Unqualified; the first mistake, although material, was disclosed in the financials and for an adequate reason. The second was not material and therefore should have no effect on investor’s decisions.b. You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended September 30. On September 1, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Two thousand people were killed and numerous others paralyzed. The company’s legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose this information in the financial statements.Qualified, due to professional conduct principle 2: Members have a responsibility to act in the publics interest and they have a right to know such information.c. On January 31, Asare Toy Manufacturing hired your firm to audit the company’s financial statements for the prior year. You were unable to observe the client’s inventory on December 31. However, you were able to satisfy yourself about the inventory balance using other auditing procedures.Qualified, members must act with due care and diligence and account for even one day of the entire year.d. Green Co, leases its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. Your review of the lease indicates that the rental terms are in excess of rental terms for similar buildings in the area. The company refuses to disclose this related-party transaction in the footnotes.Qualified, auditors must have integrity and objectivity and shall be free of conflict of interests. Green refuses to disclose material information.e. During the audit of Star Co, you found that a material account payable had been excluded from the company’s financial statements. After discussing this problem with management, you become convinced that it was an unintentional oversight. Management appropriately corrected the error prior to your finalization of field work.
Matt BroachUnqualified; the mistake was cleared up before the auditied financials were sent out.f. Jay Rich, CPA, holds 10 percent of the stock in Rothenburg Construction Company. The board of directors of Rothenburg asks Rich to conduct its audit. Rich completes the audit and determines that the financial statements present fairly in accordance with generally accepted accounting principles. Qualified, independence issue due to Rich’s shares in Rothenburg, the company he just auditied.
You've reached the end of your free preview.
Want to read all 5 pages?
- Spring '14
- Financial audit, Auditor's report, Sally Jones