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(solution) For each of the following independent situations, assume that you


For each of the following independent situations, assume that you are the partner-in-charge of the audit.

a. The Johnson Company, a non-public company, uses the double-declining balance method of depreciation for property, plant and equipment held in the United States and the straight-line method for property, plant and equipment held in other countries. Approximately half of the company's property, plant and equipment is located in the United States. Johnson clearly discloses this long-standing accounting policy.

b. You identified a material weakness during your integrated audit of the Benjamin Company, a large public company that is subject to SOX section 404.b. Nevertheless, you firmly believe that the financial statements are fairly presented. (You will issue a separate report on internal control over financial reporting.)

c. Zela.com is a non-public internet-based start-up company created to sell cosmetic jewelry online. Although the company had a promising start, the emergence of several new online competitors has negatively affected the company. The company's sales and cash position have deteriorated significantly, and you have reservations about the ability of the company to continue in operation for the next year.

d. Blue.com, Inc. is a non-public online retailer of sporting goods. The company records revenues at the time customer orders are placed on the website, rather than when the goods are shipped, which is usually two days after the order is placed. Your audit staff determined that the amount of orders placed but not shipped as of the balance sheet date is not material although the auditor staff also told you that there are times during the year when the amount is material.

e. The Alex Company has never been audited before, although another firm has performed reviews under the Statements on Standards for Accounting and Review Services for each of the seven years the company has been in existence. On September 1 of this year (2015) the company has hired your firm to audit its financial statements because the bank has told the company that it will triple its loans to the company only if the company provides audited financial statements for the current year ending December 31, 2015. Only single-year (2015) financial statements will be presented this year. You are able to satisfy yourself with all the December 31, 2014 balances except for the inventory (a material amount) because you obviously cannot observe that inventory. The company needs the additional loans for expansion purposes.

Unless the facts indicate otherwise, you may assume.

The entity has presented comparative financial statements in the current year and your report will cover both years (three years as required by the SEC for a public company).

You previously expressed an unmodified/unqualified opinion on the prior year's(s') financial statements.

The conditions stated in each situation are material.

No modifications from the standard report for the entity are necessary other tan in response to the facts provided.

 


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