Question
For each of the following independent situations, indicate the type of financial statement audit report that you would issue and briefly explain your reasoning. Assume
For each of the following independent situations, indicate the type of financial statement audit report that you would issue and briefly explain your reasoning. Assume that all companies mentioned are private companies and that each item is at least material.
a. Winfield Inc., a wholly owned subsidiary of Howard, Inc., is audited by another CPA firm. As the auditor of Howard, Inc., you have assured yourself of the other CPA firm's independence and professional reputation. However, you are unwilling to take complete responsibility for its audit work.
b. The management of Grossman Corporation believes that the shareholders do not find the statement of cash flows to be relevant in their decision making and therefore has decided to exclude the statement of cash flows from its financial statements.
c. You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended October 31st. On October 10th, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Several hundred people were killed and many more seriously injured. The company's legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose and record the contingent liability related to this information in the financial statements.
d. During your audit of Williamsburg Manufacturing, the controller, Patricia Nelson, refuses to allow you to confirm accounts receivable because she is concerned about complaints from her customers. You are unable to satisfy yourself about accounts receivable by other audit procedures and you are concerned about Patricia's true motives.
e. On February 15, 2021, Spaulding Corporation hired your firm to audit the company's financial statements for the prior year. Since we were not engaged until after year-end, our firm was not able to observe the counting of the physical inventory on December 31. 2020. However, you were able to satisfy yourself about the inventory balance using other auditing procedures.
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