audit reports

Required
Required
The company had significant deficiencies in internal control, including the lack of
detailed records and certain supporting data, which were not available for our audit.
Therefore, we were not able to obtain sufficient evidence in order to form an opinion
on the accompanying financial statements including whether the inventory at July 31,
2007 ($670,490), was stated at lower of cost or market, or whether the deferred
subscription revenue ($90,260) is an adequate estimate for the applicable liability, as
discussed in Notes 5 and 12, respectively.
Write the auditor’s opinion to accompany this portion of the audit report. Where is the
opinion located in this audit report?
3-33 (Objectives 3-1, 3-2, 3-4) The following tentative auditor’s report was drafted by a
staff accountant and submitted to a partner in the accounting firm of Better & Best, CPAs:
AUDIT REPORT
To the Audit Committee of American Broadband, Inc.
We have examined the consolidated balance sheets of American Broadband, Inc.
and subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of income, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management. Our respon -
sibility is to express an opinion on these financial statements based on our audits.
Our audits were made in accordance with auditing standards generally accepted in
the United States of America as we considered necessary in the circumstances. Other
auditors audited the financial statements of certain subsidiaries and have furnished us
with reports thereon containing no exceptions. Our opinion expressed herein, insofar
as it relates to the amounts included for those subsidiaries, is based solely upon the
reports of the other auditors.
As fully discussed in Note 7 to the financial statements, in 2007, the company
extended the use of the last-in, first-out (LIFO) method of accounting to include all
inventories. In examining inventories, we engaged Dr. Irwin Same (Nobel Prize
winner 2005) to test check the technical requirements and specifications of certain
items of equipment manufactured by the company.
In our opinion, the financial statements referred to above present fairly the
financial position of American Broadband, Inc. as of December 31, 2007, and the
results of operations for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
To be signed by
Better & Best, CPAs
March 1, 2008
Identify deficiencies in the staff accountant’s tentative report that constitute departures
from the generally accepted standards of reporting.*
INTERNET PROBLEM 3-1: RESEARCH ANNUAL REPORTS
Reference the CW site. The U.S. Securities and Exchange Commission (SEC) is an inde -
pend ent, nonpartisan, quasi-judicial regulatory agency with responsibility for adminis -
tering the federal securities laws. Publicly traded companies must electronically file a
variety of forms or reports with the SEC (for example, annual financial statements). The
SEC makes most of these electronic documents available on the Internet via EDGAR.
EDGAR stands for Electronic Data Gathering, Analysis, and Retrieval system. The primary
purpose for EDGAR is to increase the efficiency and fairness of the securities market for the
benefit of investors, corporations, and the economy by accelerating the receipt, acceptance,
dissemination, and analysis of time-sensitive corporate information filed with the agency.
This problem requires students to use the EDGAR site (1) to research the definitions of
SEC filings (for example, 10-K, 8-K) and (2) to use several companies’ 10-K reports to
classify types of audit opinions issued.
*AICPA adapted.
74 PART ONE / THE AUDITING PROFESSION