23

Assume you are the partner in charge of the audit of Franklin Corporations 2021 financial statements. The audit report has not yet been prepared. In each independent situation following (1-5), indicate the appropriate action (a-e) to be taken. The possible actions are as follows:

a. Issue a standard unqualified report

b. Qualify the opinion paragraph.

c. Issue an unqualified opinion with an explanatory paragraph.

d. Issue an adverse opinion.

e. Disclaim an opinion.

The situations are as follows:

1. Franklin Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.

2. Management of Franklin Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. and the effects are pervasive throughout the financial statements.

3. You were unable to confirm accounts receivable with Franklins customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures.

4. Franklin Corporation changed its method of computing depreciation in 2021. You agree with the change and the change is properly disclosed in the financial statement footnotes.

5. Ten days after the balance sheet date, one of Franklins buildings was destroyed by a fire. Franklin refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with generally accepted accounting principles. The amount of the uninsured loss was material, but not highly material ( pervasive)