statements of Big Brother Company, a nonissuer. The auditor’s opinion section is modified if the auditor
A) Believes that an uncertainty exists that involves a reasonably possible chance of material loss.
B) Refers to the audit of a component auditor.
C) Has a substantial doubt about the auditee’s ability to continue as a going concern.
D) Emphasizes a matter.
B) Refers to the audit of a component auditor.
A component auditor has performed part of the audit. The group auditor may name the component auditor only if which condition(s), if any, is(are) satisfied?
A) Both 1 and 2
B) 1 only
C) 2 only
D) Neither 1 nor 2
A) Both 1 and 2
If a group engagement partner refers to a component auditor in an audit that would otherwise result in an unmodified opinion, the type of audit report issued should express a(n)
A) Unmodified opinion.
B) Qualified opinion.
C) Adverse opinion.
D) Disclaimer of opinion.
A) Unmodified opinion.
Investor Co. has a material investment in Investee Co. that was accounted for by the equity method. Marr and Sons, CPAs, audits Investor but not Investee. Marr and Sons may express an unmodified opinion on Investor’s financial statements if it
A) Reviews the audit documentation of Investee’s auditor.
B) Obtains an understanding of the professional competence and compliance with ethical requirements of Investee’s auditor.
C) Obtains only Investee’s audited financial statements.
D) Obtains only Investee’s unaudited financial statements.
B) Obtains an understanding of the professional competence and compliance with ethical requirements of Investee’s auditor.