Ch. 3 review questions

Audit Reports  Concept Checks P. 62 1.The standard unmodified opinion audit report for a nonpublic entity contains the following eight parts: 1.Report title:Auditing standards require that the report be titled and that the title includes the wordindependent. 2.Audit report address:The report is usually addressed to the company, its stockholders, or the board of directors. 3.Opinion section:The first section in the standard report, which must include the title "Opinion", states the auditor's conclusions based on the results of the audit. The first paragraph of the report makes the simple statement that the CPA firm has done anaudit. Second, it lists the financial statements that were audited, including the balance sheet, income statement, statement of cash flows, and footnotes. The second paragraph contains the auditor's opinion as to whether the financial statements present fairly in all material respects the financial position and results of operations in accordance with the relevant accounting standards (e.g., U.S. GAAP). 4.Basis for Opinion: The basis for opinion paragraph indicates that the auditor conducted the audit in accordance with the relevant auditing standards. This paragraph must also include an affirmative statement that the auditor is independent and has followed the relevant ethical standards. Finally, this paragraph includes a statement that the auditor believes the audit evidence obtained is sufficient and appropriate and provides a basis for the opinion. 5.Management's responsibility:This section indicates that the financial statements are the responsibility of management, including selecting appropriate accounting principles and maintaining internal control over financial reporting. This section also acknowledges management's responsibility to assess whether there is substantial doubt about the entity's ability to continue as a going concern. 6.Auditor's responsibility:The auditor's responsibility section of the report includes three paragraphs and must include the heading "Auditor's Responsibilities for the Audit of the Financial Statements".