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For each scenario, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 5 only, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).

For each scenario, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 5 only, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).

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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For the following independent situations, assume that you are the audit partner on the engagement: 1. In reviewing of subsequent events, you learned of heavy damage to the client's warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. 2. All facts are the same as situation 1, but the client did not make adjustment to year end figure of inventory. 3. During the course of examination on your audit client, you suspect that a material amount of assets has been misappropriated through fraud. Management refuses to allow you to investigate further to confirm the suspicions. 4. The client's financing arrangements expired and the amount outstanding was past due. The client cannot renegotiate or obtain refinancing and is considering filing bankruptcy. Financial statements were prepared using the going concern basis and this fact is not disclosed. 5. An equipment which was used by the client for more than 5 years is considered to be outdated due to new technology that evolve in the recent years. The equipment has carrying amount of 140,000 and recoverable amount of $110,000 as at year end date. The company believed the equipment can still be used and do not record any impairment on the financial statements. The net income of the client company is $600,000. For each scenario, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 5 only, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).
Transcribed Image Text:For the following independent situations, assume that you are the audit partner on the engagement: 1. In reviewing of subsequent events, you learned of heavy damage to the client's warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. 2. All facts are the same as situation 1, but the client did not make adjustment to year end figure of inventory. 3. During the course of examination on your audit client, you suspect that a material amount of assets has been misappropriated through fraud. Management refuses to allow you to investigate further to confirm the suspicions. 4. The client's financing arrangements expired and the amount outstanding was past due. The client cannot renegotiate or obtain refinancing and is considering filing bankruptcy. Financial statements were prepared using the going concern basis and this fact is not disclosed. 5. An equipment which was used by the client for more than 5 years is considered to be outdated due to new technology that evolve in the recent years. The equipment has carrying amount of 140,000 and recoverable amount of $110,000 as at year end date. The company believed the equipment can still be used and do not record any impairment on the financial statements. The net income of the client company is $600,000. For each scenario, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 5 only, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).
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