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Unformatted text preview: iting standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
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. We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
During the year, O’Malley changed its method of valuing inventory from the first-in, firstout method to the last-in, first-out method. This change was made because management
believes the change provides a better matching of revenues and expenses. The change reduced
inventory at December 31, 2007, by $248,000 and net income for 2007 by $129,000. The effect
of the change on prior years is immaterial. In our opinion, disclosure of this change is required
to conform with generally accepted accounting principles. In our opinion, based on our audits and the report of other auditors, except
for not disclosing the change in inventory valuation methods discussed in the
preceding paragraph, the financial statements referred to above present fairly, in
all material respects, the financial position of O’Malley Corporation as of
December 31, 2007 and 2006, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
April 14, 2008 (Name of student’s CPA firm) Other Objective Answer Format Questions 1-156 98.
medium Assume you are the partner in charge of the 2007 audit of Becker Corporation, a private
company. The audit report has not yet been prepared. In each independent situation following
(1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows:
g. f g Issue a standard unqualified report.
Qualify both the scope and opinion paragraphs.
Qualify the opinion paragraph.
Issue an unqualified opinion with an explanatory paragraph.
Issue an unqualified opinion with modified wording (no explanatory paragraph).
Issue an adverse opinion.
Disclaim an opinion. The situations are as follows:
1. Becker Corporation carries its property, plant, and equipment accounts at current
market values. Current market values exceed historical cost by a highly material
amount, and the effects are pervasive throughout the financial statements.
2. Management of Becker Corporation refuses to allow you to observe, or make,
any counts of inventory. The recorded book value of inventory is highly
material. 1-157 a 3. You were unable to confirm accounts receivable with Becker’s customers.
However, because of detailed sales and cash receipts records, you were able to
perform reliable alternative audit procedures. g 4. One week before the end of fieldwork, you discover that the audit manager on
the Becker engagement owns a material amount of Becker’s common stock. e 5. You relied upon another CPA firm to perform part of the audit. Although you
were the principal auditor, the other firm audited a material portion of the
financial statements. You wish to refer to (but not name) the other firm in your
report. d or g 6. You have substantial doubt about Becker’s ability to continue as a going
concern. d 7. Becker Corporation changed its method of computing depreciation in 2007. You
concur with the change and the change is properly disclosed in the financial
statement footnotes. c 8. Ten days after the balance sheet date, one of Becker’s buildings was destroyed
by a fire. Becker refuses to disclose this information in a footnote to the
financial statements, but you believe disclosure is required to conform with
GAAP. The amount of the uninsured loss was material, but not highly material. 99. (Public)
b Audit reports issued for financial statements of a public company should refer to generally
accepted auditing standards in the scope paragraph.
b. False 100.
a Audit reports issued for financial statements of a private company should refer to generally
accepted auditing standards in the scope paragraph.
b. False 101.
a If an audit client has not consistently observed accounting principles in the current period in
relation to the preceding period, the auditor should normally issue an unqualified report with an
explanatory paragraph which explains the nature of the change.
b. False 102.
b A qualified report is issued when all auditing conditions have been met, no significant
misstatements have been discovered, and it is the auditor’s opinion that the financial statements
are fairly stated in accordance with GAAP.
b. False 103.
b The audit report is normally addressed to the company’s president or chief executive officer.
b. False 1-158 104.
a The phrase “generally accepte...
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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.
- Fall '13