Reference no: EM1373970

For each of the subsequent independent situations, show the reason for and the type of audit report that you would issue. Consider that each item is significant.

b. The management of Bonner Corporation has determined to exclude the statement of cash flows from their financial statements because they consider that their bankers do not find the statement to be very useful.

c. You are auditing Diverse Carbon, a manufacturer of nerve gas for military, for the year ended 30th September, 2003. On September 1, 2003, one of their manufacturing plants caught fire, releasing nerve gas into the surrounding area. Two thousand people were killed and many others paralyzed. The company's legal counsel shows that the company is liable, but the company does not want to disclose this information in financial statements.

d. During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allow you to verify accounts receivable because she is concerned about complaints from her customers. You are unable to please yourself about accounts receivable by other audit procedures.

f. Gelato Bros., Inc., leases its manufacturing facility from a partnership controlled by the chief executive officer and main shareholder of Gelato. Your review of the lease shows that the rental terms are in excess of rental terms for similar buildings in area. The company refuses to reveal this relationship in the footnotes.

g. Johnstone Manufacturing Company has used the double-declining balance method to depreciate its machinery. During the present year, management switched to the straight-line method because they felt that it better shown the utilization of the assets. You concur with their decision. All information is sufficiently disclosed in the financial statements.