Question $1$

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Assume that the auditors encountered the following separate situations when deciding on the report to issue for the current$-$year financial statements.

The entity failed to capitalize lease assets and obligations as required by GAAP, but explained them fully in the notes to the financial statements.

The entity hired the auditors after taking inventory on December $31.$ The accounting records and other evidence are reliable enough to enable the auditors to have sufficient evidence about the proper inventory amount which is considered material amount.

The entity is defending a lawsuit on product liability claims. $($Customers allege that power saw safety guards were improperly installed.$)$ All facts about the lawsuit are disclosed in the notes to the financial

Qualified $-$ Departure of GAAP

Choose...

Disclaimer

Adverse

Standard Unmodified

Qualified$-$Limited Scope

Qualified $-$ Departure of GAAP

Unmodified with Emphasis Matter

Qualified $-$ Departure of GAAP statements, but the auditors believe the entity should record a loss based on a probable settlement mentioned by the entity's attorneys.

The auditors decided that sufficient appropriate evidence could not be obtained to complete the audit of significant investments the entity held in a foreign entity.

Unmodified with Emphasis Matter $*$

Your client, Harrison Automotive, has changed from straight$-$line to sum$-$of$-$the$-$years' digits depreciation.

The effect on this year's income is material, and the change is disclosed in the footnotes, and the auditor

Standard Unmodified agreed for this change.

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