EIRST YEAR AUDIT PROBLEMS Case 1Client never audited before

EIRST YEAR AUDIT PROBLEMS Case 1.-Client never audited before (no predecessor auditor) Problem: Beginning..inxentorx not audited (observed)- Scope problem for B/S? Question: isn\'t this a piecemeal opinion??? 2) Easiest way out--Balance-Sheet-Only Audit in first year US2YES Cash Flow? -Options: 1) Disclaim on Income Simt and Cash Flows Stmt., Clean Opinion on B\'s (example below

Solution

The scope problem will be for I/S – Income Statement. This is because cost of goods sold depends on the amount of beginning inventory.

Cost of goods sold = beginning inventory+purchases-closing inventory.

Options: This situation should be disclaimed on the income statement and the cash flow. The cash flow from operations will be affected by any increase or decrease in inventory during the year, compared to the opening balance. Hence a disclaimer will be required in income statement and cash flow statement.