When Financial Statements Contain a Departure from GAAP, the Auditors

question 39

Multiple Choice

When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is

• A)unmodified.
• B)qualified.
• C)adverse.
• D)qualified or adverse, depending on the overall materiality and pervasiveness of the GAAP departure.

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Definitions:

Joint Costs

Costs incurred in producing products up to a split-off point, where multiple products are generated from the same process and the costs cannot be separately identified for each product.

Physical Units Method

This method calculates the cost per unit of production based on the physical units produced, commonly used in inventory costing and job costing.

Split-Off Point

The stage in a production process where multiple products become separately identifiable.

Overhead Costs

Expenses that are not directly tied to a specific product or service but are necessary for running a business, such as rent and utilities.