Question
The following situations are unrelated. For each situation, outline possible deviations (if any) from an unmodified auditor's report that may be necessary and give reasons.
The following situations are unrelated. For each situation, outline possible deviations (if any) from an unmodified auditor's report that may be necessary and give reasons. State any assumptions you make in your determination.
A. Bryan Construction Ltd. uses an aggressive revenue recognition policy under the percentage of completion method for long-term construction contracts. Your review of this year's contracts indicates that several projects look as if they will be high in revenue for the first two years and then have negligible earnings for the next three years.
B. Pine Manufacturing Limited constructs furniture out of Pine wood. The furniture is prized for its durability and craftsmanship. Last year, the company received a letter from a government agency advising that it had been found that Pine's factory was located on contaminated land that leached hazardous chemicals into the air. This was a preliminary letter stating that a full investigation into the health effects was underway. Management has stated that everything is okay and the investigation was terminated. However, the lawyer refused to sign the legal letter with respect to several lawsuits regarding employee claims for long-term disability due to a nervous disorder that affected employees' ability to work. Neither the investigation nor the lawsuits are disclosed in the notes to the financial statements.
C. During 2021, your client was sued by a customer who was serious injured as a result of debris falling from the building while undergoing renovations. The customer was hit with bricks falling from scaffolding, it is alleged that the construction site was not safely secured. The amount in dispute is $1,500 000, with estimated legal bills of about $120 000. The client does not wish to disclose the suit in the financial statements.
D. Save the Earth is a charitable organization devoted to initiatives to protect the climate. Fundraising is through various means including door to door canvassing, ticket sales, rallies and grass roots group activities. The charity provides tax receipts to donors, the receipts are pre numbered.
E. You are auditing Homebird Linens. They have been in the linen business for several years starting as a home-based business, but due to the quality and popularity of their products the Company has grown and is expanding into larger production facilities. The bank required the Companys financial statements to be audited. The Company has not had an audit in the past,
To assist in your response you can answer in the following format :
Example(1) CONDITION | REPORT | COMMENTS |
parture from ASPE | Qualified | ASPE requires demand debt to be classified as current |
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