In the First Audit of a Client, an Auditor Was

question 801

Multiple Choice

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

• A) Be unable to express an opinion on the current year's results of operations and cash flows.
• B) Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
• C) Withdraw from the engagement and refuse to be associated with the financial statements.
• D) Specifically state that the financial statements are not comparable to the prior year due to an uncertainty.

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Definitions:

Prepaid Insurance

An asset account that represents the amount paid for insurance coverage in advance of the service period.

Depreciation Expense

Depreciation expense is the allocated reduction of the cost of a tangible fixed asset over its useful life, reflecting its wear and tear, or obsolescence.

Net Loss

The amount by which a company's expenses exceed its revenue over a specific period, indicating negative profitability.

Supplies on Hand

The value of supplies that have not yet been used by the company, classified as a current asset on the balance sheet.