Question

Presented below is an audit report prepared by Baily, Jacobs, and Thompson, CPA’s. They completed the audit on March 10, 1996. List at least 10 deficiencies in this report.

Do not rewrite the report.

Auditor’s Report

To: President of Dalton Corporation

We have audited the accompanying financial statements of Dalton Corporation as of December 31, 1995. These financial statements ate the responsibility of the company’s management. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with generally accepted accounting principles. Those principles require that we plan and perform the audit to provide reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, except for the effects of not capitalizing certain lease obligations that should be capitalized in order to conform with generally accepted accounting principles, the financial statements referred to above present accurately the financial position of Dalton Corporation as of December 31, 1995 in conformity with generally accepted accounting principles.

Baily, Jacobs, and Thompson, CPA’s

December 31, 1995

Answer 1

SOLUTION =

Following are the deficiencies in this report >

1.Only stated financial statements it should comprise specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, Cash Flow Statemente etc. and any other Reports which are part of Financial Statement.

2.Addressee to be like this

To the Board of Directors and Shareholders
Dalton Corporation
Address

3.Date and Place both should be mentioned and the date .December 31, 1995 is not proper date when Audit completed and Audit Report has been made should be there in Audit Report i.e.March 10, 1996.

4.This is the most commonly known form of audit and refers to the systematic review of a company's financial reporting to ensure all information is valid and conforms to GAAP standards and the Financial Statements comply with relevant statutory requirements and regulations;

5.The auditor's report must include the title, "Report of Independent Registered Public Accounting Firm."

6. The Report should be in generally in three paragraphs>

1. Introductory paragraph = states the audit work performed and identifies the responsibilities of the auditor

2. Scope paragraph = details the scope of audit work, nature of the work, examples of procedures performed

3. Opinion paragraph = states the auditor's opinion on the financial statements and whether they are in accordance with generally accepted accounting principles

All should be under proper title not like just one paragraph.

7.Signatures of Auditors should be a must part of Auditor's Report.

8.These financial statements ate the responsibility of the company’s management it should be mention like :

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement.

9.It should be a Qualified Opinion report as the effects of not capitalizing certain lease obligations that should be capitalized in order to conform with generally accepted accounting principles.

As only single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole as it should be clearly mentioned as Qualified Opinion report and qualification para must be clear and precise.

10.In second paragraph , We conducted our audit in accordance with generally accepted auditing principles not accounting principle.It should be like :

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.

11. In our opinion, except for the effects of not capitalizing certain lease obligations that should be capitalized in order to conform with generally accepted accounting principles, the financial statements referred to above present accurately the financial position of Dalton Corporation as of December 31, 1995 in conformity with generally accepted accounting principles insted of above wordinds Opinion paragraph in addition to qualification its standard wording includes “except for the matter described in Basis for Qualification paragraph the financial statements give true and fair view.”