CPA Audit Ch 1: Audit Reports-
Questions and All Solved Solutions.
Which standards provide the most authoritative U.S auditing guidance for nonissues and
issuers, and who issues those standards? - Answer - Nonissues
o SASs, AICPA (Statement on Auditing Standards issued by he Auditing Standards Board)
- Issuers
o Ass, PCAOB (Auditing Standards issued by the Public Company Accounting Oversight Board )
Primary purpose of an Audit - Answer To provide financial statement users with an opinion on
whether the financial statements are fairly presented, in all material respects, in accordance
with the applicable financial reporting framework
What are the five general GAAS requirements related to the conduct of an audit - Answer
(SEJEC)
1.Professional Skepticism
2.Ethical Requirements
3.Professional Judgement
4.Sufficient and Appropriate Audit Evidence
5.Compliance with GAAS
Identify three inherent limitations of an audit - Answer 1. The nature of financial reporting
2. The nature audit procedures
3. Timeliness of financial reporting and the balance between benefit and cost
When should an auditor's opinion be modified? - Answer -The auditor determines that the
financial statements as a whole are materially misstated (GAAP issue); or
-The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement (GAAS issue)
List in order the primary sections of an unmodified audit opinion (nonissuer) - Answer Title:
Independent Auditor's report
Addressee: Based on the circumstances of the engagement
Introduction: We have audited the accompanying financial statements of...
Management's Responsibility for the Financial Statements: Management is responsible for the
preparation and fair presentation of the financial statement...
, Auditor's Responsibility: Our responsibility is to express an opinion on these financial
statements based on our audit
Opinion: In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position...
Report on Other Legal and Regulatory requirements: If applicable.
What should be included in the introductory paragraph of the unmodified audit opinion
(nonissuer) - Answer 1. The entity whose financial statements have been audited
2.A statement that the financial statements were audited
3. The title of each financial statement audited
4. Dates or periods covered by each financial statement
What should be included in management's responsibility paragraph of the unmodified opinion
(nonissuer) - Answer "MR.DIM"
1. An explanation that management is responsible for the preparation and fair presentation of
the financial statements in accordance with the applicable financial reporting framework
2. A statement that this responsibility includes the design, implementation and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or error
What should be included in the auditor's responsibility paragraph of the unmodified audit
opinion (nonissuer) - Answer "REPPORTS CRAME"
1. A statement that it is the auditor's responsibility to express an opinion on the financial
statements based on the audit
2. A statement that the audit was conducted in accordance with auditing standards generally
accepted in the US
3. A statement that standards require that the auditor plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement
4. A description of the audit
5. A statement whether the auditor believes the audit evidence obtained is sufficient and
appropriate to provide a basis for the auditor's opinion
What should be included in the opinion paragraph of the unmodified audit opinion (nonissuer) -
Answer 1. A statement that the financial statements present fairly in all material respects, the
financial position of the entity as of the balance sheet date and the results of operations and its
cash flows for the period then ended, in accordance with the applicable financial framework
2. Identification of the applicable financial reporting framework and its origins
Where in the standard unmodified opinion (nonissuer) does the auditor refer to (1) the
applicable financial reporting framework and (2) GAAS? - Answer 1. The applicable financial
Questions and All Solved Solutions.
Which standards provide the most authoritative U.S auditing guidance for nonissues and
issuers, and who issues those standards? - Answer - Nonissues
o SASs, AICPA (Statement on Auditing Standards issued by he Auditing Standards Board)
- Issuers
o Ass, PCAOB (Auditing Standards issued by the Public Company Accounting Oversight Board )
Primary purpose of an Audit - Answer To provide financial statement users with an opinion on
whether the financial statements are fairly presented, in all material respects, in accordance
with the applicable financial reporting framework
What are the five general GAAS requirements related to the conduct of an audit - Answer
(SEJEC)
1.Professional Skepticism
2.Ethical Requirements
3.Professional Judgement
4.Sufficient and Appropriate Audit Evidence
5.Compliance with GAAS
Identify three inherent limitations of an audit - Answer 1. The nature of financial reporting
2. The nature audit procedures
3. Timeliness of financial reporting and the balance between benefit and cost
When should an auditor's opinion be modified? - Answer -The auditor determines that the
financial statements as a whole are materially misstated (GAAP issue); or
-The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement (GAAS issue)
List in order the primary sections of an unmodified audit opinion (nonissuer) - Answer Title:
Independent Auditor's report
Addressee: Based on the circumstances of the engagement
Introduction: We have audited the accompanying financial statements of...
Management's Responsibility for the Financial Statements: Management is responsible for the
preparation and fair presentation of the financial statement...
, Auditor's Responsibility: Our responsibility is to express an opinion on these financial
statements based on our audit
Opinion: In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position...
Report on Other Legal and Regulatory requirements: If applicable.
What should be included in the introductory paragraph of the unmodified audit opinion
(nonissuer) - Answer 1. The entity whose financial statements have been audited
2.A statement that the financial statements were audited
3. The title of each financial statement audited
4. Dates or periods covered by each financial statement
What should be included in management's responsibility paragraph of the unmodified opinion
(nonissuer) - Answer "MR.DIM"
1. An explanation that management is responsible for the preparation and fair presentation of
the financial statements in accordance with the applicable financial reporting framework
2. A statement that this responsibility includes the design, implementation and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or error
What should be included in the auditor's responsibility paragraph of the unmodified audit
opinion (nonissuer) - Answer "REPPORTS CRAME"
1. A statement that it is the auditor's responsibility to express an opinion on the financial
statements based on the audit
2. A statement that the audit was conducted in accordance with auditing standards generally
accepted in the US
3. A statement that standards require that the auditor plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement
4. A description of the audit
5. A statement whether the auditor believes the audit evidence obtained is sufficient and
appropriate to provide a basis for the auditor's opinion
What should be included in the opinion paragraph of the unmodified audit opinion (nonissuer) -
Answer 1. A statement that the financial statements present fairly in all material respects, the
financial position of the entity as of the balance sheet date and the results of operations and its
cash flows for the period then ended, in accordance with the applicable financial framework
2. Identification of the applicable financial reporting framework and its origins
Where in the standard unmodified opinion (nonissuer) does the auditor refer to (1) the
applicable financial reporting framework and (2) GAAS? - Answer 1. The applicable financial
