Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 3, Problem 21.1MCQ
To determine
Identify the option under which the auditor must issue a report for the situation given.
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8. An auditor should be aware of subsequent event that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may:
a. Have been recorded based on preliminary accounting estimates.
b. Require adjustments to the financial statements as of the year end.
c. Have been recorded based on year-end tests for asset obsolescence.
d. Require disclosure to keep the financial statement from being misleading.
9. Analytical procedures used in planning an audit should focus on:
a. Identifying material weaknesses in internal control.
b. Enhancing the auditor’s understanding of the client’s business.
c. Testing individual account balances that depend on accounting estimates.
d. Evaluating the adequacy of evidence gathered concerning unusual balances.
In a client currently using straight-line method for all depreciable assets acquires a new class of depreciable assets to initiate a new product line and begins to depreciate these assets on an accelerated basis, the auditor should
A. Add a separate explanatory paragraph to the reportB. Express an adverse opinionC. Express the opinion subject to the effect of new depreciation methodD. Express thee opinion with no modification for the accounting change
An entity changes its depreciation
method for production equipment
from straight line method to units of
activity method. The effect of this
change is pervasively material. The
auditor does not concur with the
change. The auditor would issue a(n): *
Unqualified opinion with an
explanatory paragraph.
O Adverse opinion
O Qualified opinion
Unqualified opinion
Chapter 3 Solutions
Auditing And Assurance Services
Ch. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Prob. 14RQCh. 3 - Distinguish between a report qualified due to a...Ch. 3 - Prob. 16RQCh. 3 - Prob. 17RQCh. 3 - Prob. 18RQCh. 3 - Prob. 19RQCh. 3 - Prob. 20.1MCQCh. 3 - Prob. 20.2MCQCh. 3 - Prob. 20.3MCQCh. 3 - Prob. 21.1MCQCh. 3 - Prob. 21.2MCQCh. 3 - Prob. 21.3MCQCh. 3 - Prob. 22.1MCQCh. 3 - Prob. 22.2MCQCh. 3 - Prob. 22.3MCQCh. 3 - Prob. 23DQPCh. 3 - Prob. 24DQPCh. 3 - Prob. 25DQPCh. 3 - Prob. 26DQPCh. 3 - Prob. 28DQPCh. 3 - Prob. 29DQP
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- Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. For a public company these considerations will affect the audit report as follows: ) If a loss meets these criteria, the auditor may issue an unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report. ) If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but should consider adding an explanatory paragraph as a means of emphasizing the disclosure. If a loss is probable but the amount cannot be reasonably…arrow_forwardThe client has restated the prior-year statements because of a changefrom LIFO to FIFO. How should this be reflected in the auditor’s report?arrow_forwardAccording to auditing standards, financial statements presented on a special-purpose framework should nota. Contain a note describing the special-purpose framework.b. Describe in general how the special-purpose framework differs from generally acceptedaccounting principles.c. Be accompanied by an audit report that gives an unmodified opinion with reference tothe special-purpose framework.d. Contain a note with a quantified dollar reconciliation of the assets based on the specialpurpose framework with the assets based on generally accepted accounting principles.arrow_forward
- 29. Which of the following best describes the independent auditors' approach to obtaining satisfaction concerning depreciation expense in the income statement? Group of answer choices Establish the basis for depreciable assets and verify the depreciation expense Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts Determine the method for computing depreciation expense and ascertain that is in accordance with generally accepted accounting principles Verify the mathematical accuracy of the amounts charged to income as a result of depreciation expensearrow_forwardSanchez Company accounts carries its long term assets at market values. Current market values exceed historical cost by a material but not pervasive amount. The auditor would issue a(n): * O Unqualified opinion O Qualified opinion Disclaimer of opinion Adverse opinionarrow_forwardWhich of the following best describes the independent auditor's approach to obtaining satisfaction concerning depreciation expense in the income statement? a.Review the mathematical accuracy of the amounts charged to income as a result of depreciation expens b.Determine the method of computing depreciation expense and ascertain that it is in accordance with generally accepted accounting principle c.Support the basis of depreciable assets and the depreciation expens d.Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation account e.Select a sample of equipment items in the manufacturing facility and vouch back to the recorded subsidiary ledge r.s.e.s.e.ry ledger.arrow_forward
- When comparative financial statements are presented but the predecessor auditor's report is not presented, the current auditor should do which of the following in the audit report? a. Disclaim an opinion on the prior year's financial statements. b. Identify the predecessor auditor who audited the financial statements of the prior year. c. Indicate the type of opinion expressed by the predecessor auditor. d. Make no comment with respect to the predecessor audit. e. Include a KAM paragraph that indicates the refusal by the predecessor auditor to re-issue the prior-year opinion.arrow_forwardWhich of the following statements about Accounting Changes is incorrect? When retrospective application is impracticable, the entity shall apply the new policy as at the beginning of the earliest period for which restatement is practicable, which may be the current period. A corresponding adjustment to each affected component of equity affected shall be made. Retrospective application is applying the new policy to the transactions, other events and conditions occurring after the date as at which the policy is changed and recognizing the effect of the change in the accounting estimate in the current and future periods affected by the change. An entity shall correct material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by restating the comparative amounts for the prior period(s) presented in which the error occurred. Changes in accounting policies do not include applying an…arrow_forwardBefore applying substantive procedures to the details of asset and liability accounts at an interim date, the auditor should: Mutiple Choice consider the sblity of the suditor to perform aporopriate substartive procedures to cover the remaining period. investigete significant uctiations thet have occured in the asset and lability accounts since the previous balance sheet date. select only those accounts wich can eflectively be samplied during year end audit work consider the compliance tests that mut be applied at the balance sheet date to extend the audit conclusions reached at the interim date.arrow_forward
- Which of the following are examples of changes in the gross carrying amount of financial instruments (PFRS 7) that contributed to the changes in the loss allowance? * Changes because of financial instruments originated or acquired during the reporting period The modification of contractual cash flows on financial assets that do not result in a derecognition of those financial assets in accordance with IFRS 9 Changes because of financial instruments that were derecognised (including those that were written-off) during the reporting period Changes arising from whether the loss allowance is measured at an amount equal to 12-month or lifetime expected credit lossesarrow_forwardState the appropriate audit opinion that the auditor would require for: A new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and has not been disclosed. A special meeting was held between the CFO and the Finance Team and the Lead Partner from the Audit team, but nothing was resolved.arrow_forwardWhich statement is incorrect regarding reclassification of financial assets? a) Reclassifications to FVTPL measurement category result to amounts recognized in profit or loss. b.)The effective interest rate is determined on the basis of the fair value of the asset at the reclassification date when an entity reclassifies a financial asset out of FVTPL measurement category. c.) The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification from AC measurement category to FVTOCI and vice versa. d.) All reclassifications out of FVTOCI measurement category result in ‘reclassification adjustmarrow_forward
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