Question

Various Reporting Situations. Assume that the auditors encountered the following separate situations when deciding on the report to issue for the current-year financial statements. (If the kind of opinion depends on the reason for the scope limitation (if applicable), the degree of materiality, and/or the pervasiveness of the matter discussed, then choose an answer choice that encompasses the two possible opinion types.) 1. The auditors decided that sufficient appropriate evidence could not be obtained to complete the audit of significant investments the 2. The entity failed to capitalize lease assets and obligations but explained them fully in the notes to the financial statements. These 3. The entity is defending a lawsuit on product liability claims. (Customers allege that power saw safety guards were improperly entity held in a foreign entity lease obligations meet the criteria for capitalization under ASC 840. installed.) All facts about the lawsuit are disclosed in the notes to the financial statements, but the auditors believe the entity should record a loss based on a probable settlement mentioned by the entity's attorneys 4. The entity hired the auditors after taking inventory on December 31. The accounting records and other evidence are not reliable enough to enable the auditors to have sufficient evidence about the proper inventory amount. 5. The FASB requires the energy company to present supplementary oil and gas reserve information outside the basic financial statements. The auditors find that this information, which is not required as a part of the basic financial statements, has been omitted 6. The auditors are group auditors of the parent company, but they reviewed the component auditors' work and reputation and decide not to take responsibility for the work of the component auditors on three subsidiary companies included in the consolidated financial statements. The component auditors' work amounts to 32 percent of the consolidated assets and 39 percent of the consolidated revenues 7. The entity changed its depreciation method from units of production to straight line, and its auditors believe the straight-line method is the more appropriate method in the circumstances. The change, fully explained in the notes to the financial statements, has a material effect on the year-to-year comparability of the comparative financial statements. 8. Because the entity has experienced significant operating losses and has had to obtain waivers of debt payment requirements from its lenders, the auditors decide that there is substantial doubt that the entity can continue as a going concern. The entity has fully described all problems in a note in the financial statements and the auditors believe that, while material, the uncertainty is not serious enough to warrant a disclaimer of opinion.

Required a. What kind of opinion should the auditors express in each separate case?

Answer 1

1. This rises the situation of limitation on scope so Disclaimer of opinion.

2. MATERIAL but not pervasive so Qualified opinion as no capitalization of lease payment is departure from GAAP.

3.considering loss as material but not pervasive. Auditor should add an emphasis of matter paragraph to underscore this issue.

4. Scope limitation - QUALIFIED REPORT.

5. The auditor doesn't have to express an opinion but have to indicate whether this supplimentary info. Is fairly stated in all aspects.

6. Modify the report to show the division of responsibility with component auditor.

7.It affects consistency of financial statements. Supplement emphaiem of matter para. With the unmodified report.

8. The auditor should add an emphasis of matter para for better understanding of users. issue the standard unmodified report.