I. Departures from GAAP. For each of the following departures from GAAP, indicate the type of opinion
Question:
I. Departures from GAAP. For each of the following departures from GAAP, indicate the type of opinion that the auditors would issue as well as any modifications that would be made to the standard (unmodified) report.
a. A departure that had an immaterial effect on the financial statements. -
b. A departure that had a material effect on the financial statements (this effect was not pervasive and affected only one account).
c. A departure that had a material effect on the financial statements and was pervasive (affected a number of accounts on both the balance sheet and income statement are necessary for the auditors to issue an adverse opinion.
II.
Situations in which auditors are unable to obtain sufficient appropriate evidence necessary to support their opinion on the entity's financial statements are referred to as scope limitations.
Required:
A- Distinguish between client-imposed scope limitations and circumstance-imposed scope limitations Which of these scope limitations is generally of more concern to auditors?
B- Why do scope limitations impact the auditors’ ability to express an opinion on the entity’s financial statements?
C- Assume that a circumstance-imposed scope limitation prevented auditors from performing procedure they considered to the necessary. How would each of the following factors independently influence the opinion expressed on the entity’s financial statements?
1. The account balances affected by the scope limitation are not material to the entity ‘financial statements position, results of operations or cash flows.
2. The accounts affected by the scope limitation are material to the entity’s financial position, result of operations and cash flows. However, the auditors are able to perform alternative procedures that provide evidence supporting the accounts affected by the scope limitation.
3. The accounts affected by the scope limitation are material to the entity’s financial position, result of operations and cash flows. Because of lack of supporting documentation and key accounting records, auditors are unable to perform alternative procedure that provide evidence supporting the account s affected by the scope limitation.
D- For each of the situation in part (c ), briefly describe how the auditor’s report on the entity” financial statements would be affected.
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws