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Appropriate Types of Audit Report

You are the auditor for Busy Butterfly Corporation, whose management asserts that its internal controls are effective. While performing your audit of Busy Butterfly Corporation, you reviewed the financial statements, and your only concern was with your discovery of the evidence that during the year, the company had a negative cash flow and was behind on its mortgage payments.

1. Based on the information given, what type of auditor's report is appropriate to issue?
2. Using standard audit report wording, prepare a complete auditor's report appropriate for this situation.

Solution Preview

The auditor's report appropriate for the situation is a going concern report. This means that the auditor considers that the firm will not be a going concern in future. An explanatory paragraph is added in the audit report. In case of Butterfly Corporation you have found a negative cash flow and that the company was behind on its mortgage payments. A going concern disclosure is appropriate in the audit report.

Auditor's report appropriate for this situation is as follows:

Board of Directors, Stockholders, and Management of
Busy Butterfly Corporation,
4th Steet,
Minneapolis, USA

We have audited the accompanying balance sheet of ...

Solution Summary

Audit Report is discussed step-by-step in this solution. The response also has the sources used.