AFM202 Chapter Notes - Chapter 10: Audit Evidence, Financial Statement

The following auditor’s report was drafted by a staff accountantof Nathan and Mat-
thew, CPAs, at the completion of the audit of the comparativefinancial statements

of Monterey Partnership for the years ended December 31, 2015and 2014. Mon-
terey is a privately held company that prepares its financialstatements on the income

tax basis of accounting. The report was submitted to theengagement partner, who

reviewed matters thoroughly and properly concluded that anunmodified opinion

should be expressed. The draft of the report prepared by aninexperienced staff audi-
tor is as follows:

Auditor’s Report

We have audited the accompanying financial statements ofMonterey Partnership,

which comprise the statements of assets, liabilities, andcapital–income tax basis as

of December 31, 2015, and the related statements of revenue andexpenses–income

tax basis and of changes in partners’ capital accounts–incometax basis for the year

then ended, and the related notes to the financialstatements.

Final PDF to printer

Auditor’s Responsibility

We conducted our audit in accordance with standards establishedby the AICPA.

Those standards require that we plan and perform the audit toobtain reasonable assur-
ance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidenceabout the

amounts and disclosures in the financial statements. Theprocedures selected depend

on the auditor’s judgment, including the assessment of the risksof material mis-
statement of the financial statements, whether due to fraud orerror. An audit also

includes evaluating the appropriateness of accounting policiesused as well as evalu-
ating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained issufficient and appropriate

to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to abovepresent fairly, in all

material respects, the assets, liabilities, and capital ofMonterey Partnership as of

December 31, 2015, and its revenue and expenses and changes inpartners’ capital

accounts for the year then ended in conformity with generallyaccepted accounting

principles applied on a consistent basis.

Basis of Accounting

We draw attention to Note 2 of the financial statements, whichdescribes the basis

of accounting. The financial statements are prepared on thebasis of accounting the

Partnership uses for income tax purposes. Accordingly, thesefinancial statements

are not designed for those who do not have access to thePartnership’s tax returns.

Our opinion is not modified with respect to this matter.

Nathan and Matthew, CPAs

April 3, 2016

Required:

Identify the errors and omissions in the auditor’s report asdrafted by the staff audi-
tor. Group the errors and omissions by paragraph, where applicable.Do not redraft

the report.

You are a newly qualified accountant who works for the auditfirm Harrison Ford & Co. You have been approached by apotential new client, Calista Electronics Pty Ltd, who is lookingfor an audit firm to carry out an audit on its annual financialreport prepared in accordance with the Corporations Act. Themanaging director, Calista Flockhart, is not sure exactly what anaudit involves and what are the responsibilities of theauditor.

Required: Prepare notes for a meeting with Calista Flockhartwhich identifies the responsibilities of the auditor and theresponsibilities of management.

The notes should cover the following:

 Distribution of the annual report to shareholders.

 Delivery of the audit report to the entity.

 Obtaining and evaluating evidence concerning the financialreport.

 Preparation and presentation of the financial report.

 Maintaining adequate internal controls.

 Testing internal control procedures.

 Expressing an opinion on the financial report.

 Selecting appropriate accounting policies.

 Ensuring the financial report is presented in accordance withstandards.

 Performing test of controls.

I am trying to find NOT unqualified opinion. Some reports do not say "unqaulified." Does it mean that they are NOT UNQUALIFIED? Here is a report. If it is not unqualified, please explain me why it is not unqualified. In other words, it is qualified or adverse.

To the Board of Directors and Stockholders

Duonas Corp.

We have audited the accompanying balance sheets of Duonas Corp. as of June 30, 2017 and 2016, and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Duonas Corp. as of June 30, 2017 and 2016 and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had no revenues and earnings since inception. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2, which includes achieving profitable operations and raising additional funds. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ TAAD, LLP

Diamond Bar, CA

September 1, 2017