This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Smith and Jones, CPAs, audited the consolidated financial statements of Concord Inc. and all but one ... (Read 55 times)

warrenjean01

  • Full Member
  • ***
  • Posts: 158
on: Aug 21, 2022
Smith and Jones, CPAs, audited the consolidated financial statements of Concord Inc. and all but one of its subsidiaries for the year ended September 30, 2019 and are expressing an unqualified opinion on the financials presented as a whole.

Smith, the engagement partner, instructed Mary, an assistant on the engagement, to draft the auditor's report on November 4, 2019, the date of fieldwork completion. In drafting the report, Mary considered the following:

•In preparing its financial statements, Concord changed its method of accounting for research and development costs and properly expensed these amounts. Management described the change in principle in Note 10 to the consolidated financial statements.
•Ball & Brown, CPAs, audited the financial statements of Biotherm, Inc., a consolidated subsidiary of Concord for the year ended September 30, 2019. The subsidiary's financial statements reflect total assets of 22% and total revenues of 20% of the consolidated totals. Ball & Brown expressed an unqualified opinion and furnished to Smith & Jones a copy of their auditor report. Smith & Jones have decided not to assume responsibility for the work of Ball & Brown insofar as it relates to the expression of an opinion on the consolidated financial statements taken as a whole because of the materiality of Biotherm's financial statements to the consolidated whole. Ball & Brown's report will not be presented together with that of Smith & Jones.
•Concord is the subject of a grand jury investigation into possible violations of federal antitrust laws and possible related crimes. Related civil class actions are pending. Concord's management has adequately disclosed in Note 12 to their consolidated financial statements. Because of the early stage of the investigation, the ultimate outcome of these matters cannot be determined at this time. Therefore, no provision for any liability that may result has been recorded.
•Concord experienced a net loss in 2019 and is currently in default under substantially all of its debt agreements. Management's plans in regard to these matters are adequately disclosed in Note 14 to Concord's consolidated financial statements. The financials do not include any adjustments that might result from the outcome of this uncertainty. These matters raise substantial doubt about Concord's ability to continue as a going concern.

Ball reviewed Mary's draft and indicated in his review notes that there were many deficiencies in Mary's Draft. The audit report that Mary drafted follows.

 Independent Auditor's Report

We have audited the consolidated financial statements of Concord, Inc., and subsidiaries as of September 30, 2019, and the related consolidated statements of income, changes in stockholder's equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Biotherm, Inc., a wholly-owned subsidiary, which statements reflect total assets and revenues constituting 22% and 20% respectively at September 30, 2019 of the consolidated totals. Those statements were audited by Ball & Brown, CPAs, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Biotherm, Inc. is based solely on their report.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, as well as assessing control risk. We believe our audits provide a reasonable basis for our opinion. 

In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Concord Inc., as of September 30, 2019 in conformity with generally accepted accounting principles, except for the uncertainty, which is discussed in Note 12 to the consolidated financials.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue in existence for a reasonable period of time. As discussed in Note 14 to the consolidated financial statements, the Company suffered a net loss and is currently in default under substantially all of its debt agreements. Management's plans in regard to these matters are also described in Note 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Smith & Jones, CPAs
November 4, 2019

Required:

The following items present some of the deficiencies in the drafted audit report noted by Smith. For each deficiency, indicate whether:

S. Smith's review note is correct
M. Mary's draft is correct
B. Both Smith's review note and Mary's draft are incorrect

Smith's Review Notes

1. An explanatory paragraph is required between the scope and opinion paragraphs for the change in accounting principles referring the reader to Note 10.

2. The names of the other auditors do not need to be explicitly stated in the introductory paragraph. Only that "other auditors" performed the audit and provided their report.

3. The opinion paragraph should extend the auditor's opinion beyond financial position to include the results of Concord's operations and flows. 
 
4. The reference to the uncertainty in the opinion paragraph is incomplete. It should describe the nature of the uncertainty as pertaining to the grand jury investigation into possible violations of federal antitrust laws.
 
5. The explanatory paragraph following the opinion paragraph does not include the terms "substantial doubt" and "going concern". These terms are required to be used in this paragraph.

The explanatory paragraph following the opinion paragraph includes an inappropriate statement that "the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." This statement is misleading and should be omitted.
Auditing and Assurance Services ¦ Arens, Elder, Beasley, Hogan ¦ 17th Edition
Buy Test-Bank


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by warrenjean01 on Aug 21, 2022

kaynelson17

  • Full Member
  • ***
  • Posts: 141
Reply #1 on: Aug 21, 2022
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
Answer Preview
Only 50% of students answer this correctly


warrenjean01

  • Member
  • Posts: 158
Reply 2 on: Aug 21, 2022
Great answer, keep it coming :)

cici

  • Member
  • Posts: 325
Reply 3 on: Yesterday
Wow, this really help

« previous next »
 

Did you know?

Malaria mortality rates are falling. Increased malaria prevention and control measures have greatly improved these rates. Since 2000, malaria mortality rates have fallen globally by 60% among all age groups, and by 65% among children under age 5.

Did you know?

Though methadone is often used to treat dependency on other opioids, the drug itself can be abused. Crushing or snorting methadone can achieve the opiate "rush" desired by addicts. Improper use such as these can lead to a dangerous dependency on methadone. This drug now accounts for nearly one-third of opioid-related deaths.

Did you know?

Asthma occurs in one in 11 children and in one in 12 adults. African Americans and Latinos have a higher risk for developing asthma than other groups.

Did you know?

As many as 20% of Americans have been infected by the fungus known as Histoplasmosis. While most people are asymptomatic or only have slight symptoms, infection can progress to a rapid and potentially fatal superinfection.

Did you know?

The largest baby ever born weighed more than 23 pounds but died just 11 hours after his birth in 1879. The largest surviving baby was born in October 2009 in Sumatra, Indonesia, and weighed an astounding 19.2 pounds at birth.

Which of the following statements is true of linkage? Which of the following statements is true of linkage?
J. P. Morgan, the financial genius, staved off ruinous competition among steel firms by combining mo J. P. Morgan, the financial genius, staved off ruinous competition among steel firms by combining mo
Kiki Smith, Ginzer and Bird Skeleton. Kiki Smith, Ginzer and Bird Skeleton.
Kiki Smith, Bird Skeleton. Kiki Smith, Bird Skeleton.
Concord Grapes Concord Grapes