CHAPTER 18 - CHAPTER 18 18-3 An example of a client-imposed...

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CHAPTER 18 18-3 An example of a client-imposed scope limitation is where a client requests that the auditor not confirm accounts receivable because of concerns about creating conflicts with customers over amounts owed. An example of a circumstances- imposed scope limitation is when the auditor is not engaged to conduct the audit until after year-end. Under such circumstances, the auditor may not be able to observe inventory. Auditors should be particularly cautious when a client places a limit on the scope of the engagement because the client may be trying to prevent the auditor from discovering material misstatements. Auditing standards suggest that when restrictions imposed by the client significantly limit the scope of the engagement, the auditor should disclaim an opinion on the financial statements. 18-22 a. The auditor would issue an unqualified audit report with modified wording for the reliance on the other auditors. In this case, the principal auditor does not intend to take responsibility for the other auditor's work. b. The auditor should issue a qualified audit report because management has not complied with GAAP. The auditor is not required to prepare the statement of cash flows for disclosure in the audit report. c. This situation suggests that the client has determined that the uncertainty is probable but the amount of damages is not estimable. This approach is not in accordance with GAAP because such contingencies must be disclosed in the notes to the financial statements. A departure from GAAP such as this one requires either a qualified or an adverse opinion, depending on the materiality of the item in question. In this case the potential settlement is likely to be very large given the proportions of the tragedy in terms of human loss and
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This note was uploaded on 11/29/2009 for the course AMIS 627 taught by Professor Johnson during the Spring '08 term at Ohio State.

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CHAPTER 18 - CHAPTER 18 18-3 An example of a client-imposed...

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