Question

Situation 1 The accounting firm of Aschari and Di Tomaso was engaged to perform an audit of the financial statements of Pammenter Inc. During the audit, Pammenter’s senior managers refused to give the auditors the information they needed to confirm any of the accounts receivable. As a result, Aschari and Di Tomaso were not able to confirm the accounts receivable balance. However, they did not encounter any other problems during the audit. Situation 2 The accounting firm of Jovanovic and St. Pierre has discovered, during its audit of Robson Chemicals Inc., that the client is being sued for $3 million. Allegedly, one of its products exploded and severely injured a customer. In the firm’s discussion with Robson’s lawyers, Jovanovic and St. Pierre ascertained that it is very likely that Robson will indeed have to pay this entire amount when the lawsuit is resolved. To provide for this, Robson’s chief financial officer has included information relating to the lawsuit in the notes to its financial statements, but did not otherwise reflect it in its financial statements. Answer the following questions.

Situation 1 a Using Situation 1 what type of audit opinion could be issued? Unqualified Unqualified with emphasis of matter paragraph regarding the confirmation of accounts receivable Qualified due to a scope limitation Qualified due to a GAAP departure Adverse opinion Denial of opinion Click if you would like to Show Work for this question: Open Show Work SHOW SOLUTION LINK TO TEXT Attempts: 6 of 6 used

Situation 2 a Using Situation 2 what types of audit opinion could be issued? Unqualified report Unqualified with emphasis of matter paragraph regarding the lawsuit Qualified report due to a scope limitation Qualified report due to a GAAP departure Adverse opinion Denial of opinion

Answer 1

Situation 1 :-

As in the given situation it can be seen that client's manager has refused to give the required information to the accounting firm of Jovanovic and St. Pierre, which is a scope limitation imposed by the client which ulytimately will result in Denial of opinion by accountants.

Situation 2 :-

As per GAAP requirement whenever their is contingent liability which is estimable it should be accrued along with adequate disclosure.

In the given situation, client has made disclosure but has not accrued the given liability which can be referred to as departure from GAAP. In given case accountant will express Qualified opinion as its effect will be material but not pervasive.

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