Explanation Identify (a) condition, (b) materiality level and (c) type of report for the given situations as follows: (a) (b) (c) Comments Condition Materiality level Type of report 1. None Not applicable Standard, unmodified The company has made a business decision to follow a different financing method for use of delivery trucks, which is adequately disclosed. There is no need to change the accounting principle. 2. Substantial doubt about going concern Material Unmodified ─ Emphasis-of-matter explanatory paragraph Because the auditor has substantial doubt about the client’s ability to continue as a going concern, the auditor should add an explanatory paragraph to the unmodified opinion. 3. None Material Standard, unmodified While the auditor engaged a business valuation specialist to gather evidence about the fair value of the investment, the auditor would issue an unmodified opinion given he or she was able to conclude that the valuation specialist’s work provides sufficient appropriate evidence...

Identify (a) condition, (b) materiality level and (c) type of report for the given situations.

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. Assume im a auditor, and I am giving opinion. Since the client made adjustments to related inventories and buildings to reflect the loss after a heavy damage. However, it is a non-adjustable subsequent event, the company is not supposed to adjust the entries. Also, they haven’t claimed to make any footnotes to explain the crisis, which is inadequately disclosed, which both are accounting disagreements, since it is heavy damage, so both are supposed to be highly material, so adverse opinions should be issued. If the client did disclose the footnotes to explain the crisis, adverse opinions with explanatory opinion should be issued. Is adverse opinion with explanatory paragraph…

What type of auditor report would be issued in each of the following cases? Justify your choice. Bowles Company is engaged in a hazardous trade and cannot obtain insurance coverage from any source. A material portion of the company’s assets could be destroyed by a serious accident. Drave Company owns substantial properties that have appreciated significantly in value since the date purchase. The properties were appraised and are reported in the balance sheet at the appraised values with full disclosure. The CIAs believe that the appraised values reported in the balance sheet reasonably estimate the assets current values. The CIA firm is auditing the financial statement that are to be included in the annual report to the stockholder of Eagle Company, A regulated company Eagle’s Financial Statement are prepared as prescribed by a regulatory agency of the Pakistan Government and some items are not presented in accordance with generally accepted accounting principles. The amounts…

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. All facts are the same as situation 1, but the client did not make adjustment to year end figure of inventory. 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. 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. An equipment which was used by the client for more than 5 years is considered to…

For the following independent and material situations, assume that you are the audit partner on the engagement: There was a fire that broke out a month before the year-end date. The fire has destroyed most of the accounting records and underlying receipts and invoices. Management has reconstructed the accounting records using its bank statements and other means, but they are uncertain if all material matters have been taken into account and they would like to wait until after a couple of months when subsequent receipts may assist them to compile further outstanding items. You have serious doubts as to the accuracy of the compiled figures and have been unable to verify any of the material balances. Kieko Co. Ltd has prepared financial statements but has decided to exclude the statement of cash flows. Management explains to you that the users of their financial statements find this statement confusing and prefer not to have it included. Required: state what type of audit report are…

For the following independent situations, assume that you are the audit partner on the engagement: 1. The client has changed from double declining balance to straight line depreciation for its equipment. The effect on this year’s income is material, and no information is disclosed in footnotes related to the change. You believed the change aligns with change in usage pattern of the equipment. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion.

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows. (a) The board is planning to issue shares in a private placement on 15 August. (: another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (? lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiar y company's…

Question 1 b: Answer for question (iii)

Sunny Best is the engagement partner for the financial report audit of BigMac Ltd for the year ended 31 December, 2021. The following material events or transactions have come to Sunny Best’s attention before he is scheduled to issue his report on 28 February, On 1 February, 2022, a plant owned by BigMac Ltd was damaged by a flood, resulting in an uninsured loss of inventory. For each of the above events or transactions, discuss audit procedures that should have brought the item to the auditor’s attention, and indicate the treatment required in the financial report. Give reasons for your decision.

17. Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant, and equipment for a continuing nonpublic client? Group of answer choices Audit of selected purchases and retirements for the last few years Audit of changes in the accounts since inception of the company Direct audit of the ending balance Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts

After performing the audit process, ABC, a local audit firm expresses an unmodified audit opinion on the financial statements of Allied Well Ltd. for the year ended 31 December 2019 and there were no matters in the auditor’s report to which the auditor drew attention to. On 30 November 2020, Allied Well filed for bankruptcy. Star Bank is a major creditor of Allied Well. Star Bank has alleged that the audit firm, ABC, failed to warn them of several major irregularities and fraud which have come to light since ABC issued their auditor’s report on the 31 December 2019 financial statements. Star Bank has stated that it has relied on ABC’s unmodified auditor’s report and made several substantial loans to the company. When Allied Well declared bankruptcy, the company defaulted on the terms of these loans owing Star Bank a significant amount of arrears. ABC have argued that Star Bank had already made several loans to the company prior to the audit of the financial statements for the year…

Identify (a) condition, (b) materiality level and (c) type of report for the given situations.

Solution Summary: The author identifies the condition, materiality level, and type of report for the given situations. The auditor should add an explanatory paragraph to the unmodified opinion.

Identify (a) condition, (b) materiality level and (c) type of report for the given situations.

Want to see the full answer?

Chapter 3 Solutions