Assume that Stanford CPAs encountered the following issues during various audit engagements in 2014:
- Stanford conducted the audit of Luck, a new client this past year. Last year, Luck was audited by another CPA, who issued an unmodified opinion on its financial statements. Luck is presenting financial statements for 2013 and 2014 in comparative form.
- One of Stanford’s clients is RealCo, a real estate holding company. Assume that RealCo experienced a significant decline in the value of its investment properties during the past year because of the downturn in the economy and has appropriately recognized that decline in market value under GAAP. Stanford wished to emphasize the decline in the economy and its impact on RealCo’s financial position and results of operations for 2014 in its audit report.
- For the past five years, Stanford has conducted the audits of TechTime, a company that provides technology consulting services, and has always issued unmodified opinions on its financial statements. Based on its 2014 audit, Stanford believes that an unmodified opinion is appropriate; however, Stanford did note that TechTime reported its third consecutive operating loss and has experienced negative cash flows because of the inability of some of its customers to promptly pay for services received.
- Stanford has assisted Cardinal Inc. with the preparation of its financial statements but has not audited, compiled, or reviewed those financial statements. Cardinal wished to include these financial statements in a communication that would describe Stanford’s involvement in the preparation of the financial statements. Stanford believes that Cardinal’s communication is adequate and appropriately describes Stanford’s limited role in the preparation of the financial statements.
- Trees Inc. presents summary financial information along with its financial statements. The summary financial information has been derived from the complete set of financial statements that Stanford has audited (and issued an unmodified opinion on the complete financial statements). A lender has engaged Stanford to evaluate and report on Trees’ summary financial information. Stanford believes that summary financial information is fairly stated in relation to Trees’ complete financial statements.
- Stanford believes that some of the verbiage in Plunkett’s Management Discussion & Analysis section is inconsistent with the firm’s financial statements. Stanford has concluded that Plunkett’s financial statements present its financial position, results of operations, and cash flows in accordance with GAAP and has decided to issue an unmodified opinion on Plunkett’s financial statements.
- Oil Patch is a client in the energy industry that is required to present supplementary oil and gas reserve information. Stanford has performed certain procedures regarding this information and concluded that it is presented in accordance with the Financial Accounting Standards Board (FASB) presentation guidelines and does not appear to depart from GAAP. Based on the audit, Stanford plans to issue an unmodified opinion on Oil Patch’s financial statements.
How would each of these issues affect Stanford’s report on the client financial statements? Do not draft the report that Stanford would issue for each situation. Be sure to answer each situation separately.