ACCTG456 Chapter Notes - Chapter 1: Arthur Andersen, Financial Statement

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violetchinchilla775

8 Apr 2014

School

University of Alberta

Department

Accounting

Course

ACCTG456

Professor

Trish Stringer

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Document Summary

The misstatement is deemed to be material but not pervasive to the financial statements. (g) inventories are misstated. The misstatement is deemed to be material and pervasive to (h) there is an uncertainty relating to a pending exceptional litigation matter that is the financial statements. adequately disclosed in the notes. The different reports choices are: (note the following solution does not contain the rationale or explanation which would be required) Qualified opinion gaap departure or material misstatement. In 2002 the audit firm arthur andersen collapsed following charges brought against it in the. United states relating to the failure of its client, enron. Some other clients announced that they would be dismissing arthur andersen as their auditor even before it was clear that arthur. Considering agency theory, the information hypothesis and the insurance hypothesis, give some reasons why these clients took this action.

Related Questions

. What type of auditopinion (unmodified, unmodified with emphasis of matter paragraph,disclaimer, qualified or adverse) would be appropriate for each ofthe following independent scenarios?

(a) Thereis an uncertainty related to a pending exceptional litigationmatter that is adequately disclosed in the notes to the financialstatements.

(b) The clientâsrecords are inadequate and the auditor is unable to obtainsufficient and appropriate audit evidence.

(c) Thereis a material uncertainty that casts a significant doubt on theentityâs ability to continue as a going concern and the uncertaintyis adequately disclosed.

(d) There is a GAAPdeparture concerning a highly material ledger balance.

(e) The client willnot allow the auditor to contact the clientâs legal counselregarding a pending legal matter.

(f) The clientâs accounting records have been destroyed by a flood.

(g) There is amisstatement in the clientâs inventory account - the misstatementis deemed to be material but not pervasive to the financialstatements.

graywolf262

Chapter 15

1. Consider the following statements:

I. For the last several years, both the FinancialAccounting Standards Board (FASB) and the

International Auditing and Assurance Standards Board (IAASB)have been considering possible

changes to the standard unqualified audit report.

II. The audit report is modified to five paragraphs as a resultof another audit firm performing part of

the financial statement audit (Refer to Shared Reporttopic).

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

2. Consider the following statements:

I. Inconsistent application of accounting principles is a GAAPviolation and would result in a

qualified or adverse audit opinion.

II. For a change in accounting principles thatmanagement does justify to the auditor, the

auditor will likely choose between a qualified or an adverseopinion.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

3. Consider the following statements:

I. The failure of a client to include a Statement of Cash Flowswill result in the issuance of a

disclaimer of opinion by the auditor.

II. The auditor will issue an unqualified opinionon Internal Controls over Financial Reporting (ICFR)

if the auditor has identified only one material weakness inICFR.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

4. In which of the following instances would an auditor mostlikely issue a standard unqualified opinion

WITH an explanatory paragraph?

a. Management disclosures are missing or inadequate.

b. There is substantial doubt about the entityâs ability tocontinue as a going-concern.

c. There is a significant limitation on the scope of theengagement.

d. There is an immaterial deviation from GAAP related tocapitalizing repairs.

5. Which one of the following is an example of the contents ofan opinion paragraph found in an audit

report?

a. âWe have audited â¦â

b. âNothing came to our attentionâ¦â

c. âThe financial statements referred to above present fairlyâ¦â

d. âAn audit includes examining, on a test basis â¦â

6. A client company has a history of negative cash flow trendsand continuing losses. What would this

seem to involve?

a. GAAP problem

b. Going concern.

c. Lack of consistency.

d. Lack of independence.

7. An audit of the Flagler Company, a diamond mining company,brings to light the fact that its

equipment has been marked up to the ownersâ expectation ofmarket values. Such a situation will

most likely result in which type of report?

a. Disclaimer.

b. Review.

c. Adverse.

d. Unqualified, with explanatory paragraph.

8. In which of the following instances would an auditor issue adisclaimer of opinion?

a. Lack of consistency.

b. GAAP problem.

c. There is a significant limitation on the scope of theengagement.

d. The principle auditor decides to make reference to anotherauditor who has issued an unqualified

audit report.

9. When might an auditor modify the introductory paragraph andreplace the scope paragraph with an

explanatory paragraph? The ANSWER is A.

a. When a pervasive scope limitation exists.

b. When there is substantial doubt about going-concern.

c. When the auditor lacks independence.

d. When there is an emphasis of a matter.

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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 ControlâIntegrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission(COSO)â¦

_____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. â¦

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

_____5. We have also audited in accordance withthe standards of the Public Company Accounting Oversight Board(United States) the companyâs 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. â¦ except for the effects of suchadjustments, if any, as might have been determined to benecessaryâ¦

_____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 Companyâs ability to continue as agoing concern. Managementâs plans in regard to this matter are alsodescribed in Note 1.

_____8. The Company did not make a count of itsphysical inventoryâ¦The Companyâs records do not permit theapplication of other auditing procedures. â¦the scope of our workwas not sufficient to enable us to express. â¦

_____9. In our opinion, except for the omissionof the information discussed in the preceding paragraphâ¦.

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

_____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 2009â¦. Also in our opinion, W Company maintained, in allmaterial respects, effective internal control over financialreporting as of December 31, 2010. â¦

_____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. â¦ In our opinion, based on our audit and the report of theother auditors, the consolidated financial statements referred toabove present fairly. â¦

_____13. In our opinionâ¦the financialstatements present fairlyâ¦ 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 auditingstandardsâ¦. In our opinion, except for the effectsâ¦the financialstatements present fairly. â¦

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

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ACCTG456 Chapter Notes - Chapter 1: Arthur Andersen, Financial Statement

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