Use the Accompanying Solution Sheet to Reply to the Eight $\quad$

question 56

Essay

Use the accompanying solution sheet to reply to the eight situations below that relate to the audit of financial statements of nonpublic companies.Unless indicated otherwise,assume that material amounts are involved.Do not consider including an emphasis-of-matter paragraph in an "auditor discretionary" circumstance.
Situations:
1.A company has departed from GAAP.
2.A company's inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures.She is satisfied that she has sufficient appropriate evidence.
3.In auditing a client,an auditor has determined that substantial doubt exists about an entity's ability to continue as a going concern.
4.A group auditor decides not to take responsibility for the work of the component auditor who audited a 70% owned subsidiary and issued an unmodified opinion.The total assets and revenues of the subsidiary are 5% and 8%,respectively,of the total assets and revenues of the entity being audited.
5.A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change.The change has a material effect on the comparability of the entity's financial statements this year,but is expected to have an immaterial effect in the future.
6.Inadequate record retention policies by the client have resulted in a situation in which a CPA is unable to obtain sufficient appropriate audit evidence with respect to a material account.
7.A CPA has decided to emphasize in the audit report that the company she audited is a component of XYZ Company,its parent.
8.A client has changed its estimate of likely doubtful accounts from 2% of credit sales to 3%.The auditor believes the change to be reasonable.
Reply as to the type of opinion and other modification to the audit report as follows:
A. $\quad$ Adverse
D. $\quad$ Disclaimer
Q. $\quad$ Qualified
U. $\quad$ Unmodified
$\quad$ $\quad$ $\quad$ $\quad$ Other Modificatior
EOM $\quad$ Add an emphasis-of-rratter parapraph.
OM $\quad$ Add an other-rratter paragraph.
BFM $\quad$ Add a basis for modification paragraph.
OTHER $\quad$ Make modifications other than adding arn additional paragraph.
NONE $\quad$ Make no modifications
If more than one type of opinion is appropriate list each-one with "Report 1" and one with "Report 2." If only "Report 1" is appropriate,place an X in the "Report 2" Opinion Type cell,which indicates no second type of report is appropriate.
$$\begin{array} { | c | c | c | c | } \hline \text { Situation } & & \text { Opinion Type } & \text { Other Modification } \\\hline 1 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 2 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 3 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 4 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 5 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 6 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 7 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline 8 & \text { Report 1 } & & \\\hline & \text { Report 2 } & & \\\hline\end{array}$$

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Definitions:

Premises

Statements or propositions that are assumed to be true and from which a conclusion is drawn in an argument.

Conclusion

The end result or outcome of an argument or a process.

Explanation

A statement or account that makes something clear by describing the causes, context, or details behind a situation or phenomenon.

Cheerleading

A dynamic activity involving performance of organized cheering, chanting, and dancing to support sports teams, entertain audiences, and compete.