Question

Assume you are the partner in charge of the 2019 audit of Becker Corporation, a private company. The audit report has not yet been prepared. In each independent situation following (1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows:

a.​Issue an unmodified opinion audit report.

b.​Qualify both the scope and opinion paragraphs.

c.​Qualify the opinion paragraph.

d.​Issue an unmodified opinion with an explanatory paragraph.

e.​Issue an unmodified opinion with revised wording (no explanatory paragraph).

f. ​Issue an adverse opinion.

g.​Disclaim an opinion.

The situations are as follows:

________ 1. Becker Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.

________ 2. Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material.

________ 3. You were unable to confirm accounts receivable with Becker's customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures.

________ 4. One week before the end of fieldwork, you discover that the audit manager on the Becker engagement owns a material amount of Becker's common stock.

________ 5. You relied upon another CPA firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report.

________ 6. You have substantial doubt about Becker's ability to continue as a going concern.

________ 7. Becker Corporation changed its method of computing depreciation in 2019. You concur with the change and the change is properly disclosed in the financial statement footnotes.

________ 8. Ten days after the balance sheet date, one of Becker's buildings was destroyed by a fire. Becker refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material.

Answer 1

1. Becker Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.

f. ​Issue an adverse opinion.

2. Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material

g.​Disclaim an opinion.

. 3. You were unable to confirm accounts receivable with Becker's customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures.

a.​Issue an unmodified opinion audit report.

4. One week before the end of fieldwork, you discover that the audit manager on the Becker engagement owns a material amount of Becker's common stock.

g.​Disclaim an opinion.

5. You relied upon another CPA firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report.

d.​Issue an unmodified opinion with an explanatory paragraph.

6. You have substantial doubt about Becker's ability to continue as a going concern.

d.​Issue an unmodified opinion with an explanatory paragraph.

7. Becker Corporation changed its method of computing depreciation in 2019. You concur with the change and the change is properly disclosed in the financial statement footnotes.

d.​Issue an unmodified opinion with an explanatory paragraph.

8. Ten days after the balance sheet date, one of Becker's buildings was destroyed by a fire. Becker refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material.

c.​Qualify the opinion paragraph.