Auditing and Assurance Training Audit Reporting and Opinions 2 — Questions and Answers
Question 1: When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern, the auditor should:
- Immediately issue an adverse opinion
- Issue a disclaimer of opinion
- Include a going concern paragraph and consider the effect on the opinion (Correct answer)
- Withdraw from the engagement
Correct answer: Include a going concern paragraph and consider the effect on the opinion
Under AU-C 570, the auditor adds an explanatory paragraph regarding going concern doubt and evaluates whether any misstatements affect the opinion.
Question 2: A 'critical audit matter' (CAM) as defined by the PCAOB is best described as:
- Any error discovered during the audit
- A matter arising from the audit that was communicated to the audit committee and involved especially challenging judgment (Correct answer)
- A scope limitation preventing the issuance of an opinion
- A significant deficiency in internal controls
Correct answer: A matter arising from the audit that was communicated to the audit committee and involved especially challenging judgment
CAMs are matters arising from the current period audit that were communicated to the audit committee, involve especially challenging, subjective, or complex auditor judgment.
Question 3: Which type of assurance engagement provides a lower level of assurance than an audit?
- Agreed-upon procedures engagement
- Review engagement (Correct answer)
- Compilation
- Examination engagement
Correct answer: Review engagement
A review engagement provides limited (negative) assurance, which is a lower level of assurance than the reasonable (positive) assurance provided by an audit.
Question 4: In a review engagement, the accountant's conclusion is expressed in what form?
- Positive assurance: 'the statements are fairly presented'
- Negative assurance: 'nothing came to our attention...' (Correct answer)
- No assurance is provided
- Reasonable assurance that no material misstatements exist
Correct answer: Negative assurance: 'nothing came to our attention...'
A review report provides negative assurance, stating that nothing came to the accountant's attention indicating the statements are not fairly presented.
Question 5: When comparative financial statements are presented and the prior year was audited by a predecessor auditor, the current auditor should:
- Re-audit the prior period statements
- Refer to the predecessor auditor in the current period report (Correct answer)
- Issue a disclaimer on the prior year figures
- Omit the prior year comparative figures
Correct answer: Refer to the predecessor auditor in the current period report
When prior period statements were audited by a predecessor auditor, the current auditor's report refers to the predecessor auditor to clearly indicate responsibility for each period.
Question 6: The date of the auditor's report should be:
- The last day of the entity's fiscal year
- The date management signs the representation letter
- No earlier than the date sufficient appropriate evidence has been obtained (Correct answer)
- The date the financial statements are filed with regulators
Correct answer: No earlier than the date sufficient appropriate evidence has been obtained
The auditor's report date should be no earlier than the date the auditor has obtained sufficient appropriate audit evidence, including evidence about subsequent events.
Question 7: An 'other-matter' paragraph in an audit report differs from an emphasis-of-matter paragraph in that it refers to:
- A matter presented in the financial statements
- A matter not presented or disclosed in the financial statements (Correct answer)
- A change in accounting principle
- A scope limitation affecting the opinion
Correct answer: A matter not presented or disclosed in the financial statements
An other-matter paragraph draws attention to a matter that is not presented or disclosed in the financial statements but is relevant to users' understanding of the audit.
Auditing and Assurance Training Audit Reporting and Opinions 2
When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern, the auditor should: