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Question 2. Halmtorvet, a Copenhagen, Denmark, company that manufactures security devices, has contacted Christian Jespersen, Statautoriseret...

Question 2. Halmtorvet, a Copenhagen, Denmark, company that manufactures security devices, has contacted Christian Jespersen, Statautoriseret Revisor, to submit a proposal to do a financial statement audit. Halmtorvet was a bit taken aback when they saw the cost of the financial statement audit, even though the fees were about average for an audit of a company Halmtorvet’s size. Halmtorvet’s board of directors determined that the company could not afford to pay that price. 
 1. Discuss the alternatives to having a financial statement audit. 
 2. What should Halmtorvet consider when choosing the assurance service?

Homework Answers

Answer #1

1.

Instead of a financial statement audit a review of financial statements (based on ISAs) or a compilation or agreed upon procedures (based on ISRS).

2.

If Halmtorvet is a listed company, their only alternative may be a financial statement audit by an independent auditor. If Halmtorvet is unlisted the type of assurance service depends on the user of the financial statements and the degree of dependence on those statements. Banks may require audited statements for some customers, but allow reviews for smaller companies.

Agreed upon procedures may be adequate if the company wants to use cash accounting of only one accounts (such as accounts receivable) need be reviewed.

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