QUESTION: 46
An entity changed from the straight-line method to the declining balance method of depreciation
for all newly acquired assets. This change has no material effect on the current year's financial
statements, but is reasonably certain to have a substantial effect in later years. If the change is
disclosed in the notes to the financial statements, the auditor should issue a report with a(an):

A. "Except for" qualified opinion.
B. Explanatory paragraph.
C. Unqualified opinion.
D. Consistency modification.

Answer(s): C
Explanation:
Choice "c" is correct. If an accounting change has no material effect on the financial statements
in the current year, but a material future effect, the auditor must ensure that the change is
disclosed in the footnotes whenever the financial statements of the change period are
presented, but does not have to recognize the change in the current year's audit report. Choice
"a" is incorrect. Accounting changes that are accounted for properly do not result in qualified
opinions. Choices "b" and "d" are incorrect. A consistency modification (explanatory paragraph)
is not necessary when the effect of a change is immaterial.
QUESTION: 47
If a publicly held company issues financial statements that purport to present its financial
position and results of operations but omits the statement of cash flows, the auditor ordinarily
wil express a(an):

A. Disclaimer of opinion.
B. Qualified opinion.
C. Review report.
D. Unqualified opinion with a separate explanatory paragraph.

Answer(s): B
Explanation:
Choice "b" is correct. If a company issues financial statements that purport to present financial
position and results of operations but omits the related statement of cash flows, the auditor wil
normally conclude that the omission requires qualification of the opinion.
Choice "a" is incorrect. If the company fails to present its statement of cash flows, this is
considered inadequate disclosure. The auditor would not issue a disclaimer of opinion for
inadequate disclosure. Choice "c" is incorrect. The auditor would not issue a review report when
performing an audit. Choice "d" is incorrect. The auditor cannot issue an unqualified report if the
client omits a statement of cash flows from the financial statements.
QUESTION: 48
In which of the following circumstances would an auditor most likely add an explanatory
paragraph to the standard report while not affecting the auditor's unqualified opinion?

A. The auditor is asked to report on the balance sheet, but not on the other basic financial
statements.

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