Standards-Based Decision Making
May 20, 2013
Learning Team "A" Standards-Based Decision Making
ABC Corporations is a publically traded corporation and is a major nationwide merchandiser. ABC Corporation has hired a CPA firm named Green and Associates to perform an external audit. During the research, Green and Associates discovered that ABC switched their inventory valuation methods from FIFO to LIFO, which has caused some concerns. This paper will cover the audit opinions, whether or not ABC is in agreement with the SOX, GAAP, and GAAS, and the ethical issues involved in this case.
Four types of audit opinions
There are four different types of opinions that Green and Associates could provide at the end of the financial audit of ABC Corporation. Green and Associates is responsible for applying one of the following audit opinions.
1. Unqualified opinion – This opinion simply states that the auditor believes that the corporation has followed the rules concerning accounting properly and that the reporting was an accurate demonstration of the corporation’s financial condition (Mintz & Morris, 2011). This would not be the case for ABC because the financial statements are not accurate and the do not follow all of the accounting rules and regulations set forth by GAAS and GAAP.
2. Unqualified opinion with an explanatory paragraph – This is an unqualified opinion along with a paragraph that includes further explanation of the auditor’s opinion.
3. Qualified opinion – This opinion states the auditor’s concerns or doubts concerning the reliability in different areas of the financial statements (Mintz & Morris, 2011). ABC decided to make a change from LIFO to FIFO in the middle of an audit, stating that the change in activity would improve their annual tax return. This would cause concerns and doubts with the auditors.
4. Adverse opinion – this opinion could be used in certain situations if the auditor concluded that the...