For each of the following independent situations, assume that any amounts would be material. (1) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e. "Accounting situation", and DISCUSS the situation. (11) State whether an explanatory paragraph [i.e. PCAOB audit] would be included, and if so, what would be included in the explanatory paragraph. (1II) For an UNQUALIFIED auditor's report, if the wording would be changed, indicate how it would be Changed [Relates to Shared Report). (iv) The auditor agrees to any accounting change, if the change is proper GAAP. 1. In auditing the long-term investments account (company uses the equity method for this investment), an auditor is unable to obtain audited financial statements for an investee located in a foreign country. 2. The status of the client as a going concern is extremely doubtful. The matter is NOT disclosed in the footnotes. 3. The partner of the CPA firm doing the audit of ABC Company has a financial interest in ABC Company.
For each of the following independent situations, assume that any amounts would be material. (1) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e. "Accounting situation", and DISCUSS the situation. (11) State whether an explanatory paragraph [i.e. PCAOB audit] would be included, and if so, what would be included in the explanatory paragraph. (1II) For an UNQUALIFIED auditor's report, if the wording would be changed, indicate how it would be Changed [Relates to Shared Report). (iv) The auditor agrees to any accounting change, if the change is proper GAAP. 1. In auditing the long-term investments account (company uses the equity method for this investment), an auditor is unable to obtain audited financial statements for an investee located in a foreign country. 2. The status of the client as a going concern is extremely doubtful. The matter is NOT disclosed in the footnotes. 3. The partner of the CPA firm doing the audit of ABC Company has a financial interest in ABC Company.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![For each of the following independent situations, assume that any amounts would be material.
(1) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified
or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e.
"Accounting situation", and DISCUSS he situation.
(I11) State whether an explanatory paragraph [i.e. PCAOB audit] would be included, and if so,
what would be included in the explanatory paragraph.
(1II) For an UNQUALIFIED auditor's report, if the wording would be changed, indicate how it would be
Changed [Relates to Shared Report).
(iv) The auditor agrees to any accounting change, if the change is proper GAAP.
1. In auditing the long-term investments account (company uses the equity method for this
investment), an auditor is unable to obtain audited financial statements for an investee located in a
foreign country.
2. The status of the client as a going concern is extremely doubtful. The matter is NOT disclosed in the
footnotes.
3. The partner of the CPA firm doing the audit of ABC Company has a financial interest in ABC
Company.
4. "The auditor, having obtained sufficient appropriate audit evidence, and having concluded that
misstatements, individually or in the aggregate, are material but not pervasive to the financial
statements", would issue what opinion. See CPA Exam materials.
5. Part of the audit is being performed by another CPA firm. In the auditors' report, the Principle
Auditor (Group Engagement Auditor) decides to make reference to the Other Auditor (Component
Auditor).
6. The company changes from First-in, First -out (FIFO) to Last-in, Current-knowledge (LIKE) for
inventory valuation.
7. The CPA firm was not able to observe or take part in the taking of the company's physical inventory.
The company uses the periodic inventory system to value inventory; perpetual inventory records are
not available.
8. 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.
9. The company uses an appraiser's estimate of current Replacement Cost to report the value of
previously acquired land owned by the company. It is felt this is more recent information
10. The controller requested that the auditor not send accounts receivable confirmations to its largest
customers. The auditors used alternative procedures to ascertain the existence of the receivables
11. The company uses Historical Cost rather than Lower of Cost or Market to value inventory.
It is felt that this is more reliable information.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe53f0b86-a158-41ba-832b-e5bfc724a63d%2F5e547c77-0ee1-4895-9b23-cf1a9de92c0c%2F817k8u_processed.png&w=3840&q=75)
Transcribed Image Text:For each of the following independent situations, assume that any amounts would be material.
(1) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified
or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e.
"Accounting situation", and DISCUSS he situation.
(I11) State whether an explanatory paragraph [i.e. PCAOB audit] would be included, and if so,
what would be included in the explanatory paragraph.
(1II) For an UNQUALIFIED auditor's report, if the wording would be changed, indicate how it would be
Changed [Relates to Shared Report).
(iv) The auditor agrees to any accounting change, if the change is proper GAAP.
1. In auditing the long-term investments account (company uses the equity method for this
investment), an auditor is unable to obtain audited financial statements for an investee located in a
foreign country.
2. The status of the client as a going concern is extremely doubtful. The matter is NOT disclosed in the
footnotes.
3. The partner of the CPA firm doing the audit of ABC Company has a financial interest in ABC
Company.
4. "The auditor, having obtained sufficient appropriate audit evidence, and having concluded that
misstatements, individually or in the aggregate, are material but not pervasive to the financial
statements", would issue what opinion. See CPA Exam materials.
5. Part of the audit is being performed by another CPA firm. In the auditors' report, the Principle
Auditor (Group Engagement Auditor) decides to make reference to the Other Auditor (Component
Auditor).
6. The company changes from First-in, First -out (FIFO) to Last-in, Current-knowledge (LIKE) for
inventory valuation.
7. The CPA firm was not able to observe or take part in the taking of the company's physical inventory.
The company uses the periodic inventory system to value inventory; perpetual inventory records are
not available.
8. 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.
9. The company uses an appraiser's estimate of current Replacement Cost to report the value of
previously acquired land owned by the company. It is felt this is more recent information
10. The controller requested that the auditor not send accounts receivable confirmations to its largest
customers. The auditors used alternative procedures to ascertain the existence of the receivables
11. The company uses Historical Cost rather than Lower of Cost or Market to value inventory.
It is felt that this is more reliable information.
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