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Phillips & Craig LLP was hired by Richards Manufacturing, a public company, to perform an integrated...

Phillips & Craig LLP was hired by Richards Manufacturing, a public company, to perform an integrated audit of the December 31, 2022, financial statements and internal controls. Phillips & Craig was hired just after yearend, on January 3, 2023. Because of the tight deadline to complete the audit before the SEC filing deadline, Phillips & Craig focused more time on performing substantive procedures for the financial statement audit and was not able to complete a full audit of ICFR. The tests of controls that were completed provided evidence that internal controls were effective. The audit manager for Phillips & Craig tells the partner, "I feel certain if we had the time to complete all of the planned tests of controls, we wouldn’t identify any material weaknesses. We already decided to issue an unqualified opinion on the financial statements based on the evidence gathered from our substantive procedures, so I’m sure the internal controls are effective." What type of opinion on the effectiveness of ICFR should Phillips & Craig issue? Evaluate the situation and provide support for the type of opinion selected.

Please solve ASAP.

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Solution:

As per the given situation, Phillips and Craig LLP was not able to complete the full audit of financial statements and internal control for Richards Manufacturing due to the tight deadline. It focused more on th substantive procedures for financial statement audit. The test of controls that were completed provided evidence that internal controls were effective.

The audit manager wishes to issue an unqualified report, which would not give a true and fair opinion, since the auditor was not able to perform all the tests planned and thus some internal controls remained unchecked, which might have error, even though there are none found till now.

In such a case the auditor should issue a disclaimer of opinion. The auditor can issue a partial disclaimer for the part for which he was unable to perform all the tests and thus, unable to form an opinion. And for the part for which he is able to perform all the tests and is able to form an opinion he can issue an unqualified report.    

ekkarill92 answered 1 year ago
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