chpt 2 solutions Students

chpt 2 solutions Students - Solutions 2-35, 2-36, 2-37 2-35...

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Solutions 2-35, 2-36, 2-37 2-35 SOLUTION: Casa Royale, Inc., (a) The CPA issued a qualified audit report as shown by the first sentence of the opinion paragraph. This sentence contains the phrase "except for the effects of such adjustments, if any, as might have been determined to be necessary had I been able to examine evidence regarding plant assets," and this modification of the auditor's opinion on the fairness of the financial statements warrants classifying the report as qualified. This type of report was not appropriate in the circumstances of the engagement. The client deliberately restricted the scope of the audit by specifying that the engagement was not to include the examination of the corporation's plant assets. The plant assets represented about 25% of the total assets and were therefore quite material. Because of this major restriction imposed by the client, the CPA did not gather sufficient evidence to justify the expression of any opinion on the fairness of the financial statements as a whole. The only acceptable type of audit report in these circumstances is a disclaimer of opinion. (b) A contradiction exists between the scope paragraph of the audit report and the information in the note to the financial statements. The note indicates that the client dictated the extent of the auditor's work whereas the scope paragraph of the audit report states that the auditor made an audit in accordance with generally accepted audited stan- dards. Standard No. 3 of the Standards of Field Work states that "Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and
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This note was uploaded on 06/17/2011 for the course ACCT 4620 taught by Professor Any during the Spring '11 term at University of Colorado Denver.

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chpt 2 solutions Students - Solutions 2-35, 2-36, 2-37 2-35...

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