Item to Be Answered
An entity issues financial statements that present financial position and results of operations but
omits the related statement of cash flows. Management discloses in the notes to the financial
statements that it does not believe the statement of cash flows to be a useful financial
statement.
List B
Report Modifications

A. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph
without modifying the three standard paragraphs.
B. Describe the circumstances in an explanatory paragraph following the opinion paragraph
without modifying the three standard paragraphs.
C. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph
and modify the opinion paragraph.
D. Describe the circumstances in an explanatory paragraph following the opinion paragraph and
modify the opinion paragraph.
E. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph
and modify the scope and opinion paragraphs.
F. Describe the circumstances in an explanatory paragraph following the opinion paragraph and
modify the scope and opinion paragraphs.
G. Describe the circumstances within the scope paragraph without adding an explanatory
paragraph.
H. Describe the circumstances within the opinion paragraph without adding an explanatory
paragraph.
I. Describe the circumstances within the scope and opinion paragraphs without adding an
explanatory paragraph.
J. Issue the standard auditor's report without modification.

Answer(s): C
Explanation:
Choice "C" is the correct modification. The circumstances should be described in an explanatory
paragraph preceding the opinion paragraph and the opinion paragraph should be modified.
QUESTION: 172
This question presents independent factual situations an auditor might encounter in conducting
an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the
best answer for this item, the action the auditor normally would take. The types of opinions in
List A may be selected once, more than once, or not at all.
Assume:
. The auditor is independent.
. The auditor previously expressed an unqualified opinion on the prior year's financial
statements. . Only single-year (not comparative) statements are presented for the current year. .
The conditions for an unqualified opinion exist unless contradicted in the factual situations. . The
conditions stated in the factual situations are material. . No report modifications are to be made
except in response to the factual situation.
Item to Be Answered
An entity changes its depreciation method for production equipment from the straight-line to a
units-of production method based on hours of utilization. The auditor concurs with the change
although it has a material effect on the comparability of the entity's financial statements.
List A

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