Answered step by step
Verified Expert Solution
Question
1 Approved Answer
two questions: 1. can your firm except the engagement if the client does not use GAAP in the preparation of financial statements? Site where you
two questions:
Your firm has been engaged to audit a private company that uses a tax basis of accounting to prepare the financial statements rather than using generally accepted accounting principles (GAAP). You remember learning about special purpose frameworks in one of your college courses. You decide to research the issue and access AU-C 800 through the AICPA website at wmwaicpa.org. Can your firm accept the engagement if the client does not use GAAP in the preparation of financial statements? Cite where you found the answer in the standard (the paragraph number). When a client uses a special purpose framework, will the format of an unmodified audit report be different than when a client uses GAAP? Research AU C 800 and then copy and paste an example of an auditor's report on a set of financial statements prepared in accordance with the tax basis of accounting. Discuss the similarities and differences between this report and the unmodified audit report from Illustration 16.1 . [1] INDEPENDENT AUDITOR'S REPORT [2] To the owners of New Millennium Ecoproducts [3] Opinion We have audited the financial statements of New Millenium Ecoproducts (NME), which comprise the balance sheets as of December 31, 2025 and 2024. and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of NME as of December 31,2025 and 2024, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. [4] Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS), Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of NME and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. [5] Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about NME's ability to continue as a going concern for one year from the issuance date of the financial statements. [6] Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional In performing an audit in accordance with GAAS, we: - Exercise professional judgment and maintain professional skepticism throughout the audit. - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of NME's internal control. Accordingly, no such opinion is expressed. - Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. - Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about NME's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. [7]/s/Bell \& Bowerman, LLP Seattle, Washington We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. [7]/s/ Bell \& Bowerman, LLP Seattle, Washington [8] February 15, 2026 Source: AU-C 700.A81 Exhibit, Illustration 1. Your firm has been engaged to audit a private company that uses a tax basis of accounting to prepare the financial statements rather than using generally accepted accounting principles (GAAP). You remember learning about special purpose frameworks in one of your college courses. You decide to research the issue and access AU-C 800 through the AICPA website at wmwaicpa.org. Can your firm accept the engagement if the client does not use GAAP in the preparation of financial statements? Cite where you found the answer in the standard (the paragraph number). When a client uses a special purpose framework, will the format of an unmodified audit report be different than when a client uses GAAP? Research AU C 800 and then copy and paste an example of an auditor's report on a set of financial statements prepared in accordance with the tax basis of accounting. Discuss the similarities and differences between this report and the unmodified audit report from Illustration 16.1 . [1] INDEPENDENT AUDITOR'S REPORT [2] To the owners of New Millennium Ecoproducts [3] Opinion We have audited the financial statements of New Millenium Ecoproducts (NME), which comprise the balance sheets as of December 31, 2025 and 2024. and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of NME as of December 31,2025 and 2024, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. [4] Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS), Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of NME and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. [5] Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about NME's ability to continue as a going concern for one year from the issuance date of the financial statements. [6] Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional In performing an audit in accordance with GAAS, we: - Exercise professional judgment and maintain professional skepticism throughout the audit. - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of NME's internal control. Accordingly, no such opinion is expressed. - Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. - Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about NME's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. [7]/s/Bell \& Bowerman, LLP Seattle, Washington We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. [7]/s/ Bell \& Bowerman, LLP Seattle, Washington [8] February 15, 2026 Source: AU-C 700.A81 Exhibit, Illustration 1 1. can your firm except the engagement if the client does not use GAAP in the preparation of financial statements? Site where you found the answer in the standard (the paragraph number)
2. when a client uses a special purpose framework will the format of an on modified audit report be different than when a client uses GAAP? research AU-C 800 and then copy and paste an example of an auditors report on a set of financial statements prepared in accordance with the tax basis of accounting. Discuss the similarities and differences between this report and then on modified audit report from illustration 16.1
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started