4)

The following are four unrelated situations. For each situation outline possible deviations (if any) from a standard auditor's report that may be necessary, and give reasons. State your assumptions. 1. During 2014, your client was sued by a customer who had a serious car accident as a result of scrap metal that had been dumped in the parking lot. The customer drove over the scrap metal, which was imbedded in the tires of her vehicle. The tires blew, and the car went out of control on a major highway. The amount in dispute is $400,000 (a highly material amount), with estimated legal bills of about $20,000. The client's lawyer believes it is more likely than not that your client will lose the dispute. The client does not wish to disclose the suit in the financial statements.

2. During the current year, your client leased a large amount of equipment. As the lease qualifies as a finance lease, the equipment has been recorded as an asset, with the corresponding liabilities recorded on the financial statements. The implicit interest rate in the lease is seven percent. The annual payments due over the terms of the lease have been disclosed in the notes to the financial statements.

3. You complete the audit of ABC Company and find no material misstatements. As you are finalizing the working papers, you learn that one of the audit supervisors on your audit team was in a romantic relationship with the company's controller.

4. During your audit you determine that there is a possibility that capital assets are materially overstated. When you attempt to expand your testing, the client refuses to cooperate, and won't provide you with certain documents you requested. You are unable to verify the capital assets balance.