The following seven situations are related to possible audit reports and some of the paragraphs that are written in such reports. Unless otherwise stated, assume the amounts involved are substantial (material) and the clients are private corporations.

4. The main audit firm (group auditor) decides not to assume responsibility for the audit work carried out by another firm (component auditor), which audited one of the subsidiaries owned by the parent company by 70% (owned subsidiary). The total assets and total income of the subsidiary represent 5% and 8%, respectively, of the total assets and debts of the parent company audited by the main firm. In turn, the other firm (the secondary) issued an unmodified opinion on the financial statements of the subsidiary.

5. A company under audit changes from the FIFO inventory cost flow method to a different method that is not generally accepted (non-GAAP). Of course, the auditors do not agree with said change. The change severely affects all financial statements issued for that period.

6. The client retained many of the accounting records during the audit process so that, by not making them available to the auditors, the auditors were unable to obtain sufficient and competent evidence to be able to reach conclusions about the reasonableness of the Equipment account, the which has a substantial balance.

7. Client changed their estimate of doubtful accounts from 2% to 3% of credit sales for the year. The auditors believe that the change is reasonable. Required

Use the table provided and the legends below to say the type of report that should be issued in each case, the type of paragraphs or explanatory language that should be used, as well as a brief explanation of why you think so.

A- Adverse N- Disclaimer C- Qualified U- Unmodified

Type of paragraphs that are issued (use the acronyms) Types of modifications or explanations NFE Add a paragraph to emphasize an issue (explanatory language). BO Add the paragraph explaining the basis for the modification. OTHER Make other types of explanatory language and that requires altering more than one paragraph. NMC They do not apply modifications or changes in the explanatory language (for example, in the case of the standard normal report) Situation opinion type Type of language (additional paragraphs) Explanation 4- 5- 6- 7-