Final answer:
Ward, CPA, should investigate the possibility of performing alternative procedures to verify Grant Co.'s opening inventories. If sufficient evidence can't be obtained, Ward should issue a qualified opinion or a disclaimer of opinion in his audit report, depending on the issue's materiality.
Step-by-step explanation:
Understanding Auditing Reports When Opening Inventories Are Not Verifiable
When Ward, CPA, accepted the audit engagement for Grant Co. for the year ended December 31, 200X, and discovered that the opening inventories could not be satisfactorily verified, it created a dilemma. Generally, the inability to verify opening inventories affects the auditor's ability to form an opinion on the financial statements as a whole. Given this situation, Ward has a few reporting options.
If Ward is unable to obtain sufficient appropriate audit evidence regarding the opening inventories, this constitutes a limitation on the scope of the audit. The appropriate response would be to issue either a qualified opinion or a disclaimer of opinion, depending on the materiality and pervasiveness of the issue. A qualified opinion indicates that, except for the effects of the matter to which the qualification relates, the financial statements present fairly, in all material respects, the financial position.
Meanwhile, a disclaimer of opinion is issued when the possible effects of the limitation are so material and pervasive that the auditor is unable to obtain sufficient appropriate audit evidence, and accordingly, the auditor is unable to express an opinion on the financial statements.
It's worth noting that prior to issuing such reports, it is important for Ward to apply professional judgment and consider whether it is possible to perform alternative procedures to obtain reasonable assurance about the existence and condition of the opening inventory. If such alternative procedures can be performed and are satisfactory, Ward may be able to provide a standard unmodified opinion. However, without such assurance, Ward must indicate the scope limitation in the auditor's report and explain how this affects his opinion.