Case Study 3-29 Audit Report
3-29Audit Report (Case Study 3-29)
Requirements
For each situation, do the following; a) Identify which of the conditions requiring a deviation from or modification of an unqualified standard report is applicable. b) State the level of materiality as immaterial, material or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c) Given your answers in parts (a) and (b) , state the appropriate audit report from the following alternatives (if you have not decided in one level of materiality in part (b), state the appropriate report for each alternative materiality level): 1) Unqualified-standard wording 2) Unqualified-explanatory paragraph 3) Unqualified-modified wording 4) Qualified opinion only-except for 5) Qualified scope and opinion 6) Disclaimer 7) Adverse
Situation 1
Subsequent to the date of the financial statements as part of his post-balance sheet date audit procedures, a CA learned that a recent fire caused heavy damage to one of the client’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial statements and appended notes as prepared by the client did not disclose the loss caused by the fire. a) “The financial statements and appended notes as prepared by the client did not disclose the lost caused by the fire.” this accounting treatment fails to comply with the General Accepted Accounting Principle (GAAP). b) The level of materiality of the loss depends on the auditor’s preliminary materiality level it could be either highly or material only. c) There are two types of reports can be issued which solely depends on the materiality level whether is high or material only. * Highly material; the auditor is require to issue an adverse(7) opinion. Adverse opinion is used only when the auditor believes that the overall financial statements are so materially
Requirements
For each situation, do the following; a) Identify which of the conditions requiring a deviation from or modification of an unqualified standard report is applicable. b) State the level of materiality as immaterial, material or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c) Given your answers in parts (a) and (b) , state the appropriate audit report from the following alternatives (if you have not decided in one level of materiality in part (b), state the appropriate report for each alternative materiality level): 1) Unqualified-standard wording 2) Unqualified-explanatory paragraph 3) Unqualified-modified wording 4) Qualified opinion only-except for 5) Qualified scope and opinion 6) Disclaimer 7) Adverse
Situation 1
Subsequent to the date of the financial statements as part of his post-balance sheet date audit procedures, a CA learned that a recent fire caused heavy damage to one of the client’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial statements and appended notes as prepared by the client did not disclose the loss caused by the fire. a) “The financial statements and appended notes as prepared by the client did not disclose the lost caused by the fire.” this accounting treatment fails to comply with the General Accepted Accounting Principle (GAAP). b) The level of materiality of the loss depends on the auditor’s preliminary materiality level it could be either highly or material only. c) There are two types of reports can be issued which solely depends on the materiality level whether is high or material only. * Highly material; the auditor is require to issue an adverse(7) opinion. Adverse opinion is used only when the auditor believes that the overall financial statements are so materially