Question: Assume that auditors encounter the following situations during an audit

Assume that auditors encounter the following situations during an audit. Describe what opinion they should issue in each case and any explanatory paragraphs or modifications to the standard report that could be necessary. If more than one opinion is possible, describe the two that could be used and how you would select the correct one.
a. The company has a $12 million loan due next year. It will not have the funds to repay the loan and could find refinancing it difficult.
b. The CEO of Ajax Company does not agree with accounting standards that require the use of fair market value for investment securities. The CEO uses only the cost basis to value securities.
c. The company you are auditing has both capital and operating leases. A foot note describes the leases correctly, but they are not listed on the financial statements.
d. Your client has been sued by a supplier for failure to comply with a service agreement. The attorney's letter suggested that the client would lose the law suit. Your client refuses to record the potential liability or disclose the lawsuit.
e. Jones Industrial Products does not want to disclose its pension liability in a footnote. Management believes that the company's shareholders don't care about the potential liability related to the pension liability.
f. The company refuses to sign the management representation letter.

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  • CreatedJanuary 22, 2015
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