Assume You Are the Partner in Charge of the 2012

question 9

Short Answer

Assume you are the partner in charge of the 2012 audit of Becker Corporation, a private company.The audit report has not yet been prepared.In each independent situation following (1-8), indicate the appropriate action (a-g)to be taken.The possible actions are as follows:
a.Issue a standard unqualified report.
b.Qualify both the scope and opinion paragraphs.
c.Qualify the opinion paragraph.
d.Issue an unqualified opinion with an explanatory paragraph.
e.Issue an unqualified opinion with modified wording (no explanatory paragraph).
f. Issue an adverse opinion.
g.Disclaim an opinion.
The situations are as follows:
________ 1.Becker Corporation carries its property, plant, and equipment accounts at current market values.Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.
________ 2.Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory.The recorded book value of inventory is highly material.
________ 3.You were unable to confirm accounts receivable with Becker's customers.However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures.
________ 4.One week before the end of fieldwork, you discover that the audit manager on the Becker engagement owns a material amount of Becker's common stock.
________ 5.You relied upon another CPA firm to perform part of the audit.Although you were the principal auditor, the other firm audited a material portion of the financial statements.You wish to refer to (but not name)the other firm in your report.
________ 6.You have substantial doubt about Becker's ability to continue as a going concern.
________ 7.Becker Corporation changed its method of computing depreciation in 2012.You concur with the change and the change is properly disclosed in the financial statement footnotes.
________ 8.Ten days after the balance sheet date, one of Becker's buildings was destroyed by a fire.Becker refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP.The amount of the uninsured loss was material, but not highly material.

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Definitions:

Fixed Expenses

Costs that do not change in total despite fluctuations in business activity levels or volume, such as rent or salaries.

Percentage of Sales Approach

A method for forecasting financial needs based on a fixed percentage of projected sales, often used in budgeting and financial planning.

Profit Margin Percentage

A profitability ratio calculated by dividing net income by revenue, expressing the result as a percentage.

Plowback Ratio

The proportion of earnings retained by a business, rather than distributed to its shareholders as dividends, to reinvest in the core business or to pay debt.