An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor’s unmodified report. From this the investor may conclude that
A. The auditor is satisfied that Stankey is financially sound.
B. Any disputes over significant accounting issues have been settled to the auditor’s satisfaction.
C. The auditor has ascertained that Stankey’s financial statements have been prepared accurately.
D. Informative disclosures in the financial statements but not necessarily in Stankey’s footnotes are to be regarded as reasonably adequate.
Answer:B
B is corrent because an unmodified audit report indicates that disputes over significant accounting issues have been settled to the auditor’s satisfaction. If any such disputes have not been settled, the auditor must render an opinion other than unmodified.
A is incorrect because the objective of an audit is not to conclude that the client is financially sound. Rather, the auditor renders an opinion on the fairness of the financial statement presentation in accordance with GAAP
C is incorrect because there is no assertion as to accuracy by the independent auditor. Rather, the auditor renders an opinion on the fairness of the financial statement presentation in accordance with GAAP
D is incorrect because the footnotes are regarded as an integral part of the financial statements and must contain adequate informative disclosures.