Question

For each of the following independent situations, assume that any amounts would be material.

     (I) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e "Accounting situation", and DISCUSS the situation.

    (II) State whether an explanatory paragraph [i.e. PCAOB audit] would be included, and if so, what would be included in the explanatory paragraph.

   (III) For an UNQUALIFIED auditor's report, if the wording would be changed, indicate how it would be changed [Relates to Shared Report].

   (iv) The auditor agrees to any accounting change, if the change is proper GAAP.

1. The company uses an appraiser's estimate of current Replacement Cost to report the value of previously acquired land owned by the company.  It is felt this is more recent information

2. The controller requested that the auditor not send accounts receivable confirmations to its largest customers. The auditors used alternative procedures to ascertain the existence of the receivables

3. The company uses Lower of Cost or Market rather than Historic Cost to value inventory. It is felt that this is more recent information.  

Answer 1

1) unqualified audit report

A clean audit report is called unqualified audit report. An unqualified opinion is an independent auditor's judgment that a company's financial statements fairly and appropriately presented, without any identified exceptions, and in compliance with Generally accepted accounting principles (GAAP). It is the most common type of auditor's report. it does not judge the financial position of the company or interpret financial data. unqualified audit report indicates that as a result of the testing done during the audit, the indepent auditor has enough information to conclude that the company's financial statement conform to GAAP and fairly present the company's financial position for the statement time frame. it is issued when the auditor believes that all changes,accounting policies and their application and effects, have accurately been disclosed.

Examples of an unqualified audit report

An unqualified opinion letter in an audit report might state "In our opinion, the financial statements give a true and fair view of the financial position of ABC company.

2) PCAOB stands for- The Public Company Accounting Oversight Board

PCAOB is a private-sector, non-profit organization that regulates auditors of publicly traded companies , created by the Sarbanes-Oxley Act of 2002. The purpose of the PCAOB is to minimize audit risk. The PCAOB's mission is to oversee the auditors of public companies, protect the interest of investors, and further the interest in the preparation of informative, accurate, and indepent audit reports. The PCAOB does through its standards setting, inspections, enforcement and outreach programs. The PCAOB's responsibilities include the following

• Registering public company firms
• Establishing auditing, quallity control, ethics, independence, and other standards relating to public company audits.
• condcting inspections, investigations and disciplinary proceedings of registered accounting firms.
• Enforcing complaints with Sarbanes-Oxley

Standards

The Sarbanes-Oxley Act of 2002, as amended, direct the board to establish by rules, auditing and related professional practice standards for registered public acccounting firms to follow in the preperation of audit reports for public companies and other issues and broker-dealers.

PCAOB Rule, Complaints with Auditing and Related Professional Practice Standards (3100) requires registered public accounting firms and their associated persons to comply with all applicable auditing and related professional practice standards.

PCAOB Rules Auditing Standards(3200), Interim Attestation Standards (3300T), Interim Quality Control Standards (3400T) and Interim Ethics and Independence Standards (3500T).

3) An audit report is an evaluation done by an internal or an exterior unbiased professional auditor, regarding the financial status of an business entity. Auditor will express his/her judgment on whether the information on the financial position of the company is free from any misrepresentations or not in the audit survey. This report is vital for all the users of financial assertions such as individuals, companies or federal because it provides guarantee on a company's financial claims since the users count on audit report to make any decision. Audit survey can be grouped into two wide-ranging categories, unmodified audit article and revised audit report, that happen to be then further categorized

In brief, auditor can concern five different kinds of audit accounts, that are standard unqualified, unqualified with explanatory paragraph or revised wording, qualified, negative and disclaimer of opinion. Each types of the record is representing a different circumstance encountered by the auditor during the audit process and the auditor will point out different viewpoints in each record.In addition, a professional report can maintain the form of an qualification of both scope and the view or of the opinion by itself. Auditor may issue a range and opinion qualification when he/she could not collect sufficient data required by the approved accounting requirements.

This may due to the client's restriction or the auditor got encountered some situation that prevents him/her to perform an entire audit. "Examples of this include an auditor not having the ability to watch and test a company's inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply suggests that the financial statements are fairly provided, apart from the inventory which could not be audited.