University Finance Report: Auditing and Control in the Organization

This report provides an analysis of auditing and control practices within an organization, focusing on several scenarios and the corresponding audit opinions. The report examines a retailer's incorrect inventory valuation, the implications of a major customer's liquidation on a company's going concern, the use of fair value measurement for a building, and a company's disagreement with accounting standards regarding LIFO and FIFO methods. Each scenario is assessed, and the appropriate audit opinion (Adverse or Qualified) is justified based on the misstatements and their impact on the financial statements. The report references relevant academic literature to support its findings and conclusions, offering a comprehensive overview of auditing and control principles in practice.

Running head: AUDITING AND CONTROL IN THE ORGANIZATION
Auditing and Control in the Organization
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to Question 2......................................................................................................................2
Answer to Question 3......................................................................................................................2
Answer to Question 4......................................................................................................................3
Answer to Question 5......................................................................................................................3
References........................................................................................................................................5

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Answer to Question 2
It is evident from the above mentioned scenario that the retailer has mentioned the
valuation as the inventory at sales price less than the allowance created for the sales margin.
From the above mentioned fact it can be stated that the retailer has followed wrong accounting
practice. It is being done deliberately so it falls under the purview of the deliberate error as the
retailer has released the allowance on sales price. It is done with the intention to overstate the
value of inventory. The auditor should implement Adverse Audit Opinion to the
company(Cipriano, Hamilton and Vandervelde 2017). The adverse audit opinion is provided by
the auditor when the financial statement of the company is not satisfied as it contains material
misstatement which may affect in the trust issue of the investors and government. Due to the
adoption of the non-acceptable approach of the auditor in the inventory valuation of the
company, the auditor should provide adverse audit opinion.
Answer to Question 3
From the above mentioned scenario it is evident that the customer who bought 45% of
stock from the Block Company has went for liquidation. As the company mainly deals with the
specific nature of products it is very hard for the company to find such big size customer. This is
the major reasons behind the declining sales graph in business operations. Due to this reason the
company are to be questioned whether they can move forward as the going concern. So the
auditor of the company needs to issue Qualified Audit Opinion(Chan, Luo and Mo 2016). The
auditor actually is in doubt regarding the going concern of the company in the future. Moreover
the company has not taken major actions to resolve such issues. So the auditor of Block
Company has gone for Qualified Audit Opinion.So the auditor need to mention about the prove,

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from where it can be clear that the they have benefit of doubt in respect to the going concern of
the company in future.
Answer to Question 4
From the above mentioned scenario it is evident for the company to see that Croucher
Company has went for fair value measurement for the valuation of their building. In the balance
sheet of Croucher Company it can be seen that the value is $18.5 million but according to the
mentioned data it can be seen that the original value of the building is $12 million(Newton et al.,
2015). It is very important for the company to list the buildings at the historical cost because
usually this assets does not readily gets sold as they are used by the company for commercial
purpose and so they cannot be converted into cash very easily. So the auditor has provided
Qualified Audit Opinion. The auditor has provided empirical data against the company as the
company has done misstatement in terms of the financial statement of the company. The auditor
has justified the reasons behind the Qualified Audit Opinion(Chan, Luo and Mo 2016). The
management of the company has provided the valuation of the building in accordance with the
fair value but not in historical value and hence the value of the building increases so the auditor
has provided their verdict against the company.
Answer to Question 5
As stated in the given scenario the company, Kaycee Company do their valuation in
accordance with the LIFO method and they do not want to change their valuation system to FIFO
method which was provided by Australian Accounting Standard Board. This disagreement leads
to misstatement of the financial statement of the company(Omid 2015). So the auditor has
provided Qualified Audit Opinion against the company. The material misstatement done by the

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company does not lead to pervasive as there is no change in the case of financial statement of the
company. It can be seen that the material misstatement in nature. From the above mentioned case
it can be said that the decision of the auditor is perfectly fine.

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References
Chan, K.H., Luo, V.W. and Mo, P.L., 2016. Determinants and implications of long audit
reporting lags: Evidence from China. Accounting and Business Research, 46(2), pp.145-166.
Cipriano, M., Hamilton, E.L. and Vandervelde, S.D., 2017. Has the lack of use of the qualified
audit opinion turned it into the “Rotten Kid” threat?. Critical Perspectives on Accounting, 47,
pp.26-38.
Newton, N.J., Persellin, J.S., Wang, D. and Wilkins, M.S., 2015. Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), pp.603-623.
Omid, A.M., 2015. Qualified audit opinion, accounting earnings management and real earnings
management: Evidence from Iran. Asian Economic and Financial Review, 5(1), pp.46-57.