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Billings Container Company

Problem 17-40 Unit 9, Chapter 17 Rittenberg/Schwieger/Johnstone- Auditing 6e

(Critique an Audit Report Qualified for a Scope Limitation)

You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report. You believe the scope limitation is significant enough to qualify the opinion, but not to disclaim an opinion.

To Joseph Halberg, Controller
Billings Container Company, Inc.

We have audited the accompanying balance sheet of Billings Container Company and the related statements of income, retained earnings, and statement of changes in financial position as of December 31, 2007. These financial statements are the responsibility of the Company's management.

Except as discussed in the following paragraph, we conducted our audit in accordance with accounting principles generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain assurance about whether the financial statements are free of misstatement. An audit includes examining evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We were unable to obtain sufficient competent evidence of the fair market value of the Company's investment in a real estate venture due to the unique nature of the venture. The investment is accounted for using the equity method and is stated at $450,000 and $398,000 at December 31, 2007 and 2006, respectively.

In our opinion, except for the above-mentioned limitation on the scope of our audit, the financial statements referred to above present fairly the financial position of Billings Container Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the year then ended in conformity with auditing standards generally accepted in the United States of America.

/s/Bradley Schwieger, CPA

St. Cloud, MN
December 31, 2007

Required:

Identify the deficiencies in this draft, and state how each deficiency should be corrected. Organize your answer around the components of the audit report (introductory paragraph, scope paragraph, and so on).

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ANSWERS

Introductory

The auditor's report should always be addressed to the company's shareholders
Independent Auditors' Report to the Shareholders of Billings Container Company, Inc.

Also the introductory paragraph should have been stated like this:
We have audited the accompanying financial statements of Billings Container Company, Inc. for the year ended December 31, 2007 which comprise of the Balance Sheet, Income Statement, Statement of Changes in Financial Position, Statement of Cash Flows and Changes in Owners Equity and the ...

Solution Summary

This solution of 336 words provides a critique of an audit report qualified for a scope limitation and identifies the deficiencies in the draft, recommends improvements and provides the answer in the form of an audit report.

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