Part 2 Using the scantron for questions 40-50, please indicate what the a. Unmodified b. Disclaimer e. Adverse appropriate opinion should be. d. Qualified e. Unmodified with an explanatory paragraph (other matter or emphasis) o, p observe the client\'s iventory count procedures nventory is a material pat of he balance sheet not pervasively so. 41. The client changed from the cost method to the equity method of accounting for investments in 15% of X Corp com stock, The elient argues that the ownership interest allows for significant influence over the investee. You do nor concur with the reason for the change. The dollar effects are considered material 42. The client omitted the statement of cash flows. All other required statements are included. 43. Because of economic conditions, you have doubts about your client\'s ability to continue as a going concern for a reasonable time following year end. The financials adequately disclose this issue. 44. You notice a statement in the Management\'s Discussion and Analysis portion of the 10K report containing the audited financial statements that you believe is materially inconsistent with the financial statements. The client refuses to change the MD&A.; 45. You audit client, Microsoft, obtains a subsidiary, Dell, during this year. Last year\'s financial statements for Microsoft did not include Dell in the consolidated statements, but this year\'s statements do. 46. Your client changed its current year depreciation calculations by shortening the estimated useful lives of its major lines of equipment. The effect is material when compared to the prior year 47. There is a material pending lawsuit against your client which the attorneys estimate has a remote chance of an unfavorable outcome. The amount of the lawsuit is reasonably determinable, but the potential liability has not been recorded on the balance sheet or disclosed in the footnotes. 48. Your client did not capitalize certain leases as required by GAAP. The effect is material and pervasive. 49. You are unable to audit a subsidiary of the client located in Afghanistan. The unaudited amounts are a material and pervasive part of the financial statements. 50. Your client did not follow the provisions of a FASB statement, but has convinced you that by following the FASB statement, the financial statements would be misleading. The item is adequately discussed in the footnotes.
40. The auditor should perform alternative procedures, if not possible then disclaimer of opinion because inventory is material but not pervasive.
41. The auditor should ask the client that it is not a valid reason to change and he should restore the old method because dollar effects are considered material.
42. The auditor should qualify the audit report.
43. The auditor has doubts on the going concern assumption of the client and the financial statements disclose the same, the auditor should give unmodified opinion with explanatory paragraph.
44. The auditor does have a responsibility to \"read the other information and see if it is materially inconsistent with information appearing in the financial statements\" .In the above case a material inconsistency is noted, and the client refuses to correct inconsistency, the auditor should give an unmodified opinion with an explanatory paragraph or withdraw from the audit engagement depending upon the severity of the inconsistency.
45. The consolidated financial statements are prepared including the financial statements of subsidiary, last year Dell was not acquired by Microsoft but this year it is, hence unmodified opinion.
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