1. (TCO 2) Red Barron Trucking discloses in the notes to the financial statement

Question

1. (TCO 2) Red Barron Trucking discloses in the notes to the financial statements certain lease obligations. Sally Smith, CPA, believes that the failure to capitalize these leases is a departure from generally accepted accounting principles. From the following opinion types, select and write the opinion type or types that can be used by the auditor. Up to two opinion types can be selected. In addition, select and write the appropriate report modification options that are required to be made by the auditor. You can select as many options as apply. (Becker, Adopted) Opinion Options a.Unmodified b.Except for qualified c. Adverse d. Disclaimer Report Modification Options Issue the independent auditor’s report without modification Modify the introductory paragraph Modify the auditor’s responsibility paragraph Omit the auditor’s responsibility paragraph Modify the opinion paragraph Add a basis for opinion paragraph preceding the opinion paragraph Add a basis for opinion paragraph following the opinion paragraph (Points : 35)

Explanation / Answer

Where there is a departure from generally accepted accounting principles, auditor should give either a qualified opinion if the departure is material or an adverse opinion. In both the opinions whether in a qualified opinion or adverse opinion the auditor must disclose the explanatory paragraph precedes the opinion paragraph and the opinion paragraph should be modified.

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