Describe four types of audit opinions Green and Associates may provide at the conclusion of a corporate financial audit
Financial information should be accompanied by an auditor’s report. One of the opinions suggested include the fact that unqualified opinion is made when an auditor indicates that the financial statements of the represented company provide a fair and true view in accordance the financial reporting framework.
The auditor issues this report when the financial statements do not include mis-statements and they are fairly presented according to Generally Accepted Accounting Principles (GAAP) (Vallabhaneni, 2005, p186).
A qualified opinion report is issued by auditors when two situations do not rhyme with the General Accepted Accounting Principles (GAAP).
Single deviation qualification occurs when one or several areas of the financial statements do not comply with GAAP, however, they do not affect the rest of the financial statement.
Limitation of scope qualification is evidenced when a single or more areas of financial statements could not be audited, for instance, failure to test a company’s inventory of goods.
Adverse opinion report is evident when the auditor confirms that the financial statements of a company are misstated, hence, they do not conform to GAAP.
These statements are regarded as unreliable and inaccurate. In addition, disclaimer of opinion report is issued when an auditor declines to present an opinion regarding the financial statements, and therefore fails to complete the audit for some reason; therefore, does not provide the company with an opinion (Vallabhaneni, 2005, p.186).
Determine whether the inventory valuation method used by ABC Corporation was legal and compliant with GAAP
ABC Corporation previously used FIFO inventory valuation method before changing to LIFO, with an intention of enhancing the annual tax return. The First In, First Out entails selling the goods bought earliest first, while the newest goods are sold last.
Generally Accepted Accounting Principles (GAAP) allows the use of FIFO method; this method yields to highest income especially in times of inflation due to the lowest estimate of cost of goods sold.
However, the rational change from one valuation method to another is not ethical, since the company shifted to LIFO with an aim of enhancing annual tax return, hence plans to shift back to FIFO when things get better.
Is the client’s refusal to procure an audit of Internal Controls over Financial reporting in violation of Sarbanes-Oxley? Why or why not?
ABC refusal to allow the auditors to separate audit of internal controls over financial reporting is a violation of Sarbanes –Oxley Act section 404, which requires an auditor to report on the company’s adequacy of internal control over financial reporting.
The internal control report entails the management’s effort in maintain an effective internal control structure. Therefore, the act requires companies to include an assessment of internal controls and the procedure of financial reporting.
Effective internal controls allow for the preparation of reliable financial reports; therefore, ABC refusal to procure an internal control violates the act (price water house coopers, et al., 2004, p.1).
In compliance with GAAP, which type of audit opinion should Green and Associates issue?
ABC company has not complied to all the rules of GAAP, the refusal to procure internal controls over financial reporting with an aim of avoiding further costs, is a violation of the rules pertaining to GAAP.
Therefore green and associates auditors should issue a qualified opinion based on the two questionable issues at hand, on internal controls and valuation methods.
Discuss the ethical issues involved for ABC Corporation and for Green and Associates
Ethical issues here apply to both the organization and the auditing firm; ABC Corporation should ensure that it operates under the standards of GAAP, hence avoiding the violation of law.
ABC is currently avoiding costs, hence violating the Sarbanes –Oxley Act section 404, which requires internal controls in a company. The corporation should also consider hiring competent personnel, who will abide by the required regulations, among them GAAP.
Green and associates auditors should not overlook any errors in ABC Corporation. An effective and reliable opinion should be made regarding the current status of the company.
When an honest report is made, the company is capable of correcting its faults, hence operating by the rules of GAAP. Lack of appropriate feedback could result to the downfall of a firm.
References
PriceWaterhouseCoopers. (2004). Internal Control over Financial Reporting, an investor resource. Web.
Vallabhaneni, S. (2005). Wiley CIA Exam Review, Conducting the Internal Audit Engagement. Edition 3. NJ: John Wiley and Sons Publisher. Print.