60.1K

Verified Solution

Link Copied!

Assume you are in charge of the audit of Franklin Corporations 1995 financial statements. The audit report has not yet been prepared. In each independent situation following (1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows:

a. Issue a standard unqualified report.

b. Qualify both the scope and opinion paragraph.

c. Qualify the opinion paragraph.

d. Issue an unqualified opinion with an explanatory paragraph.

e. Issue an unqualified opinion wording (no explanatory paragraph).

f. Issue an adverse opinion.

g. Disclaim an opinion.

The situations are as follows:

________1. Franklin 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 Franklin Corporation refuses to allow you to observe, or make, any accounts of inventory. The recorded book value of inventory is highly material.

________3. You were unable to confirm accounts receivable with Franklins 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 Franklin engagement owns a material amount of Franklins common stock.

________5. You relied upon another CPA firm to perform part of the audit of Franklin. 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 Franklins ability to continue as a going concern

_________7. Franklin Corporation changed its method of computing depreciation in 1995; you concur with the change, and the change is properly disclosed in the financial statement footnotes.

_________8. Ten days after the balance sheet date, ne of Franklins building was destroyed by fire. Franklin refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with generally accepted accounting principles. The amount of the uninsured loss was material, but not highly material.

Answer & Explanation Solved by verified expert

See Answer