Standards Based Decision Making
Standards Based Decision Making
Team C
June 24, 2012 ETH 376 Professor
Standards Based Decision Making
Green and Associates is the CPA firm retained by the ABC Corporation to handle their external auditing duties. The auditing team at Green and Associates took time to review aspects of ABC’s finances and had some questions regarding their client’s monthly statements that made them a little uneasy. Items such as their inventory valuation methods not to mention, Green’s new client will not submit to an audit of internal financial controls. With all of the issues that Green and Associates are encountering the four types of auditor’s opinions, if their inventory valuation methods are legal and supported by GAAP, and if ABC’s refusal to permit an internal controls audit is within federal law need to be investigated. Lastly, an opinion must be written to address the situation and detail the ethical problems involved for both ABC and Green and Associates.
The four types of opinions auditors use to quantify a statement of opinion regarding a completed financial audit are; unqualified, unqualified with an explanatory paragraph, qualified, and adverse. An unqualified opinion is the most desired from an auditor because it means an auditor regards the financial statements as being “clean”, and they fairly represent the financial condition of a company. Auditors must plan for audits and examine materials which give an auditor sufficient information for understanding and knowledge of a company to perform tests of information within financial statements to determine materiality, adherence to GAAP. An example of an unqualified audit is:
To the Board of Directors and Shareholders
Company AAA
Address
We have audited the accompanying balance sheets and the related statements of income, retained earnings, and cash flows of AAA Company as of December 31, XXXX, and XXXX. The company’s management is responsible for these financial statements. Our
Team C
June 24, 2012 ETH 376 Professor
Standards Based Decision Making
Green and Associates is the CPA firm retained by the ABC Corporation to handle their external auditing duties. The auditing team at Green and Associates took time to review aspects of ABC’s finances and had some questions regarding their client’s monthly statements that made them a little uneasy. Items such as their inventory valuation methods not to mention, Green’s new client will not submit to an audit of internal financial controls. With all of the issues that Green and Associates are encountering the four types of auditor’s opinions, if their inventory valuation methods are legal and supported by GAAP, and if ABC’s refusal to permit an internal controls audit is within federal law need to be investigated. Lastly, an opinion must be written to address the situation and detail the ethical problems involved for both ABC and Green and Associates.
The four types of opinions auditors use to quantify a statement of opinion regarding a completed financial audit are; unqualified, unqualified with an explanatory paragraph, qualified, and adverse. An unqualified opinion is the most desired from an auditor because it means an auditor regards the financial statements as being “clean”, and they fairly represent the financial condition of a company. Auditors must plan for audits and examine materials which give an auditor sufficient information for understanding and knowledge of a company to perform tests of information within financial statements to determine materiality, adherence to GAAP. An example of an unqualified audit is:
To the Board of Directors and Shareholders
Company AAA
Address
We have audited the accompanying balance sheets and the related statements of income, retained earnings, and cash flows of AAA Company as of December 31, XXXX, and XXXX. The company’s management is responsible for these financial statements. Our
References: Jane, M. (2012). Why do companies change inventory valuation? Retrieved June 24, 2012 from http://smallbusiness.chron.com/companies-change-inventory-valuation-12446.html Mintz, S. M., & Morris, R. E. (2011). Ethical obligations and decision making in accounting. (2nd ed.). New York, NY: McGraw-Hill/Irwin.