[watermelon]

HELP needed for below: Becker AUD Chapter 1 Sim
“Red Barron Trucking discloses in the notes to the financial statements certain lease obligations. Sally Smith, CPA, believes that the failure to capitalize these leases is departure from GAAP. Select appropriate report modification.”
The whole options are:
1. Issue the independent auditors report without modification
2. Modify the introductory para/graph
3. Modify the auditor’s responsibility paragraph
4. Omit the auditor’s responsibility paragraph
5. Modify the opinion paragraph
6. Add a basis for opinion paragraph preceding the opinion paragraph
7. Add a basis for opinion paragraph following the opinion paragraph

Answer is 3,5,6
I don’t think the Sims specified whether this is a issuer or non-issuer, so I am confused by how to select between 6 and 7. Appreciate any help!!!

[Globetrotter]

Hello Watermelon,
I just started on my AUD, and I could be wrong. But I think that:
Failure to capitalize leases when required by GAAP is a basis for modified opinion. And as such, Basis for modification paragraph needs to be included before the opinion paragraph.
I think that Adverse opinion might be appropriate in this case.
Thar is why we have option # 6 and not #7.
I think the paragraph that goes after Opinion paragraph is “Emphasis of the Matter” or “Other Matter” which is not appropriate in this case.
I would like to hear if I am wrong in this one.

[jdurham1994]

I agree that the question can seem confusing, and it would probably be more clear in the actual exam. Although in this case it would make you think a little bit harder, but if it was for an issuer, you would probably see an option that says to include a description in an “additional paragraph” immediately following the opinion paragraph. Because there is no option for this, and looking at all the other options there (the mentioning of AR and Introductory paragraph) I would assume it was for a non-issuer that we are issuing a report for.

[watermelon]

Thank you both! I would never thought about this without you pointing it out James! it does look like a non-issuer by looking at the options!!


@Globetrotter, I thought “Emphasis of the Matter” or “Other Matter” is used when there is a unqualified options issued, but since this one is either qualified or adverse, I don't think “Emphasis of the Matter” or “Other Matter” would be used here.
I thought i saw it in the text book somewhere, but this is something i am confused about as well. @James, can you help again?

[jdurham1994]

@Watermelon In regards to what @globetrotter was saying, they were just looking at this question as a “non-issuer” only. Meaning, that, what would come after an Opinion Paragraph is the “emphasis-of-matter” or “Other Matter” Paragraph, not necessarily that they are needed. They were telling you why Option #7 was wrong in the case of a non-issuer.

As far as your question on whether or not is it used for only “unqualified” opinions, I don't believe that matters. I could be wrong, but I believe no matter what opinion you give you can use either an emphasis of matter or other matters paragraph. The point of these paragraphs is to point something out to the users, and does not have any impact on the opinion given.

[watermelon]

Ahh. I got you!!! Thanks again:)

[Globetrotter]

Thank you, James and Watermelon!
I thought that we only use EOM paragraph with Unmodified. I was very wrong. 🙁
What you are saying makes sense. We could issue a modified opinion and still use “EOM” paragraph.
However, I am now confused why it matters if it's issuer or non-issuer. I am using Wiley book, and it does not seem to be differentiating between the two as far as reporting goes.
If it's a quick answer, could you please help?
Thanks so much!

[jdurham1994]

Hey @Globetrotter, could you be more specific in what you mean by why it matters if it's issuer or non-issuer? For what are you asking about?

[watermelon]

@Globetrotter, it looks like in Becker, it's saying if it's a non-issuer, “basis for opinion paragrah” goes before “Opinion paragraph”, and for Issuer, “basis for opinion paragraph” goes after “Opinion paragraph”paragraph. but I am not sure whether it really matters in the real exam since I haven't took the test yet:)

[jdurham1994]

@Watermelon I can almost guarantee you that you will either get question(s) or a SIM that deals with the audit report and knowing where to put the “basis for opinion” and the actual “opinion” paragraph for an issuer or non-issuer. Not to scare you in any way, but it will more than likely come up and should be something to remember. Just make sure you understand the differences between the two reports and have an idea where things go

[watermelon]

@James I will study harder!! haha facepalm.. super struggling with AUD.

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