These financial statements are the responsibility of

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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 principles. 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: a. b. c. d. e. f. 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) easy b Audit reports issued for financial statements of a public company should refer to generally accepted auditing standards in the scope paragraph. a. True b. False 100. easy a Audit reports issued for financial statements of a private company should refer to generally accepted auditing standards in the scope paragraph. a. True b. False 101. easy 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. a. True b. False 102. easy 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. a. True b. False 103. easy b The audit report is normally addressed to the company’s president or chief executive officer. a. True b. False 1-158 104. easy 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.

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