For each of the following independent situations, assume that any amounts would be material.

(I) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified

or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e.

Accounting situation, and DISCUSS the situation.

(II) State whether an explanatory paragraph would be included, and if so, what would be included in

the explanatory paragraph.

(III) For an UNQUALIFIED auditors report, if the wording would be changed, indicate how it would be

Changed.

1. In auditing the long-term investments account (company uses the equity method for this

investment), an auditor is unable to obtain audited financial statements for an investee located in a

foreign country.

2. The status of the client as a going concern is extremely doubtful. The matter is disclosed in the

footnotes.

3. The staff member of the CPA firm doing the audit of ABC Company has a financial interest in ABC

Company.

4. Part of the audit is being performed by another CPA firm. In the auditors report, the Principle

Auditor (Group Engagement Auditor) decides to make reference to the Other Auditor (Component

Auditor).

5. The company changes from Double-declining-balance to The Straight-line method for depreciation of

fixed assets. The auditor agrees with the reason for the change in accounting method.

6. The CPA firm was not able to observe or take part in the taking of the companys physical inventory.

The company uses the periodic inventory system to value inventory.

7. The company refuses to include a Statement of Cash Flows with the financial statements.

Management feels that the Income Statement should be the users focus.

8. In reporting the dollar amount for land, the client company uses historic cost, rather than a more

recent appraisers estimate of the lands current value.