Russell Joseph L.

Lorete

BSA 3A

Final SW – Audit Reports

Auditing Theory

1. Qualified, scope limitation or Disclaimer

Difficult to answer because the auditor may not have enough information to render an opinion.
If the auditor is satisfied that the loans need to be written down by the $7.5 million, a qualified
(except for opinion) is appropriate. If the auditor suspects fraud, then additional audit work
needs to be performed. If enough evidence cannot be gathered, a disclaimer of opinion must be
issued.

2. Unqualified, standard wording

Auditor has a well-developed sampling plan and sufficient justification to use the work of the
internal auditors to corroborate the audit approach. No exceptions were noted, and the extent
of work appears to be sufficient to justify the audit opinion.

3. Unqualified, standard wording

The research related to the development of a specific product is adequately described in the
notes to the financial statements. Research and development cost must be expensed until the
product is feasible. Appears that the capitalized costs are appropriate. Therefore, an unqualified
report without an explanatory paragraph is appropriate.

4. Qualified, 2 GAAP violations

Auditor has substantial doubt about the ability of the company to remain a going concern.
Although management has confidence that an alternative source may be found, doubt still
exists. Management's problems and plans are not adequately described in a note to the
statements. This is a GAAP violation and a qualified opinion should be issued that makes it clear
the auditor has substantial doubt about the client being a going concern and that the required
disclosures are missing. In addition, if the client does not reclassify the loan as a current liability,
that would also be a GAAP violation that should be disclosed in the auditor's report

5. Qualified, GAAP violation

The financial statements contain a material departure from GAAP, but the departure is limited
to a single asset account. Its impact can be identified and described. Some may argue that an
adverse audit opinion could be given because of the materiality. Most auditors, however, would
likely give the qualified opinion because the departure is not pervasive to the financial
statements.

6. Unqualified, standard wording

The key is that the manager was confident that the audit was eventually completed in
accordance with professional auditing standards and that the statements did not contain any
material errors.