Question

(TCO B) The following is a portion of a qualified audit report issued for a private company. To the shareholders of Tamarak Corporation, We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009 and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000 and $0.62, respectively, for the past year. Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date or sign the report.

Answer 1

Solution :

Language to Qualify an Audit report for a departure from U.S.GAAP

Opinion Paragraph :

The company has excluded, from property and long-term debt in the accompanying balance sheet, certain lease obligations that ,in our opinion , should have been capitalized in order to conform with U.S. generally accepted accounting principles .If these obligations were capitalized , property would be decreased by $4,000,000, long- term debt by $2,000,000 and retained earnings by $180,000 as of October 31,2009 and the net income and earning per share would have decreaqsed by $180,000 and $0.62 respvetively for the past year.

In our opinion, except for the effects of not capitalizing certain lease obligations as discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Tamarak Corporation as of October 31,2009 and the results of its operation for the year then ended in conformity with accounting principles generally accepted in the United States of America.