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Chap03_Part1 - Chapter 3 Key to Selected Problems(Part I...

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Chapter 3 – Key to Selected Problems (Part I) 3-27 a. Items that need not be included in the auditor's report are: 1. That Optima is presenting comparative financial statements. (Both years' statements will be referred to in the audit report.) 2. Specific description of the change in method of accounting for long-term construction contracts need not be included in the report since it is discussed in the footnotes. The auditor's report must state that there is a change in accounting principles and refer to the footnote. 3. The fact that normal receivable confirmation procedures were not used should not be disclosed since the auditor was able to satisfy him or herself through alternate audit procedures. 4. The lawsuit need not be discussed in the report since it has been included in a footnote. [ Note : prior to the issuance of SAS 79, the auditor would have been required to add an explanatory paragraph to the audit report that referred to the footnote.] b.The following deficiencies are in Allison's report: 1. The audit report is neither addressed nor dated and it does not contain a title. The audit report date should be the last day of field work. 2. The balance sheet is as of a specific date, whereas the income statement and the statement of retained earnings are for a period of time. The scope paragraph should identify the period of time (usually one year). 3. There are comparative statements, but the audit report identifies and deals with only the current year's financial statements. An opinion must also be included for the prior period financial statements. 4. There is no separate introductory paragraph that states the financial statements audited, dates, and the responsibilities of management and the auditor. 5. There is no separate scope paragraph that describes what an audit is. Two required sentences are completely omitted: "An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation." 6.
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