Assignment
Complete problem below. List a represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications [if any] that would be necessary. Select as the best answer for each situation [items 1 to 6] the type of opinion and modifications, if any, the auditor would normally select. The types of opinions in List A and the report modifications in List B may be selected once, more than once, or not at all. The paper should be 2-3 pages.
Problem:
Items 1 through 6 present various independent factual situations an auditor might encounter in conducting an audit. For each situation assume:
Assume:
• The auditor is independent.
• The auditor previously expressed an unqualified opinion on the prior year's financial statements.
• Only single-year (not comparative) statements are presented for the current year.
• The conditions for an unqualified opinion exist unless contradicted in the factual situations.
• The conditions stated in the factual situations are material.
• No report modifications are to be made except in response to the factual situation.
Situations:
• In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained.
• 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. However, the financial statement disclosures concerning these matters are adequate.
• A principal auditor decides to take responsibility for the work of another CPA who audited a wholly owned subsidiary of the entity and issued an unqualified opinion. The total assets and revenues of the subsidiary represent 17 percent and 18 percent, respectively, for the total assets and revenues of the entity being audited.
• An entity issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe that statement of cash flows to be a useful financial statement.
• An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based on hours of utilization. The auditor concurs with the change, although it has a material effect on the comparability of the entity's financial statements.
• An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.
Required:
List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any) that would be necessary. Select as the best answer for each situation (items 1 through 6) the type of opinion and modifications, if any, the auditor would normally select. The types of opinions in List A and the report modifications in List B may be selected once, more than once, or not at all.
(AICPA, adapted)
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List A
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List B
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Types of Opinions
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Report Modifications
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A. An "except for" qualified opinion
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H. Describe the circumstances in a explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
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B. An unqualified opinion
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I. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
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C. An adverse opinion
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J. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the opinion paragraph.
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D. A disclaimer of opinion
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K. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the opinion paragraph.
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E. Either an "except for" qualified opinion or an adverse opinion.
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L. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the scope and opinion paragraphs.
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F. Either a disclaimer of opinion or an "except for" qualified opinion.
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M. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the scope and opinion paragraphs.
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G. Either an adverse opinion or a disclaimer of opinion
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N. Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
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O. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
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P. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
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Audit Report Modifications
The final paper will be based on Appendix 6C Illustrative Audit Case: Keystone Computers at pages 237-244 in your text. Write, in outline format but in complete sentences, a 6 to 10 page audit plan. It is recommended that you look at Figure 18.8 on page 708, which shows the control objectives related to accounts receivable.
(Whittington, O.R. & Pany, K. (2012). Principles of auditing and other assurance services (18th ed.). Boston, MA: McGraw- Hill. ISBN: 9780077486273)
In your audit plan cover the steps necessary to determine if you should select the client, the internal control procedures which need to be reviewed, the substantive tests [using accounts receivable a guide], and the final reporting steps. Based on the actual facts in the case determine the emphasis you want to place on various accounts. Also reflect back over your entire accounting program and think about how the accounts are interrelated. For example, when allowance for doubtful accounts is credited the offset is to bad debt expense. Therefore one of the steps should be to trace the debit side of the entry to the balance for bad debt expense.
Make your comments as specific as possible. Rather than say look for unusual entries, say look for entries from unusual sources and rounded amounts with focus on those near an accounting cut off. Use precise language. Rather than saying you "vouched accounts payable," say that you looked at the item to determine that it was a bona fide business expense. Remember to focus on the key audit objectives and support needed after applying the audit risk model.
Remember, the purpose of the Final Paper is for you to culminate the learning achieved in the course by describing your understanding and application of knowledge in the field of accounting.
The Final Paper should focus on real life, real time application of topics covered in this course; the uses you have seen and the uses you can envision. The paper must be submitted to your instructor no later than the last day of class. Earlier submittal is appreciated.
Writing the Final Paper
The Final Paper:
• Must be six to ten double-spaced pages in length, and formatted according to APA style as outlined in the Ashford Writing Center.
• Must include a title page with the following:
o Title of paper
o Student's name
o Course name and number
o Instructor's name
o Date submitted
• Must begin with an introductory paragraph that has a succinct thesis statement.
• Must address the topic of the paper with critical thought.
• Must end with a conclusion that reaffirms your thesis.
• Must use at least three scholarly sources, including a minimum of one from the Ashford Online Library.
• Must document all sources in APA style, as outlined in the Ashford Writing Center.
• Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.