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Assignment: Auditor's Report For each of the following independent scenarios, refer to current PCAOB auditing standards to identify the appropriate audit opinion (unqualified, qualified, adverse,
Assignment: Auditor's Report For each of the following independent scenarios, refer to current PCAOB auditing standards to identify the appropriate audit opinion (unqualified, qualified, adverse, disclaimer) and explain how each paragraph in the report should be changed for the described circumstances. You may assume that the auditor previously expressed an unqualified opinion on the prior-year financial statements and comparative financial statements are presented. Indicate your answers in the spreadsheet below. 1 2 3 During the current year audit, the auditor determines that the prior year financial statements were misstated but that the current year financial statements are not misstated. Management restates the prior year financial statements to correct that misstatement. Due to the bankruptcy of two major customers, an auditor has substantial doubt about the client's ability to continue as a going concern for a reasonable period of time. However, management has disclosed the conditions leading to the substantial doubt in the footnotes to the financial statements as required by FASB ASC Section 205-40. In auditing the Long-term Investments account, an auditor is unable to obtain audited financial statements for a material investee located in a foreign country. The auditor concludes that sufficient evidence regarding this investment cannot be obtained but is not significant enough to disclaim an opinion. The auditor concludes that a major subsidiary has, inappropriately, been left unconsolidated. The client appropriately adopts a change in accounting policy due to a newly issued accounting standard but does not disclose this change in the footnotes to the financial statements. 5 6 7 this Change The footnotes to the financial statements disclose that after the balance sheet date, the client suffered the catastrophic loss of a major production facility due to a tsunami on the west coast. The client issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe the statement of cash flows to a useful statement. The client's records are not adequate to allow application of audit procedures with respect to accounts payable and accounts receivable. Therefore, the auditor believes that an opinion cannot be expressed. The client omits a material disclosure about the collectability of Accounts Receivable. The principal auditor decides to refer to the work of another auditor, who audited a wholly owned subsidiary of the entity and issued an unqualified opinion. 8 9 10 Opinion: A. Unqualified B. Qualified C. Adverse D. Disclaim opinion Opinion Paragraph A. Unchanged B. Refer to misstatement using "except for" language C. Refer to misstatement using "subject to" language D. Refer to scope limitation using "except for" language E. Refer to going concern using "except for" language F. Refer to misstatement and report that financial statements are not presented fairly G. Refer to scope limitation and report that financial statements are not presented fairly H. Refer to going concern and report that financial statements are not presented fairly 1. Omit paragraph J. Other (in the box below, provide details) Basis of Opinion Additional paragraph A. Unchanged A. None added B. Omit paragraph B. Added before opinion paragraph (in the box C. Other (in the box below, provide below, provide details regarding contents of details) this paragraph) C. Added after opinion paragraph: (in the box below, provide details regarding contents of this paragraph) D. Added elsewhere in the report ( in the box below, identify specific location and provide details regarding contents of this paragraph) Opinion Opinion Paragraph Basis of Opinion Additional paragraph 1 2 3 4 Assignment: Auditor's Report For each of the following independent scenarios, refer to current PCAOB auditing standards to identify the appropriate audit opinion (unqualified, qualified, adverse, disclaimer) and explain how each paragraph in the report should be changed for the described circumstances. You may assume that the auditor previously expressed an unqualified opinion on the prior-year financial statements and comparative financial statements are presented. Indicate your answers in the spreadsheet below. 1 2 3 During the current year audit, the auditor determines that the prior year financial statements were misstated but that the current year financial statements are not misstated. Management restates the prior year financial statements to correct that misstatement. Due to the bankruptcy of two major customers, an auditor has substantial doubt about the client's ability to continue as a going concern for a reasonable period of time. However, management has disclosed the conditions leading to the substantial doubt in the footnotes to the financial statements as required by FASB ASC Section 205-40. In auditing the Long-term Investments account, an auditor is unable to obtain audited financial statements for a material investee located in a foreign country. The auditor concludes that sufficient evidence regarding this investment cannot be obtained but is not significant enough to disclaim an opinion. The auditor concludes that a major subsidiary has, inappropriately, been left unconsolidated. The client appropriately adopts a change in accounting policy due to a newly issued accounting standard but does not disclose this change in the footnotes to the financial statements. 5 6 7 this Change The footnotes to the financial statements disclose that after the balance sheet date, the client suffered the catastrophic loss of a major production facility due to a tsunami on the west coast. The client issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe the statement of cash flows to a useful statement. The client's records are not adequate to allow application of audit procedures with respect to accounts payable and accounts receivable. Therefore, the auditor believes that an opinion cannot be expressed. The client omits a material disclosure about the collectability of Accounts Receivable. The principal auditor decides to refer to the work of another auditor, who audited a wholly owned subsidiary of the entity and issued an unqualified opinion. 8 9 10 Opinion: A. Unqualified B. Qualified C. Adverse D. Disclaim opinion Opinion Paragraph A. Unchanged B. Refer to misstatement using "except for" language C. Refer to misstatement using "subject to" language D. Refer to scope limitation using "except for" language E. Refer to going concern using "except for" language F. Refer to misstatement and report that financial statements are not presented fairly G. Refer to scope limitation and report that financial statements are not presented fairly H. Refer to going concern and report that financial statements are not presented fairly 1. Omit paragraph J. Other (in the box below, provide details) Basis of Opinion Additional paragraph A. Unchanged A. None added B. Omit paragraph B. Added before opinion paragraph (in the box C. Other (in the box below, provide below, provide details regarding contents of details) this paragraph) C. Added after opinion paragraph: (in the box below, provide details regarding contents of this paragraph) D. Added elsewhere in the report ( in the box below, identify specific location and provide details regarding contents of this paragraph) Opinion Opinion Paragraph Basis of Opinion Additional paragraph 1 2 3 4
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