Business Finance

Ch 17 Sections of Standard Audit Report for A Nonpublic Company Discussion |

Easy accounting hw, can be done with google within an hour or two. Please do not copy and paste answers from google however. There is also a few discussion questions that need to be done.

The questions are down below and discussion questions are down below. Please complete this in a word document.

Discussion 1

Read Article:…

  1. What is insolvency?
  2. Toshiba Corp. insolvent? Explain your answer.
  3. What is Toshiba’s relationship to Westinghouse Electric? How did Westinghouse’s bankruptcy filing lead to Toshiba’s financial difficulties? You may refer to the related article to assist with this answer.
  4. Near the end of the article, the author writes that Toshiba’s auditors “have refused to approve financial statement this year.” Do auditors “approve” financial statements? Explain and comment on the concern about public understanding of the role of an auditor and an audit opinion.

Discussion 2

Read Article:…

  1. Describe the standard form of audit report currently used in the U.S. How long has this form of report been in use?
  2. What changes has the Public Company Accounting Oversight Board (PCAOB) proposed to audit report? You may access the proposed SEC requirement to implement the requirement at Read Parts I and II. A. (Summary). You may also use the links in the article to access the PCAOB’s process for implementing these new requirements.
  3. In the article, the author describes the current pass/fail audit report. “A thumbs-up states that the accounting firm obtained ‘reasonable assurance’ that the financial statements are ‘free of material misstatement’ and represent the company’s condition ‘fairly.’ A thumbs-down casts doubt on whether the company can ‘continue as a going concern.’ Are these the only two options for forms of an audit report under current requirements? Explain your answer.
  4. There is a correction noted at the bottom of this article and copied here. Why is this an important distinction? CORRECTION: Independent accountants audit a company’s financial statements. An “Intelligent Investor” column Aug. 18 incorrectly said independent auditors prepare a company’s financial statements.

Chapter 16

16-1. Identify three revenue accounts that are verified during the audit of balance sheet accounts; also, identify the related balance sheet accounts.

16-2. How are analytical procedures used in the verification of revenue?

16-3. Identify three items often misclassificd as miscellaneous revenue.

16-27. In your audit of the financial statements of Wolfe Company for the year ended April 30, you find that a material account receivab le is due from a company in reorganization under Chapter 11 of the Bankruptcy Act. You also learn that on May 28 several former members of the bankrupt company’s management fonned a new company and that the new company had issued a note to Wolfe Company that would pay off the bankrupt customer’s account receivable over a four-year period. What presentation, if any, should be made of this situation in the financial statements of Wolfe Company for the year ended April 30? Explain.

16-31. The auditor’s opinion on the fairness of financial statements may be affected by subsequent events.

  1. Define what is conunonly referred to in auditing as a subsequent event, and describe the two general types of subsequent events.
  2. Identify those auditing procedures that the auditor should apply at or near the completion of fieldwork to disclose significant subsequent events.

16-33. Justin Kealey, CPA, is auditing Tustin Companies, Inc. Kealey has accumulated known and likely misstatements for the current year to evaluate whether there is a sufficiently low risk of material misstatement of the financial statements to issue an opinion. However, Kealey notes that there are several misstatements that have been carried over from prior years.

  1. Distinguish between the iron curtain and the rollover approaches to considering the misstatements from prior years.
  2. Describe how SEC Staff Accoullting Bulletin No. 108 requires auditors to consider misstatements carried over from prior periods.

16-34. On July 27, 20X0. Arthur Ward, CPA, issued an unqualified audit report on the financial statements of Dexter Company for the year ended June 30, 20X0. Two weeks later, Dexter Company mailed annual reports, including the June 30 financial statements and Ward’s audit report, to 150 stockholders and to several creditors of Dexter Company. Dexter Company’s stock is not actively traded on national exchanges or over the counter. On September 5, the controller of Dexter Company informed Ward that an account payable for consulting services in the amount of $170,000 had inadvertently been omitted from Dexter’s June 30 balance sheet. As a consequence, net income for the year ended June 30 was overstated by $90,500, net of applicable federal and state income taxes. Both Ward and Dexter’s controJler agreed that the misstatement was material to Dexter’s financial position at June 30, 20X0, and operating results for the year then ended. What should Arthur Ward’s course of action be in this matter? Discuss.

Chapter 17

17- 1. Identify the sections of the standard audit report for a nonpublic company.

17- 2. What is the function of notes to financial statements?

17- 3. List three primary differences between the audit report for nonpublic entities and the one for public entitles.

17-4. Comment on whether YOli agree with the following and why: GAAP and GAAS represent two frequently used financial reporting frameworks.

17-20. Describe the reports containing audited financial statements that are customarily filed by a company subject to the reporting requirements of the SEC.

17-26. For each of the following brief sce narios, assume that you are reporting on a client’s financial statements. Reply as to the type(s) of opinion possible for the scenario. In addition:

  • Unless stated otherwise, assume the matter involved is material.
  • If the problem does not state that a misstatement (or possible misstatement) is pervasive, assume that it mayor may not be pervasive (thus, the appropriate reply may include two possible reports).
  • Do not read more in to the circumstance than what is presented.

Do not consider an auditor discretionary circumstance for modifi cation of the audit report
unless the situation explicitly suggests that the auditors wish to emphasize a particular matter.
Report Types may be used once, more than once, or not at all.

17-23. Lando Corporation is a domestic company with two wholly owned domestic subsidiaries. Michaels, CPA, has been engaged to audit the financial statements of the parent company and one of the subsidiaries and to act as the group auditors. Thomas, CPA, has audited financial statements of the other subsidiary. Michaels has not yet decided whether to make reference to the audit of Thomas.

  1. What audit procedures should Michaels perfonn with respect to the component auditor, regardless of whether Michaels decides to make reference to Thomas in the report?
  2. What modifications are made to the audit report if Michaels decides to make reference to the audit of Thomas?

17-24. While performing your audit of Williams Paper Company, you discover evidence that indicates that Williams may not have the ability to continue as a going concern.

  1. Discuss types ofinfornlation that may indicate substantial doubt about a client’ s ability to remain a going concern.
  2. Explain the auditors’ obligation in such situations.

17-25. Multiple Choice Questions

  1. A material departure from generally accepted accounting principles will result in auditor consideration of:
    • Whether to issue an adverse opinion rather than a disclaimer of opinion.
    • Whether to issue a disclaimer of opinion rather than a qualified opinion.
    • Whether to issue an adverse opinion rather than a qualified opinion.
    • Nothing, because none of these opinions is applicable to this type of exception.
  2. The auditors’ report should be dated as of the date the:
    • Report is delivered to the client.
    • Auditors have accumulated sufficient evidence.
    • Fiscal period under audit ends.
    • Peer review of the working papers is completed.
  3. In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is:
    • Not to be construed as a qualification. but rather as a division of responsibility between the two CPA finns.
    • Not in accordance with generally accepted auditing standards.
    • A quali fication that lessens the collective responsibili ty of both CPA firms.
    • An example of a dual opinion requiring the signatures of both auditors.
  4. Assume that the opinion paragraph of an auditors’ report begins as follows: “With the explanation given in Note 6, …the financial statements referred to above present fairly.. ” This is:
    • An unmodified opinion.
    • A disclaimer of opinion.
    • An “except for” opinion.
    • An improper type of report ing.
  5. The auditors who wish to draw reader attention to a financial statement note disclosure on
    • significant transactions with related parties should disclose this fact in:
    • An emphasis ofmalter paragraph to the auditors’ report.
    • A footnote to the financial statements.
    • The body of lhe financia l stalements.
    • The “summary of significant accounting policies” section of the financial statements.
  6. What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?
    • Qualified Adverse
      Yes Yes
      Yes No
      No Yes
      No No
  7. Which of the following ordinari ly involves the addition of an emphasis of matter paragraph to an audit report?
    • A consistency modification.
    • An adverse opinion.
    • A qualified opinion.
    • Pan of the audit has been perfonned by component auditors.
  8. An audit report for a public client indicates that the audit was perfonned in accordance with:
    • Generally accepted auditing standards (United States).
    • Standards of the Public Company Accounting Overs ight Board (United States).
    • Generally accepted accounting principles (United States).
    • Generally accepted accounting principles (Public Company Accounting Oversight Board).
  9. An audit report for a public client indicates that the financial statements were prepared in
    conformity with:
    • Generally accepted auditing standards (United States).
    • Standards of the Public Company Accounting Oversight Board (United States).
    • Generally accepted accounting princip les (United States).
    • Generally accepted accounting principles (Public Company Accounting Oversight Board).


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