Items 1 through 5 present various independent factual situations an
Items 1 through 5 present various independent factual situations an auditor might encounter in conducting an audit. For each situation, assume:
• The auditor is independent.
• The auditor previously expressed an unmodified opinion on the prior year’s financial statements.
• Only single-year (not comparative) statements are presented for the current year.
• The conditions for an unmodified opinion exist unless contradicted in the factual situations.
• The conditions stated in the factual situations are material.
• No report modifications are to be made except in response to the factual situation.
1. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained.
2. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. The auditor has decided not to issue a disclaimer of opinion.
3. A group auditor decides to take responsibility for the work of a component CPA who audited a wholly owned subsidiary of the entity and issued an unmodified opinion. The total assets and revenues of the subsidiary represent 17 percent and 18 percent, respectively, of the total assets and revenues of the entity being audited.
4. An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based on hours of utilization. The auditor concurs with the change, although it has a material effect on the comparability of the entity’s financial statements.
5. An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles and, although the possible effects on the financial statements of the misstatements are material, they could not be pervasive.
List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any) that would be necessary. Select as the best answer for each situation (items 1 through 6) the type of opinion and alterations, if any, the auditor would normally select. Replies may be selected once, more than once, or not at all.
List A: Types of Opinions
A. Unmodified
B. Qualified
C. Adverse
D. Disclaimer
E. Qualified or adverse
F. Qualified or disclaimer
G. Disclaimer or adverse

List B: Report Alteration
H. Add an emphasis-of-matter paragraph—prior to opinion paragraph.
I. Add an emphasis-of-matter paragraph—after opinion paragraph.
J. Add a basis for modification paragraph—prior to opinion paragraph.
K. Add a basis for modification paragraph—after opinion paragraph.
L. Modifications other than addition of a paragraph.
M. Issue standard report without alteration.

Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
Relevant Tutors available to help