Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3 - 2 Identifying Audit Opinions and Circumstances for Departure The following are excerpted sentences and phrases from audit reports issued by independent public accounting

3-2 Identifying Audit Opinions and Circumstances for Departure
The following are excerpted sentences and phrases from audit reports issued by independent public accounting firms.
a.(Scope Paragraph)
Except as described in the following paragraph ...
(Explanatory Paragraph)
Because of insufficient records we were not able to examine sufficient evidence in support of dividend income received from a short-term investment, and we were unable to satisfy ourselves as to the dividend income by means of other procedures.
(Opinion Paragraph)
In our opinion, except for the effect of the matter described in the preceding paragraph, the financial statements referred to above present fairly ...
b.(Explanatory Paragraph)
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, under existing circumstances there is substantial doubt as to the ability of the company to continue as a going concern.
c.(Explanatory Paragraph)
As explained in Note 12 to the financial statements, certain adjustments have been made to the financial statements to conform to generally accepted accounting principles. These adjustments have not been recorded in the books.
dAn (Explanatory Paragraph)
As disclosed in Note 8 to the financial statements, the company has adopted the first-in, first-out method of determining inventory costs, whereas it previously used the last-in, first-out method. Although use of the first-in, first-out method is in conformity with generally accepted accounting principles, in our opinion the company has not provided reasonable justification for seeking a change as required by Opinion 20 of the Accounting Principles Board.
(Opinion Paragraph)
In our opinion, except for the change in accounting principles discussed in the preceding paragraph, the financial statements referred to above present fairly ...
Required: For each report, identify the type of opinion (for example, "qualified") and the circumstance for departing from the standard wording of an unqualified opinion (for example, "departure from GAAP").
3-3 Modifications to an Audit Report
Christine Burke has completed field work for the Willingham Corporation engagement, a December 31,2008, year-end audit, and is now deciding whether to modify her report. Following are two unrelated situations that arose during the engagement.
In September 2008, a lawsuit was filed against Willingham requesting that the court order Willingham to install pollution control equipment at an aged production plant. Willingham's attorney has informed Burke that the outcome of the litigation cannot be predicted, and management has informed Burke that pollution control equipment is far too costly and that the plant will close if the litigation is lost. In addition, management told Burke that the production plant and equipment had only minimal resale values, and that lost production could not be recovered at other plants.
During 2008, Willingham paid 20 percent of its assets to purchase a franchise granting the exclusive right to produce and sell a newly patented product in the New England states, although there has been no appreciable production or sales of the product anywhere in the United States to date. Neither the franchiser nor any U.S. franchisee has conducted market research about the product.
Required: For each of the two situations, discuss the issues Burke should consider (not the type of report Burke should issue). Consider each situation separately, thoroughly, and under the assumption that each is disclosed in notes to the financial statements.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Tools For Business Decision Making

Authors: Weygandt, Kimmel, Kieso

4th Edition

0470478535, 978-0470478530

More Books

Students also viewed these Accounting questions

Question

1. Follow directions the first time.

Answered: 1 week ago

Question

Compare and contrast long-term and short-term orientation cultures

Answered: 1 week ago

Question

Discuss the research behind the notion of a pancultural self

Answered: 1 week ago