ACC 5400 Study Guide - Quiz Guide: Audit Evidence, Audit Risk, Flight Controller

2–31. Simulation
Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an
audit of the fi nancial statements for the current year. Howard Smythe, the partner in charge of
the audit, drafted the following unmodifi ed report:

To the Management of Casa Royale, Inc.:
We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and
its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income,
retained earnings, and cash fl ows for the years then ended.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
fi nancial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated fi nancial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these fi nancial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated fi nancial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated fi nancial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated
fi nancial statements, whether due to fraud or illegal acts. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of
the consolidated fi nancial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of signifi cant accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated fi nancial statements.
We believe that the audit evidence we have obtained is adequate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated fi nancial statements referred to above present fairly, in all material
respects, the fi nancial position of Casa Royale, Inc., and its subsidiaries as of December 31,
20X1, and the results of their operations and their cash fl ows for the years then ended in accordance
with auditing standards generally accepted in the United States of America.
Howard Smythe , Partner
Phoenix, Arizona
February 12, 20X2
Reviewer’s Comments
Comment Is
Correct (yes or no)
a. The report should not be addressed to management.
b. The report should indicate that we have “audited,” rather than “examined,”
the fi nancial statements (fi rst paragraph after introduction).
c. The report should not indicate anything concerning management’s
responsibility for internal control.
d. The report should state that the auditors’ responsibility is to express
“reasonable assurance,” not an opinion (fi rst paragraph under “auditor’s”
responsibility).
e. The audit is designed to assess risks of material misstatements due to
errors or fraud; the term “illegal acts” is incorrect (second paragraph
under auditor’s responsibility).
f. The report should not refer to the auditors “evaluating the appropriateness
of accounting policies,” since those are the responsibility of management.
g. The evidence should be suffi cient and appropriate rather than “adequate”
(third paragraph under auditor’s responsibility).

Reviewer’s Comments
Comment Is
Correct (yes or no)
h. The opinion should not include “in all material respects” since the auditors
are providing an opinion on the accuracy of the fi nancial statements
(opinion paragraph).
i. The opinion should be on “accounting principles generally accepted in the
United States of America,” not on auditing standards (opinion paragraph).
j. The signature on the report should be that of the CPA fi rm, not that of
the partner.

I am trying to find NOT unqualified opinion. Some reports do not say "unqaulified." Does it mean that they are NOT UNQUALIFIED? Here is a report. If it is not unqualified, please explain me why it is not unqualified. In other words, it is qualified or adverse.

To the Board of Directors and Stockholders

Duonas Corp.

We have audited the accompanying balance sheets of Duonas Corp. as of June 30, 2017 and 2016, and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Duonas Corp. as of June 30, 2017 and 2016 and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had no revenues and earnings since inception. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2, which includes achieving profitable operations and raising additional funds. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ TAAD, LLP

Diamond Bar, CA

September 1, 2017

Place the letter of the report type that best fits the languagepresented on the answer line. Each report type may be used morethan once or not at all, but each item has only one best answer. Ifyou think more than one answer may apply, choose the BESTanswer.

a. Explanatory language

b. Unqualified opinion with qualification forGAAP departure

c. Qualified opinion

d. Qualified opinion because of a scopelimitation

e. Qualified opinion because of an ICFRdeficiency

f. Qualified opinion because of a GAAPdeparture

g. Qualified opinion because of a change inaccounting standards

h. Qualified opinion because of lack ofindependence

i. Qualified opinion plus explanatorylanguage

j. Qualified opinion for dual dating

k. Qualified opinion to reflect need to rely onanother auditor

l. Disclaimer of opinion because of a scopelimitation

m. Disclaimer of opinion because of lack ofindependence

n. Adverse opinion

o. Combined report with unqualified opinions onfinancial statements and ICFR

_____1. In our opinion, the Company did notmaintain, in all material respects, effective internal control overfinancial reporting as of March 31, 2010, based on criteriaestablished in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission(COSO)…

_____2. In addition, as discussed in Note 9 tothe consolidated financial statements, effective January 1, 2007,the Company adopted Accounting for Uncertainty in IncomeTaxes, FASB ASC 740-10.

_____3. We are not independent with respect toXYZ Company, and the accompanying balance sheet as of December 31,19X1, and the related statements of income, retained earnings, andcash flows for the year then ended. …

_____4. …because of the effects of the mattersdiscussed in the preceding paragraphs, the financial statementsreferred to above do not present fairly. …

_____5. We have also audited in accordance withthe standards of the Public Company Accounting Oversight Board(United States) the company’s internal control over financialreporting as of December 31, 2010, based on criteria established inInternal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our reportdated August 6, 2011 expressed an unqualified opinion thereon.

_____6. … except for the effects of suchadjustments, if any, as might have been determined to benecessary…

_____7. The accompanying financial statementshave been prepared assuming that ABC, Inc. will continue as a goingconcern. As more fully described in Note 1, the Company filed avoluntary petition for reorganization under Chapter 11 of theUnited States Bankruptcy Code on January 29, 2010, which raisessubstantial doubt about the Company’s ability to continue as agoing concern. Management’s plans in regard to this matter are alsodescribed in Note 1.

_____8. The Company did not make a count of itsphysical inventory…The Company’s records do not permit theapplication of other auditing procedures. …the scope of our workwas not sufficient to enable us to express. …

_____9. In our opinion, except for the omissionof the information discussed in the preceding paragraph….

_____10. In our opinion, based on our auditsand the report of other auditors, the financial statements referredto above present fairly, in all material respects…

_____11. In our opinion, the financialstatements referred to above present fairly, in all materialrespects, the financial position of W Company as of December 31,2010 and 2009…. Also in our opinion, W Company maintained, in allmaterial respects, effective internal control over financialreporting as of December 31, 2010. …

_____12. We did not audit the financialstatements of B Company, a wholly-owned subsidiary, whichstatements reflect total assets and revenues constituting 20percent and 22 percent, respectively of the related consolidatedtotals. … In our opinion, based on our audit and the report of theother auditors, the consolidated financial statements referred toabove present fairly. …

_____13. In our opinion…the financialstatements present fairly… Dated February 16, 2010, except for Note16, as to which the date is March 1, 2010.

_____14. Except as discussed in the followingparagraph, we conducted our audits in accordance with auditingstandards…. In our opinion, except for the effects…the financialstatements present fairly. …

_____15. As discussed in Note X to thefinancial statements, the 20X2 financial statements have beenrestated to correct a misstatement.