Question 1
Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.
◦ true
◦ false
Question 2
Assume you are the partner in charge of the 2019 audit of Becker Corporation, a private company. The audit report has not yet been prepared. In each independent situation following (1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows:
| a. | Issue an unmodified opinion audit report. |
| b. | Qualify both the scope and opinion paragraphs. |
| c. | Qualify the opinion paragraph. |
| d. | Issue an unmodified opinion with an explanatory paragraph. |
| e. | Issue an unmodified opinion with revised wording (no explanatory paragraph). |
| f. | Issue an adverse opinion. |
The situations are as follows:
________ 1. Becker Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements.
________ 2. Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material.
________ 3. You were unable to confirm accounts receivable with Becker's customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures.
________ 4. One week before the end of fieldwork, you discover that the audit manager on the Becker engagement owns a material amount of Becker's common stock.
________ 5. You relied upon another CPA firm to perform part of the audit. Although you were the principal auditor, the other firm audited a material portion of the financial statements. You wish to refer to (but not name) the other firm in your report.
________ 6. You have substantial doubt about Becker's ability to continue as a going concern.
________ 7. Becker Corporation changed its method of computing depreciation in 2019. You concur with the change and the change is properly disclosed in the financial statement footnotes.
________ 8. Ten days after the balance sheet date, one of Becker's buildings was destroyed by a fire. Becker refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with GAAP. The amount of the uninsured loss was material, but not highly material.
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