An auditor was unable to physically count the inventory at year-end due to a flood arising from a hurricane.The inventory represents over 80% of the current assets and 60% of the total assets on the balance sheet.In addition,while completing other audit procedures,the auditor determines that a material investment reported using the cost method should instead be reported using the equity method.How should the audit report by these two circumstances?
A)The auditor must resign from the engagement to avoid association with false or misleading information.
B)A qualified opinion should be issued,indicating both a scope restriction and a GAAP departure.The basis for disclaimer paragraph should explain both that the inventory could not be counted and that the impact of the investment not being presented using the equity method.
C)A disclaimer of opinion should be issued: the basis for disclaimer paragraph should explain that inventory could not be counted and also explain the impact of the investment not being presented using the equity method.
D)An adverse audit opinion should be issued,with the inventory and investment issues explained in the basis for adverse opinion paragraph.

Question

Quizplus · Accepted Answer

Since the auditor was unable to physically count the inventory, there is a scope limitation, which requires a disclaimer of opinion. Furthermore, the incorrect accounting treatment of the investment is a departure from GAAP, which also requires a disclaimer of opinion. Therefore, the best choice is to issue a disclaimer of opinion with a basis for disclaimer paragraph explaining both the inventory issue and the investment issue.

An Auditor Was Unable to Physically Count the Inventory at Year-End