Groups For Fun
Thomas, CPA, has audited the consolidated financial statements of Kass Corporation. Jones, CPA, has audited the financial statements of its sole subsidiary, which is significant in relation to the total audited by Thomas. It would be appropriate for Thomas to serve as the group auditor, but it is impracticable for Thomas to review the work of Jones. Assuming an unmodified opinion is expressed by Jones, Thomas should
A) Refuse to express an opinion on the consolidated financial statements.
B) Express an unmodified opinion on the consolidated financial statements and not refer to the work of Jones.
C) Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones.
D) Express a qualified opinion on the consolidated financial statements as a result of referring to the work of Jones.
C) Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones.
An auditor judges that additional communication in the report of a nonissuer is needed to draw users’ attention to an important matter. If the matter is appropriately presented and disclosed in the statements, the matter is referred to
A) Only in the management’s responsibility for the financial statements section.
B) Only in an emphasis-of-matter paragraph.
C) Only in the opinion section.
D) In the opinion section and the basis for modification section.
B) Only in an emphasis-of-matter paragraph.
When a group auditor decides to refer to a component auditor’s audit, the group auditor’s report should indicate clearly, in the opinion section, the
A) Magnitude of the portion of the financial statements audited by the component auditor.
B) Disclaimer of responsibility concerning the portion of the financial statements examined by the other auditor.
C) Name of the other auditor.
D) Qualification of the report.
A) Magnitude of the portion of the financial statements audited by the component auditor.
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
A) May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.
B) May refer to the work of Lincoln in his report on the consolidated financial statements.
C) Obtain an understanding of Lincoln’s professional competence.
D) Should resign from the engagement because an unmodified opinion cannot be expressed on the consolidated financial statements.
A) May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.
An auditor’s report expresses an unmodified opinion and includes an emphasis-of-matter paragraph for a nonissuer. The auditor’s report is deficient if the emphasis-of-matter paragraph states that the entity
A) Is significantly affected by a major catastrophe.
B) Has omitted a statement of cash flows.
C) Has had an unusually important subsequent event.
D) Has significant related party transactions.
B) Has omitted a statement of cash flows.
An other-matter paragraph is included in the auditor’s report of a nonissuer except when
A) The opinion on the prior-period statements has changed.
B) Required supplementary information is presented.
C) A predecessor auditor’s report is not reissued.
D) The client has materially restated the prior year’s comparative financial statements.
D) The client has materially restated the prior year’s comparative financial statements.
The opinion paragraph of an independent auditor’s report includes, “In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position . . .” This language states a(n)
A) Disclaimer of opinion.
B) Unmodified opinion.
C) “Except for” opinion.
D) Qualified opinion.
B) Unmodified opinion.
In which situation is the auditor most likely not to include an emphasis-of-matter paragraph in the auditor’s report of a nonissuer?
A) An important audit procedure was performed.
B) The client suffered a major catastrophe.
C) Significant transactions with related parties were recorded.
D) Unusually important subsequent events occurred.
A) An important audit procedure was performed.
If the group auditor decides to refer in the report to the audit made by a component auditor, the
A) Group auditor assumes responsibility for the report of the component auditor.
B) Component auditor is relieved of responsibility for his or her report but not his or her work.
C) Component auditor is responsible for both his or her report and his or her work.
D) Component auditor is relieved of responsibility for his or her work but not his or her report.
C) Component auditor is responsible for both his or her report and his or her work.
A group auditor has decided to assume responsibility and not make reference to a component auditor. The report of the component auditor expressed a qualified opinion, but the group auditor believes the qualification to be immaterial in regard to the consolidated financial statements. Accordingly, the group auditor
A) May express an unmodified opinion but must include a separate paragraph describing the component auditor’s report.
B) Must express a qualified opinion but need not refer to the audit of the component auditor.
C) Must express a qualified opinion and refer to the audit of the component auditor.
D) Need not refer to the audit of the component auditor.
D) Need not refer to the audit of the component auditor.
An auditor includes an emphasis-of-matter paragraph in an otherwise unmodified report when the entity being reported on had significant transactions with related parties. The inclusion of this paragraph
A) Is considered a qualification of the opinion.
B) Violates auditing standards if this information is already disclosed in notes to the financial statements.
C) Necessitates a revision of the opinion paragraph to include the phrase “with the foregoing explanation.”
D) Is appropriate and would not negate the unmodified opinion.
D) Is appropriate and would not negate the unmodified opinion.
Pell, CPA, is the group engagement partner in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech’s subsidiaries. In which situation(s) should Pell refer to Smith’s audit?
A) 1 only
B) 2 only
C) Both 1 and 2
D) Neither 1 nor 2
B) 2 only
Regarding the magnitude of financial statements audited by the component auditor relative to the overall statements upon which the group auditor expresses an opinion,
A) The dollar amounts or percentages of total assets, total revenues, or other appropriate criteria should be disclosed in the group auditor’s report.
B) The general amounts (e.g., significant amount or insignificant amount) of total revenues and total assets must be disclosed in the group auditor’s report.
C) No mention is necessary unless approximately 50% or more of the assets or revenues are audited by the component auditor. Disclosure, if necessary, should be according to the appropriate criteria and reveal the portion of the financial statements audited by the component auditor.
D) No mention is necessary unless the audit report of the component auditor is not presented. Disclosure, if necessary, should be according to the appropriate criteria and reveal the portion of the financial statements audited by the component auditor.
D) No mention is necessary unless the audit report of the component auditor is not presented. Disclosure, if necessary, should be according to the appropriate criteria and reveal the portion of the financial statements audited by the component auditor.
An emphasis-of-matter paragraph is used in the auditor’s report to draw users’ attention to
A) A material misstatement.
B) A matter that is not presented or disclosed in the financial statements that is relevant to users’ understanding of the audit.
C) A matter that management wishes to highlight.
D) A matter appropriately presented or disclosed in the financial statements.
D) A matter appropriately presented or disclosed in the financial statements.
The responsibility of the auditor for communicating key audit matters when reporting on an audit of an nonissuer is to
A) Describe all identified key audit matters in the basis for opinion section
B) Report key audit matters in a separate section of the report only if engaged to do so
C) Describe in a key audit matters section of the report any matter that resulted in a modified opinion
D) Communicate key audit matters only if they resulted in an adverse opinion or a disclaimer
B) Report key audit matters in a separate section of the report only if engaged to do so