For the following independent situations, assume you are the audit partner on the engagement.
For each situation, using the framework for reporting decisions, identify the appropriate audit report from the list below and briefly explain a rationale for selecting the report.
(1) Unqualified-standard wording.
(2) Unqualified-explanatory paragraph.
(3) Qualified opinion-inappropriate accounting policy or material misstatement.
(4) Qualified opinion-scope limitation.
(5) Disclaimer.
(6) Adverse.
1. Kieko Corporation has prepared financial statements but has decided to exclude the cash flow statement. Management explains to you that the users of its financial statements find that particular statement confusing and prefer not to have it included.
2. HardwareFromHome.com is an internet-based start-up company created to sell home hardware supplies online. Although the company had a promising start, a downturn in ecommerce retailing has negatively affected the company. The company's sales and cash position have deteriorated significantly, and you have reservations about the ability of the company to continue in operation for the next year.
3. A different public accounting firm, which you had selected, performed approximately 20 percent of the audit for Furtney Farms Inc. You have reviewed its working papers and believe it did an excellent job on its portion of the audit. Nevertheless, you are unwilling to take complete responsibility for its work.
4. The controller of Fair City Hotels Co. Ltd. will not allow you to confirm the receivable balance from two of its major customers. The amount of the receivable is material in relation to Fair City's financial statements. You are unable to satisfy yourself as to the receivable balance by alternative procedures.
5. In the last three months of the current year, Oil Refining Corp. decided to change direction and go significantly into the oil-drilling business. Management recognizes that this business is exceptionally risky and could jeopardize the success of its existing refining business but feels that there are significant potential rewards. During the short period of operation in drilling, the company has had three dry wells and no successes. The facts are adequately disclosed in footnotes.