independent auditors report to the shareholders of

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Unformatted text preview: 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. We believe that our audit provides a reasonable basis for our opinion. We were unable to obtain audited financial statements supporting the company’s investment in a foreign affiliate stated at $1,040,000, or its equity in earnings of that affiliate of $501,000, which is included in net income, as described in Note 14 to the financial statements. Because of the nature of the company’s records, we were unable to satisfy ourselves as to the carrying value of the investment or the equity in its earnings by means of other auditing procedures. Required: Complete the above report by preparing the opinion paragraph. Do not date or sign the report. Answer: In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding the foreign affiliate investment and earnings, the financial statements referred to above present fairly, in all material respects, the financial position of Fast Times Corporation as of September 30, 2007, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. 1-151 94. medium Your CPA firm has completed the fieldwork for the 2007 audit of Sharp Corporation, a private company with an October year-end. You were preparing to draft a standard, unqualified audit report when you discovered that the audit manager on the Sharp engagement owns 10 shares of Sharp’s common stock. Prepare the appropriate report. Answer: We are not independent with respect to Sharp Corporation, and the accompanying balance sheet as of October 31, 2007, and the related statements of income, retained earnings, and cash flows for the year then ended were not audited by us. Accordingly, we do not express an opinion on them. Note: There is no report title when the auditor issues a disclaimer due to a lack of independence. 95. challenging Describe the standard unqualified report to be issued for an audit of a private company. Begin by specifying the seven parts of the report, and then discuss the contents of each part. Answer: The parts of the standard unqualified report are as follows: • Report title. The title must include the word “independent.” Examples of appropriate titles are “independent auditor’s report,” or “report of independent accountant.” • Report address. The report is usually addressed to the company’s stockholders or board of directors. It should not be addressed to company management. • Introductory paragraph. There are three important components of the introductory paragraph. First, it states that an audit was performed. Second, it lists the financial statements that were audited and their dates. Third, it states that management is responsible for the financial statements, and that the auditor is responsible for expressing an opinion on those statements based on an audit. • Scope paragraph. The scope paragraph is a factual statement about what was done during the audit. It first states that auditing standards generally accepted in the United States of America were followed by the auditor. It then states that an audit is designed to obtain reasonable assurance about whether the statements are free of material misstatement. It concludes by stating that the auditor evaluated the appropriateness of the accounting principles used, and estimates made, by management, and of the financial statement disclosures and presentations given. • Opinion paragraph. This paragraph states the auditor’s opinion concerning whether the financial statements present fairly the client’s financial position and results of its operations and cash flows in conformity with generally accepted accounting principles. • Name of CPA firm. Typically, the name of the CPA firm, and not the name of an individual auditor, is used. • Audit report date. The audit report is normally dated as of the last day of fieldwork. 1-152 96. challenging Presented below is an independent auditor’s report for a private company prepared by the firm of Harrington and Perry, LLP. Auditor’s Report To the president and management of EPM, Inc. We have examined the accompanying balance sheets and statements of income, retained earnings, and cash flows of EPM, Inc., as of December 31, 2007 and 2006. We performed our examination in accordance with auditing standards generally accepted in the United States of America and examined, on a test basis, evidence supporting the accounting principles used and estimates made by management. In our opinion, the financial statements referred to above accurately present the financial position of EPM, Inc., in conformity with generally accepted accounting principles. Harrington and Perry, LLP December 31, 2007 Other information: EPM, Inc., is a for-profit corporation and publishes comparative financial statements for distribution to share...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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