Financial statements prepared on an entity's income tax basis are "other comprehensive basis
of accounting" (OCBOA) financial statements. The auditor may issue a special report, which can
include an unqualified opinion, on OCBOA financial statements. Choice "c" is incorrect.
Significant deficiencies in the design and operation of an entity's internal control do not preclude
issuance of an unqualified opinion, although they do increase the risk of material misstatement
and will likely result in modifications to the nature, timing, and extent of the auditor's testing.
Choice "d" is incorrect. An unqualified opinion may stil be expressed when there are significant
changes in year-end account balances as compared to prior year balances, as long as the
auditor has obtained sufficient appropriate audit evidence about the current balances. Reports
on Comparative Financial Statements
QUESTION: 79
Jewel, CPA, audited Infinite Co.'s prior-year financial statements. These statements are
presented with those of the current year for comparative purposes without Jewel's auditor's
report, which expressed a qualified opinion. In drafting the current year's auditor's report, Crain,
CPA, the successor auditor, should:

I). Not name Jewel as the predecessor auditor.
II). Indicate the type of report issued by Jewel.
III). Indicate the substantive reasons for Jewel's qualification.

A. I only.
B. I and II only.
C. II and III only.
D. I, II, and III.

Answer(s): D
Explanation:
Choice "d" is correct. If the financial statements of a prior period have been audited by a
predecessor auditor whose report is not presented, the successor auditor should indicate in the
introductory paragraph of the report 1) that the financial statements of the prior period were
audited by another auditor, 2) the date of his report, 3) the type of report issued by the
predecessor auditor, and 4) if the report was other than a standard unqualified report, the
substantive reasons therefor. The successor auditor may name the predecessor auditor only if
the predecessor auditor's practice was acquired by or merged with that of the successor auditor.
Choices "a", "b", and "c" are incorrect, based on the above Explanation.
QUESTION: 80
A registration statement filed with the SEC contains the reports of two independent auditors on
their audits of financial statements for different periods. The predecessor auditor who audited
the prior-period financial statements generally should obtain a letter of representation from the:

A. Successor independent auditor.
B. Client's audit committee.
C. Principal underwriter.
D. Securities and Exchange Commission.

Answer(s): A
Explanation:

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