16-41 (Choosing the Type of Opinion) Several independent audit situations are presented here

16-41 (Choosing the Type of Opinion) Several independent audit situations are presented here. Assume that everything other than what is described would have resulted in an unqualified opinion.

Required
Indicate the type of opinion you believe should be expressed in each situation, and explain your choice. If an explanatory paragraph is needed, indicate whether it should precede or follow the opinion paragraph.

a. The auditor was unable to obtain confirmations from two of the client's major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to become satisfied by other audit procedures.

b. The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease.The effects are material.

c. The client changed from FIFO to LIFO this year.The effect is material. Assume:
1. The change was properly accounted for, justified, and disclosed.
2. The change was properly accounted for and disclosed, but was not properly justified.

d. The client restricted the auditor from observing the physical inventory. Inventory is a material item.

e. The client is engaged in a product liability lawsuit that is properly accounted for and adequately described in the footnotes. The lawsuit does not threaten the going concern assumption, but an adverse decision by the court could create a material obligation for the client.

f. The status of the client as a going concern is extremely doubtful. The problems are properly described in the footnotes.

g. One of your client's subsidiaries was audited by another audit firm, whose opinion was qualified because of a GAAP violation.You do not believe that the GAAP violation is material to the consolidated financial statements on which you are expressing an opinion.

h. You are convinced that your client is violating another company's patent in the process of manufacturing its only product.The client will not disclose this, because it does not want to wave a red flag and bring this violation to the other company's attention.

i. The client, with reasonable justification, has changed its method of accounting for depreciation for all factory and office equipment.The effect of this change is not material to the current year financial statements, but is likely to have a material effect in future years. The client's management will not disclose this change because of the immaterial effect on the current-year statements.You have been unable to persuade management to make the disclosure.


Click here for the solution: 16-41 (Choosing the Type of Opinion) Several independent audit situations are presented here

The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements

16-38 (Types of Engagements and Reports) The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and degree of responsibility the auditor is taking in the auditor’s report."

Required:
In each of the following independent situations, indicate how the CPA responds to this standard.
(a) The CPA is engaged to prepare the financial statements for a non-public entity without performing an audit or review.
(b) The CPA is engaged to compile and review the financial statements of a nonpublic company.
(c) The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
(d) The CPA is engaged to audit the annual financial statements of a public company.
(e) The CPA's name is contained in the client's registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm's name in the statement.


Click here for the solution: The fourth standard of reporting states: "The auditor must either express an opinion regarding the financial statements

The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements

16-38: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases in which an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking in the auditor’s report.”

Required
In each of the following independent situations, indicate how the CPA responds to this standard.
a. The CPA is engaged to prepare the financial statements for a nonpublic entity without performing an audit or review.
b. The CPA is engaged to compile and review the financial statements of a nonpublic company.
c. The CPA is engaged to prepare the federal and state income tax returns. No other services are provided.
d. The CPA is engaged to audit the annual financial statements of a public company.
e. The CPA’s name is contained in the client’s registration statement that includes audited financial statements for the year ended December 31, 2010, and unaudited financial statements for the three months ended March 31, 2011. The SEC requires the CPA to include in the registration statement consent to the use of the public accounting firm’s name in that statement.

Click here for the solution: The fourth standard of reporting states: “The auditor must either express an opinion regarding the financial statements