For the following independent situations, assume that you are the audit partner on the engagement: 1. Flora Co had acquired another company few years ago which had become a division of Flora Co. Goodwill of $350,000 was recorded at the date of acquisition. Last year, the company has recorded loss from goodwill impairment of $100,000. In the current year, the company carrying value of the division was $800,000 and the recoverable amount is determined to be $900,000. Therefore, reversal of impairment was recorded for $100,000. The company has a net income of $3m. 2. Fortune Co has 20% inventory held by Just Department Store on a consignment basis. Confirmation request has been already sent to them after the year end. However, no reply has been received after repeated follow-ups. The related inventory involved 6% of the total asset. 3. You have found during the audit of sales transactions that several transactions recorded by the Font Company were orders from customers on the last few days of the year. However, due to typhoon at the year end, the good delivery was delayed and started immediately on the first few days of the next year. The transactions amounted to $10,000. The company has a net income of $250,000. 4. Your client, Harrison Automotive, has changed from straight-line to sum-of-the years' digits depreciation. The effect on this year's income is material. You believed the change aligns with change in usage pattern of the automobile. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 1, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).
For the following independent situations, assume that you are the audit partner on the engagement: 1. Flora Co had acquired another company few years ago which had become a division of Flora Co. Goodwill of $350,000 was recorded at the date of acquisition. Last year, the company has recorded loss from goodwill impairment of $100,000. In the current year, the company carrying value of the division was $800,000 and the recoverable amount is determined to be $900,000. Therefore, reversal of impairment was recorded for $100,000. The company has a net income of $3m. 2. Fortune Co has 20% inventory held by Just Department Store on a consignment basis. Confirmation request has been already sent to them after the year end. However, no reply has been received after repeated follow-ups. The related inventory involved 6% of the total asset. 3. You have found during the audit of sales transactions that several transactions recorded by the Font Company were orders from customers on the last few days of the year. However, due to typhoon at the year end, the good delivery was delayed and started immediately on the first few days of the next year. The transactions amounted to $10,000. The company has a net income of $250,000. 4. Your client, Harrison Automotive, has changed from straight-line to sum-of-the years' digits depreciation. The effect on this year's income is material. You believed the change aligns with change in usage pattern of the automobile. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. For the situation 1, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:For the following independent situations, assume that you are the audit partner on the engagement:
1. Flora Co had acquired another company few years ago which had become a division of Flora Co.
Goodwill of $350,000 was recorded at the date of acquisition. Last year, the company has recorded
loss from goodwill impairment of $100,000. In the current year, the company carrying value of
the division was $800,000 and the recoverable amount is determined to be $900,000. Therefore,
reversal of impairment was recorded for $100,000. The company has a net income of $3m.
2. Fortune Co has 20% inventory held by Just Department Store on a consignment basis.
Confirmation request has been already sent to them after the year end. However, no reply has been
received after repeated follow-ups. The related inventory involved 6% of the total asset.
3. You have found during the audit of sales transactions that several transactions recorded by the
Font Company were orders from customers on the last few days of the year. However, due to
typhoon at the year end, the good delivery was delayed and started immediately on the first few
days of the next year. The transactions amounted to $10,000. The company has a net income of
$250,000.
4. Your client, Harrison Automotive, has changed from straight-line to sum-of-the years' digits
depreciation. The effect on this year's income is material. You believed the change aligns with
change in usage pattern of the automobile.
Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the
opinion.
For the situation 1, draft the opinion paragraph and any corresponding basis of opinion paragraph (if
any).
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