[donnychristal]

This is an example from NINJA book. The answer is D. I was wondering why C is not correct?

As a condition of obtaining a loan from First National Bank, Maxim Co. is required to submit an audited balance sheet but not the related statements of income, retained earnings, or cash flows. Maxim would like to engage a CPA to audit only its balance sheet. Under these circumstances, the CPA:

a. may not audit only Maxim’s balance sheet if the amount of the loan is material to the financial statements taken as a whole
b. may not audit only Maxim’s balance sheet if Maxim is a nonissuer
c. may audit only Maxim’s balance sheet if the CPA disclaims an opinion on the other financial statements.
d. may audit only Maxim’s balance sheet if access to the information underlying the basic financial statements is not limited.

FAR - 75
AUD - 64/71
BEC - 85

[jc510]

from my understanding is that an auditor can not piece-meal opinions (i.e. give unmodified/qualified/adverse/disclaim to BS and then disclaim on all the other FS's).

[donnychristal]

Actually I was reading Becker. It does say that auditor cannot issue piecemeal opinions, but it mainly refers to the situation when one statement has an unmodified and the other statements have modified opinions.

In becker when they talk about example about prior year's opinion different from current year, they actually give out an example that the auditor issued an unmodified opinion on prior year balance sheet only and disclaimer on results of operation and cash flow of prior year.

Can someone explain further what happened here? So auditor can issue opinion on one statement and disclaimer and other statements and this is not considered piecemeal opinion?

FAR - 75
AUD - 64/71
BEC - 85

[Spartans92]

The answer is not C is because the Balance sheet ties to the income statement and R/E so by disclaiming on those 2 and issuing an opinion on B/S alone it negates the whole idea of an unmodified opinion. It's like saying, “oh your B/S sheet looks great but then saying I dont know about I/S” but they are both linked.. it doesn't make any sense to do that. Hence, BEST answer is D.

BEC- PASS

[industryCPA]

Only the balance sheet needs to be audited per the bank so the auditor is allowed to just audit the balance sheet instead of all of the financial statements as long as he is able to get the info he needs from the other financial statements (no scope limitation)

[CageTheCPA]

@industryCPA is correct, an auditor can audit only a BS,IS, etc. and can issue an option as long as it's not a piecemeal opinion. It's perfectly fine to audit the BS only, since that's the only FS they're engaged to audit there's no requirement to disclaim any opinion in the other FS since they weren't engaged to audit.

If they were engaged to audit the FS as a whole, they would be precluded from issuing different opinions on the BS and IS.

[Author]

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