For each of the following brief scenarios, assume that you are the CPA reporting on the client's financial statements. Reply as to the reporting circumstance involved, the type(s) of opinion possible in the circumstance, and the appropriate report modifications. Since more than one report may be possible in several of the circumstances, a second "type of opinion" and "report modification" row is added for each circumstance. For example, if the problem doesnt tell you whether a misstatement pervasively misstates the financial statements or doesnt list a characteristic that indicates pervasiveness, two reports may be possible. In most cases you will not need to use the second row. Do not read more into the circumstance than what is presented, and only reply "emphasis of a matter" in auditor discretionary circumstances such as those suggested in the chapter. Unless stated otherwise, assume that the

Circumstance	Types of Opinion	Report alteration
CON - Consistency EMPH Auditor discretionary emphasis of a matter GC - Going concern GAAP - Departure from GAAP GROUP Group audit SCOPE - Scope limitation COMP Comparative financial statements NONE No circumstance	U. Unmodified Q. Qualified D. Disclaimer A. Adverse	A. Add a section immediately following the opinion section. B. Add a section at an appropriate point (following Basis for Opinion paragraph for a nonpublic company.) C. Add a paragraph to the opinion section. D. Add a paragraph to the basis for opinion section. E Issue an unmodified report without alteration

	Circum-stance	Type opinion(s)	Nonpublic Company Report	Public Company Report
1. Your client has declined to depreciate its assets this year because the depreciation expense would reduce the years small income to a loss.
2 A client's financial statements follow GAAP, but you wish to emphasize that the client is a subsidiary of Webster Corporation in the audit report.
3. In auditing the long-term investments account of a new client, you are unable to obtain audited financial statements for the investee located in a foreign country. You conclude that sufficient appropriate audit evidence regarding this investment cannot be obtained.

	Circum-stance	Type opinion(s)	Nonpublic Company	Public Company
4. Due to a very major lawsuit, you have substantial doubt about a client's ability to continue as a going concern for a reasonable period of time. The financial statement disclosures related to this lawsuit are adequate.
5. You decide not to take responsibility for the work of another CPA who audited a 70% owned subsidiary and issued an unmodified opinion. The total assets and revenues of the subsidiary are 5% and 8%, respectively, of the total assets and revenues of the entity being audited.
6. You decide to take responsibility for the work of another CPA who audited a 70% owned subsidiary and issued an unqualified opinion. The total assets and revenues of the subsidiary are 5% and 8%, respectively, of the total assets and revenues of the entity being audited.
7 A company has changed the remaining life of a significant asset from 12 to 10 years. You believe that the change is reasonable.
8. A company changes from FIFO to LIFO for inventory valuation and you concur with the change. The change has an immaterial effect on the comparability of the entity's financial statements this year, but is expected to have a material effect in the future.
9. Your client is a defendant in a major lawsuit. It is probable that the company will experience a material loss due to this lawsuit, although it is impossible to calculate the likely amount. The financial statements include a note adequately describing the matter. You decide a report with no mention of this matter is inappropriate and a disclaimer of opinion is not necessary.
10. Predecessor auditors audited last year's financial statements and you audited the current year. You have decided not to ask the predecessor to reissue that audit report. Comparative financial statements are being issued on the two years