The client has presented all required financial statements with the exception of the statement of cash flows

MULTIPLE CHOICE

Question 1
The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:

Question 2
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:

Question 3
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

Question 4
When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

Question 5
Which of the following is not a change that affects consistency and, therefore, does not
require an explanatory paragraph?

Question 6
The audit report date on a standard unqualified report indicates:

Question 7
GAAP requires that changes in accounting principles be to a:

Question 8
If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to:

Question 9
The purpose of the introductory paragraph in the standard unqualified report is:

Question 10
The introductory paragraph of the standard audit report states that the auditor is:


Click here for the solution: The client has presented all required financial statements with the exception of the statement of cash flows

Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets

Use the following information for Problems 12-30 and 12-31:

Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.

AND SO ON

Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?

Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?


Click here for the solution: Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets

For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client

Problem 15-40 For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client. Jocelyn has assessed the control risk for the company at the maximum for all financial statement assertions involving investments. Consequently, the ICFR audit report will indicate material weaknesses and rather than relying on ICFR during the financial statement audit, all audit evidence will come from substantive procedures. Jocelyn determines that Rogers is unable to exercise significant influence over any investee and there are no related parties.

Morris receives an investment analysis from Rogers’s management revealing the following:
• There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian.
• Investments are classified as current or non-current.
• The beginning and ending balances are shown at cost and market.
• Unamortized premiums or discounts are associated with bonds.
• The face amount of bonds or number of shares of stock are given for the beginning and ending of the year.
• Accrued investment income for each investment at the beginning and ending of the year is presented.
• Investment income earned and collected is presented.
• Valuation allowances at the beginning and ending of the year are shown.
• Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss.

Required: Explain the audit objective for each of the listed management financial statement assertions relative to investments.

Assertion Audit Objective
1. Existence
2. Completeness
3. Rights
4. Valuation/allocation
Presentation and Disclosure


Click here for the solution: For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client

Bill Novak is working on an audit of an iGAAP client

Bill Novak is working on an audit of an iGAAP client. In his review of the client’s interim reports, he notes that the reports are prepared on a discrete basis. That is, each interim report is viewed as a distinct period. Is this acceptable under iGAAP? If so, explain how that treatment could affect comparisons to U.S. GAAP company?


Click here for the solution: Bill Novak is working on an audit of an iGAAP client

An audit client is being sued for $500,000 for discriminatory hiring practices

15-32 (Contingencies) An audit client is being sued for $500,000 for discriminatory hiring practices.

Required:
Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry:
a. The lawyer stated that the client had a meritorious defense.
b. The lawyer stated that there is only a remote chance that the client will lose. The client did not accrue any contingent loss or disclose this situation.
c. The lawyer stated the client will probably lose, and the amount of the loss could be anywhere between $250,000 and $500,000, with no amount within that range being more likely than another. The client disclosed this situation but did not accrue a loss.
d. The lawyer stated that there is a reasonable possibility that the client will lose. The client disclosed this situation but did not accrue a loss.
e. The lawyer stated the client will probably lose between $250,000 and $500,000, but most likely will lose $400,000. The client accrued a $250,000 contingent loss and disclosed the situation.


Click here for the solution: An audit client is being sued for $500,000 for discriminatory hiring practices

Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009

P 9.35 Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009. Henderson Energy is regulated by the state utility commission and because it is a publicly traded company the audited financial statements must be filed with the Securities and Exchange Commission (SEC).

Henderson Energy is considerably more profitable than many of its competitiors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2009 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks, Because of the complexities of the underlying accounting associated with these activities, Henderson Energy added several highly experienced accountants within its financial reporting team. Internal audit, which has didrect reporting responsibility to the audit committee, is also actively involved in reviewing key accounting assumptions and estimates on a quarterly basis.

Whiteheads discussions with the predeccessor auditor revealed that the client has experienced some difficulty in correctly tracking existing property, plant, and equipment items. This largely involves equipment located at its multiple energy production facilities. During the recent year, Henderson acquired a regional electric company, which expanded the number of energy production facilities.
Whitehead plans to staff the audit engagement with several members of the firm who have experience in auditing energy and public companies. The extent of partner review of key accounts will be extensive.

Based the above information, identify factors that affect the risk of material misstatement in the December 31, 2009 financial statements of Henderson Energy. Indicate whether the factor increases or decreases the risk of material misstatement. Also, identify which audit risk model component is affected by the factor. Use the format below:

Factor-Effect on the Risk of Material Misstatement-Audit Risk ModelcComponent
Henderson is a new client - Increases - Inherent risk

Click here for the solution: Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009