Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What should the auditor evaluate to form an opinion on the financial statements?

1. Management's identification of appropriate auditing standards.

2. Financial statements in accordance with the requirements of GAAP.

3. Financial statements in accordance with the applicable financial reporting framework.

4. Sufficient appropriate evidence as required by FASB.

The correct answer is: Financial statements in accordance with the applicable financial reporting framework.

To form an opinion on the financial statements, the auditor should evaluate the financial statements in accordance with the applicable financial reporting framework. This involves confirming that the financial statements have been prepared following the specific guidelines, principles, and requirements of the designated framework, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The applicable financial reporting framework dictates how financial transactions and events should be recorded and presented. By ensuring compliance with this framework, the auditor can assess whether the financial statements provide a true and fair view of the organization's financial position and performance. This evaluation is crucial as it lays the foundation for the audit opinion, and without proper adherence to the relevant framework, the integrity of the financial statements could be compromised. While evaluating management's identification of appropriate auditing standards is important, it does not directly relate to the evaluation of the financial statements themselves. The auditor also does not form an opinion based solely on the presence of sufficient appropriate evidence as required by FASB; rather, evidence supports the evaluation of the financial statements' compliance with the applicable framework, which is the main concern.