When an Auditor Reports on Financial Statements Prepared on an Entity's

question 67

Multiple Choice

When an auditor reports on financial statements prepared on an entity's income tax basis,the auditor's report should

• A) be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.
• B) disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
• C) not express an opinion on whether the statements are presented in conformity with the basis of accounting used.
• D) include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.

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Definitions:

Step-Down Method

A cost allocation method used in accounting to distribute overhead costs from service departments to production departments and then to specific products or services.

Split-Off Point

The point in processing at which all joint costs have been incurred.

Relative Net Realizable Values

A method used to allocate joint costs based on the estimated final sales value of products minus any additional processing costs.