All applicable questions are available with McGraw-Hill’s Connect™ Accounting. |
17–25. | Multiple Choice Questions
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17–26. |
Do not consider an auditor discretionary circumstance for modification of the audit report unless the situation explicitly suggests that the auditors wish to emphasize a particular matter. Report Types may be used once, more than once, or not at all. |
p. 685 17–27. |
Situation:
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17–28. |
Required: For each of the above situations, state whether the audit report should include an emphasis of matter paragraph on consistency. | ||||||||||||||||||||||||||||||||||
17–29. | Items 1 through 5 present various independent factual situations an auditor might encounter in conducting an audit. For each situation, assume:
Required: List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any) that would be necessary. Select as the best answer for each situation (items 1 through 6) the type of opinion and alterations, if any, the auditor would normally select. Replies may be selected once, more than once, or not at all. | ||||||||||||||||||||||||||||||||||
(AICPA, adapted) |
17–30. | For each of the following brief scenarios, assume that you are reporting on a client's financial statements. Reply as to the type(s) of opinion (per below) possible for the scenario. In addition:
Types of Opinion
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17–31. | Last year, Johnson & Barkley, CPAs, audited the consolidated financial statements of Jordan Company (a nonpublic company) for the year ended December 31, 20X0, and expressed a standard unmodified report. Johnson & Barkley also audited Jordan's this year's financial statements—for the year ended December 31, 20X1. These consolidated financial statements are being presented on a comparative basis with those of the prior year, and an unmodified opinion is being expressed. Smith, the engagement supervisor, instructed Abler, an assistant on the engagement, to draft the auditors' report. In drafting the report below, Abler considered the following:
Abler drafted the following audit report: |
Auditors' Report We have audited the accompanying consolidated financial statements of Jordan Company and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 20X1 and 20X0, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements. Auditors' ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. p. 689We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of MatterAs discussed in Note 2 to the consolidated financial statements, the Company adopted the first-in-first-out method of inventory valuation in 20X1. Our opinion is not modified with respect to this matter. OpinionIn our opinion, the consolidated financial statements referred to here present fairly, in all material respects, the financial position of Jordan Company and its subsidiaries as of December 31, 20X1 and 20X0, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Phoenix, ArizonaDecember 31, 20X1 |
Required: Smith reviewed Abler's draft and stated in the Supervisor's Review Notes below that there were deficiencies in Abler's draft. Items 1 through 10 represent the deficiencies noted by Smith. For each deficiency, indicate whether Smith is correct or incorrect in the criticism of Abler's draft.
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* Note that this simulation has more parts than one would expect in a particular CPA exam simulation. We present it to provide examples of many types of reporting situations in one problem.