Question 1

The following are independent situations for which you will recommend an appropriate audit report:

i. The auditor was unable to obtain confirmation from two of the clients major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures.

ii. The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease. The effects are material.

iii. The client restricted the auditor from observing the physical inventory. Inventory is a material item.

iv. The client is engaged in a product liability lawsuit that is properly accounted for and adequately described in the footnotes. The lawsuit does not threaten the going concern assumption, but an adverse decision by the court could create a material obligation for the client.

Required:

State the appropriate audit report from the following alternatives:

- Unqualified opinion

- Qualified opinion

- Disclaimer of opinion

- Adverse opinion

And explain the reasoning for your answer.

Present your answer in the table format:

Appropriate Audit Opinion	Justifications
i.
ii.
iii.
iv.