Auditing Accounting
For the following independence situations, assume that you are the audit partner on the engagements.
1. During your audit of raceway.com, Inc, you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of you audit sufficiently to verify weather the balance is actually misstated.
2. You complete the audit of Munich Department Store and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that on of your supervisor assigned to the audit has a material investments in Munich.
3. Auto delivery company has a fleet of several delivery trucks. In the past, Auto delivery had follow the policy of purchasing all equipment. In the current year, they they decide to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes.
4. You are auditing Deep clean services for the first time. Deep clean has been in business for several years but over the last two years has struggled to stay afloat given the economic conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in business by the end of its next fiscal year.
5. One of the audit clients has a material investments in a privately-held bio sciences company. Your audit firm engaged a business valuation specialist to assist in evaluating the client estimation of the investments's fair value. You conclude that the valuation specialist's work provides sufficient appropriate audit evidence.
6. Four weeks after the year-end date, a major customer of Prince Constructions co. declared bankrupt. Because the customer has confirmed the balance due to prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes
For each situations, do the following:
a. Identify which of the conditions requiring a modifications of or a deviation from an unqualified standard reports is applicable.
b. State the level of materiality as immaterial, material, or high material. If you cannot decide the level of materially, state the additional information needed to make a decision.
c. Given your answer in parts a. and b., state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materialty level.