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For cach of the following brief scenarios, assume that you are reporting on a client's financial statements. Select the typets) of opinion (per below) possible for the scenario. In addition: - Uniess stated otherwise, assume the matter involved is material. If the problem doesn't tell you whither a mastntement pervasively misstates the financial statements or doesn't iist a characteristic that indicates pervasiveness, two reports imay be possible (ie. replies 6 to 9 ). - Do not read more into the circumstances than what is presented. - Do not consider an auditor discretionary circumstance for modification of the audit report uniess the situalion expilicity suggests that the auditor wishes to emphasize a particular matter. Types of Opinion 1. Unmodified-standard. 2. Unmodified with an emphasis-of-matter paragraph. 3. Qualified, 4. Adverse. 5. Disclaimer. 6. Unmodified with an emphasis-of-matter paragraph or disclaimer. 7. Qualified or adverse. 8. Qualifled or disclaimer. 9. Adverse or disclaimer. 10. Other. - Note that this simulation has more parts than one would expect in a particular CPA exam simulation. We present it to provide examples of many types of reporting situations in one problem. Types of opinion may be used once, more than once, or not atali. During the audit of a public company the auditors identified a critical audit matter. Sufficient 25. appropriate audit evidence was gathered to indicate the related account was properly stated. The audit report to be issued includes a Critical Audit Matters section that properly describes the matter. Reply as to additional modifications required.

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The possible types of opinion for this scenario are: unmodified-standard, unmodified with an emphasis-of-matter paragraph, qualified, adverse, and disclaimer. The specific type of opinion issued would depend on the findings of the auditors and the impact of the critical audit matter on the financial statements.

Based on the information provided, the possible types of opinion for the scenario of auditing a public company with a critical audit matter are as follows:

1. Unmodified-standard opinion: If the auditors gathered sufficient and appropriate audit evidence to indicate that the related account was properly stated, and the audit report includes a Critical Audit Matters section that properly describes the matter, then an unmodified-standard opinion can be issued. This means that the financial statements are fairly presented in all material respects.

2. Unmodified with an emphasis-of-matter paragraph: If there is a need to draw attention to a particular matter in the financial statements, but it does not affect the overall fairness of the statements, the auditors can issue an unmodified opinion with an emphasis-of-matter paragraph. This paragraph would highlight the critical audit matter identified in the audit.

3. Qualified opinion: If the auditors were unable to gather sufficient and appropriate audit evidence to support the fairness of the related account, they may issue a qualified opinion. This means that there is a material misstatement in the financial statements, but it is not pervasive. The auditors would provide a detailed explanation in the audit report regarding the limitation of their work.

4. Adverse opinion: If the auditors determine that the related account is materially misstated and the misstatement is pervasive throughout the financial statements, they may issue an adverse opinion. This means that the financial statements are not fairly presented and should not be relied upon by users.

5. Disclaimer: If the auditors are unable to obtain sufficient and appropriate audit evidence to form an opinion on the related account, they may issue a disclaimer of opinion. This means that they are unable to express an opinion on the fairness of the financial statements.

User Kirikaza
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The matchup of the scenarios are:

a. Bowles company is engaged in hazardous trade and has obtained insurance coverage related to the hazard. Although the likelihood is remote, a material portion of the company's assets could be destroyed by a serious accident. - Unmodified standard report

b. Draves Company owns substantial properties that have appreciated significantly in value since the date of purchase. The properties were appraised and we reported in the balance sheet of the appraisal value (which materially exceed costs) with related disclosures. The CPAs believe that the appraised values reported in the balance sheet reasonably estimate the assets' current values - Either qualified or adverse

c. During the audit of Eagle Company, the CPA firm has encountered a significant scope limitation relating to inventory record availability and is unable to obtain sufficient appropriate audit evidence in that area.-Either qualified or disclaimer

d. London Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companyies are not actively traded in the market, and the CPA firm's engagment does not extend to any subsidiary company. The CPA firm is able to determine that all investments are carried at original costs, but has no real idea of market value. Although the difference between cost and market could be material, it could not have pervasive effect on the overall financial statements - Qualified

e. Slade Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are actively traded in the market. Management insists that all investments be carried at original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client will never ultimately realize a substantial portion of the investments because the market value is much lower than the cost; the client has fully disclosed the facts in notes to the financial statements. -Either qualified or adverse

See text below

For each of the following brief scenarios, assume that you are reporting on a client's financial statements. Reply as to the type(s) of opinion possible for the scenario. In addition:

• Unless stated otherwise, assume the matter involved is material.

• If the problem does not state that a misstatement (or possible misstatement) is pervasive, assume that it may or may not be pervasive (thus, the appropriate reply may include two possible reports).

• Do not read more into the circumstance than what is presented.

Do not consider an auditor discretionary circumstance for modification of the audit report unless the situation explicitly suggests that the auditors wish to emphasize a particular matter. Report Types may be used once, more than once, or not at all.

a. Bowles company is engaged in hazardous trade and has obtained insurance coverage related to the hazard. Although the likelihood is remote, a material portion of the company's assets could be destroyed by a serious accident.

b. Draves Company owns substantial properties that have appreciated significantly in value since the date of purchase. The properties were appraised and we reported in the balance sheet of the appraisal value (which materially exceed costs) with related disclosures. The CPAs believe that the appraised values reported in the balance sheet reasonably estimate the assets' current values

c. During the audit of Eagle Company, the CPA firm has encountered a significant scope limitation relating to inventory record availability and is unable to obtain sufficient appropriate audit evidence in that area.

d. London Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companyies are not actively traded in the market, and the CPA firm's engagment does not extend to any subsidiary company. The CPA firm is able to determine that all investments are carried at original costs, but has no real idea of market value. Although the difference between cost and market could be material, it could not have pervasive effect on the overall financial statements

e. Slade Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are actively traded in the market. Management insists that all investments be carried at original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client will never ultimately realize a substantial portion of the investments because the market value is much lower than the cost; the client has fully disclosed the facts in notes to the financial statements.

User Pirkka Esko
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