Auditing and Assurance Training Audit Reporting and Opinions 1 — Questions and Answers
Question 1: Which type of auditor's opinion is issued when the financial statements present fairly in all material respects and the audit was conducted without significant scope limitations?
- Qualified opinion
- Unmodified (clean) opinion (Correct answer)
- Adverse opinion
- Disclaimer of opinion
Correct answer: Unmodified (clean) opinion
An unmodified (clean) opinion is issued when financial statements are free from material misstatement and the auditor was not restricted in the scope of the audit.
Question 2: An auditor issues a qualified opinion using the phrase 'except for.' This means:
- The financial statements contain a pervasive misstatement
- There is a material but not pervasive departure from GAAP or a scope limitation (Correct answer)
- The auditor cannot form an opinion
- The financial statements are fairly presented in all respects
Correct answer: There is a material but not pervasive departure from GAAP or a scope limitation
A qualified opinion is issued when there is a material but not pervasive misstatement or a scope limitation that does not prevent forming an overall opinion.
Question 3: When the effect of a misstatement is so material and pervasive that the financial statements are misleading as a whole, the auditor issues a(n):
- Qualified opinion
- Adverse opinion (Correct answer)
- Disclaimer of opinion
- Unmodified opinion with emphasis paragraph
Correct answer: Adverse opinion
An adverse opinion is issued when misstatements are so material and pervasive that the financial statements do not present fairly.
Question 4: A disclaimer of opinion is issued when:
- The auditor disagrees with management's accounting choices
- The scope limitation is so significant the auditor cannot form any opinion (Correct answer)
- The entity's going concern is in doubt
- The financial statements contain immaterial errors
Correct answer: The scope limitation is so significant the auditor cannot form any opinion
A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects could be material and pervasive.
Question 5: Which section of the standard auditor's report describes management's responsibility for the financial statements?
- Auditor's Responsibility section
- Basis for Opinion section
- Management's Responsibility section (Correct answer)
- Opinion section
Correct answer: Management's Responsibility section
The Management's Responsibility section explicitly describes that management is responsible for the preparation and fair presentation of the financial statements.
Question 6: An 'emphasis-of-matter' paragraph in an audit report is used to:
- Modify the auditor's opinion
- Draw attention to a matter appropriately presented in the financials (Correct answer)
- Replace a going concern disclosure
- Indicate a scope limitation
Correct answer: Draw attention to a matter appropriately presented in the financials
An emphasis-of-matter paragraph draws users' attention to a matter properly disclosed in the financial statements without modifying the audit opinion.
Question 7: Under PCAOB standards, which additional element is required in audit reports for public companies that is not required for private companies under AICPA standards?
- Going concern paragraph
- Management's Responsibility section
- Communication of critical audit matters (CAMs) (Correct answer)
- Basis for Opinion section
Correct answer: Communication of critical audit matters (CAMs)
PCAOB AS 3101 requires communication of critical audit matters (CAMs) in auditor reports for large accelerated filers, a requirement unique to public company audits.
Auditing and Assurance Training Audit Reporting and Opinions 1
Which type of auditor's opinion is issued when the financial statements present fairly in all material respects and the audit was conducted without significant scope limitations?