audit reports
audit reports
audit reports
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
(3) a client-imposed scope limitation.<br />
(4) the qualification of an opinion by the other <strong>audit</strong>or of a subsidiary when<br />
responsibility has been divided.<br />
c. The opinion paragraph of a CPA’s report states: “In our opinion, except for the effects<br />
of not capitalizing certain lease obligations, as discussed in the preceding paragraph,<br />
the financial statements present fairly,” in all material respects, … This paragraph<br />
expresses a(an)<br />
(1) Unqualified opinion.<br />
(2) Unqualified opinion with explanatory paragraph.<br />
(3) Qualified opinion.<br />
(4) Adverse opinion.<br />
DISCUSSION QUESTIONS AND PROBLEMS<br />
3-26 (Objective 3-1) A careful reading of an unqualified report indicates several important<br />
phrases. Explain why each of the following phrases or clauses is used rather than the<br />
alternative provided:<br />
a. ‘‘The financial statements referred to above present fairly in all material respects the<br />
financial position” rather than “The financial statements mentioned above are<br />
correctly stated.’’<br />
b. ‘‘In conformity with accounting principles generally accepted in the United States of<br />
America” rather than “are properly stated to represent the true economic conditions.’’<br />
c. ‘‘In our opinion, the financial statements present fairly” rather than “The financial<br />
statements present fairly.’’<br />
d. ‘‘Brown & Phillips, CPAs (firm name),” rather than “James E. Brown, CPA (individual<br />
partner’s name).’’<br />
e. ‘‘We conducted our <strong>audit</strong> in accordance with <strong>audit</strong>ing standards generally accepted in<br />
the United States of America” rather than “Our <strong>audit</strong> was performed to detect material<br />
misstatements in the financial statements.’’<br />
3-27 (Objectives 3-1, 3-2, 3-4, 3-6, 3-7) Allison, CPA, has completed the <strong>audit</strong> of the<br />
financial statements of Optima Corporation as of and for the year ended December 31,<br />
2007. Allison also <strong>audit</strong>ed and reported on the Optima financial statements for the prior<br />
year. Allison drafted the following report for 2007.<br />
We have <strong>audit</strong>ed the balance sheet and statements of income and retained earnings<br />
of Optima Corporation as of December 31, 2007. We conducted our <strong>audit</strong> in<br />
accordance with generally accepted accounting standards. Those standards require<br />
that we plan and perform the <strong>audit</strong> to obtain reasonable assurance about whether the<br />
financial statements are free of misstatement.<br />
We believe that our <strong>audit</strong>s provide a reasonable basis for our opinion.<br />
In our opinion, the financial statements referred to above present fairly the<br />
financial position of Optima Corporation as of December 31, 2007, and the results of<br />
its operations for the year then ended in conformity with generally accepted <strong>audit</strong>ing<br />
standards, applied on a basis consistent with those of the preceding year.<br />
Allison, CPA<br />
(Signed)<br />
Other Information<br />
• Optima is presenting comparative financial statements.<br />
• Optima does not wish to present a statement of cash flows for either year.<br />
• During 2007, Optima changed its method of accounting for long-term construction<br />
contracts and properly reflected the effect of the change in the current year’s financial<br />
statements and restated the prior year’s statements. Allison is satisfied with Optima’s<br />
justification for making the change. The change is discussed in footnote 12.<br />
CHAPTER 3 / AUDIT REPORTS 69