Audit Report Modifications Complete problem below. List a represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications [if any] that would be necessary. Select as the best answer for each situation [items 1 to 6] the type of opinion and modifications, if any, the auditor would normally select. The types of opinions in List A and the report modifications in List B may be selected once, more than once, or not at all.

Problem:

Items 1 through 6 present various independent factual situations an auditor might encounter in conducting an audit. For each situation assume:

Assume:

The auditor is independent.

The auditor previously expressed an unqualified opinion on the prior years financial statements.

Only single-year (not comparative) statements are presented for the current year.

The conditions for an unqualified opinion exist unless contradicted in the factual situations.

The conditions stated in the factual situations are material.

No report modifications are to be made except in response to the factual situation.

Situations:

In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained.

Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entitys ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate.

A principal auditor decides to take responsibility for the work of another CPA who audited a wholly owned subsidiary of the entity and issued an unqualified opinion. The total assets and revenues of the subsidiary represent 17 percent and 18 percent, respectively, for the total assets and revenues of the entity being audited.

An entity 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 that statement of cash flows to be a useful financial statement.

An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based on hours of utilization. The auditor concurs with the change, although it has a material effect on the comparability of the entitys financial statements.

An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.

Required:

List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any) that would be necessary. Select as the best answer for each situation (items 1 through 6) the type of opinion and modifications, if any, the auditor would normally select. The types of opinions in List A and the report modifications in List B may be selected once, more than once, or not at all.

(AICPA, adapted)

List A

Types of Opinions

A. An "except for" qualified opinion

B. An unqualified opinion

C. An adverse opinion

D. A disclaimer of opinion

E. Either an "except for" qualified opinion or adverse opinion

F. Either a disclaimer of opinion or an "except for" qualified opinion.

G. Either an adverse opinion or a disclaimer of opinion

List B

Report Modifications

H. Describe the circumstances in a explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.

I. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.

J. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the opinion paragraph.

K. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the opinion paragraph.

L. Describe the circumstances in an explanatory paragraph preceding the opinion or modify the scope and opinion paragraphs

M. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the scope and opinion paragraphs.

N. Describe the circumstances within the scope paragraph without adding an explanatory paragragh

O. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.

P. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.

List A

A,B,C,D,E,F,G

LIST B

J,K,L,M,N,O,P