CHAPTER 18 HOMEWORK
Give examples of a client-imposed and a condition-imposed scope limitation. Why is a client-imposed limitation generally considered more serious?
In which of the following situations would an auditor ordinarily issue an unqualified/unmodified financial statement audit opinion with no explanatory (or emphasis-of-matter/other-matter) paragraph?
a. The auditor wishes to emphasize that the entity had significant related-party transactions.
b. The auditor decides to refer to the report of another auditor as a basis, in part, for the auditor's opinion.
c. The entity issues financial statements that present financial position and results of operations but omits the statement of cash flows.
d. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.
Eagle Company, a public company, had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle's inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either
a. A qualified opinion or a disclaimer of opinion.
b. A qualified opinion or an adverse opinion.
c. An unqualified opinion with no explanatory paragraph or an unqualified opinion with an explanatory paragraph.
d. A qualified opinion with no explanatory paragraph or a qualified opinion with an explanatory paragraph.
Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion on Tech's financial statements would most likely result from
a. A lack of sufficient evidence.
b. An inability to estimate the amount of loss.
c. The entity's lack of experience with such litigation.
d. A lack of insurance coverage for possible losses from such litigation.
For each of the following independent situations, indicate the type of financial statement audit report that you would issue and briefly explain your reasoning. Assume that all companies mentioned are private companies and that each item is at least material.
a. Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., is...