Question

In: Accounting

The auditor of three independent companies have just concluded their audit. For each company audit described...

The auditor of three independent companies have just concluded their audit. For each company audit described below, identify and briefly explain the type of audit report that can be issued by an auditor to that company:

a. COMPANY A: The auditor of Company A concludes that the overall financial statements are fairly presented, but the scope of the audit has been materially restricted, or GAAP were not followed in preparing the financial statements. • Based on audit tests and evidence gathered the auditors did not detect any material misstatements

b. COMPANY B: The financial report for Company B misstates or misclassifies some important accounting entries. For example, an expense that should appear above the gross profit line appears wrongly below it. This leads to a misleading gross profit figure. The Auditor is limits on audit scope. This can mean, for instance, that auditors are denied access to certain financial data. The auditor has some doubts as to the truthfulness of certain financial data. The auditor is not fully confident that the financial reports: Comply with GAAP Represent the entity's accounts fairly

Solutions

Expert Solution

  • There are four types of audit report and they are as follows
  1. Unqualified report
  2. Qualified report
  3. Adverse report
  4. Disclaimer report
  • Unqualified report - This is known as clean report and the financial statements are presented fairly and it is not from material mistatement that is complined with US GAAP
  • Qualified report - This report is issued if the financial statements are not prepared in accordance with GAAP .The auditor gives reason for issuing the qualified report
  • Adverse report - This report is issued if the financial statements are prepared in accordance with GAAP and there was fraud involved in preparation of financial statements
  • Disclaimer report - This report is issued if auditor was not able to perform audit for various reason such as books of accounts is not maintained by the client

Analysis and conclusion

  • From the above analysis for company A Qualified opinion should be given since the financial statements are not prepared in accordance with GAAP
  • From the above analysis for Company B adverse report should be given is there was fraud involved in presentation of financial statements

ekkarill92 answered 1 year ago
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