What is the difference between a CPA’s unqualified opinion or “clean” opinion and a qualified one?
A qualified opinion may be a reflection of the auditor's failure, while an unqualified one is considered free of material misstatement.
A Certified Public Accountant (CPA) may be a designation given to authorized accounting specialists. The CPA permit is given by the Board of Accounts for each state.
The CPA communicates a "clean" or unqualified conclusion when the client's financial statements are presented based on an examination of the client's monetary position, and the results of the operations can be understood with largely accepted oversight measures, and the statement is widely accepted. Conforms to accounting standards and includes all information disclosures that are fundamental to creating a fraud-free explanation.
The CPA expresses a qualified conclusion when it must take exception to the introduction of one or more components of the financial statements, but the exception or exceptions are not sufficient to actually rule out or "adverse" the expression of an estimate opinion.
Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.
Net sales to stockholders’ equity
Return on common stockholders’ equity
Total liabilities to stockholders’ equity
Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.
Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.
Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.
Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
a) Describe the analytical use of each of the six ratios presented above.
(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.
The following information was described in a note of Canon Packing Co.
“During August, Holland Products Corporation purchased 311,003 shares of the Company’s common stock which constitutes approximately 35% of the stock outstanding. Holland has since obtained representation on the Board of Directors.”
“An affiliate of Holland Products Corporation acts as a food broker for Canon Packing in the greater New York City marketing area. The commissions for such services after August amounted to approximately $20,000.”
Why is this information disclosed?
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