Eyemax Corporation Audit

Requirement 1

This statement is correct. Unqualified opinions should be free from misstatements, errors, and misappropriation of GAAP. In other words, unqualified opinions are clean opinions. Materiality has to do with misstatements, if you fall below the tolerable misstatement amount then you should have an unqualified or clean opinion.

Requirement 2

Warranty Payable        130,000

        Warranty Expense        130,000

This entry would reverse the overstated expense, net income, and liability accounts.

Maintenance Payable                200,000

        Maintenance Expense        200,000

This entry would reverse the overstated expense, net income, and liability accounts.

Estimated Litigation Liability        50,000

Litigation Expense                50,000

This entry would reverse the overstated expenses, net income, and liability accounts.

Sales Revenue        8,662

Accounts Receivable                8,662

This entry would reverse the overstated assets, revenue, and net income accounts.

Requirement 3

Yes I would only consider the known difference of that amount due to the sampling selected. You must consider if it is immaterial to the A/R account and if it represents that account as a whole.

Requirement 4

I would allow them to pass on all of the the adjustments made because it seems as though the company would have selected to make passing entries. None of these accounts seem to exceed the tolerable misstatement. The A/R account could have been due to human error as well.

Requirement 5

If management refused to make adjustments I would issue a qualified opinion. Many auditors find material misstatements and allow the company to fix these errors this allows the to issue an unqualified opinion. However, if you are reluctant to fix your misstatements then I would feel as though a qualified opinion is just.