Each of the attached situations is a potential audit situation that the independent CPA could encounter in practice. REQUIRED: For each of the attached independent situations (a) through (f), complete the attached chart. Use the notation below for the type of opinion to be issued and then indicating YES or NO for the other entries. POSSIBLE AUDIT REPORTS THAT COULD BE ISSUED BY THE INDEPENDENT CPA ON AUDITED FINANCIAL STATEMENTS Unmodified, Standard Unmodified Report USR Unmodified, Emphasis of Matter Paragraph UEP Unmodified, Modified Wording Only UMW Qualified, Departure From GAAP QDG Qualified, Scope Limitation QSL Adverse A Disclaimer D ANSWER SHEET FOR AUDIT REPORT THAT SHOULD BE ISSUED AND SPECIFIC MODIFICATIONS THAT MUST BE MADE TO THE STANDARD UNMODIFIED REPORT Include Modify Modify Modify Basis Emphasis of Management's Auditor's Type of Modify of Opinion Matter Responsibility Responsibility Opinion Opinion Section Section Paragraph Section Section Situation (a) (b) (c) (d) (e) () POTENTIAL AUDIT SITUATIONS THAT COULD BE ENCOUNTERED BY INDEPENDENT CPA AUDITOR (a) One of your client's subsidiaries was audited by another auditor (component auditor). The component auditor issued a qualified opinion on the subsidiary due to a departure from GAAP. You feel that the departure from GAAP is not material to the consolidated financial statements which you have been engaged to audit. However, you want to indicate that the subsidiary was audited by another CPA. (b) Your client has changed from the FIFO to the LIFO inventory cost flow assumption in preparing its financial statements. The change was properly accounted for and properly disclosed, but you do not believe that the change was adequately justified by the client. (c) You were not permitted to observe the physical inventory at the end of the fiscal year because the client did not want to spend the money to have members of your audit staff at the various locations where inventory is located. Inventory is a material item on your client's balance sheet. (d) Your client is in litigation over potential liability for a highly defective product. This matter has been properly accounted for and properly disclosed. Should the litigation result in a judgment against the client, there is a question as to whether the company will be able to continue in business. (e) You were unable to obtain confirmation replies from two of your client's major customers, The customers indicated that their accounting system did not provide the information necessary to confirm the balances owed. You were able to use alternative procedures to satisfy yourself as to the correctness of the balances recorded. (1) You are reasonably certain that your client is violating a copyright owned by another company. The client refuses to disclose this fact because it does not wish to alert the other company to this violation