REVIEW QUESTIONS
3-1 (OBJECTIVE 3-1) Explain why auditors’ reports are important to users of financial state-
ments and why it is desirable to have standard wording.
3-2 (OBJECTIVE 3-1) What are the purposes of the opinion section in the auditor’s report?
Identify the most important information included in the opinion section.
3-3 (OBJECTIVE 3-1) What are the purposes of the auditor’s responsibilities section in the au-
ditor’s report? Identify the most important information included in the auditor’s respon-
sibilities section.
3-4 (OBJECTIVE 3-1) On February 17, 2019, a CPA completed all the evidence gathering proce-
dures on the audit of the financial statements for the Buckheizer Technology Corporation
for the year ended December 31, 2019. The audit is satisfactory in all respects except for
the existence of a change in accounting principles from FIFO to LIFO inventory valuation,
which results in an explanatory paragraph on consistency. On February 26, the auditor
AUDIT REPORTS
completed the tax return and the draft of the audit report. The final audit report was com-
pleted, attached to the financial statements, and delivered to the client on March 7. What is
the appropriate date on the auditor’s report?
3-5 (OBJECTIVE 3-2) What four circumstances are required for a standard unmodified opin-
ion audit report to be issued?
3-6 (OBJECTIVE 3-3) Describe the information included in the opinion and basis for opinion
sections in a separate audit report on the effectiveness of internal control over financial
reporting. What is the nature of the additional paragraphs in the audit report?
3-7 (OBJECTIVES 3-1, 3-3) Compare the wording in the standard unmodified opinion audit
report for a nonpublic entity under AICPA auditing standards in Figure 3-1 (p. 49) with the
wording for a public company audit under PCAOB auditing standards in Figure 3-3 (p. 54).
How are the reports similar? How are they different?
3-8 (OBJECTIVE 3-3) What is the rationale for the PCAOB’s requirement to include a discussion
of critical audit matters in the audit report? Provide two examples of areas that might be con-
sidered critical audit matters in the audit of a public company in the hotel and lodging industry.
3-9 (OBJECTIVES 3-4, 3-5) Distinguish between an unmodified opinion audit report that con-
tains an emphasis-of-matter explanatory paragraph and a qualified report.
3-10 (OBJECTIVE 3-4) Describe what is meant by reports involving the use of other auditors.
What are the three options available to the primary auditor responsible for the opinion,
and when should each be used?
3-11 (OBJECTIVE 3-4) The client changed from FIFO to LIFO inventory valuation in the cur-
rent year and reflected this change in their financial statements. How should this be re-
flected in the auditor’s report?
3-12 (OBJECTIVE 3-4) Distinguish between changes that affect consistency and those that
may affect comparability but not consistency. Give an example of each.
3-13 (OBJECTIVE 3-5) How do the eight parts of a standard unmodified opinion audit report
for nonpublic companies differ from those found in a qualified opinion report?
3-14 (OBJECTIVE 3-5) Distinguish between a qualified opinion, an adverse opinion, and a
disclaimer of opinion, and explain the circumstances under which each is appropriate.
3-15 (OBJECTIVE 3-5) Distinguish between a report qualified due to a GAAP departure and
one qualified due to a scope limitation.
3-16 (OBJECTIVE 3-6) Define materiality as it is used in audit reporting. What conditions will
affect the auditor’s determination of materiality?
3-17 (OBJECTIVE 3-6) Explain how materiality differs for failure to follow GAAP and for lack
of independence.
3-18 (OBJECTIVE 3-7) How does the auditor’s opinion differ between scope limitations
caused by client restrictions and limitations resulting from conditions beyond the client’s
control? Under which of these two will the auditor be most likely to issue a disclaimer of
opinion? Explain.
3-19 (OBJECTIVE 3-8) When an auditor discovers more than one condition that requires
departure from or modification of the standard unmodified opinion audit report, what
should the auditor’s report include?
