Multiple Choice Questions
The following questions concern unqualified audit reports with an explanatory paragraph or modified wording. Choose the best response.
a. An entity changed from the straight-line method to the declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)
(1) Qualified opinion.
(2) Unqualified opinion with explanatory paragraph.
(3) Unqualified opinion.
(4) Qualified opinion with explanatory paragraph regarding consistency.
b. When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in existence, the auditor should issue a(an)
(1) Adverse opinion.
(2) Qualified opinion only.
(3) Unqualified opinion.
(4) Unqualified opinion with explanatory paragraph.
c. The introductory paragraph of an auditor's report contains the following: "We did not audit the financial statements of EZ Inc., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 27 percent and 29 percent, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ Inc., is based solely on the report of the other auditors." These sentences
(1) Indicate a division of responsibility.
(2) Assume responsibility for the other auditor.
(3) Require a departure from an unqualified opinion.
(4) Are an improper form of reporting.