Unformatted text preview: lified report.
Reports involving other auditors. When an auditor relies upon a different CPA firm
to perform part of the audit, the auditor can indicate that responsibility for the audit is
shared with another CPA firm by modifying the wording of an unqualified report. An audit report prepared by Garrett and Brown, CPAs, is provided below. The audit for the year
ended December 31, 2007 was completed on March 1, 2008, and the report was issued to Javlin
Corporation, a private company, on March 13, 2008. List any deficiencies in this report. Do not
rewrite the report. We have examined the accompanying financial statements of Dalton
Corporation as of December 31, 2007. These financial statements are the
responsibility of the company’s management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted accounting
principles. Those principles require that we plan and perform the audit to
provide reasonable assurance about whether the financial statements are free of
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, except for the effects of not capitalizing certain lease
obligations that should be capitalized in order to conform with generally
accepted accounting principles, the financial statements referred to above
present accurately the financial position of Jacob Corporation as of December
31, 2007, in conformity with accounting principles generally accepted in the
1-146 United States of America.
Garrett and Brown, CPAs
The audit report contains the following deficiencies:
The report title is missing.
The report is not addressed to anyone and should be addressed to shareholders or the
board of directors.
The introductory paragraph should refer to an “audit,” not an “examination.”
The introductory paragraph should list the financial statements that were audited.
The introductory paragraph refers to the wrong company.
The scope paragraph should state the audit was conducted in accordance with
auditing standards generally accepted in the United States of America, not generally
accepted accounting principles.
• “Those principles …” should read “Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements.”
The scope paragraph should contain the following phrase: “An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.”
medium Following the scope paragraph, there should be an explanatory paragraph that
discusses the GAAP violation related to the failure to capitalize certain lease
In the opinion paragraph, the auditor should state that the financial statements present
fairly…, not present accurately…
In the opinion paragraph, the phrase “…in all material respects…” should be
In the opinion paragraph, the phrase “…and the results of its operations and its cash
flows for the year then ended…” should be included.
The audit report should be dated March 13, 2008. Discuss the differences regarding how matters affecting consistency and matters affecting
comparability are referred to in the audit report. Provide two examples of each type of change.
The auditor should disclose a material lack of consistent application of GAAP by adding
an explanatory paragraph after the unqualified opinion paragraph. The explanatory
paragraph should discuss the nature of the change and should refer to the footnote in the
financial statements that discusses the change. Changes that affect comparability, but not
consistency, require no such explanatory paragraph in the audit report, assuming the
change is disclosed in the footnotes. Examples of changes affecting consistency include changes in
accounting principles, changes in reporting entities,
and correction of errors involving accounting
comparability include changes in an estimate, error
corrections not involving accounting principles,
1-147 variations in the format and presentation of financial
information, and changes because of substantially
different transactions or events. 1-148 91. (Public)
medium The following is a portion of an adverse audit report issued for a public company. (Note: A
separate report was issued on the effectiveness of internal control over financial reporting.) Independent Auditor’s Report
To the shareholders of Wallace Corporation
We have audited the accompanying balance sheet of Wallace Corporation as of December
31, 2007, and the related statements of income, retained earnings, and cash flows for the year
then ended. These financial statements are the responsibility of the company’s management.
Our responsibility is to ex...
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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