Chapter 12 Auditing Essay examples

Decent Essays

12.25 A 12.29 D 12.33 D 12.37 A 12.26 D 12.30 B 12.34 A 12.27 A 12.31 A 12.35 C 12.28 C 12.32 C 12.36 D 12.39 a. In this situation, scope limitation on accounts receivable audit is created because auditors are unable to obtain sufficient appropriate evidence using alternative procedures. Thus, if the amounts of wrong account receivables are material but not pervasive, the auditor can issue qualified opinion. If the scope limitation if pervasive, meaning the amounts of this prohibition are very large, the auditor should issue disclaimer of opinion. When the amounts involved are immaterial, the auditor can issue unqualified report. b. In this case, the entity failed to record the revenue, thus it is considered departure from …show more content…

Pathways demonstrated that this treatment is consistent with the nature of the agreements and that classifying these leases as capital leases would be misleading, and they even disclosed there treatment and the departure of it, and the approximate effects in the footnotes accompanying the financial statements. Therefore, Pathways’ auditor can issue unqualified opinion and consider this treatment as justified departures from GAAP. Scenario B: This case involves the departure from GAAP and inadequate disclosure, thus the auditor must choose between an unqualified opinion, a qualified opinion, or an adverse opinion. The choice depends on the nature and materiality of the effects of the GAAP departure. Pathways failed to disclose their treatment of these lease agreements because they feared that the disclosure will confuse investors and lenders, so it means that this failure to capitalize lease is material to affect users’ decisions based on the financial statements. Moreover, this departure is isolated to a particular account without affecting others, thus the auditor should issue qualified opinion in this scenario. Scenario C: in this case, the disagreement between Pathways and its auditors on the lease agreement indicated that matters affect the auditors’ ability to conduct a GAAS audit, the auditors may deviate from the standard report. Moreover, the departure from GAAP is sufficiently material and pervasive, thus the auditor should issue qualified

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