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Practice exercise for audit class.

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Being the new audit star of Margaritaville CPA's, jimmy needs your guidance. As audit partner, he must
decide which opinion to issue for his audit clients. He has encountered the following situations and all
situations have a magnitude of materiality. He would like you to indicate in the chart below the opinion he
should issue or provide with his options. If more than one type of opinion may be appropriate list each.
Use corresponding letters in completing the solution sheet.
Types of Opinions:
Unqualified
Unqualified with an explanatory paragraph (Unqualified Plus)
Unqualified with modified wording, but no explanatory paragraph
Qualified
Disclaimer
Adverse
#
CIRCUMSTANCE
OPINION (S)
1 .)
After the audit, you realize that Urban manufacturing records
revenue when goods are ordered and the owner, Keith,
refuses to correct the situation
2.)
Margaritaville has audited Deep Clean for several years. Deep
Clean is struggling to stay afloat given the economic
conditions. Based on the audit teamswork, Buffet has
substantial doubt that Deep Clean will be in business by the
end of its next fiscal year
3.)
Approximately 20% of the audit of Pickler Farms, Inc. was
performed by a different CPA firm, selected by buffet. Based
on a review of their audit files, Buffet believes they did an
excellent job on their portion of the audit. Nevertheless,
Margaritaville OPA's are unwilling to accept responsibility.
4.)
Underwood Company changes from FIFO to LIFO for
inventory valuation and the auditor concurs with the change.
The change has a material effect on the comparability of the
entity's financial statements this year.
5.)
Margaritaville CPA's was just about to complete the audit of
Meaty Dresses Department Store in which the financial
statements appear to be fairly stated, when they discover that
two individuals assigned to the Audit-Senior Auditor, Lady
Gaga and Tax Partner, Pink - have material investments in
Meaty Dresses.
6.)
Paisley Inc. has changed its estimate of likely doubtful
accounts from 2% of credit sales to 3%. The auditor believes
the change to be reasonable.
7.)
Rascal Flatts Company has departed from GAAP in the way
that they applied fairvalue, but Buffet and the other auditors
on the engagement consider the method used to be justified in
this situation.

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