Chap 3 HW Solutions - 3-23 a(2 b(3 c(3 3-24 a(3 b(4 c(1...

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Auditing Chapter 3 SOLUTIONS 3-23 a. (2) b. (3) c. (3) 3-24 a. (3) b. (4) c. (1) 3-25 a. (2) b. (3) c. (3) Problem 28 (a) CONDITION (b) MATERIALITY LEVEL (c) TYPE OF REPORT COMMENTS 1. Scope of the audit has been restricted Highly material Disclaimer Because the client refuses to allow the auditor to expand the scope of his audit, a disclaimer of opinion is appropriate rather than a qualified as to scope and opinion. 2. Failure to follow GAAP Highly material or material. We need additional information regarding the auditor's preliminary judgment about materiality Adverse (if highly material) or Qualified (if material) The materiality of twenty percent of net earnings before taxes would be sufficient for many auditors to require an adverse opinion. That materiality question is a matter of auditor judgment. 3. Lack of independence Not applicable Disclaimer Lack of independence by audit personnel on the engagement mandates a disclaimer for lack of independence. 4 None Not applicable Unqualified The company has made a decision to follow a different financing method, which is adequately disclosed. There is no change of accounting principle. 5. Scope of the audit has been restricted Highly material Disclaimer The auditor cannot issue an unqualified opinion on the income statement or the statement of cash flows because a disclaimer of opinion is necessary for the
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beginning balance sheet. The auditor may issue an unqualified opinion on the ending balance sheet and a disclaimer of opinion on the income statement, statement of cash flows, and the beginning balance sheet. 6. Scope of the audit has been restricted Highly material Unqualified The auditor is able to satisfy him or herself that with the use of alternative procedures, a qualified opinion is not necessary. 3-30 (a) CONDITION (b) MATERIALITY LEVEL (c ) TYPE OF REPORT COMMENT 1. Failure to follow GAAP. Highly material or material, depending upon the amount of the loss and the auditor's preliminary judgment about materiality Adverse (if highly material) or (4) Qualified opinion only —except for (if material) Disclosure of this information is required in a footnote. Failure to do so is a violation of GAAP and is likely to result in a qualified opinion, or it could be so material that it requires an adverse opinion. 2. Failure to follow GAAP. Immaterial Unqualified— standard wording The amount is immaterial. 3. Scope of the audit has been restricted. Highly material or material, depending upon the auditor’s preliminary judgment about materiality. Disclaimer (if highly material) or Qualified scope and opinion (if material) Because the auditor was unable to satisfy himself about beginning inventories, it would be necessary to issue either a qualified or disclaimer of opinion on the income statement and statement of cash flows as well as the beginning balance sheet. The use of a qualified or disclaimer would depend upon materiality. An unqualified opinion could be issued for the current period balance sheet.
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