[Manuelo]

I’m having a hard time understanding this question from becker…

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client’s record retention policies. If the amounts in question could materially affect current operating results, the

auditor would:

a. Be unable to express an opinion on the current year’s results of operations and cash flows.

b. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.

answers are :

Choice “a” is correct. Since the auditor was unable to gather sufficient evidence on the beginning balances of the balance sheet accounts, the auditor would be unable to express an opinion on the current year’s results of operations and cash flows. The auditor could express an opinion on the statement of financial position.

Choice “b” is incorrect. Since the scope limitation could have a pervasive effect on the financial statements (affecting all assets and liabilities), a disclaimer of opinion (and not merely a qualified opinion) is required on the income statement and statement of cash flows. An opinion may be expressed on the year-end statement of financial position.

I chose B….I thought if there is a you cannot find evidence, you either issue a qualified or disclaimer of opinion. In this case, a qualified opinion. How are the balance sheet amounts related to the operating results and cash flows of a company, but not related the financial position of one? I dont understand. this is supposed to be easy but I think i’m making it too hard…

[jpat1980]

choice ‘b” couldnt be the answer because the question states: ” If the amounts in question could materially affect current operating results”

The amount is material to the Financial Statements.. When the amount is Material, the auditor would have to express a Disclaimer opinion.

So this relates to accepting an audit engagement at the balance sheet date… If you are unable to observe/document opening inventory, you would only be able to express an opinion on the Balance Sheet, because you would only be able to observe the ending inventory… Because evidence is not available regarding opening inventory, you are unable to gather evidence regarding Cost of Goods Sold. Without evidence, an auditor is unable to provide an opinion or must Disclaim an opinion.

AUD-68,74,88
REG-81
BEC-75
FAR-71,79
(Primary: Becker | Supplemental: Wiley MCQ's, Ninja Notes)

CFP - passed(3/2013)
(KIER, College for Financial Planning-cffp.edu, Jeff Rattiner Books and Notes)

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