An Auditor Was Unable to Physically Count the Inventory at Year-End

question 20

Multiple Choice

An auditor was unable to physically count the inventory at year-end due to a flood arising from a hurricane.The inventory represents over 80% of the current assets and 60% of the total assets on the balance sheet.In addition,while completing other audit procedures,the auditor determines that a material investment reported using the cost method should instead be reported using the equity method.How should the audit report by these two circumstances?

• A)The auditor must resign from the engagement to avoid association with false or misleading information.
• B)A qualified opinion should be issued,indicating both a scope restriction and a GAAP departure.The basis for disclaimer paragraph should explain both that the inventory could not be counted and that the impact of the investment not being presented using the equity method.
• C)A disclaimer of opinion should be issued: the basis for disclaimer paragraph should explain that inventory could not be counted and also explain the impact of the investment not being presented using the equity method.
• D)An adverse audit opinion should be issued,with the inventory and investment issues explained in the basis for adverse opinion paragraph.

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Definitions:

Conversion Disorder

A disorder where emotional distress is expressed through physical symptoms without a medical cause.

DSM-5

The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, a comprehensive classification system for mental disorders used by healthcare professionals.

Dissociative Identity Disorder

A severe form of dissociation, a mental process, resulting in a lack of connection in a person's thoughts, memory, and sense of identity.

Diagnostic Criteria

A standardized set of guidelines and conditions that must be met for a practitioner to diagnose a specific disorder or disease.