Question

#1

Grinner and Greeter, CPAs, were engaged to perform an audit of the financial statements of Happy, Inc. Happy's management would not allow Grinner and Greeter to confirm any of the accounts receivable. All other auditing procedures were performed as considered necessary by Grinner and Greeter and no issues were encountered. However, Grinner and Greeter were unable to satisfy themselves with regard to the balance in accounts receivable.

Tick and Tie, CPAs, were performing their annual audit of Johnson Manufacturing Company. Johnson is currently being sued for $2,000,000 related to an alleged defective product that they sold to a customer. Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and have to pay the entire $2,000,000. Johnson's management has included information in the footnotes about the lawsuit. However, they have not recorded any loss or liability in the income statement or balance sheet.

Required:

For each of the independent situations presented above, state what type of opinion should be issued on the company's financial statements. Briefly explain your rationale. Finally, state which paragraphs, if any, of the standard report would be modified.

Answer 1

Answer:

(A). The organization has forced an extension restriction on Grinner and Greeter through not enabling evaluators to affirm Account receivable adjusts.

Despite the fact that CPA can issue a qualified conclusion for material extension impediment, as disclaimers of supposition are appropriate for customer forced degree restrictions than situation forced degree constraints.

For issuing of disclaimer of conclusion,

(1) The early on passage would be changed to express that examiners were locked in to review the budgetary articulations and erase the sentence identifying with the inspectors' duty regarding the money related proclamations,

(2) The extension passage would be overlooked,

(3) A further section would be extra to clarify the degree impediment, and,

(4) The supposition section would be altered to express a disclaimer of sentiment.

.

(B). According to GAAP, organization need to record unexpected liabilities as yet Johnson creating has not legitimately recorded a misfortune and an obligation, the Financial Statements isn't tuned in to proper accounting rules. Accordingly, contingent upon the materiality and inescapability of the error of Financial Statements, Tick and Tie need to issue either a qualified or unfavorable assessment.

For each situation, a third section would be expected to the answer to legitimize the takeoff from for the most part acknowledged bookkeeping rehearses and furthermore the sentiment passage would be changed to express either a qualified assessment or an antagonistic feeling.