(1)Research
 
Situation ABC corporation, an issuer, is planning to implement an employee share purchase plan. Substantially all employees that meet the limited employment qualifications may participate on an equitable basis. Which section of the authoritative guidance best outlines the criteria that allow a company to provide a share purchase plan that does not require compensation cost to be recognized?
 
Enter your response in the answer fields below. Unless specifically requested, your response should not cite implementation guidance. Guidance on correctly structuring your response appears above and below the answer fields.

         
 
(2)Your firm has become aware of the following situations relating to five of its clients. Use the following possibilities to indicate what type of opinions are appropriate in the circumstances (assume all are material).
 
Opinion Types
 
A. Standard unqualified.
 
B. Unqualified with a matter.
 
C. Qualified.
 
D. Adverse.
 
E. Disclaimer.
 
F. Either qualified or adverse.
 
G. Either qualified or disclaimer.
 
H. Either adverse or disclaimer.
 
1. Bowles Company is engaged in a hazardous trade and has obtained insurance coverage related to the hazard. Although the likelihood is remote, a material portion of the company’s assets could be destroyed by a serious accident.
 
2. Draves Company owns substantial properties that have appreciated significantly in value since the date of purchase. The properties were appraised and are reported in the balance sheet at the appraised values with full disclosure. The CPAs believe that the appraised values reported in the balance sheet reasonably estimate the assets’ current values.
 
3. During the audit of Eagle Company the CPA firm has encountered a significant scope limitation relating to inventory record availability and is unable to obtain sufficient appropriate audit evidence in that area.
 
4. London Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are not actively traded in the market, and the CPA firm’s engagement does not extend to any subsidiary company. The CPA firm is able to determine that all investments are carrier at original cost, and the auditors have no reason to suspect that the amounts are not stated fairly.
 
5. Slade Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are actively traded in the market, but the CPA firm’s engagement does not extend to any subsidiary company. Management insists that all investments shall be carried at original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client will never ultimately realize a substantial portion of the investments, and the client has fully disclosed the facts in notes to the financial statements.
 
Item                 Opinion type
 
1
 
2
 
3
 
4
 
5
 
Answer:
 
(1)
 
ASC  718 50 25 1
 
(2)
 
1. (A) A standard unqualified audit report should be issue.
 
2. (F) Either a qualified or an adverse opinion is required. Valuation of assets at appraised values is not in accordance with generally accepted accounting principles. Since the difference between appraised value and cost is significant, an unqualified opinion would not be appropriate.
 
3. (G) A scope limitation results in either a qualified opinion or a disclaimer of opinion.
 
4. (G) This is a scope limitation and either a qualified opinion or disclaimer of opinion is appropriate.
 
5. (F) An adverse or a qualified opinion is necessary. The CPA firm has acquired sufficient competent evidence to the effect that the investments in stock of subsidiary companies are overstated. Note disclosure does not compensate for improper balance sheet presentation.

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