ACC551 Ch 1

Martha Minnati was reviewing the previous year’s audited financial statements of a clothing manufacturer. Her manager explained to her that for a financial statement audit, the clothing company was the accountable party, its shareholders were the users, and the subject matter was the financial statements. What kind of audit engagement was her manager describing?

• consulting engagement

• assurance engagement

• review engagement

• compliance engagement

According to the agency theory, demand for audit is due to conflicts between

• managers and owners.

• managers and agents.

• owners and principals.

• auditors and owners.

An audit is one way for investors to insure against at least part of their loss should the company they invest in fail – this is an example of

• agency theory.

• information hypothesis.

• insurance hypothesis.

• competing incentives.

Agency theory can be described as the theory of

• hiring an agency to review the work of the management, in this case it is the auditor.

• when the finance function is outsourced to an outside party, and the auditor is required to audit the outside party’s work.

• the relationship between the owner and the management of the business when the owner is not the manager of the business.

• none of the above

An unqualified opinion is also known as a(n)

• clean opinion.

• adverse opinion.

• unmodified opinion.

• both clean and unmodified opinion

The following can be said about an emphasis of matter:

• it is included when the auditor’s opinion has changed and the auditor wants to bring the users’ attention to a particular matter.

• it is only used in unqualified audit opinions.

• it is included when the auditor’s opinion has not changed and the auditor wants to bring the users’ attention to a particular matter.

• it can not be used when expressing audit opinion that has pervasive misstatements.

Based on the evidence gathered, if an auditor concludes all noted misstatements in the financial statements to be immaterial, individually and collectively, then the auditor would

• resign from the engagement.

• emphasize the errors in the audit report.

• issue an unqualified opinion.

• issue a qualified opinion.

Matt Fuller reports to the board and evaluates how the company can improve risk

management practices, internal control procedures, and certain governance issues. Who is

he?

• President

• Controller

• Treasurer

• Internal Auditor

An example of an unmodified audit opinion is

• qualified audit opinion.

• adverse audit opinion.

• unqualified audit opinion with an emphasis of matter.

• denial of audit opinion.