For each of the following independent situations, assume that any amounts would be material. (I) Indicate the

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Question:

For each of the following independent situations, assume that any amounts would be material.

(I) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e.

“Accounting situation”, and DISCUSS the situation.

(II) State whether an explanatory paragraph would be included, and if so, what would be included in the explanatory paragraph.

(III) For an UNQUALIFIED auditor’s report, if the wording would be changed, indicate how it would be

Changed.

1. In auditing the long-term investments account (the company uses the equity method for this nvestment), an auditor is unable to obtain audited financial statements for an investee located in a

foreign country.

2. The status of the client as a going concern is extremely doubtful. The matter is disclosed in the footnotes.

3. The staff member of the CPA firm doing the audit of ABC Company has a financial interest in ABC Company.

4. Part of the audit is being performed by another CPA firm. In the auditors’ report, the Principle Auditor (Group Engagement Auditor) decides to make reference to the Other Auditor (Component Auditor).

5. The company changes from Double-declining-balance to The Straight-line method for depreciation of fixed assets. The auditor agrees with the reason for the change in the accounting method.

6. The CPA firm was not able to observe or take part in the taking of the company’s physical inventory. The company uses the periodic inventory system to value inventory.

7. The company refuses to include a Statement of Cash Flows with the financial statement Management feels that the Income Statement should be the users’ focus.

8. In reporting the dollar amount for land, the client company uses historic cost, rather than a more recent appraiser’s estimate of the land’s current value.