Auditing and Attestation Paper 12

(c) The requirement is to determine the proper date of a reissued audit report on financial statements that have not been restated. Answer (c) is correct because use of the original date on the reissued audit report removes any implication that records, transactions or events after the date of the audit report have been examined or reviewed.

(c) The requirements to identify which section of the audit report the auditor speaks of the adequacy of audit evidence. Answer (a) is correct because in the auditor’s responsibility section the auditors states a belief that the audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion

(b) The requirement is to identify the correct statement concerning where a statement that the auditor has audited the financial statements which are then listed is included in the audit report. Answer (b) is correct because the opening (introductory) paragraph of the auditor’s standard report states that the auditor has audited the financial statements and then lists them. Answer (a) is incorrect because of the explicit statement in the introductory paragraph. Answers (c) and (d) are incorrect because the introductory paragraph, not the auditor’s responsibility section or the opinion paragraph, includes the statement and lists the financial statements.

(c) The requirement is to determine the proper audit report when an auditor has doubt as to the integrity of management and the representations obtained from management and has not decided to resign. Answer (c) is correct because the professional standards consider this as a scope limitation and accordingly its significant nature makes a disclaimer most likely. Answer (a) is incorrect because an unmodified opinion is not appropriate due to the lack of sufficient appropriate audit evidence due to the doubt concerning management’s integrity. Answer (b) is incorrect because the lack of confidence in management’s integrity makes an unmodified opinion inappropriate. Answer (d) is incorrect because the auditor is not aware of significant misstatements that would lead to an adverse opinion.

(a) The requirement is to determine the appropriate date for an audit report when a subsequent event requiring adjustment of financial statements, without disclosure of the event, comes to the auditor’s attention. The professional standards state that the date sufficient appropriate audit evidence has been collected should be used in such circumstances.

(c) The requirement is to determine an auditor’s responsibility for subsequent events when an audit report has been dual dated for a subsequent event. Answer (c) is correct because, when dual dating is used, auditor responsibility for events subsequent to the completion of fieldwork is limited to the specific event referred to in the notes to the financial statement. Answers (a), (b), and (d) are all incorrect because they establish more responsibility than required by the professional standards. Note, however, that if the auditor chooses to date the report as of the date of the subsequent event, his/her responsibility for other subsequent events extends to the date of the audit report.

(b) The requirement is to identify the situation in which an emphasis-of-matter paragraph may be added to an unmodified report. Answer (b) is correct because substantial doubt about the entity’s ability to continue as a going concern leads to either an unmodified report with an emphasis-of-matter paragraph or a disclaimer of opinion. Answer (a) is incorrect because an auditor may issue an opinion on a balance sheet without reporting on the other basic financial statements. Answer (c) is incorrect because unreasonable estimates lead to either a qualified or an adverse opinion. Answer (d) is incorrect because inadequate management record retention policies are a scope limitation that may result in a qualified opinion or a disclaimer.

(c) The requirement is to identify the management plan an auditor would most likely positively consider when a question concerning an entity’s ability to continue as a going concern exists. Answer (c) is correct because increasing the ownership equity will bring in funds to possibly overcome the negative trends and financial difficulties. Answers (a), (b), and (d) are all incorrect because increasing dividend distributions, reducing lines of credit, and purchasing assets will all use funds, they will not provide funds. See AU-C 570 for guidance on an auditor’s consideration of an entity’s ability to continue as a going concern.

(b) The requirement is to identify the condition or event most likely to cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern. Answer (b) is correct because denial of usual trade from suppliers is ordinarily an indicator that the company is in weak financial condition. Answer (a) is incorrect because while such related-party transactions may be considered risky, there is less likely to be a question concerning going concern status than suggested by answer (a). Answer (c) is incorrect because the payment of such stock dividends does not indicate financial weakness. Answer (d) is incorrect because restrictions on the disposal of principal assets is a condition often present in various loan agreements.

(d) The requirement is to identify the most likely mitigating factor a CPA would consider when a client’s ability to continue as a going concern is in question. Answer (d) is correct because the ability to postpone expenditures for research and development projects may mitigate the circumstance. Answer (a) is incorrect because there is no guarantee that Zero’s discussions with its lenders will lead to a restructuring of the debt and loan agreements. Only existing or committee agreements to restructure the debt would be considered a mitigating factor. Answer (b) is incorrect because weak internal control over cash disbursements may or may not have caused the going concern problem. Answer (c) is incorrect because an entity with a going concern problem is unlikely to be able to purchase such production facilities.