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MM Discussion 3-26 OBJECTIVES 3-4,3-5,3-6, 3-7, 3-) For the following independent situations, assume that you are the audit partner on the engagement LA number of frozen yogurt stories have opened in the last few years and your client. YogunLand, has experienced a noticeable decline in customer traffic over the past several months that has caused you to have substantial doubt about Yogurtland's ability to continue as a sing concern 2 Intelligis Electronics is a manufacturer of advanced electrical components. During the year, changes in the market resulted in a significant decrease in the demand for their products, which are now being sold significantly below cost Management re- fuses to write offthe products orto increase the reserve for obsolescence 3. In the last 3 months of the current year, Oil Refining Company decided to change direction and go significantly into the oil drilling business Management recognizes that this business is exceptionally risky and could jeopardize the success of its exist ingreining business, but there are significant potential rewards. During the short period of operation in drilling the company has had three dry wells and to successes, The facts are adequately disclosed in footnotes Your client, Harrison Automotive, has changed from straight-line to sum of the years' digits depreciation. The effect on this year's income is immaterial but the effect in future years may be highly material. The change is not disclosed in the footnotes Circumstances prevent you from being able to observe the counting of inventory at Brentwood Industries. The inventory amount is material in relation to Brentwood Industries financial statements. But you were able to perform alternative procedures to support the existence and valuation of the inventory at year-end 6 Approximately 20 percent of the audit of Lumberton Farms, Inc., was performed by a different CPA firm, selected by you. You have reviewed their audit files and believe they did an excellent job on their portion of the audik. Nevertheless, you are unwilling to take complete responsibility for their work. For each situation, do the following 2 Identify which of the conditions requiring a deviation from a standard unmodified openson audit report is applicable, if any. b. Stethe level of materiality as immaterial material or highly material if you cannot de cide the level of materiality at the additional information needed to make a decision CAPACA Required Chapter 3 / AUDIT REPORTS sammen mit c. Given your answers in parts a. and state the appropriate audit report from the fol lowing alternatives if you have not decided on one level of materiality in part e the appropriate report for each alternative materiality level: (2) Unmodified opinion explanatory paragraph (3) Unmodified opinion nonstandard report wording (4) Qualified opinion only-GAAP departure (5) Qualified opinionscope limitation (6) Disclaimer (1) Advies MM Discussion 3-26 OBJECTIVES 3-4,3-5,3-6, 3-7, 3-) For the following independent situations, assume that you are the audit partner on the engagement LA number of frozen yogurt stories have opened in the last few years and your client. YogunLand, has experienced a noticeable decline in customer traffic over the past several months that has caused you to have substantial doubt about Yogurtland's ability to continue as a sing concern 2 Intelligis Electronics is a manufacturer of advanced electrical components. During the year, changes in the market resulted in a significant decrease in the demand for their products, which are now being sold significantly below cost Management re- fuses to write offthe products orto increase the reserve for obsolescence 3. In the last 3 months of the current year, Oil Refining Company decided to change direction and go significantly into the oil drilling business Management recognizes that this business is exceptionally risky and could jeopardize the success of its exist ingreining business, but there are significant potential rewards. During the short period of operation in drilling the company has had three dry wells and to successes, The facts are adequately disclosed in footnotes Your client, Harrison Automotive, has changed from straight-line to sum of the years' digits depreciation. The effect on this year's income is immaterial but the effect in future years may be highly material. The change is not disclosed in the footnotes Circumstances prevent you from being able to observe the counting of inventory at Brentwood Industries. The inventory amount is material in relation to Brentwood Industries financial statements. But you were able to perform alternative procedures to support the existence and valuation of the inventory at year-end 6 Approximately 20 percent of the audit of Lumberton Farms, Inc., was performed by a different CPA firm, selected by you. You have reviewed their audit files and believe they did an excellent job on their portion of the audik. Nevertheless, you are unwilling to take complete responsibility for their work. For each situation, do the following 2 Identify which of the conditions requiring a deviation from a standard unmodified openson audit report is applicable, if any. b. Stethe level of materiality as immaterial material or highly material if you cannot de cide the level of materiality at the additional information needed to make a decision CAPACA Required Chapter 3 / AUDIT REPORTS sammen mit c. Given your answers in parts a. and state the appropriate audit report from the fol lowing alternatives if you have not decided on one level of materiality in part e the appropriate report for each alternative materiality level: (2) Unmodified opinion explanatory paragraph (3) Unmodified opinion nonstandard report wording (4) Qualified opinion only-GAAP departure (5) Qualified opinionscope limitation (6) Disclaimer (1) Advies
