Jeff Johns Is a Staff Accountant and Has Been Assigned

question 30

Essay

Jeff Johns is a staff accountant and has been assigned to the audit of Worldwide Enterprises, Inc. Subsequent to the completion of fieldwork, Jeff was assigned to draft the audit report. The content of one of the paragraphs he has drafted reads as follows:
As explained in Note 2 to the financial statements, Worldwide Enterprises has charged goodwill and certain other intangible assets acquired in two separate acquisitions directly to shareholders' equity. Under generally accepted accounting principles, these intangibles should have been recorded as assets and amortized to income over future periods. Had these intangibles been capitalized, total assets would have increased by $400,000 as of December 31, 2011 and net income and earnings per share would be increased by $380,000 and $2.25, respectively (assuming a 20-year amortization period).
a. Based on the contents of the paragraph above, which condition requiring a departure from a standard unqualified/unmodified opinion exists in the engagement?
b. Assuming that the engagement partner agrees with the paragraph Jeff has prepared above, where in the auditor's report should the paragraph be placed?
c. How would the materiality of the condition above affect the final choice of opinion?

Recognize the importance of human capital and its investment.

Describe the composition of total income in an economy and the significant share of 'compensation of employees'.

Understand the role and categorization of various inputs and factors in production.

Explain the concept of marginal product and the value of the marginal product of labor.

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Definitions:

Sales Dollars

The overall income earned from the sales of products or services, measured in currency.

Break-even

The point at which total costs and total revenue are equal, resulting in no profit or loss for the business.

Variable Cost

Outgoings that are directly influenced by how much is produced or sold, including the costs of labor and materials.

Monthly Dollar Sales

The total revenue generated from sales in a given month, expressed in U.S. dollars.