Referring to the following independent situations of three different audit clients: (i). During the audit, an...

 

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Referring to the following independent situations of three different audit clients: (i). During the audit, an auditor is refused permission to send confirmation to certain debtors with accounts receivable at a total amount of $500,000. The amount of accounts receivable has not been collected before the issuance of audit report. The company has a total asset of 9 million dollars in the year. (ii). Prior to 2021, a company had been estimating its uncollectable accounts by 2% of total accounts receivable. In 2021, the company changed the estimate to 5% of the total accounts receivable, given the Covid-19 situation. The company has disclosed in the financial statement the rationale and effect of the change. (iii). At the year-end date, a client company had an ongoing lawsuit with its employees related to claims against the work injury, and the client's attorney was of the view that it is probable that the company will lose in the lawsuit. The client has made the company has recorded lawsuit loss and lawsuit liability at $500,000 on the financial statements. The court case was finalized before the auditor issued the audit report and the company eventually had to make compensation of $1,000,000. No adjustments are made to the financial statements. The company has disclosed this updated development and amounts in the footnotes. The company has a net income of 8 million dollars in the year. a) For each of the above situations, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. (15 marks) b) Draft the opinion paragraph and any corresponding basis of opinion paragraph and/or explanatory paragraph if necessary. Ignore the tax effect. (20 marks) e) If the unqualified opinion is not recommended in any situations, advise to the client if the opinion can be changed to unqualified opinion. If yes, what should the client do? (5 marks) Referring to the following independent situations of three different audit clients: (i). During the audit, an auditor is refused permission to send confirmation to certain debtors with accounts receivable at a total amount of $500,000. The amount of accounts receivable has not been collected before the issuance of audit report. The company has a total asset of 9 million dollars in the year. (ii). Prior to 2021, a company had been estimating its uncollectable accounts by 2% of total accounts receivable. In 2021, the company changed the estimate to 5% of the total accounts receivable, given the Covid-19 situation. The company has disclosed in the financial statement the rationale and effect of the change. (iii). At the year-end date, a client company had an ongoing lawsuit with its employees related to claims against the work injury, and the client's attorney was of the view that it is probable that the company will lose in the lawsuit. The client has made the company has recorded lawsuit loss and lawsuit liability at $500,000 on the financial statements. The court case was finalized before the auditor issued the audit report and the company eventually had to make compensation of $1,000,000. No adjustments are made to the financial statements. The company has disclosed this updated development and amounts in the footnotes. The company has a net income of 8 million dollars in the year. a) For each of the above situations, discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion. (15 marks) b) Draft the opinion paragraph and any corresponding basis of opinion paragraph and/or explanatory paragraph if necessary. Ignore the tax effect. (20 marks) e) If the unqualified opinion is not recommended in any situations, advise to the client if the opinion can be changed to unqualified opinion. If yes, what should the client do? (5 marks)

Answer rating: 100% (QA)

Basics of audit opinion Generally we have two types of audit opinions 1 unmodified opinion 2 modified opinion further modified opinion was 3 types a Q... View the full answer