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Unformatted text preview: 2-33SOLUTION: White Company (a)No, Rezzo would not be justified in complying with White's request. Although Rezzo is a CPA, he has not audited the financial statements of White Company in accordance with generally accepted auditing standards. Preparation of financial statements cannot be construed as synonymous with auditing the statements. Furthermore, because of Rezzo's deep involvement with White Company, it is questionable whether he could maintain an independence of mental attitude if he did audit the financial statements.(b)If Rezzo were justified in issuing a standard audit report on the financial statements of White Company, he should not do so until he has completed an audit of the financial statements. The auditor does not express an opinion on financial statements without first performing an audit.(c)No, it would not be reasonable for the public accounting firm employing Rezzo to assign him to the audit of the White Company financial statements. Having himself prepared the financial statements, Rezzo would be in the position of attempting to independently evaluate the products of his own work. Independence of mental attitude in the appraisal of one's own work is extremely doubtful.2-35SOLUTION: 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. We can assume 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....
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- Fall '11