Case 12.1 EyeMax Corporation – evaluating audit differences

 

Assume that you are the auditor responsible for the EyeMax audit. It is now March 30, and all planned
fieldwork has been completed. Recall that total financial statement materiality has been set at $625,000.
Taking into account the information provided, please answer the following question.
[1] Which of the following three alternatives best describes the conditions under which you
would issue a clean opinion for EyeMax? (select one) ____
a. I would not be willing to issue a clean opinion even if EyeMax is willing to make adjustments
for items on the Summary of Unadjusted Misstatements. ____
b. I would be willing to issue a clean opinion without any adjustments. ____
c. I would be willing to issue a clean opinion only if EyeMax is willing to make some adjustments
to their financial statements for items on the Summary of Unadjusted Misstatements. Briefly explain your choice:

 

[2] If you selected options “a” or “b” in question 1, assume now that the client has decided that
they will make an adjustment of up to $250,000 to their financial statements. Please decompose the
total adjustment you would recommend into the individual account classifications included on the
Summary of Unadjusted Misstatements in the space provided below (e.g., what adjustment would you
require for warranty expense, repair and maintenance expense, etc? The dollar values of your individual
account adjustments should sum to no more than $250,000).
If you selected item “c” in question 1, what is the minimum total adjustment that you would
require before issuing a clean opinion? $________________Please decompose this total adjustment into
the individual account classifications included on the Summary of Unadjusted Misstatements in the
space provided below (e.g., what adjustment, if any, would you require for warranty expense, repair and
maintenance expense, etc? The dollar values of your individual account adjustments should sum to your
required minimum adjustment). Please briefly explain your decisions:

 

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