Free CPA AUD (Auditing & Attestation) Forming Conclusions and Reporting Practice Questions

A is correct. Under AU-C 706.06-.07, an emphasis-of-matter paragraph is used when the auditor considers it necessary to draw users' attention to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to users' understanding. Common examples include significant uncertainties (such as going concern) or accounting changes. The opinion remains unmodified. GAAP departures (B) require opinion modification under AU-C 705, not an emphasis-of-matter paragraph. Scope limitations (C) are addressed through opinion modification. Recommendations for future changes (D) are not the purpose of emphasis-of-matter paragraphs.

C is correct. Under AU-C 800, when auditing financial statements prepared under a special purpose framework such as the income tax basis, the auditor expresses the opinion in terms of that framework. The report includes an emphasis-of-matter paragraph (or equivalent language) that identifies the special purpose framework, explains that it differs from GAAP, and may restrict the use of the report. The income tax basis is a recognized special purpose framework. Using standard GAAP language without framework reference (A) would mislead users about the basis of accounting. Declining to express an opinion
(B) is incorrect; auditors can express opinions on special purpose framework statements. Automatic qualification (D) is inappropriate; special purpose framework statements are not GAAP departures.

A is correct. Under AU-C 700 and AU-C 706, when comparative financial statements include a prior period that was reviewed rather than audited, the current auditor includes an other-matter paragraph in the report. This paragraph states that the prior period financial statements were reviewed by another practitioner (or the same firm), describes that a review is substantially less in scope than an audit, and states that no opinion is expressed on the prior period. This informs users about the different levels of assurance for each period. Re-auditing the prior year (A) is not required; the standards accommodate different levels of service across comparative periods. Issuing an opinion covering both years (B) is inappropriate because the auditor did not perform audit procedures on the prior period and cannot assume responsibility for review-level work. Professional standards do not prohibit presenting audited and reviewed periods together (D); they require appropriate disclosure of the different service levels.