Chapter 15 - Several independent audit situations are presented below. Assume that everything other than what is described would have resulted in an unqualified/unmodified opinion on the companys financial statements. Indicate the type of opinion and audit report you believe the auditor should issue in each situation and explain your choice. Assume that these are U.S. companies.

Really need to know what kind of report

a. The auditor was unable to obtain confirmations from two of the clients major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures.

b. The client treated a lease as an operating lease, but the auditor believes the client should have accounted for it as a capital lease. The effects are material.

c. The client changed from FIFO to LIFO this year. The effect is material. Address the following two situations: i. The client properly accounted for, justified, and disclosed the change. ii. The client properly accounted for and disclosed the change, but did not properly justify the change.

d. The client restricted the auditor from observing the physical inventory. Inventory is a material item and has pervasive effects on the financial statements.

e. The client is engaged in a product liability lawsuit that is properly accounted for and adequately described in the footnotes. The lawsuit does not threaten the going-concern assumption, but an adverse decision by the court could create a material obligation for the client.

f. The status of the client as a going concern is extremely doubtful. The problems are properly described in the footnotes.

g. One of your clients subsidiaries was audited by another audit firm, whose opinion was qualified because of a GAAP violation. You do not believe that the GAAP violation is material to the consolidated financial statements on which you are expressing an opinion.

h. You are convinced that your client is violating another companys patent in the process of manufacturing its only product. The client will not disclose this because it does not want to wave a red flag and bring this violation to the other companys attention. A preliminary estimate is that the royalty payments required would be material to the financial statements.

i. The client, with reasonable justification, has changed its method of accounting for depreciation for all factory and office equipment. The effect of this change is not material to the current-year financial statements, but is likely to have a material effect in future years. The clients management will not disclose this change because of its immaterial effect on the current-year statements. You have been unable to persuade management to make the disclosure.