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The Type of Audit Opinion Issued

For each of the following situations discuss:
Type of audit opinion(s) to be issued.
Give your reason(s) and in each situation describe any necessary changes to the standard audit report.
State your assumptions and consider in your response all possible alternatives. You can assume that the transactions are material.

1. Dig Corporation (Dig) is engaged in precious metal mining and exploration in two countries. Due to a rebel uprising in one of the countries, the local government is in need of funds has threatened to expropriate Dig's mining assets and seize its mineral rights. Although this threat has not been disclosed in the financial statements' notes, the company president issued a news release describing the situation's details.

2. During the audit at a drug manufacturing company, the inventory manager prevented the auditor from checking the expiry date of a certain expensive drug. The inventory manager stated that accessing the expiry date is difficult because the drug requires special-purpose packaging and wrapping when in the warehouse. The manager informed you that he is certain the drug is good for another nine months.

3. A member of the audit team noted that a lease for a vehicle was recorded as a capital lease when in fact it was an operating lease. Your staff member noted the unadjusted error and concluded the effect on a number of accounts was material. The client refused to record the lease as an operating lease and to make any adjustments.

4. Jazz Company, a large public company, has agreed to disclose segmented information in its financial statements

Solution Preview

1. Dig Corporation (Dig) is engaged in precious metal mining and exploration in two countries. Due to a rebel uprising in one of the countries, the local government is in need of funds has threatened to expropriate Dig's mining assets and seize its mineral rights. Although this threat has not been disclosed in the financial statements' notes, the company president issued a news release describing the situation's details.

In the scenario above (#1), the political announcement would make the audit high-risk. The auditor could still issue a qualified audit report as long as he or she performed adequate testing to confirm that no material misstatement was present. The political announcement itself should be required in the management discussion and analysis (MD&A) section of the financial statement, but is not required by GAAP to be recorded. It would, however, be helpful so that the financial ...

Solution Summary

The solution provides an explanation with references to every question detailing the type of audit opinion that should be issued in each situation.

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