Chapter 12 MC solutions Essay

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SOLUTIONS FOR MULTIPLE‑CHOICE QUESTIONS

12.30 a. Correct Auditors explicitly report on GAAP and express an opinion; auditors implicitly report on consistency and going-concern. b. Incorrect Consistency is implicitly (and not explicitly) reported upon. c. Incorrect Auditors explicitly report on GAAP and express an opinion; auditors implicitly report on consistency and going-concern. d. Incorrect The implicit reporting on consistency is the only correct option in this choice.

12.31 a. Incorrect Neither unmodified opinions or disclaimers of opinion are appropriate for material departures from GAAP. b. Incorrect The unmodified opinion is not appropriate for material departures from GAAP. c. Incorrect The unmodified opinion is not appropriate for material departures from GAAP. d. Correct Because this is a material departure from GAAP, the reporting options are to issue either a qualified or adverse opinion.

12.32 a. Correct The choice between an unmodified opinion with reference to going-concern matters or a disclaimer of opinion depends on the auditors’ perception of the magnitude of the uncertainty. b. Incorrect The standard (unmodified) report without reference to the going-concern matter is not appropriate in this circumstance. c. Incorrect Because the disclosures are adequate, a qualified opinion or adverse opinion for GAAP departure would be inappropriate. d. Incorrect An unmodified opinion with reference to going-concern matters or a disclaimer of opinion would be appropriate reporting options; therefore, neither a standard (unmodified) report or adverse opinion would be appropriate.

12.33 a. Incorrect Audit examinations for nonpublic entities are based on user demand, but are required by the SEC for public entities. b. Incorrect The report for both types of entities will express an opinion on the entity’s financial statements. c. Correct The reporting requirement for internal control over financial reporting is related to the audit of public entities, not nonpublic entities. d. Incorrect Management is responsible for the fairness of the financial statements for both types of entities.

12.34 a. Incorrect Changes in estimates do not require an emphasis-of-matter paragraph related to consistency. b. Incorrect Error corrections not involving a change in principle do not require an emphasis-of-matter paragraph related to consistency. c. Incorrect Changes in the consolidated entity by reason of sale of a subsidiary do not require an emphasis-of-matter paragraph related to consistency. d. Correct Changing from FIFO to LIFO is a change in accounting principle, which requires an emphasis-of-matter paragraph related to consistency.

12.35 a. Incorrect The prior audit must be described regardless of the type of opinion issued. b. Correct The predecessor auditors should be named only if their report is included. c. Incorrect The type of opinion must be stated. d. Incorrect The predecessor auditors should not be named unless their report is included.

12.36 a. Correct Modification of the report to indicate the work of component auditors with an unmodified opinion is a viable reporting option. b. Incorrect If the group auditors wish to issue the standard (unmodified) report and not mention the component auditors in their report, they need to consider and evaluate the component auditors’ work. c. Incorrect The group auditors assume primary responsibility when component auditors are involved in the audit of group financial statements. d. Incorrect When the component auditors are named, their reports must be presented along with the group auditors’ report.

12.37 a. Incorrect The change in accounting methods would be identified in an emphasis-of-matter paragraph, not in the introductory paragraph. b. Incorrect The change in accounting methods would be identified in an emphasis-of-matter paragraph, not in the opinion paragraph. c. Correct Emphasis-of-matter paragraphs discuss issues related to users’…