| Course | ACC-7010 Auditing and Accounting Information Systems |
|---|---|
| Module | Module 2 |
| Paper type | Module 2 written assignment: audit opinions, report language and other engagements |
| Length | About 749 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | MBA in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 7010 Module 2
A Clean Opinion and an Adverse One: Reporting on a Distributor's Statements, Controls and Other Engagements
Student Name
MBA in Accounting, Thomas Edison State University
ACC-7010: Auditing and Accounting Information Systems
Mentor Name
Month Day, Year
A Clean Opinion and an Adverse One: Reporting on a Distributor's Statements, Controls and Other Engagements
Introduction
An auditor's report communicates the conclusion of the audit in standard language so that users can rely on it. For public companies, PCAOB standards require an opinion on the financial statements and, for larger filers, an opinion on internal control over financial reporting, along with critical audit matters (Whittington & Pany, 2016). Accountants also provide reviews, compilations, attestation engagements and service organization reports, each with a different level of assurance.
Part A: The Two Opinions
The weakness is material because it creates a reasonable possibility that a material misstatement of revenue could occur and not be prevented or detected on time; no compensating control monitored program changes. The auditor responded by expanding substantive testing of revenue, including recomputing invoices from contract prices and shipment data for the affected months, and found no misstatement. That is why the two opinions can differ: the control opinion concerns the risk that misstatements could occur, while the statement opinion concerns whether they did. The control report includes a paragraph describing the material weakness and management's assessment.
The auditor's response to the weakness also affected the audit's cost and timing. Because the auditor could not rely on automated controls in billing for seven months, substantive testing of revenue had to be expanded to larger samples and recomputation, adding hours and moving work closer to the reporting deadline. Management's remediation, including monitoring of program changes and removing developer access to production, will be tested in the following year.
| Engagement area | Finding | Opinion |
|---|---|---|
| Financial statements | No uncorrected material misstatements after audit adjustments | Unmodified |
| Internal control over financial reporting | Developers had unmonitored access to change production code in the ERP billing module for seven months | Adverse |
Part B: Drafting a Critical Audit Matter
Under the PCAOB's definition, a critical audit matter is one the auditor raised with the audit committee, tied to a material account or disclosure, whose audit called for especially challenging, subjective or complex judgment (Public Company Accounting Oversight Board, 2017).
Critical audit matters do not modify the opinion. Gutierrez et al. (2018) found that the United Kingdom's expanded auditor's report did not change investor reactions or audit fees significantly, which suggests that the value of such disclosures depends on whether they are specific to the company rather than boilerplate.
| Element | Draft language summary |
|---|---|
| Matter | Reserve for excess and expired inventory, $14.6 million |
| Why it is critical | Estimates of future demand and expiration involve significant judgment, and small changes in assumptions materially affect the reserve |
| How it was addressed | Tested controls over the reserve process; compared prior forecasts with actual sales; tested expiration data for a sample of lots; evaluated sales after year end; developed an independent expectation using historical write-off rates |
Part C: Going Concern for a Subsidiary
The company's home infusion subsidiary, which issues its own audited statements for a lender, has lost money for three years, has negative working capital and must refinance a $22 million loan within nine months. Together these facts create substantial doubt that the subsidiary can keep operating for the twelve months after its statements are issued. Management's plans include a $15 million capital commitment from the parent, backed by a signed support letter, and the sale of an unprofitable branch. If the auditor concludes that the parent's documented support is probable of being carried out and mitigates the doubt, the report needs no going concern paragraph, but the notes must disclose the conditions and plans. If the doubt remains, the report includes a going concern paragraph after the opinion; the opinion itself remains unmodified if disclosure is adequate.
Part D: Other Engagements
The company's own auditors also rely on a SOC 1 report from the payroll processor, which addresses controls relevant to financial reporting.
Independence rules differ across these engagements. The audit firm may perform the review and the agreed-upon procedures, but if it also prepared the affiliate's statements, it would need to consider whether that nonattest service impairs independence for the review.
| Request | Appropriate engagement | Assurance |
|---|---|---|
| A bank lending to a small affiliate wants limited assurance on its statements | Review under SSARS | Limited |
| The owner of an affiliate wants statements prepared but no assurance | Compilation or preparation engagement | None |
| Hospital customers want assurance about controls at the company's data center that hosts their ordering data | SOC 2 report on security and availability | Reasonable, on controls |
| A group purchasing organization wants specific rebate calculations checked | Agreed-upon procedures | None; findings reported |
References
Gutierrez, E., Minutti-Meza, M., Tatum, K. W., & Vulcheva, M. (2018). Consequences of adopting an expanded auditor's report in the United Kingdom. Review of Accounting Studies, 23(4), 1543-1587. https://doi.org/10.1007/s11142-018-9464-0
Public Company Accounting Oversight Board. (2017). AS 3101: The auditor's report on an audit of financial statements when the auditor expresses an unqualified opinion.
Whittington, O. R., & Pany, K. (2016). Principles of auditing and other assurance services (20th ed.). McGraw-Hill.
ACC 7010 Module 2 instructions, in plain terms
The reporting module asks what an auditor concludes, how the conclusion is worded and which other services fit other needs. Questions usually require choosing the right opinion from the four types, explaining added paragraphs, critical audit matters and going concern wording, reporting on internal control and telling audits apart from reviews, compilations, attestations, agreed-upon procedures and SOC reports. Expect at least one question that asks you to draft or critique report language. Some versions add an emphasis-of-matter paragraph, a scope limitation leading to a qualified opinion or a disclaimer, and an engagement under the attestation standards. Mentors expect current PCAOB and AICPA terms.
Inside the ACC 7010 Module 2 example
The introduction states what reports communicate and which engagements the module covers. Part A explains why an auditor can give a clean opinion on the statements yet an adverse one on internal control, with the auditor's response to the weakness. Part B drafts a critical audit matter in a table and cites evidence on the value of expanded reports. Part C applies the going concern standard to a subsidiary, considering management's plans. Part D matches four requests to engagements and levels of assurance and notes reliance on a SOC 1 report. Tables keep the opinions, the critical audit matter and the engagement choices easy to compare, and the going concern part shows both possible outcomes so the reader sees how the decision turns on management's plans.
ACC 7010 Module 2 rubric: what earns full marks
This reporting assignment carries 7.5 of the 30 points set aside for written work. For reporting, mentors check that opinions are correctly chosen and justified, that critical audit matters meet the definition and describe specific procedures, that going concern is evaluated with management's plans and that other engagements are matched to needs with correct levels of assurance. Using current PCAOB and AICPA terminology shows command of the standards. Draft report language that follows the standard structure, and a critical audit matter whose procedures are specific to the account, earn most of the credit. Matching engagements to needs requires naming both the standard and the level of assurance each provides. Noting how a material weakness changes the auditor's own testing shows integration of the two opinions.
Common ACC 7010 Module 2 mistakes, and how to avoid them
Reporting answers lose points by confusing a material weakness with a material misstatement, treating critical audit matters as modifications of the opinion and placing going concern language incorrectly. Separate the control opinion from the statement opinion. Write audit responses as specific procedures. State the level of assurance for each engagement. Read the relevant standard's illustrative report before drafting. Keep the opinion paragraph separate from explanatory paragraphs, and note that going concern language follows the opinion. Name the standard. State which opinion applies to which subject matter before drafting any language. A free first sample of your own ACC-7010 Module 2 assignment is available on request.
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ACC 7010 Module 2 questions, answered
Where can I find a free ACC 7010 Module 2 sample paper?
The distributor's reporting assignment appears above: an unmodified opinion on the statements, an adverse opinion on controls, a critical audit matter, going concern and other engagements.
Can a company receive a clean audit opinion and an adverse opinion on internal control?
Yes. The statements can be fairly stated after testing even though a material weakness created a reasonable possibility of misstatement.
What is a critical audit matter?
One raised with the audit committee, tied to a material account or disclosure, that demanded unusually difficult or subjective auditor judgment.
Does a going concern paragraph change the opinion?
No. With adequate disclosure, the opinion remains unmodified and the paragraph draws attention to the substantial doubt.
What is the difference between SOC 1 and SOC 2 reports?
SOC 1 addresses controls relevant to user entities' financial reporting; SOC 2 addresses security, availability, processing integrity, confidentiality or privacy.