Com-See-Me, a retail furniture company, made a practice of assigning certain customer account balances to a local bank which, in turn, advanced the furniture company money. When the designated customers paid their bills, these amounts were forwarded to the bank.

As a condition of this financing arrangement, the bank required an annual audit by a CPA firm. During the course of the audit, the senior in charge was informed by the company controller that no circularization of accounts receivable confirmations would be allowed, because the company did not wish their custom¬ ers to find out about the financing arrangements with the bank.

Selected financial data are shown below.

After consulting with the partner in charge of the audit, the senior informed the controller that no confirmation letters would be sent.
Required:

a. Discuss whether or not the CPA firm’s independence was affected by agreeing to this restriction on the scope of the audit procedures.

b. Without considering Question

a, indicate whether you think this restriction should warrant an unqualified opinion, a qualified opinion, or a disclaimer of opinion. What other action could the CPA take?

c. What evidence would you attempt to acquire in place of accounts receivable confirmations?

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Accounts Receivable 12-31 Total Current Assets 12-31 Total Assets 12-31 Net Income for Year Ended 12-31 $ 50,000,000 $ 500,000,000 $1,000,000,000 $ 300,000,000