At the completion of the fieldwork on September 14, 2022, Arnold, a staff accountant of Pell...
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At the completion of the fieldwork on September 14, 2022, Arnold, a staff accountant of Pell & Pell, CPAS, drafted an auditor's report. The draft report (shown below) was for the audit of the consolidated financial statements of Bond Co., a non- public company, for the year ended July 31, 2022. The report was submitted to the engagement partner who completed reviewing the audit working papers and reach a conclusion about the audit on September 29. When Arnold drafted the report, he considered the following: • Bond's consolidated financial statements for the year ended July 31, 2022 are to be presented for comparative purposes. Pell & Pell previously audited these statements and appropriately rendered an unmodified report. • Bond has suffered recurring losses from operations and has adequately disclosed these losses and management's plans concerning the losses in a note to the consolidated financial statements. Although Bond has prepared the financial statements assuming it will continue as a going concern, Pell & Pell has substantial doubt about Bond's ability to continue as a going concern. Smith, CPA, audited the financial statements of BC Services, Inc., a consolidated subsidiary of Bond, for the year ended July 31, 2022. The subsidiary's financial statements reflected total assets and revenues of 15% and 18%, respectively, of the consolidated totals. Smith expressed an unqualified opinion and furnished Pell & Pell with a copy of the auditor's report. Smith also granted permission to present the report together with the principal auditor's report. Pell & Pell decided to make reference to Smith's work. • Bond did not write-down the impairment of several assets included on the balance sheet as fixed assets. Although the amounts were immaterial, Arnold believed that management's failure to adjust the accounts created a significant disagreement with the auditing firm that warranted an explanatory paragraph in the auditor's report. REQUIRED: Identify the deficiencies in the auditor's report (below) as drafted by Arnold, the staff accountant at Pell & Pell. Independent Auditor's Report Report on the Audit of the Financial Statements Qualified Opinion We have audited the consolidated balance sheets of Bond Company and subsidiaries as of July 31, 2022 and 2021, and the related statements of income, cash flows, and retained earnings, and the related notes to the financial statements. In our opinion, based on our audits and the report of Smith, CPA, the consolidated financial statements present fairly, except for the matter of recurring losses discussed below, the financial position of Bond Co. as of July 31, 2022 and 2021, and the results of its operations for the years then ended. We did not audit the financial statements of BC Services, Inc., a wholly owned subsidiary. Those statements were audited by Smith, CPA, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for BC Services, Inc., is based solely on the report of Smith, CPA. The accompanying consolidated financial statements have been prepared with the disclosure in Note 13 that the company has suffered recurring losses from operations. Management's plans in regard to those matters are also discussed in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. During the course of the audit, significant disagreements were noted between our auditors and the management of Bond Company. As a result, despite an appropriate level of professional skepticism, a high level of inherent risks exists. Basis for Qualified Opinion We conducted our audit in accordance with generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Bond Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is appropriate for the basis for our audit opinion. Basis for Qualified Opinion We conducted our audit in accordance with generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Bond Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is appropriate for the basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from misstatement. In preparing the financial statements, management is required to evaluate whether Bond Company's has the ability to remain in business for one year following the issuance of the financial statements. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We attain a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a Material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users. Material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users. In performing an audit in accordance with GAAS, we: . Maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. . • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. We are required to communicate with those charged with governance garding, including significant audit findings. September 14, 2022 Pell & Pell, CPAS Charlotte, North Carolina . At the completion of the fieldwork on September 14, 2022, Arnold, a staff accountant of Pell & Pell, CPAS, drafted an auditor's report. The draft report (shown below) was for the audit of the consolidated financial statements of Bond Co., a non- public company, for the year ended July 31, 2022. The report was submitted to the engagement partner who completed reviewing the audit working papers and reach a conclusion about the audit on September 29. When Arnold drafted the report, he considered the following: • Bond's consolidated financial statements for the year ended July 31, 2022 are to be presented for comparative purposes. Pell & Pell previously audited these statements and appropriately rendered an unmodified report. • Bond has suffered recurring losses from operations and has adequately disclosed these losses and management's plans concerning the losses in a note to the consolidated financial statements. Although Bond has prepared the financial statements assuming it will continue as a going concern, Pell & Pell has substantial doubt about Bond's ability to continue as a going concern. Smith, CPA, audited the financial statements of BC Services, Inc., a consolidated subsidiary of Bond, for the year ended July 31, 2022. The subsidiary's financial statements reflected total assets and revenues of 15% and 18%, respectively, of the consolidated totals. Smith expressed an unqualified opinion and furnished Pell & Pell with a copy of the auditor's report. Smith also granted permission to present the report together with the principal auditor's report. Pell & Pell decided to make reference to Smith's work. • Bond did not write-down the impairment of several assets included on the balance sheet as fixed assets. Although the amounts were immaterial, Arnold believed that management's failure to adjust the accounts created a significant disagreement with the auditing firm that warranted an explanatory paragraph in the auditor's report. REQUIRED: Identify the deficiencies in the auditor's report (below) as drafted by Arnold, the staff accountant at Pell & Pell. Independent Auditor's Report Report on the Audit of the Financial Statements Qualified Opinion We have audited the consolidated balance sheets of Bond Company and subsidiaries as of July 31, 2022 and 2021, and the related statements of income, cash flows, and retained earnings, and the related notes to the financial statements. In our opinion, based on our audits and the report of Smith, CPA, the consolidated financial statements present fairly, except for the matter of recurring losses discussed below, the financial position of Bond Co. as of July 31, 2022 and 2021, and the results of its operations for the years then ended. We did not audit the financial statements of BC Services, Inc., a wholly owned subsidiary. Those statements were audited by Smith, CPA, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for BC Services, Inc., is based solely on the report of Smith, CPA. The accompanying consolidated financial statements have been prepared with the disclosure in Note 13 that the company has suffered recurring losses from operations. Management's plans in regard to those matters are also discussed in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. During the course of the audit, significant disagreements were noted between our auditors and the management of Bond Company. As a result, despite an appropriate level of professional skepticism, a high level of inherent risks exists. Basis for Qualified Opinion We conducted our audit in accordance with generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Bond Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is appropriate for the basis for our audit opinion. Basis for Qualified Opinion We conducted our audit in accordance with generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Bond Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is appropriate for the basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from misstatement. In preparing the financial statements, management is required to evaluate whether Bond Company's has the ability to remain in business for one year following the issuance of the financial statements. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We attain a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a Material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users. Material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users. In performing an audit in accordance with GAAS, we: . Maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. . • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. We are required to communicate with those charged with governance garding, including significant audit findings. September 14, 2022 Pell & Pell, CPAS Charlotte, North Carolina .
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Auditing and Assurance Services A Systematic Approach
ISBN: 978-0077732509
10th edition
Authors: William Messier Jr, Steven Glover, Douglas Prawitt
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