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Audit Opinion Case

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Submitted By lucyyang
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Case A

Overview

Neil, Inc. engaged Lifeson and Lee, CPAs to audit its 2010 financial statement. Neil, Inc. has never been audited in prior years. Neil, Inc. is a manufacturing company that uses the periodic inventory system and has no controls in its purchasing process. Neil, Inc. is not a public company.

Lifeson and Lee conclude the audit of Neil, Inc.’s financial statements and found no material deviations from GAAP and no other scope limitations. The subsequent discussion will be regarding the opinion that Lifeson and Lee should issue based upon the facts of the case.

Issues Examined

Upon examining the facts and circumstances of the case several issues arose:

- First Year Audits - Not a Public Company - Internal Controls

Each issue can greatly influence the appropriate opinion that should be issued by Lifeson and Lee.

First Year Audits

Neil, Inc. has never been audited. This presents a difficult situation for Lifeson and Lee since they are relying on past financial statements to determine the validity of 2010 financials. According to AU section 420.24, “When the independent auditor has not audited the financial statements of a company for the preceding year, he should adopt procedures that are practicable and reasonable in the circumstances to assure himself that the accounting principles employed are consistent between the current and the preceding.” In order for Lifeson and Lee to gain confidence of consistency and accuracy they would have to expand their audit to financial records of the prior year according to the AICPA professional standards.

Strictly adhering to the facts of the case, it makes no mention of such expansion; thus we conclude that Lifeson and Lee did not obtain “sufficient appropriate audit evidence about the consistent application of accounting principles between the current and the prior year, as well as

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