Question

23. The National Association of Insurance Commissioner (NAIC) requires your insurance company client to present certain supplementary information in addition to the basic financial statements. However, while not required for the basic financial statements, your client has omitted the information required by the NAIC. 24. A client holds a note receivable consisting of principal and accrued interest, payable during the next fiscal period. The note's maker recently filed a voluntary bankruptcy petition, but your client failed to reduce the recorded value of the note to its net realizable value, which is approximately 20% of the recorded amount. 25. What would your answer be if the preceding amount currently recorded by the client is considered pervasive regarding the client's overall financial position? 26. An auditor is engaged to audit a client's financial statements after the annual physical inventory count. The accounting records are not sufficiently reliable to enable the auditor to become satisfied as to the year-end inventory balances. 27. What would your answer be if the preceding inventory currently recorded by the client is considered pervasive regarding the client's overall financial position? 28. A client's financial statements do not disclose certain long-term lease obligations. The auditor determines that the omitted disclosures are required by FASB. 29. A group auditor decides not to take responsibility for the work of another audit firm that audited a wholly- owned subsidiary of the principal (group) auditor's client. The total assets and revenues of the subsidiary represent 27% and 28% respectively, of the related consolidated totals. 30. A client changes its method of accounting for the cost of inventories from FIFO to LIFO. The auditor concurs with the change although it has a material effect on the comparability of the financial statements. 31. Due to losses and adverse key financial ratios, an auditor has substantial doubt about a client's ability to continue as a going concern for a reasonable period of time. The client has adequately disclosed its financial difficulties in a note to its financial statements, which do not include any adjustments that migh result from the outcome of this uncertainty. materially misstated Types of Opinions A. An unmodified opinion. B. A qualified opinion. C. A disclaimer of opinion. D. An adverse opinion.

Answer 1

S. No.	Type of Opinion	Reason
23	Qualified Opinion	Since the client has not provided all disclosure required by NAIC, a qualified opinion will be passed and since it is only supplementary information and not any major disclosure, an adverse opinion is not required.
24	Qualified Opinion	Qualified opinion will be passed since the misstatement is not pervasive to warrant an adverse opinion
25	Adverse Opinion	Since it is given that the misstatement is pervasive, an adverse opinion will be passed
26	Qualified Opinion	Assuming that inventory balances are not pervasive, a qualified opinion will be passed.
27	Disclaimer of an opinion	Since the auditor has not been able to obtain sufficient evidences and inventory balances are pervasive to overall financial statements, disclaimer of an opinion will be passed.
28	Adverse Opinion	Since lease obligation disclosure is generally very important and material and is also required by FASB, adverse opinion is passed.
29	Disclaimer of an opinion	Since the auditor has not been able to obtain evidences regarding the subsidiary which represents almost 30% of the group, disclaimer of an opinion is passed.
30	Unmodified Opinion	A client can change its accounting policy for valuation of inventory considering the basis for such change is reasonable and is consistently followed later on. Since in the current case, auditor agrees with the same and as long as appropriate disclosures have been provided, unmodified opinion will be passed.
31	Unmodified Opinion	This is a very subjective point and really depends on the facts and circumstances of the case. If the client has adequately disclosed its concern regarding going concern, then the auditor may pass an unmodified opinion while giving reference to such note. However in certain cases and a lot of times, a disclaimer of an opinion is also passed. This is highly judgemental so as per the facts given in Question 31, I believe an unmodified opinion should be passed since client has adequately disclosed the matter. Disclaimer of an opinion is also an acceptable answer in my opinion.