For Questions 21 through 30, assume that you are reporting on an audit of a client’s financial statements. Select the type(s) of opinion appropriate for the scenario. In addition, unless stated otherwise, assume the matter involved is material. If the problem does not tell you whether a misstatement pervasively misstates the financial statements or does not list a characteristic that indicates pervasiveness, two reports may be possible. A company has not followed generally accepted accounting principles in the recording of its leases. Question 21 options: Qualified Adverse Disclaimer Qualified or adverse A client changed its depreciation method for production equipment from the straight-line method to the units-of-production method based on hours of utilization. The auditor concurs with the change. Question 22 options: Unmodified – standard Unmodified with an emphasis-of-matter paragraph Qualified Adverse A client changed its depreciation method for production equipment from the straight-line to a units-of-production method based on hours of utilization. The auditor does not concur with the change. Question 23 options: Unmodified – standard Unmodified with an emphasis-of-matter paragraph Qualified or adverse Qualified or disclaimer

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 Questions 21 through 30, assume that you are reporting on an audit of a client’s financial statements. Select the type(s) of opinion appropriate for the scenario. In addition, unless stated otherwise, assume the matter involved is material. If the problem does not tell you whether a misstatement pervasively misstates the financial statements or does not list a characteristic that indicates pervasiveness, two reports may be possible.

A company has not followed generally accepted accounting principles in the recording of its leases.

Question 21 options:

	Qualified
	Adverse
	Disclaimer
	Qualified or adverse

A client changed its depreciation method for production equipment from the straight-line method to the units-of-production method based on hours of utilization. The auditor concurs with the change.

Question 22 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified
	Adverse

A client changed its depreciation method for production equipment from the straight-line to a units-of-production method based on hours of utilization. The auditor does not concur with the change.

Question 23 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified or adverse
	Qualified or disclaimer

An auditor was hired after year-end and was unable to observe the counting of the year-end inventory. She is unable to apply other procedures to determine whether ending inventory and related information are properly stated.

Question 24 options:

	Unmodified with an emphasis-of-matter paragraph
	Qualified or adverse
	Qualified or disclaimer
	Adverse or disclaimer

A client changed the depreciable life of certain assets from 10 years to 12 years. The auditor concurs with the change.

Question 25 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified or adverse
	Qualified or disclaimer

A client changed the method it uses to calculate postemployment benefits from one acceptable method to another one. The effect of the change is immaterial this year, but is expected to be material in the future.

Question 26 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified
	Adverse

Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. The notes to the financial statements do not adequately disclose the substantial doubt situation and the auditor believes the omission fundamentally affects the users' understanding of the financial statements.

Question 27 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified
	Adverse

An auditor reporting on group financial statements decides not to take responsibility for the work of a component auditor who audited a 70% owned subsidiary and issued an unqualified opinion. The total assets and revenues of the subsidiary are 5% and 8%, respectively, of the total assets and revenues of the entity being audited.

Question 28 options:

	Unmodified with an emphasis-of-matter paragraph
	Qualified
	Adverse
	Disclaimer

An auditor discovered that a client made bribes to a state regulatory agency. The auditor was unable to determine the amounts of the bribes because of the client's inadequate record retention policies. However, there is no likelihood that the financial statements are pervasively misstated; but they may be materially misstated. The client refuses to disclose the payoffs in a note to the financial statements.

Question 29 options:

	Unmodified – standard
	Qualified
	Adverse
	Disclaimer

A client's financial statements follow GAAP except that they do not include a note on a significant related party transaction.

Question 30 options:

	Unmodified – standard
	Unmodified with an emphasis-of-matter paragraph
	Qualified or adverse
	Qualified or disclaimer

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