Question

Requirements: Identify which of the conditions requiring a deviation from a standard unmodified opinion audit report is applicable, if any. Then, state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. (If a box is not used in the table leave the box empty; do not select a label.) For each situation, do the following: a. Identify which of the conditions requiring a deviation from a standard unmodified opinion audit report is applicable, if any. b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. Given your answers in parts a. and b., state the type of audit report that should be issued. If you have not decided on one level of materiality in part b., state the appropriate report for each alternative materiality level. Material Levels: Part (b) Audit Reports Additional Information 1) High material Conditions: Part (a) 1) Qualified 1) Amount of loss Situations 2) High material or material => Correct 2) Adverse opinion 2) Auditor's judgement 3) Immaterial 3) Unqualified opinion 3) Client imposed limit 4) Material 4) Disclaimer 4) Size materiality 6) Not applicable 1) Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks No conditions are applicable Need Answer Need Answer Need Answer is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes. 21 You are auditing Deen Clean Services for the first time. Deep Clean has been in business for several years out over substantial Doubt about the going Need Answer Need Answer Need Answer Need Answer Need Answer Need Answer Need Answer Need Answer Need Answer the last two years has struggled to stay afloat given the economic conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in business by the end of its next fiscal year concern 3) One of your audit clients has a material investment in a privately held biosciences company. Your audit firm No conditions are applicable engaged a business valuation specialist to assist in evaluating the client's estimation of the investment's fair value. You conclude that the valuation specialist's work provides sufficient appropriate audit evidence 4) Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the Failure to follow GAAP account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. 5) During your audit of Raceway.com, Inc., you conclude that there is a possibility that inventory is materially overstated. Scope of the audit has been The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated restricted 6) You complete the audit of Munich Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material Lack of independence investment in Munich Need Answer Need Answer Need Answer Need Answer Need Answer Need Answer

Answer 1

	Conditions	Materiality	Audit Reports	Additional information
Answer 1	No conditions are applicable	Material	Unqualified	Change in Policy has to be notified by Auditor in his report.
Answer 2	Substantial doubt about the going concern	High Material	Qualified	Going Concern Assumption to be studied caerfully
Answer 3	No conditions are applicable	Material	Unqualified	Size Materiality - Whether sufficient appropriate audit evidence state about any abnormality in the operations
Answer 4	Failure to follow GAAP	Highly Material	Qualified	Amount of loss - 10% of Total Account Receivable is material and 20% of EBIT is also material. The amount has to be mentioned in the Qualified Audit report
Answer 5	Scope of audit has been restricted	Material	Disclaimer	Client imposed limit - The Client has restricted Auditors scope so the Overstated Inventory might result into inflated Profit & Loss Account.
Answer 6		Material	Unqualified	Size Materiality - Investment by Auditor has to be disclosed in the Balance Sheet