18-28 The following auditor’s report was drafted by a staff accountant of Nathan
ID: 2420743 • Letter: 1
Question
18-28 The following auditor’s report was drafted by a staff accountant of Nathan and Matthew, CPAs, at the completion of the audit of the comparative inan- cial statements of Monterey Partnership for the years ended December 31, 2013 and 2012. Monterey is a privately held company that prepares its inan- cial statements on the income tax basis of accounting. The report was sub- mitted to the engagement partner, who reviewed matters thoroughly and properly concluded that an unmodiied opinion should be expressed. The draft of the report prepared by a staff account is as follows:
Auditor’s Report
We have audited the accompanying inancial statements of Monterey Partnership, which comprise the statements of assets, liabilities, and capital–income tax basis as of December 31, 2013, and the related statements of revenue and expenses–income tax basis and of changes in partners’ capital accounts–income tax basis for the year then ended, and the related notes to the inancial statements.
Auditor’s Responsibility
We conducted our audit in accordance with standards established by the AICPA. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the inancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the inancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the inancial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used as well as evaluating the overall presentation of the inancial statements.
We believe that the audit evidence we have obtained is suficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the inancial statements referred to above present fairly, in all material respects, the assets, liabilities, and capital of Monterey Partnership as of December 31, 2013, and its revenue and expenses and changes in part- ners’ capital accounts for the year then ended in conformity with generally accepted accounting principles applied on a consistent basis.
Basis of Accounting
We draw attention to Note 2 of the inancial statements, which describes the basis of accounting. The inancial statements are prepared on the basis
of accounting the Partnership uses for income tax purposes. Accordingly, these inancial statements are not designed for those who do not have access to the Partnership’s tax returns. Our opinion is not modiied with respect to this matter.
Nathan and Matthew, CPAs April 3, 2014
Required:
Identify the errors and omissions in the auditor’s report as drafted by the staff accountant. Group the errors and omissions by paragraph, where applicable. Do not redraft the report.
Explanation / Answer
Answer: Monterey is a privately held company involving the first error located in the title of the auditor’s report which should correctly state “Independent Auditor’s Report.” Also, in the introductory paragraph, the staff accountant did not address that the financial statements are the responsibility of the Monterey Partnership’s management. In addition, Nathan and Matthew should confirm their responsibility to express an opinion on the financial statements based on their audits.
Since a privately held company, the report indicates that the audit was conducted “in accordance with generally accepted auditing standards,” not by the American Institute of Certified Public Accountants. Also in the scope paragraph, include that “an audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
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