[Anonymous]

Someone please explain to my why I got this question wrong on the research portion. Is it Wiley or are the research questions this finicky?

Facts:

Basically management refuses to disclose related party transactions (inadequate disclosure, GAAP departure). Management has declined to disclose the related-party transactions in the footnotes. This is the only item that the auditor wishes to consider for the report on financial statements.

Find the paragraph that addresses this situation in the Professional Standards.

What I answered:

AU 508.41 Inadequate disclosure. Information essential for a fair presentation in conformity with generally accepted accounting principles should be set forth in the financial statements (which include the related notes). When such information is set forth elsewhere in a report to shareholders, or in a prospectus, proxy statement, or other similar report, it should be referred to in the financial statements. If the financial statements, including accompanying notes, fail to disclose information that is required by generally accepted accounting principles, the auditor should express a qualified or adverse opinion because of the departure from those principles and should provide the information in the report, if practicable,16 unless its omission from the auditor’s report is recognized as appropriate by a specific Statement on Auditing Standards. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 79, December 1995.]

Wiley’s correct answer:

AU508.42 which is the actual report

Following is an example of a report qualified for inadequate disclosure (assuming the effects are such that the auditor has concluded an adverse opinion is not appropriate):

Independent Auditor’s Report

[Same first and second paragraphs as the standard report]

The Company’s financial statements do not disclose [describe the nature of the omitted disclosures]. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America.

In our opinion, except for the omission of the information discussed in the preceding paragraph, …

In my opinion, my answer is much more correct. My answer gives the auditor guidance of what to do based on materiality rather than just giving an example of the report.

Why did Wiley say I was wrong?

CPAPending

[That Cartoon Mouse]

It's hard to know without reading verbatim what the question was. I think we've all experienced the situation where we thought the question was asking one thing, but it was asking another.

It might turn on the phrase “this is the only item” which implies that you're going to issue an “except for” report, in which case you would not issue an adverse, and so what you do in that situation? Your answer might not be the best as it has a lot of superfluous information not relevant to the situation. Again, it's really hard to tell without the full prompt.

REG 82 (10/07/11)
BEC 88 (11/01/11)
FAR 86 (11/21/11)
AUD 82 (11/30/11)
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Roger CPA Review, live & cram course

[Anonymous]

I guess the question could have been phrased better….”What paragraph provides guidance” is my answer. “What paragraph shows an example of the report” would have been CPAExcel's answer.

Oh well. I'll give it a go on Wednesday and see what happens.

[Author]

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