Various Reporting Situations [CLOs: 1, 2, 5]
Assume that Stanford CPAs encountered the following issues duringvarious audit engagements in 2014:
Stanford conducted the audit of Luck, a new client this pastyear. Last year, Luck was audited by another CPA, who issued anunmodified opinion on its financial statements. Luck is presentingfinancial statements for 2013 and 2014 in comparative form.
One of Stanford’s clients is RealCo, a real estate holdingcompany. Assume that RealCo experienced a significant decline inthe value of its investment properties during the past year becauseof the downturn in the economy and has appropriately recognizedthat decline in market value under GAAP. Stanford wished toemphasize the decline in the economy and its impact on RealCo’sfinancial position and results of operations for 2014 in its auditreport.
For the past five years, Stanford has conducted the audits ofTechTime, a company that provides technology consulting services,and has always issued unmodified opinions on its financialstatements. Based on its 2014 audit, Stanford believes that anunmodified opinion is appropriate; however, Stanford did note thatTechTime reported its third consecutive operating loss and hasexperienced negative cash flows because of the inability of some ofits customers to promptly pay for services received.
Stanford has assisted Cardinal Inc. with the preparation of itsfinancial statements but has not audited, compiled, or reviewedthose financial statements. Cardinal wished to include thesefinancial statements in a communication that would describeStanford’s involvement in the preparation of the financialstatements. Stanford believes that Cardinal’s communication isadequate and appropriately describes Stanford’s limited role in thepreparation of the financial statements.
Trees Inc. presents summary financial information along with itsfinancial statements. The summary financial information has beenderived from the complete set of financial statements that Stanfordhas audited (and issued an unmodified opinion on the completefinancial statements). A lender has engaged Stanford to evaluateand report on Trees’ summary financial information. Stanfordbelieves that summary financial information is fairly stated inrelation to Trees’ complete financial statements.
Stanford believes that some of the verbiage in Plunkett’sManagement Discussion & Analysis section is inconsistent withthe firm’s financial statements. Stanford has concluded thatPlunkett’s financial statements present its financial position,results of operations, and cash flows in accordance with GAAP andhas decided to issue an unmodified opinion on Plunkett’s financialstatements.
Oil Patch is a client in the energy industry that is required topresent supplementary oil and gas reserve information. Stanford hasperformed certain procedures regarding this information andconcluded that it is presented in accordance with the FinancialAccounting Standards Board (FASB) presentation guidelines and doesnot appear to depart from GAAP. Based on the audit, Stanford plansto issue an unmodified opinion on Oil Patch’s financialstatements
