Question

All Requirment of the questions are given below: We need to choice answer from (a-e).  

Assume you are the partner in charge of the 2019 audit of Cobra Corporation, a public company. The audit report has not yet been prepared. In each independent situation following (1-4), indicate the appropriate action (a-e) to be taken. The possible actions are as follows:

a.            Issue a standard unqualified report.

b.            Qualify the opinion.

c.            Issue an unqualified opinion with an explanatory/emphasis of matter paragraph.

d.            Issue an adverse opinion.

e.            Disclaim an opinion.

1. Cobra changed their cost flow assumption for inventory during the current year from LIFO to FIFO.

2. Cobra Corporation had material misstatements that were discovered during the audit. Additional testing was done and you conclude that the misstatements were due to errors, not fraud. Cobra’s management agreed to adjust the financial statements for the misstatements and they are committed to correcting the control deficiencies that led to the misstatements.

3. Cobra amortizes goodwill on a straight-line basis over ten years, which represents a departure from U.S. GAAP (since they are a public company). You concur with their accounting treatment because you believe the financial statements would otherwise be misleading.

4.  Cobra Corporation adopted the new accounting guidance related to revenue recognition (ASC 606) and it had a material impact on the financial statements.

Answer 1

1)  Cobra changed their cost flow assumption for inventory during the current year from LIFO to FIFO

Issue a Standard Unqualified report.(a)

because it is a chnage in accou ting policy and shold be disclosed in the accounting policy as oit is not harming the financials unqualified report should be issued.

2)  Cobra Corporation had material misstatements that were discovered during the audit. Additional testing was done and you conclude that the misstatements were due to errors, not fraud. Cobra’s management agreed to adjust the financial statements for the misstatements and they are committed to correcting the control deficiencies that led to the misstatements.

Ans is  Issue a Standard Unqualified report.(a)

3) Cobra amortizes goodwill on a straight-line basis over ten years, which represents a departure from U.S. GAAP (since they are a public company). You concur with their accounting treatment because you believe the financial statements would otherwise be misleading.

Ans is  Issue an unqualified opinion with an explanatory/emphasis of matter paragraph. (c)

4)  Cobra Corporation adopted the new accounting guidance related to revenue recognition (ASC 606) and it had a material impact on the financial statements.

Ans is  Issue an adverse opinion (d)

As the result is material and pervhasive.