This Question Presents Independent Factual Situations an Auditor Might Encounter

question 927

Multiple Choice

This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all. Assume: - The auditor is independent. - The auditor previously expressed an unqualified opinion on the prior year's financial statements. - Only single-year (not comparative) statements are presented for the current year. - The conditions for an unqualified opinion exist unless contradicted in the factual situations. - The conditions stated in the factual situations are material. - No report modifications are to be made except in response to the factual situation. Item to Be Answered Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. List B Report Modifications

• A) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
• B) Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
• C) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph.
• D) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph.
• E) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
• F) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
• G) Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
• H) Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
• I) Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
• J) Issue the standard auditor's report without modification.

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Definitions:

Tax Savings

The reduction in income tax obligation achieved through various deductions, credits, and exemptions.

Pre-merger WACC

The Weighted Average Cost of Capital for a company before undergoing a merger, representing its cost of funds.

Capital Structure

Capital structure refers to the composition of a company's funding obtained through debt and equity, including bonds, loans, and stock.

Synergy

The concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts.