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Qualified Disclaimer Audit Reports: Select report type

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Chapter 11
Problem 37

Place the letter of the report type that best fits the language presented on the answer line. Each report type may be used more than once or not at all, but each item has only one best answer. If you think more than one answer may apply, choose the BEST answer.
a. Explanatory language
b. Unqualified opinion with qualification for GAAP departure
c. Qualified opinion
d. Qualified opinion because of a scope limitation
e. Qualified opinion because of an ICFR deficiency
f. Qualified opinion because of a GAAP departure
g. Qualified opinion because of a change in accounting standards
h. Qualified opinion because of lack of independence
i. Qualified opinion plus explanatory language
j. Qualified opinion for dual dating
k. Qualified opinion to reflect need to rely on another auditor
l. Disclaimer of opinion because of a scope limitation
m. Disclaimer of opinion because of lack of independence
n. Adverse opinion
o. Combined report with unqualified opinions on financial statements and ICFR
_____1. In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)...
_____2. In addition, as discussed in Note 9 to the consolidated financial statements, effective January 1, 2007, the Company adopted Accounting for Uncertainty in Income Taxes, FASB ASC 740-10.
_____3. We are not independent with respect to XYZ Company, and the accompanying balance sheet as of December 31, 19X1, and the related statements of income, retained earnings, and cash flows for the year then ended. ...
_____4. ...because of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to above do not present fairly. ...
_____5. We have also audited in accordance with the standards of the Public Company Accounting Oversight Bord (United States) the company's internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 6, 2011 expressed an unqualified opinion thereon.
_____6. ... except for the effects of such adjustments, if any, as might have been determined to be necessary...
_____7. The accompanying financial statements have been prepared assuming that ABC, Inc. will continue as a going concern. As more fully described in Note 1, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code on January 29, 2010, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1.
_____8. The Company did not make a count of its physical inventory...The Company's records do not permit the application of other auditing procedures. ...the scope of our work was not sufficient to enable us to express. ...
_____9. In our opinion, except for the omission of the information discussed in the preceding paragraph....
_____10. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects...
_____11. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of W Company as of December 31, 2010 and 2009.... Also in our opinion, W Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010. ...
_____12. We did not audit the financial statements of B Company, a wholly-owned subsidiary, which statements reflect total assets and revenues constituting 20 percent and 22 percent, respectively of the related consolidated totals. ... In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly. ...
_____13. In our opinion...the financial statements present fairly... Dated February 16, 2010, except for Note 16, as to which the date is March 1, 2010.
_____14. Except as discussed in the following paragraph, we conducted our audits in accordance with auditing standards.... In our opinion, except for the effects...the financial statements present fairly. ...
_____15. As discussed in Note X to the financial statements, the 20X2 financial statements have been restated to correct a misstatement.

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Solution Preview

1. E < -- control issue is ICFR deficiency
2. G < -- adopted new standard
3. M < -- lack of independence is ALWAYS a disclaimer
4. N < -- "do not present fairly" is adverse
5. O < -- ...

Solution Summary

A short instructional comment explains each question on audit report types.

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See Also This Related BrainMass Solution

Selecting the Proper Audit Opinion and Report Modification

16-47 (Selecting the Proper Audit Opinion and Report Modification)
Required
Audit situations 1 through 8 present various independent factual situations an auditor
might encounter in conducting an audit. List A represents the types of opinions
the auditor ordinarily would issue, and List B represents the report
modifications (if any) that would be necessary. For each situation, select one response
from List A and one from List B. Select, as the best answer for each item,
the action the auditor normally would take. Items from either list may be selected
once, more than once, or not at all.

Assume the following:
? The auditor is independent.
? The auditor previously expressed an unqualified opinion on the prior-year financial
statements.
? Only single-year (not comparative) statements are presented for the current year.
? The conditions for an unqualified opinion exist unless contradicted in the factual
situations.
? The conditions stated in the factual situations are material.
? No report modifications are to be made except in response to the factual situation.

Audit Situations:
1. The financial statements present fairly, in all material respects, the financial position,
results of operations, and cash flows in conformity with GAAP.

2. In auditing the Long-Term Investments account, an auditor is unable to obtain
audited financial statements for an investee located in a foreign country.
The auditor concludes that sufficient competent evidential matter regarding
this investment cannot be obtained but is not significant enough to disclaim an
opinion.

3. Due to recurring operating losses and working capital deficiencies, an auditor
has substantial doubt about an entity's ability to continue as a going concern
for a reasonable period of time. However, the financial statement disclosures
concerning these matters are adequate.

4. The principal auditor decides to refer to the work of another auditor, who audited
a wholly owned subsidiary of the entity and issued an unqualified opinion.

5. An entity issues financial statements that present financial position and results
of operations but omits the related statement of cash flows.Management discloses
in the notes to the financial statements that it does not believe the statement
of cash flows to be a useful statement.

6. An entity changes its depreciation method for production equipment from the
straight-line to a units-of-production method based on hours of utilization.
The auditor concurs with the change, although it has a material effect on the
comparability of the entity's financial statements.

7. An entity is a defendant in a lawsuit alleging infringement of certain patent
rights. However, management cannot reasonably estimate the ultimate outcome
of the litigation.The auditor believes that there is a reasonable possibility
of a significant material loss, but the lawsuit is adequately disclosed in the
notes to the financial statements.

8. An entity discloses certain lease obligations in the notes to the financial statements.
The auditor believes that the failure to capitalize these leases is a departure
from GAAP.

List A?Types of Opinions
a. A qualified opinion
b. An unqualified opinion
c. An adverse opinion
d. A disclaimer of opinion
e. Either a qualified opinion or an adverse opinion
f. Either a disclaimer of opinion or a qualified opinion
g. Either an adverse opinion or a disclaimer of opinion

List B?Report Modifications
h. Describe the circumstances in an explanatory paragraph preceding the opinion
paragraph without modifying the three standard paragraphs.
i. Describe the circumstances in an explanatory paragraph following the opinion
paragraph without modifying the three standard paragraphs.
j. Describe the circumstances in an explanatory paragraph preceding the opinion
paragraph and modifying the opinion paragraph.
k. Describe the circumstances in an explanatory paragraph following the opinion
paragraph and modifying the opinion paragraph.
l. Describe the circumstances in an explanatory paragraph preceding the opinion
paragraph and modifying the scope and opinion paragraphs.
m. Describe the circumstances in an explanatory paragraph following the opinion
paragraph and modifying the scope and opinion paragraphs.
n. Describe the circumstances within the scope paragraph without adding an explanatory
paragraph.
o. Describe the circumstances within the opinion paragraph without adding an
explanatory paragraph.
p. Describe the circumstances within the scope and opinion paragraphs without
adding an explanatory paragraph.
q. Describe the circumstances in the introductory paragraph without adding an
explanatory paragraph, and modify the wording of the scope and opinion paragraphs.
r. Issue the standard auditor's report without modification.

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