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,3,4) For each of the following independent situations, indicate the type of financial ent audit report that you would issue, and briefly explain your reasoning. Assume that em is at least material. management of Bonner Corporation has decided to exclude the statement of cash flows its financial statements because it believes that its bankers do not find the statement to ery useful. are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ed 30 September. On 1 September, one of its manufacturing plants caught fire, releasing e gas into the surrounding area. Thirteen people were killed and numerous others lysed. The company's legal counsel indicates that the company is liable and that the unt of theliability can be ronsc nably ostimated but the comnany rofuses to discloso this

,3,4) For each of the following independent situations, indicate the type of financial ent audit report that you would issue, and briefly explain your reasoning. Assume that em is at least material. management of Bonner Corporation has decided to exclude the statement of cash flows its financial statements because it believes that its bankers do not find the statement to ery useful. are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ed 30 September. On 1 September, one of its manufacturing plants caught fire, releasing e gas into the surrounding area. Thirteen people were killed and numerous others lysed. The company's legal counsel indicates that the company is liable and that the unt of theliability can be ronsc nably ostimated but the comnany rofuses to discloso this

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please explain the answers as detailed as possible for why this audit opinion was given. 

18-12 (LO1,2,3,4) For each of the following independent situations, indicate the type of financial statement audit report that you would issue, and briefly explain your reasoning. Assume that each item is at least material. a The management of Bonner Corporation has decided to exclude the statement of cash flows from its financial statements because it believes that its bankers do not find the statement to be very useful. b You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended 30 September. On 1 September, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Thirteen people were killed and numerous others paralysed. The company's legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose this information in the financial statements. c During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allow you to confirm accounts receivable because she is concerned about complaints from her customers. You are unable to satisfy yourself about accounts receivable by other audit procedures and you are concerned about Tracy's true motives. d On 31 January, Asare Toy Manufacturing hired your firm to audit the company's financial statements for the prior year. You were unable to observe the entity's inventory on 31 December. However, you were able to satisfy yourself about the inventory balance using other audit procedures. e Gelato Bros. leases its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. Your review of the lease indicates that the rental terms are in excess of rental terms for similar buildings in the area. The company refuses to disclose this related-party transaction in the notes. f Johnstone Manufacturing Company has used the double-declining balance method to depreciate its machinery. During the current year, management switched to the straight-line method because it felt that it better represented the utilization of the assets. You concur with its decision. All information is adequately disclosed in the financial statements.
Transcribed Image Text:18-12 (LO1,2,3,4) For each of the following independent situations, indicate the type of financial statement audit report that you would issue, and briefly explain your reasoning. Assume that each item is at least material. a The management of Bonner Corporation has decided to exclude the statement of cash flows from its financial statements because it believes that its bankers do not find the statement to be very useful. b You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended 30 September. On 1 September, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Thirteen people were killed and numerous others paralysed. The company's legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose this information in the financial statements. c During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allow you to confirm accounts receivable because she is concerned about complaints from her customers. You are unable to satisfy yourself about accounts receivable by other audit procedures and you are concerned about Tracy's true motives. d On 31 January, Asare Toy Manufacturing hired your firm to audit the company's financial statements for the prior year. You were unable to observe the entity's inventory on 31 December. However, you were able to satisfy yourself about the inventory balance using other audit procedures. e Gelato Bros. leases its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. Your review of the lease indicates that the rental terms are in excess of rental terms for similar buildings in the area. The company refuses to disclose this related-party transaction in the notes. f Johnstone Manufacturing Company has used the double-declining balance method to depreciate its machinery. During the current year, management switched to the straight-line method because it felt that it better represented the utilization of the assets. You concur with its decision. All information is adequately disclosed in the financial statements.
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