Question
Review the following audit scenarios and recommend, with justifications, the appropriate audit opinion to be issued in EACH scenario. You answer should state the type
Review the following audit scenarios and recommend, with justifications, the appropriate
audit opinion to be issued in EACH scenario. You answer should state the type of audit
opinion to be issued and the justifications (reasons) for giving such an opinion.
I. The status of the client as a going concern is extremely doubtful. The problems are
properly described in the footnotes.
II. One of your client's subsidiaries was audited by another audit firm, whose opinion
was qualified because of a GAAP violation. You do not believe that the GAAP
violation is material to the consolidated financial statements on which you are
expressing an opinion.
III. You are convinced that your client is violating another company's patent in the
process of manufacturing its only product. The client will not disclose this because it
does not want to wave a red flag and bring this violation to the other company's
attention. A preliminary estimate is that the royalty payments required would be
material to the financial statements.
IV. The client, with reasonable justification, has changed its method of accounting for
depreciation for all factory and office equipment. The effect of this change is not
material to the current-year financial statements but is likely to have a material effect
in future years. The client's management will not disclose this change because of its
immaterial effect on the current-year statements. You have been unable to persuade
management to make the disclosure.
(16 marks)
Present your answer in the following structure:
Audit Opinion Reasons
(i)
(ii)
(iii)
(iv)
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