[lk]

did this one twice. got it wrong twice.

so if there is omission of any of the statements, it is always departure from GAAP?

for issuers, agreed. gotta comply with PCAOB. very strict rules.

how about non-issuers? do non-issuers have to present a full set of all statements? i thought an auditor can still issue unmodified opinion if engaged only to audit some statement, not others. no?

thanks in advance. i selected choice a, btw.

Question:
Zag Co. issues financial statements that present financial position and results of operations but Zag omits the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows although Brown’s access to all of the information underlying the basic financial statements will not be limited. Under these circumstances, Brown most likely would:

a.Add an emphasis-of-matter paragraph to the auditor’s report that justifies the reason for the omission.
b.Refuse to accept the engagement as proposed because of the client-imposed scope limitation.
c.Prepare the statement of cash flows as an accommodation to Zag and express an unmodified opinion.
d.Explain to Zag that the omission requires a qualification of the auditor’s opinion.

Becker Explanation
Choice “d” is correct. The auditor would explain to the client that in order for the entity’s financial statements to be in conformity with GAAP, there must be adequate disclosures of all material matters including all financial statements and the supporting footnotes. As a result, the auditor would tell Zag that without adequate disclosure of the entity’s cash flows, the audit report would have to be issued with a qualified or adverse audit opinion.
Choice “a” is incorrect. Missing the statements of cash flows would not result in an unmodified opinion with an additional emphasis-of-matter paragraph because no statement of cash flows is a material departure from GAAP.
Choice “b” is incorrect. The auditor is not required to refuse to accept the engagement, but the client should be made aware that the missing statement of cash flows will result in a qualified or adverse opinion.
Choice “c” is incorrect. The responsibility to prepare the statement of cash flows is solely the client’s.