You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5. You relied upon another audit firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report. 6. You have substantial doubt about Camo’s ability to continue as a going concern. 7. Camo Corporation changed its method of computing depreciation in 2019. You concur with the change and the change is properly disclosed in the financial statement footnotes. 8. Ten days after the balance sheet date, one of Camo’s buildings was destroyed by a fire. Camo refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material. The available actions are outlined below: a) Issue a standard unqualified report.b) Qualify both the scope and opinion paragraphs.c) Qualify the opinion paragraph.d) Issue an unqualified opinion with an explanatory paragraph.e) Issue an unqualified opinion with modified wording (no explanatory paragraph).f) Issue an adverse opinion.g) Disclaim an opinion. Required: 1) Preparation of table reflecting for each distinct correct scenario listed (1-8), specifying the correct course of action (a-g) to be undertaken. 2) By reference to the data in this problem, make a complete distinction among a qualified opinion, adverse opinion, and a disclaimer of opinion, and explain the circumstances under which each is appropriate.
You are the lead partner overseeing the audit for Camo Ltd, a privately owned company.
The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions.
The situations are as follows:
1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.
2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material.
3. You were unable to confirm
4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock.
5. You relied upon another audit firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report.
6. You have substantial doubt about Camo’s ability to continue as a going concern.
7. Camo Corporation changed its method of computing depreciation in 2019. You concur with the change and the change is properly disclosed in the financial statement footnotes.
8. Ten days after the balance sheet date, one of Camo’s buildings was destroyed by a fire. Camo refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material.
The available actions are outlined below:
a) Issue a standard unqualified report.
b) Qualify both the scope and opinion paragraphs.
c) Qualify the opinion paragraph.
d) Issue an unqualified opinion with an explanatory paragraph.
e) Issue an unqualified opinion with modified wording (no explanatory paragraph).
f) Issue an adverse opinion.
g) Disclaim an opinion.
Required:
1) Preparation of table reflecting for each distinct correct scenario listed (1-8), specifying the correct course of action (a-g) to be undertaken.
2) By reference to the data in this problem, make a complete distinction among a qualified opinion, adverse opinion, and a disclaimer of opinion, and explain the circumstances under which each is appropriate.
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