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ESSAY. Write your answer in the space provided or on a separate sheet of paper.

(20 points) A CPA, has completed the audit of the financial statements of a Corporation as of and for the year ended December 31, 2015. The CPA also audited and reported on the Corporations financial statement for the prior year. Note 3 of the Corporations financial statement described $500,000 investment that the Corporation has with a foreign affiliate. Note 3 also described the Corporations has an equity earning of with the same affiliate of $400,000, which is included the Corporations net income. The CPA was unable to obtain audited financial statements to support the Companys investment described in Note 3. Although the CPA performed other auditing procedures, the CPA was unable to be satisfied as to the carrying value of the investment or the equity in the Corporations earnings.

Given the information provided above, state the appropriate audit report (audit opinion) the CPA should write.

• Given your answer in part a, write the appropriate audit report.

II. Following are commonly audit procedures (20 points):

1. Accounts payable represent all amounts owed by the entity at the balance sheet date arising from the purchase of goods and services.

2. Recorded cash transactions represent receipts and disbursements that actually occurred during the period covered by the financial statements

3. All payroll amounts are based on correct wage rates and hours, and are accurately computed, summarized, and classified in the appropriate general ledger accounts.

4. Purchase transactions, accounts payable, returns, and payroll transactions are recorded in the proper period.

5. Cost of sales is based on correct costs and quantities, is properly summarized and posted to the cost of sales and inventory control accounts, and, if appropriate, is credited in the perpetual inventory records.

6. The entity has legal title and ownership rights to cash and cash equivalents.

7. Production costs incurred and charged to work in process, transfers to finished goods, and cost of sales (and returns) are recorded in the proper period.

8. All shipments (and returns) of goods during the period covered by the financial statements are reflected in cost of sales.

Required:

Identify the audit objective (completeness, existence, accuracy, cutoff, presentation and disclosure, right and obligation)

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