AUDITING AND ASSURANCE SERVICES
Auditing and Assuranc, X ±
ability to continue as a going concern.
2. Intelligis Electronics is a manufacturer of advanced electrical components. During the year, changes in the market resulted in a significant decrease in the demand for their products, which are now being sold significantly below cost. Management re-fuses to write off the products or to increase the reserve for obsolescence.
3. In the last 3 months of the current year, Oil Refining Company decided to change direction and go significantly into the oil drilling business. Management recognizes that this business is exceptionally risky and could jeopardize the success of its exist-ing refining business, but there are significant potential rewards. During the short period of operation in drilling, the company has had three dry wells and no successes. The facts are adequately disclosed in footnotes.
4. Your client, Harrison Automotive, has changed from straight-line to sum-of-the-years’ digits depreciation. The effect on this year’s income is immaterial, but the effect in future years may be highly material. The change is not disclosed in the footnotes.
5. Circumstances prevent you from being able to observe the counting of inventory at Brentwood Industries. The inventory amount is material in relation to Brentwood Industries’ financial statements. But, you were able to perform alternative procedures to support the existence and valuation of the inventory at year-end.
6. Approximately 20 percent of the audit of Lumberton Farms, Inc., was performed by a different CPA firm, selected by you. You have reviewed their audit files and believe they did an excellent job on their portion of the audit. Nevertheless, you are unwilling to take complete responsibility for their work.
For each situation, do the following:
a. Identify which of the conditions requiring a deviation from a standard unmodified opinion audit report is applicable, if any.
b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. ‘Based on AICPA question paper, American Institute of Certified Public Accountants.
c. Given your answers in parts a. and b., state the appropriate audit report from the fol-lowing alternatives (if you have not decided on one level of materiality in part b., state the appropriate report for each alternative materiality level): (1) Unmodified opinion—standard wording
(2) Unmodified opinion—explanatory paragraph
(3) Unmodified opinion—nonstandard report wording
(4) Qualified opinion only—GAAP departure
(5) Qualified opinion—scope limitation
(6) Disclaimer
(7) Adverse* 3-27
(OBJECTIVES 3-3) PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants, requires that an audit firm file a form, referred to as Form AP, for each initial issuance of an audit report. On Form AP, the audit firm discloses the name of each audit engagement partner who participated in the audit, as well as the names and locations of any other audit firms participating in 5 percent or more of the audit engagement. The total number of audit firms participating in less than 5 percent of the audit engagement, as well as the overall percentage of audit hours contributed by these firms, are also required to be disclosed. Access the text-book website to obtain the file “PCAOB Form AP Data” that includes data obtained from the PCAOB’s AuditorSearchSM database and the related data dictionary.
Sort the dataset by fiscal period date to obtain the subset of Form AP filings for audits of financial statements that had a fiscal year end anytime during 2017 to complete the following:
a. How many Form APs relate to 2017 audits?
b. What is the name of the individual who served as the engagement partner for Nordstrom Inc.? What other engagement(s) did that individual also serve as engagement partner?
c. Which global audit firm had the highest number of Form AP filings for 2017 audits (Note: Some of the global firms have more than one firm ID number)? How many Form APs were filed by that firm on a global basis? How many of those Form APs relate to the U.S.-based practice of that firm?
d. For which firm did Joseph D’Introno work in 2017? How many AP forms were filed for him for 2017 audits? What type of public company audit clients did he mostly serve in 2017?
e. How many Fnrrn A Pc rPlAtP to psrtnerc in the, Atlanta Office of Ernst & Young, LLP
