Auditing Principles and Practice: Chapter 15 Homework Analysis

School: Bloomsburg University - Course: ACCT 326 - Subject: Accounting

Nathan Tice ACCT 442 Chapter 15 Homework 15.25: a. In this situation, since the auditor was able to achieve satisfaction through other audit procedures, an unqualified opinion should be issued. b. In this situation, since there is a material effect on the financial statements according to GAAP, I believe the auditor should issue a qualified opinion on the financial statements. c.i. In this situation, since the client properly accounted for, justified, and disclosed the change, an unqualified opinion can be issued on the financial statements. ii. In this situation, since the client properly accounted for and disclosed the change but did not properly justify the change, there is a violation of GAAP, and a qualified opinion should be issued on the financial statements. d. In this situation, since the auditor was unable to physically observe the inventory and inventory is material to the financial statements, a qualified opinion should be issued. There was no other evidence gathered to confirm the inventory. e. In this situation, even though there is a current product liability lawsuit, the client has properly accounted for it and adequately disclosed it in the footnotes, so an unqualified opinion can be issued. There is also no threat to the going-concern assumption. f. In this situation, I would say it would be appropriate to issue a disclaimer opinion that describes the going concern in detail because, other than that, the statements present fairly, and the problems are properly described in the footnotes. g. In this situation, even though the client's subsidiary received a qualified opinion, it is not material to the consolidated financial statements that we are expressing an opinion on, so an unqualified opinion can still be issued. h. In this situation, the client is refusing to disclose the fact that they are violating another company's patent, which is material to the financial statements and would have a pervasive effect on the company, so I believe an adverse opinion should be issued on the financial statements. i. In this situation, the client is changing its method of accounting for depreciation, and it will have a material effect in future years, so they are required to disclose the change in the financial statements. Since they are refusing to disclose the change, a qualified opinion should be issued on the financial statements. 15.26: 1. Given this information, 40% of the client's assets are loans receivable outstanding with inadequate internal controls. There is not sufficient appropriate evidence to prepare an aging of the loans or to identify collateral for 75% of the loans, and the auditor believes the loans should be written by $7.5 million, so a qualified opinion should be issued on the financial statements. 2. Given this information, the auditor seems to have used a legitimate sampling method to select sites to physically examine inventory while allowing the internal auditors to examine the others because he/she was confident in their objectivity. I think an unqualified opinion can be issued on the financial statements. 3. Given this information, all of the research and development costs are described in the footnotes and the auditor has verified the accuracy of the costs, so an unqualified opinion can be issued on the financial statements.

4. Given this information, the auditor has substantial doubt that the client will be able to finance the debt that is owed to the bank, which means there is a current liability and the company's going-concern is violated according to GAAP. I think a qualified or adverse opinion should be issued on the financial statements. 5. Given this information, the client is using an inventory valuation method that results in a material departure from GAAP, so even though the policy is described in the financial statements, I think a qualified opinion should be issued. 6. Given this information, the manager seems to be confident that the audit senior and audit staff understood the audit procedures and the company's operations. There were no material errors found in the financial statements so an unqualified opinion can be issued.