The following are four unrelated situations

Subject:AccountingPrice: Bought3

Share With

 

The following are four unrelated situations. For each situation, identify the appropriate type of audit opinion and give reasons. State any assumptions that may be necessary. A) King City Construction Ltd. is in the business of providing construction for government structures (for example highways and bridges). Most of King City's projects are long term in nature and thus King City uses the percentage of completion method for revenue recognition. King City is aggressive in its revenue recognition compared to the industry. Your review of this year's contracts indicates that several projects look as if they will be high in revenue for the first two years, and then have negligible earnings for the next three years. (4 marks) B) OakPlus Manufacturing Limited constructs furniture out of oak wood. The furniture is respected for its durability and craftsmanship. Last year, the company received a letter from a governmental agency advising that it had been found that the factory was located on contaminated land that leaked hazardous chemicals into the air. This was a preliminary letter stating that a full investigation into the health effects was underway. Management stated that everything is OK - the investigation was terminated. However, the lawyer refused to sign the legal letter with respect to several lawsuits with respect to employee claims for long term disability due to a nervous disorder that affected employees' ability to work. Neither the investigation nor the lawsuits are disclosed in the notes to the financial statements. (4 marks) C) Metallix Ltd. is a construction company that builds and repairs hospitals. An architect does the design, and four different small construction companies are used to build the hospitals. You are worried that some of the projects that span the April year end may result in material losses, even though income has been reported in the coming year. Management has refused permission for you to enter construction sites, as they feel that the construction sites will be dangerous and they do not want to be exposed to such liability. (4 marks) D) Greencorp is a charitable organization devoted to maintaining national parks. Fund raising is handled primarily by means of electronic mail and door to door canvassing by volunteers. Volunteers conducting canvassing provide receipts at the door using prenumbered receipts. Funds raised by email are sent receipts by email. (4 marks) Use the following table format for your answer: Situation Identify type of appropriate audit opinion (1 mark) Explanation (3 marks each) A B C D