Reference no: EM131619126

Question: Various Reporting Situations. For each of the following situations, indicate the type of opinion(s) that auditors could issue (more than one opinion may be appropriate in each circumstance). Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. In addition, indicate how the standard (unmodified) report would be modified, if appropriate.

1. Auditors have identified an immaterial departure from GAAP in their examination, but the entity has not adjusted its financial statements for this departure or disclosed this departure in its financial statements or related disclosures.

2. Because they were appointed to the engagement after the date of the financial statements, the auditors have experienced a significant scope limitation and were unable to perform standard auditing procedures used in their engagements. The account(s) affected by this scope limitation were material and pervasive. However, the auditors have been able to completely satisfy themselves as to the fairness of the related account balances and classes of transaction by performing alternative procedures.

3. During the year, the entity changed its method of accounting for inventories from FIFO to LIFO and has disclosed this change in the footnotes to the financial statements and accounted for the change properly. However, the auditors do not agree with the rationale for the change and believe that it was made to report a higher level of earnings.

4. Subsequent to accepting the audit engagement, the auditors determined that they are not independent with respect to the client because of a financial interest in the client held by a newly-admitted partner to the audit firm.

5. Evidence gathered during the audit examination and inquiry of the client's management revealed substantial doubt about the client's ability to continue in existence. The auditors believe that the client has appropriately disclosed the going-concern uncertainties in its financial statements and footnotes.

6. The auditors wish to emphasize the company's acquisition of two large subsidiaries during the most recent year.

7. The auditors have engaged component auditors to conduct a portion of the audit but do not wish to assume responsibility for their work. The auditors have not approached the component auditors about presenting their reports with the company's financial statements and do not plan to do so.

8. The client has not recognized a material loss related to a decline in the market value of its investments. Because the auditors believe this decline in value is not temporary, they believe the financial statements do not present the client's financial position and results of operations in accordance with GAAP.

9. The auditors have experienced a significant scope limitation and are unable to satisfy themselves as to the fairness of the affected account balances through alternative procedures.