ABC Corporation Case

ABC Corporation is a publically held corporation and one of the largest national merchandisers. Inventory is the largest asset on the ABC balance sheet and cost of goods sold is the largest expense on the income statement. Green and Associates is a national CPA firm engaged as the external audit firm for ABC, who dismissed their previous auditors a few months ago. After extensive fieldwork, the audit team has two concerns regarding the draft financial statements. Specifically, ABC changed inventory valuation methods from FIFO to LIFO for the fiscal year under audit. When interviewed, the CFO and the Audit Committee stated that this change was to enhance the annual tax return and that the company intended to return to FIFO valuation next year. Also, ABC refuses to allow Green to provide a separate audit of internal controls over financial reporting because the CFO believes ABC controls are excellent and such an additional audit would be a waste of time and money.

Describe four types of audit opinions Green and Associates may provide at the conclusion of a corporate financial audit. Specifically, describe and illustrate an unqualified, unqualified with explanatory paragraph, qualified, and adverse opinion. Differentiate between the opinions and provide specific criteria that warrant each type of opinion.

Determine whether the inventory valuation method used by ABC Corporation was legal and compliant with GAAP.

Is the client