ACCT444 WK7 HW7 Mk Essay

Submitted By moneydhillon89
Words: 1648
Pages: 7

a) Items that need not be included in the auditor's report are:
1. That Bellamy is presenting comparative financial statements.(Both years' statements will be referred to in the audit report.)
2. Specific description of the change in method of accounting for long-term construction contracts need not be included in the report since it is discussed in the footnotes. But, the auditor's report must state that there is a change in accounting principles and refer to the footnote.
3. The fact that normal receivable confirmation procedures were not used should not be disclosed since the auditor was able to satisfy him or herself through alternative audit procedures.
4. The lawsuit need not be discussed in the report since it has been included in a footnote.

b) The following deficiencies are in Patel's report:
1. The audit report is neither addressed nor dated and it does not contain a title. The audit report date should be the last day of field work.
2. The balance sheet is as of a specific date, whereas the income statement and the statement of retained earnings are for a period of time. The scope paragraph should identify the period of time (usually one year).
3. There are comparative statements, but the audit report identifies and deals with only the current year's financial statements. An opinion must also be included for the prior period financial statements.
4. There is no separate introductory paragraph that states the financial statements audited dates, and the responsibilities of management and the auditor.
5. There is no separate scope paragraph that describes what an audit is. Two required sentences are completely omitted: "An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation."
6. The audit was made in accordance with auditing standards generally accepted in the United States of America rather than generally accepted accounting standards.
7. The word material is excluded from the scope paragraph (free of material misstatement).
8. An additional paragraph should be included which describes the dividend restrictions and the refusal of the client to present a statement of cash flows.
9. The opinion paragraph states that accounting principles were consistent with those used in the prior year. The opinion paragraph should make no reference to consistency.
10. The opinion paragraph excludes the required phrase, "in all material respects."
11. The opinion paragraph includes the words "generally accepted auditing standards" rather than the phrase "accounting principles generally accepted in the United States of America."
12. A separate paragraph should be included stating that generally accepted accounting principles were not consistently applied.
13. The opinion should be qualified rather than being unqualified. Qualifications are caused by the: (a) failure to present a statement of cash flows.
(b) Failure to disclose the dividend restrictions.
3-32 Deficiencies in the staff accountant's tentative report include the following:
1. Report title must include the word “independent.”
2. The report should generally be addressed to the board of directors or stockholders, not to the audit committee.
3. The introductory paragraph should state, “we have audited," not” we have examined."
4. When the principal auditor decides to make reference to the audit of another auditor, the report should indicate clearly in the introductory paragraph the division of responsibility regarding the portions of the financial statements audited by each. Also, the opinion paragraph should state that the opinion is based in part on the reports of other auditors. Neither of these was done.
5. When the principal auditor decides to make reference to the audit of the other auditor, the report should disclose the