ACCG 6310: Week 1 Homework

Please prepare your answers to these questions in advance of our next class. We will ask you to share your answers as we review them together. This will form part of your participation/assignment mark each week.

Question #1:

The following are unrelated situations.For each situation, identify the appropriate audit report/ audit opinion that should be issued and provide reasons (point form). Identify any assumptions you are required to make.

A)During the year 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 imbedded in the tires of her vehicle.The tires blew and the car went out of control on a major highway and your client's law firm believe it is likely that your client will lose the lawsuit.The amount in dispute is $400,000, with estimated legal bills of about $20,000. The client does not wish to accrue or disclose the lawsuit in the financial statements.

B)Grinner and Greeter, CPAs (a local audit firm), were engaged to perform an audit of the financial statements of Happy, Inc.Because of the nature of the business, the firm was not be able to complete any audit procedures to contact customers to confirm any of the notes receivable recorded in the financial statements and the audit firm was not able to perform any alternative audit procedures.

C)During the current year, your client leased a large amount of equipment.As the lease qualifies as a capital lease, the equipment has been recorded on the financial statements as required by GAAP.The implicit interest rate in the lease is five percent. The annual payments due over the term of the lease have been disclosed in the notes to the financial statements as required by GAAP.

Question #2:

Complete Professional Application Question 1.8. Answer using point form.

Question #3:

Complete Professional Application Question 1.13 Part b only.