John T. Rigsby ACC 8033 BUSINESS ASSURANCE AUDIT REPORT CASES John T. Rigsby ACC 8033 BUSINESS ASSURANCE

Type of Audit Opinion Determining Type of Opinion in Varying Circumstances Violation of GAAP—so render either a qualified or adverse opinion. Because of the highly material amounts involved for fixed assets and inventory and its ‘pervasive’ effects on income statement and balance sheet, and adverse opinion would be appropriate. Lack of evidence—so render a disclaimer since the auditor has been prevented by the client from confirming the value of the inventory. There is insufficient evidence to render an opinion. Violation of GAAP—so render a qualified or adverse opinion. Because the violation is the lack of a cash flow statement, a qualified opinion explaining the omission would be appropriate. Change in Estimate—so long as disclosure in the financial statements is adequate, an unqualified opinion would be rendered.

Rewrite an Insufficient Audit Report Independent Audit Report To the Board of Directors of Marcus Corporation Report on the Financial Statements We have audited the accompanying balance sheet of Marcus Corporation and its subsidiaries as of December 31, 2015 and 2016 and the related consolidated statements of income, retained earnings, and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

Independent Audit Report (cont’l) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Qualified Opinion The Company’s financial statements do not disclose the debenture agreement restricting the payment of future cash dividends to earnings after December 31, 2018. In our opinion, disclosure of this information is required by generally accepted accounting principles. Opinion In our opinion, except for the omission of the information discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position, of Marcus Corporation as of December 31, 2015 and 2016, and the results of its operation and its cash flows for the years then ended in conformity with generally accepted accounting principles of the United States of America. Emphasis-of-Matter Paragraph As discussed in Note 12 to the financial statements, the Company changed its method of account for long term construction contracts. Signature Date

Modification of Audit Report for Consistency No. Type of Change Add Explanatory Paragraph Restate Prior Year 1. Change in Principle Yes Yes 2. Change in Estimate No No 3. Material Error in Prior Year Yes Yes 4. Material Error in Prior Year Yes Yes 5. Change in Entity Yes Yes 6. Principle Inseparable from Yes No-Pro Forma Estimate Disclosure 7. Change in Classification No Yes 8. Change in Principle Yes No- (FIFO to LIFO) Disclosure of why not able to calculate layers of prior years’ costs w/ LIFO

Listing of Deficiencies and Omissions in an Audit Report In Introductory Paragraph, no reference to cash flow statement and dates are missing for financial statements. Eliminate phase “in accordance with your instructions” and reference to “a complete audit” Also need to refer to notes to the financial statements No reference to Management’s Responsibilities The paragraphs in the Auditor’s Responsibilities are incomplete and nonstandard. Should provide a reference to GAAS of the United States of America, have a paragraph describing the audit process, and a sentence discussing sufficiency and appropriateness of audit evidence.. Also should not include financial analysis discussion of unusual year. In addition providing negative assurance on accounts receivable in inappropriate. “In Opinion Paragraph With the explanation given above” is inappropriate since it is an unqualified opinion No need to mention immaterial errors! No reference to “cash flows” Should refer to “generally accepted accounting principles in the United States of America”