aCC403 Ch 4 wk 2 Essay

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Pages: 11

Amy Hemphill
Ch 3 & 4, week 2
Acct 403
3-25 (a-c) The following questions concern audit reports other than unqualified audit reports with standard wording. Chose the best reponse.
A) The annual audit of Midwestern Manufacturing revealed that sales were accidentally being recorded as revenue when the goods were ordered, instead of when they were shipped. Assuming the amount in question is material and the client is unwilling to correct the error, the CPA should issue:
1. An unqualified opinion or adverse opinion.
2. A qualified “except for” opinion or disclaimer of opinion.
3. A qualified “expect for” opinion or adverse opinion.
4. An unqualified opinion with an explanatory paragraph

B) Under which of the following circumstances would a
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That materiality question is a matter of auditor judgment.

3-31 Various types of “accounting changes” can affect the second reporting standard of the generally accepted auditing standards. This standard reads, “The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.’’ Assume that the following list describes changes that have a material effect on a client’s financial statements for the current year:

1. Correction of a mathematical error in inventory pricing made in a prior period.
2. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
3. A change from the completed-contract method to the percentage-of-completion method of accounting for long-term construction contracts.
4. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information
5. A change to including the employer share of Social Security (FICA) taxes as “retirement benefits” on the income statement from including it with “other taxes.’’
6. A change from prime costing to full absorption costing for inventory valuation.
7. A change from presentation of