Solved Items 1 through 5 present various independent factual

1. Items 1 through 5 present various independent factual situations an auditor might encounter in conducting an audit of a nonpublic company. For each situation, assume:       The auditor is independent. The auditor previously expressed an unmodified opinion on the prior year’s financial statements. The nonpublic audit client is presenting single-year (not comparative) financial statements. The conditions for an unmodified opinion exist unless contradicted in the factual situations. The conditions stated in the factual situations are material. No report modifications are to be made except in response to the factual situation. Required: List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any) that would be necessary. Select as the best answer for each situation (items 1 through 5) the type of opinion and alterations, if any, the auditor would normally select. Replies may be selected once, more than once, or not at all. List A: Types of List B: Report Alteration Opinions A.Unmodified H.Add an emphasis-of-matter paragraph—prior to opinion paragraph. B.Qualified I.Add an emphasis-of-matter paragraph—after opinion paragraph. C.Adverse J.Add a basis-for-modification paragraph— prior to opinion paragraph. D.Disclaimer K.Add a basis-for-modification paragraph— after opinion paragraph. E.Qualified or L.Modifications other than addition of a adverse paragraph. Qualified or M. F. Issue standard report without alteration. disclaimer Disclaimer or G. adverse Explanation 1. (F,J) A situation in which an auditor is unable to obtain audited financial statements for an investee represents a scope restriction. Scope restrictions lead to either a qualified opinion or a disclaimer of opinion. A decision as to whether the auditors should qualify or disclaim the opinion is dependent upon whether pervasive misstatements are possible. 2. (A,I) Substantial doubt about an entity's ability to continue as a going concern leads to either an unqualified opinion with an emphasis-of-matter paragraph, or a disclaimer. Because the problem indicates a disclaimer will not be issued, only an unqualified opinion with an emphasis-of-matter paragraph is appropriate. 3. (A,M) A standard unmodified opinion is appropriate in circumstances in which a group auditor takes responsibility for the work of a component auditor. 4. (A,I) When an auditor agrees with a change in accounting principles, a lack of consistency results in an unmodified opinion with an emphasis-of-matter paragraph following the opinion paragraph. 5. (B,J) Departures from generally accepted accounting principles result in either a qualified opinion or an adverse opinion, based on the pervasiveness of misstatements. Given that the situation suggests that the misstatement cannot be pervasive, a qualified opinion is appropriate.