Discuss AICPA CPA-Auditing Exam Topic 1 Question 129

Baker, CPA, was engaged to review the financial statements of Hall Co., a nonissuer. During the engagement Baker uncovered a complex scheme involving client illegal acts and fraud that materially affect Hall's financial statements. If Baker believes that modification of the standard review report is not adequate to indicate the deficiencies in the financial statements, Baker should:

ADisclaim an opinion.

BIssue an adverse opinion.

CWithdraw from the engagement.

DIssue a qualified opinion.

Suggested Answer: C

Choice 'c' is correct. If the accountant believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements taken as a whole, the accountant should withdraw from the review engagement and provide no further services with respect to those financial statements.

Note that the accountant should also request that management consider the effect of the scheme on the financial statements.

Choice 'a' is incorrect. Since Baker believes modification of the standard report is not adequate, a disclaimer is inappropriate. Baker should withdraw from the engagement.

Choices 'b' and 'd' are incorrect. No opinion may be given based on a review engagement.

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21 comments · newest first

Jaime 2 days ago

But what if Baker just withdraws? That might be cleaner.

Emmett 7 days ago

I agree, an adverse opinion shows the seriousness of the fraud.

Matthew 12 days ago

This is tough. I think Baker should issue an adverse opinion.

Elin 17 days ago

Same here! It's all about understanding the implications.

Charlena 23 days ago

I just hope I remember this on the exam!

Yan 28 days ago

Right, it clearly states the financials are misleading.

Yvette 1 month ago

Exactly, clarity is key. Adverse opinion is straightforward.

Serita 1 month ago

I feel like a disclaimer could confuse stakeholders.

Charlena 1 month ago

True, but withdrawing might not address the issue.

Elin 2 months ago

But what if Baker feels withdrawal is the best option?

Yan 2 months ago

I agree, an adverse opinion shows the severity of the fraud.

Yvette 2 months ago

This question is tricky. I think Baker should issue an adverse opinion.

Howard 2 months ago

Really? An adverse opinion sounds extreme for a review.

Gayla 2 months ago

No way, he has to address the fraud directly!

Leonie 2 months ago

Wait, can he just withdraw instead? Seems like an option too.

Luisa 3 months ago

Definitely agree, the fraud is serious!

Julianna 3 months ago

I think Baker should issue an adverse opinion.

Dante 3 months ago

I recall that if the financial statements are materially misstated due to fraud, issuing an adverse opinion is usually the way to go. But I’m not 100% confident.

Arleen 3 months ago

I’m a bit confused about whether Baker should withdraw or just issue a report. I feel like withdrawing could be an option if the situation is really bad.

Audra 3 months ago

This question seems similar to one we practiced where the auditor had to decide between a qualified opinion and an adverse opinion. I think adverse might be the answer here.

Mitsue 4 months ago

I think I remember that if the fraud is significant enough, a disclaimer might be the right choice, but I'm not entirely sure.

AICPA CPA-Auditing Exam - Topic 1 Question 129 Discussion