B. Issue an "except for" qualified opinion after discussing the matter with the client's audit
committee.
C. Disclaim an opinion on the financial statements after explaining the material inconsistency in
a separate explanatory paragraph.
D. Revise the auditor's report to include a separate explanatory paragraph describing the
material inconsistency.

Answer(s): D
Explanation:
Choice "d" is correct. If the auditor discovers a material inconsistency in other information
accompanying the audited financial statements, the financial statements do not require revision,
and the client refuses to eliminate or revise the inconsistency, the auditor should consider 1)
revising the report to include a separate paragraph describing the inconsistency, 2) withholding
the report, or 3) withdrawing from the engagement. Choice "a" is incorrect. Even though the
auditor has no responsibility to audit or otherwise corroborate other information accompanying
the financial statements, the auditor has a responsibility to read the other information
accompanying the financial statements for consistency and to identify any material
misstatements of fact included therein. Choice "b" is incorrect. A qualified opinion is generally
not warranted because the financial statements are fairly stated. Choice "c" is incorrect. A
disclaimer of opinion is generally not warranted because there is no limitation on scope.
QUESTION: 112
In the standard report on condensed financial statements that are derived from a public entity's
audited financial statements, a CPA should indicate that the:

A. Condensed financial statements are prepared in conformity with another comprehensive
basis of accounting.
B. CPA has audited and expressed an opinion on the complete financial statements.
C. Condensed financial statements are not fairly presented in all material respects.
D. CPA expresses limited assurance that the financial statements conform with GAAP.

Answer(s): B
Explanation:
Choice "b" is correct. The auditor's report on condensed statements derived from audited
statements should indicate (1) that the CPA audited and expressed an opinion on the complete
financial statements, (2) the date of the auditor's report on the complete financial statements, (3)
the type of opinion expressed, and (4) whether, in the auditor's opinion, the information set forth
in the condensed financial statements is fairly stated in all material respects in relation to the
complete financial statements from which it was derived. Choice "a" is incorrect. Condensed
financial statements are not prepared in conformity with a comprehensive basis of accounting
other than GAAP.
Choice "c" is incorrect. The auditor's report on condensed financial statements does not indicate
whether they are fairly presented in all material respects; rather, the report indicates whether
they are fairly presented in relation to the complete financial statements. Choice "d" is incorrect.
The auditor does not express an opinion (or provide any assurance) on whether condensed FS
conform with GAAP; only whether such statements are fairly stated in relation to the complete
FS.
QUESTION: 113

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