Imagine that your CPA license has just come in the mail. You framed it and you just finished hanging it in the wall over your desk.
Your first client walks into your office. Tumble Manufacturing is a cash-strapped over-extended family-owned manufacturing company that makes plastic refuse containers, the kind you might have placed outside your home. They sell their product primarily under contracts with municipalities who specify various performance obligations for manufacturing, assembly and delivery of the containers. The client has recently applied for a bank loan to complete a much needed factory renovation that will result in increased productivity and profits.
The bank has requested audited financial statements and your client is undergoing an audit for the first time. The client naturally has many questions about the audit and how they should format the financial statements for your review. Using plain language and minimal jargon, answer the following questions in a short letter to your client.
1. The client is concerned about how the bank will view the audit opinion that will accompany the financial statements. The client has asked, "What are the different types of audit opinions that could be issued, and what do they really mean?" "Is one more favorable than the other and why would you issue one versus another?" Explain using the current terminology for audit opinions in your text. The terminology on the internet may not be the most current. (2-4 paragraphs)
2. The client has prepared formal GAAP financial statements but is unsure about the final format and disclosures. They have asked you what accounting standards or disclosure requirements may have recently been issued that could impact the financial statements? Specifically your client has asked about the new guidance on going concern disclosures ASC 205-40 and ASC 606 Revenue from Contracts with Customers. The client did not consider these when the financial statements were prepared. Do some research on FASB.org or on the websites of the big four firms for either one of these topics. Summarize for either one (your choice) how, if at all, this guidance could effect the financial statement presentation now or in coming years. For example, are any disclosures needed, will their accounting policies change? (2-3 paragraphs)