7 Audit Reports (30 points) For each of the following independent situations, as

Question

7 Audit Reports (30 points) For each of the following independent situations, assume that any amounts would be material (I) Indicate the TYPE of appropriate audit repuciaimer eport: A. unqualified, B. qualified or adverse, C. qualified or D. Disclaimer, E- Qualified ONLY,or INDICATE the situation involved, i.e. Ac and DISCUSS the situation. Other Accounting situation (II) State whether an explanatory paragraph toryPa ld be if so, what would be included in the exp anatory paragraph (III) For an UNQUALIFIED auditor's reportbanged (relates if the wording wou changed, indicate how it would be ch report) year. The 1. The client changed from FIEO to LIFo during th fied and disclosed Type Include Expianatory paragraph Discussion Discussion the value of The 2. The client presents an appraiser's estimate as to company feels that this is more recent informah Type _ the company's land and buildings on the balance she Include Explanatory paragraph? Discussion Discuss auditors' report, the Principle auditor (Group Engagement Auditor) decides to make reference to the other auditor Component Auditor). 3. Part of the audit is performed by another CPA firm. In the Include Explanatory paragraph? Type Discussion Discussion 4. The company refuses to include a Statement of Cash Flows with the financial statements. Management feels that the Income Statement should be the users' focus. Type Include Explanatory paragraph? Discussion Discussion One of the members of the audit team has a significant 5. financial interest in the company being audited Include Explanatory paragraph? Discussion Discussion

Explanation / Answer

1. Unquailified reprt. An explanatory note that why method of inventory was changed and its probable effects must be given.

2. Qualified report should be issued as company must have undertaken a new revaluation. In my opinion, wording of qualified report would be : " In our opinion the financial statements do not comply with the standards and rules and also not give true and fair view in confirmity with accounting principles."

3. Unqualified report along with paragraph that we have used the work of another auditors which are authorized component auditors. Paragraph should explicitly indicate that due deligence and professional skepticm have been performed on the report taken of component auditor for consideration.

4. Qualified Report shall be issued as statement of cashflows is the primary financial statements required by law. Wordings would be : " In our opinion the financial statements do not comply with the standards and rules and also not give true and fair view becase of lack of managements effort to prepare proper financial statements as required by law."

5. Disclaimer should be issued regarding possible conflic of interest and that due delegince have been carried out in audit work.

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