Several years ago, Dale Holden organized Holden Family Restaurants. Holden started with one restaurant that catered to the family trade. Holden Family Restaurant became very popular because the quality of the food and service was excellent, the restaurant was attractive yet modest, and the prices were reasonable.

The success with his first restaurant encouraged Dale Holden to expand by opening additional Holden Family Restaurants in other metropolitan locations throughout the state. Holden has opened at least one new restaurant each year for the last five years, and there are now a total of eight restaurants. All of the restaurants are successful because Holden has been able to maintain the same high standards that were achieved with the original restaurant.

With the rapid expansion of the business, Holden has hired a controller and supporting staff. The financial operations of the restaurants are managed by the controller and his department. This allows Holden to focus his attention on the restaurant operations and to plan for future locations.

Holden has applied to the bank for additional financing to open another restaurant this year. For the first time ever the bank asked him to provide financial statements audited by a CPA. The bank assured Holden that the certified statements were not being required because they doubted his integrity or thought him to be a poor credit risk. The loan officer explained that bank policy required all businesses over a certain size to supply audited statements with loan applications, and Holden's business had reached that size.

Holden was not surprised by the bank's requirement. He had ruled out an audit previously because he has great respect for his controller's ability, and he wanted to avoid the fee associated with the first audit as long as possible. However, the growth of his business and the increased number of restaurant locations make an audit a sound business requirement. He also believes that an additional benefit of the independent audit will be the probable detection of any fraud which may be occurring at his restaurants.

To fulfill the bank request for audited statements, Dale Holden has hired Hill \& Associates, CPAs.

{Required:}

a. Hill \& Associates has been hired to perform an audit leading to the expression of an opinion on Holden Family Restaurants' financial statements. Discuss Hill \& Associates' responsibilities for the review of internal control and the detection of fraud in a general-purpose audit.

b. What effect, if any, would the detection of fraud during the audit of Holden Family restaurants by Hill \& Associates have on their expression of an opinion on the financial statement? Give the reasons for your answer.