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Wren, Inc., a nonpublic company, retains Ying and Company CPA to audit its financial statements and internal control. Sarah Smith, the senior on the audit prepared the following first draft of an unmodified report:

Wren, Inc., a nonpublic company, retains Ying and Company CPA to audit its financial statements and internal control. Sarah Smith, the senior on the audit prepared the following first draft of an unmodified report:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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O LO 2-4 Wren, Inc., a nonpublic company, retains Ying and Company CPA to audit its financial statements and internal control. Sarah Smith, the senior on the audit prepared the following first draft of an unmodified report: 2-33. Page 69 Independent Registered Auditor's Report (Comment a) To the Board of Directors and Management of Wren, Inc. (Comment b) Phoenix, AZ 85011 Opinion We have audited the financial statements of Wren, Inc., which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Wren, Inc. as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with Financial Accounting Standards Board (Comment c) accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit (Comment d) in accordance with accounting (Comment e) standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Wren, Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise significant (Comment f) doubt about Wren, Inc.'s ability to continue as a going concern for one year subsequent to issuance of these financial statements. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Accordingly, we are unable to obtain reasonable assurance that fraud will be detected. (Comment g) Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Transcribed Image Text:O LO 2-4 Wren, Inc., a nonpublic company, retains Ying and Company CPA to audit its financial statements and internal control. Sarah Smith, the senior on the audit prepared the following first draft of an unmodified report: 2-33. Page 69 Independent Registered Auditor's Report (Comment a) To the Board of Directors and Management of Wren, Inc. (Comment b) Phoenix, AZ 85011 Opinion We have audited the financial statements of Wren, Inc., which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Wren, Inc. as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with Financial Accounting Standards Board (Comment c) accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit (Comment d) in accordance with accounting (Comment e) standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Wren, Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise significant (Comment f) doubt about Wren, Inc.'s ability to continue as a going concern for one year subsequent to issuance of these financial statements. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Accordingly, we are unable to obtain reasonable assurance that fraud will be detected. (Comment g) Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Wren, Inc's internal control. Accordingly, no such opinion is expressed. (comment h) • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Wren, Inc's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal controlrelated matters that we identified during the audit. Ying and Company, CPAS Phoenix, Arizona February 3, 20X2 (Comment i) (Comment j) Respond as to the accuracy of the following comments made by a reviewer of the report: Page 70 Comment is Correct (yes Reviewer's Comments or no) a. Delete "REGISTERED." b. “Management" should not be included. c. Delete “Financial Accounting Standards Board." d. “Audit" should be replaced with “examination." e. “Accounting" should be replaced with "audit." f. “Serious" should be replaced with “Significant." g. The preceding sentence should be deleted. h. The preceding sentence should be deleted. i. The date should be year-end-December 31, 20X2 j. The report is required to indicate the year in which we began serving as Wren, Inc's auditor.
Transcribed Image Text:• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Wren, Inc's internal control. Accordingly, no such opinion is expressed. (comment h) • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Wren, Inc's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal controlrelated matters that we identified during the audit. Ying and Company, CPAS Phoenix, Arizona February 3, 20X2 (Comment i) (Comment j) Respond as to the accuracy of the following comments made by a reviewer of the report: Page 70 Comment is Correct (yes Reviewer's Comments or no) a. Delete "REGISTERED." b. “Management" should not be included. c. Delete “Financial Accounting Standards Board." d. “Audit" should be replaced with “examination." e. “Accounting" should be replaced with "audit." f. “Serious" should be replaced with “Significant." g. The preceding sentence should be deleted. h. The preceding sentence should be deleted. i. The date should be year-end-December 31, 20X2 j. The report is required to indicate the year in which we began serving as Wren, Inc's auditor.
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