Reporting The Audits

In the context of the audit for New Millenium Ecoproducts (NME) and its financial statements for the years ending December 31, 2025, and 2024, which of the following statements accurately describes the relationship between NME and its subsidiary "& Company," particularly in terms of the consolidation of financial statements and the implications of not auditing the subsidiary's financials?

• The subsidiary "& Company" was fully audited by the primary auditors, leading to a comprehensive assessment of NME’s total assets and revenues, thereby eliminating reliance on other auditors' reports.

• The auditors provided an unmodified opinion on NME’s financials but did not conduct an audit of "& Company," which accounted for significant percentages of both assets and revenues, thus relying on the other auditors for those specific figures.

• Due to the high percentage contribution of "& Company" to the consolidated financial statements, the auditors issued a disclaimer of opinion reflecting uncertainties related to their inability to assess the subsidiary’s financial health.

• The audit opinion was adverse as a result of discrepancies found in the financials of "& Company," which the principal auditors deemed materially misleading to investors for the years ending December 31, 2025, and 2024.

Considering the operational and financial assertion provided in the audit report for New Millenium Ecoproducts (NME), what critical implications arise regarding the integrity of the financial representation and the potential risks for stakeholders, particularly in light of the subsidiary’s contribution to overall performance?

• The unmodified audit opinion ensures that stakeholders can fully trust the financial representations made about NME, as any reliance on the subsidiary's figures contradicts the overall effectiveness of the audit process.

• The reliance on the reports from other auditors for the subsidiary "& Company" introduces a degree of uncertainty regarding the accuracy of the consolidated financial statements, potentially misleading stakeholders about NME's true financial position.

• Stakeholders are guaranteed protection against financial misstatements given that both the parent company and its subsidiary were subjected to comprehensive audits by the same auditing firm.

• The report illustrates that secondary auditors are less reliable; consequently, all financials presented by NME should be disregarded unless independently validated by an entirely different auditing entity.

What should auditors do if they discover new information after the audit is completed, but before the financial report is released to the public?

• Auditors must talk to management to ensure that the new information is accurate, important, and existed before the report was created.

• Auditors must immediately change the entire financial report without further confirmation.

• Auditors do not need to inform anyone about the new information.

• Auditors should ignore the new information and continue using the original report date.

Which of the following statements accurately describes the elements that must be included in an auditor's report according to applicable standards?

• The auditor's report must include the auditor's opinion, audit scope, basis for the opinion, definition of internal controls, the auditor's address, and the report date, but does not require the signature of the auditing firm or an explanation of the financial statements audited.

• The auditor's report must include the opinion on the financial statements, audit scope, basis for the opinion, definition of internal controls, and the auditor's firm signature, but does not need to include the auditor's address or the report date.

• The auditor's report must include a title that states "registered" and "independent," the opinion on the internal control audit, the signature of the auditing firm, and the report date, along with an explanation of internal controls and the auditor's responsibilities.

• The auditor's report must include a title that states "registered" and "independent," the opinion on the internal control audit, the signature of the auditing firm, and the report date, along with an explanation of internal controls and the auditor's responsibilities.

Which of the following is NOT a required component of a standard unqualified audit report for private companies?

• Title including the term “independent”

• Management’s evaluation of critical audit matters (CAMs)

• Basis for opinion section

• Auditor’s signature and date

In the opinion section of a standard unqualified audit report, which of the following statements is the auditor most likely to include?

• The financial statements are presented fairly in all material respects, in accordance with applicable financial reporting standards.

• The company has complied with all internal control regulations, ensuring no errors in the financial statements.

• The audit opinion is based on assumptions of future economic conditions remaining constant.

• The financial statements are guaranteed to be free of all errors and misstatements.

Which of the following is a requirement for a CPA to perform a preparation engagement for financial statements?

• The CPA must obtain a signed engagement letter from management.

• The CPA must conduct an audit of the financial statements.

• The CPA must issue a formal opinion on the financial statements.

• The CPA must have the client’s financial statements audited by a third party.

When considering whether to accept a review engagement, which of the following conditions is NOT required for a CPA?

• The CPA must be independent of the client.

• The CPA must perform an extensive audit of the financial statements.

• The CPA must be professionally competent in the client's industry.

• Management must acknowledge its responsibility for the financial statements.

An auditor determines that the client has materially misstated its inventory valuation by using cost instead of the lower of cost or net realizable value, resulting in a material but not pervasive misstatement. Which of the following best describes the appropriate auditor response?

• Issue an adverse opinion, describing the inventory misstatement in the opinion section.

• Issue a qualified opinion, explaining the inventory misstatement in the Basis for Qualified Opinion section.

• Issue a disclaimer of opinion, citing insufficient evidence for the valuation of inventory.

• Issue an unmodified opinion with an emphasis-of-matter paragraph regarding the inventory misstatement.

During an audit, the auditor is unable to confirm significant account balances with external parties due to management’s restrictions. The evidence limitation is determined to be material and pervasive to the financial statements. What would the auditor most likely include in their report?

• A qualified opinion, with reference to the limitation in the Basis for Qualified Opinion section.

• An adverse opinion, emphasizing that the financial statements do not present fairly due to the scope limitation.

• A disclaimer of opinion, explaining the inability to obtain sufficient appropriate audit evidence in the Basis for Disclaimer section.

• An unmodified opinion, with additional wording about the evidence limitation in an emphasis-of-matter paragraph.