1. A client has departed from GAAP for what you, the auditor, considers to be not justifiable. It has caused the financial statements to be materially misstated. Circumstance: Type of Opinion:
Problem 10: For the following scenarios, assume you are the CPA reporting on the client's financial statements Determine the circumstance that applies to the situation and the type of opinion that
needs to be issued for this nonpublic company. You may use all, some, or none of the circumstances
and opinions.
the Circumstance the Type of Opinion
ConsistencyUnmodified
Emphasis of Matter or other-matter paragraphQualified
Going ConcernDisclaimer
Justified departure from GAAPAdverse
Other auditors
Scope limitation
Unjustified departure from GAAP
No circumstance applies
1. A client has departed from GAAP for what you, the auditor, considers to be not justifiable. It has caused the financial statements to be materially misstated.
Circumstance:
Type of Opinion:
2. A client has departed from GAAP for what you, the auditor, considers to be justifiable. The financial statements
would have been misleading if the client had not departed from GAAP.
Circumstance:
Type of Opinion:
3. While auditing the long term investments for a new client, you the auditor, are unable to
obtain the audited financial statements for the investee located in Dubai. You have concluded
that it is impossible to obtain sufficient, appropriate evidence regarding the specific investment.
Circumstance:
Type of Opinion:
4. The client is involved in a major lawsuit. This leads you to believe that there is substantial
doubt about the client's ability to continue as a going conern for a reasonable period of time.
You feel that the financial statement disclosures related to the lawsuit are adequate. This leads you
to not issue a disclaimer of opinion.
Circumstance:
Type of Opinion:
5. You have chosen to take responsibility for the work of another CPA firm who audited a 60%
owned subsidiary and issued an unmodifed opinion. The total assets and revenue of the subsidiary are
4 % and 7%, respectively of the total assets & revenues of the company being audited.
Circumstance:
Type of Opinion:
6. The client is involved in a major lawsuit. It is probable that the company is going to loase
a material amount when paying out to the defendant. It is impossible to calculate the amount
though. The financial statements have included the note disclosure adequately describing the
matter. You feel that everything has been properly reported.
Circumstance:
Type of Opinion:
7. The client has refused to
depreciation expense would reduce this year's already small net profit to a a loss. They don't
want to give the negative news of a loss to their board of directors, so they are not going to
take the expense per your very strong advice.
Circumstance:
Type of Opinion:
8. The company changed their remaining life on a piece of equipment from 14 years to 11 years.
You feel that the change is reasonable.
Circumstance:
Type of Opinion:
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