CHAPTER 2: LO24 2-31 Simalation aadit of the Snancial satements for the cuen yea

ID: 2335883 • Letter: C

Question

CHAPTER 2: LO24 2-31 Simalation aadit of the Snancial satements for the cuen year. Howand Smyte, the rr in charge of the audt, drafhed the Sollowing unmodified repot Independent Auditor's Report To the Management of Casa Royale, Inc We have examined the accompanying consolidated balance sheet of Casa Royale, Inc, and its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income retained earnings, and cash flows for the years then ended. Management's Responsibility for the Financial Statement Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includles the design, implementation, and maintenance of internal control relevant to the free from material misstatement, whether due to fraud or eor and fair statements that Auditor's Responsuibity Our resporsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit so obtain rea sonable ansurance about whether the consolidated financial statements are free of material misstatement An audit involves performing procedures to obtain audit evidence about the amounts and disclo sures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the anseument of the risks of material mintatement of the consolidated financial statements, whether due to fraud or illegal acts in making those risk asessments, the audisor considers internal control relevant to the entitys preparation and fair presertation of the consolidated finandial statements in order to design audit procedures that are appropriate the circumstances, but not for the opinion on the effectiveness of the entity's internal control. An audit abso includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements We believe that the audit evidence we have obtained is adequate to provide a basis for our audit Opinion in our opinion, the consolidated financial statements relerred to above present fairly, in all mate- rial respects, the financial position of Casa Royale, Inc, and its subsidiaries as of December 31 20x1, and the results of their operations and their cash flows for the years then ended in accor- dance with auditing standards generally accepted in the United States of America. Phoenix, Arizona February 12, 20x2 Respond as to the accuracy of the following comments made by a reviewer of the report Comment Is Correct tyes or no) Reviewer's Comments a. The report should not be addressed to d. The report should indicate that we have "audited, rather than "exam- management ined, the financial statements (first paragraph after introduction) c The report should not indicate anything concerning management's d. The report should state that the auditors reiponsibility is to express reasonable assurance," not an opinion Cfirst paragraph under The dit is designed to assess risks of material misstatements due to errors or fraudt the term "legal acts" is incorrect (second paragraph under auditor's responsibility). e, t The report should not refer to the auditors evaluating the appropriateness of accounting policies, since those are the responsibility of management g. The evidence should be suficient and appropriate rather than edeguate cehird peragraph under auditors responsibility Reviewer's Comments h. Cerrect tyes or mo) The epinion uld not nd de "e-a materal respects* since the audi. tors are providing an opinion on the acuracy of the financial state L The opinion should be on "accounting prindiplies generally accepted in the nined States of America not on audivting standlands opinion paragr A The signature on the repent should be that of the CPA fiom, not that of LO 2-4 2-32 Slule whether you agre (A) or disagree (D) with each o the Sollowing sanements concerning Agree (A) or

Explanation / Answer

Answer 2-31

Reviewer’s comment

Comment is correct(Yes or No)

a. The Report should not be address to management.

Yes

b. The report should indicate that we have “audited” rather than “examined” , the financial statements (first Paragraph after introduction)

Yes

c. The report should not indicate anything concerning management responsibility for internal control

d. The report should state that the auditor’s responsibility is to express “reasonable assurance” not an opinion (first paragraph under auditor’s responsibility)

e. The audit is designed to access risk of material statement due to error or fraud, the term “illegal acts” is incorrect (second paragraph under auditor responsibility).

Yes

f. The report should not refer to the auditors “evaluating the appropriateness of accounting policies” since those are responsibility of management.

g. The evidence should be sufficient and appropriate rather than “adequate” (third paragraph under auditors responsibility )

Yes

h. The opinion should not include “in all material respects” since the auditors are providing an opinion on the accuracy of the financial statement (opinion paragraph).

i. The opinion should be an “accounting principle generally accepted in the unites states of the America” not an auditing standard (opinion paragraph)

Yes

j. The signature on the report should be that of CPA firm not that of the partner.

Answer 2-32

Statement

Agree (A) Disagree (D)

a. The report should be begin with “CPA Report” at the top

b. The report is ordinarily addressed “to whom it may concern”

c. The report indicates that management is responsible for the preparation of financial statements.

d. The reports indicate that the auditor’s responsibility is to obtain particular assurance about whether the financial statements are free of material misstatements.

Note : Reasonable assurance not particular assurance

e. The report ordinarily concludes on whether the financial statements are in conformity with generally accepted auditing standards.

f. The report indicates that the audit procedures selected depend on the auditor’s judgment.

g. The report indicates that the audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion.

h. The report indicates that the auditors consider and provide an opinion on the internal control.