Question

Q5- Week 10 You are the audit partner at Parkville & Associates, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2018: (a) Human Help Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 55 per cent of its expenses, excluding salaries and allowances (2.5 marks) (b) JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King then sells these on its own account. Your analysis strongly suggests that the apportionment of costs to houses and units sold has been kept low to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and hold to their view that the stock of properties is correctly valued (2.5 marks) (c) You have completed the audit of Grand Resort Ltd (Grand Resort) for the year ended 30 June 2015. The audit partner suggested that the value of properties on the Gold Coast were overstated by $16 million, a figure which was twice the level of materiality set for the audit. As a result of discussions with the audit committee, the CEO of Grand Resort agreed to revise the valuations downward by $10 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement of the financial report of $6 million. The audit partner is now considering the effect of the misstatement on the auditor’s report. (2.5 marks) (d) Grand Event Ltd arranges for popular overseas entertainment artists to perform in Australia. The band Eclipse was booked by Grand Event to play in major cities across the country. Grand Event’s written contract required the company to pay the band in US dollars but, in order to reduce costs, it did not hedge the amounts. Subsequent to year end, the Australian dollar fell against the US dollar and a substantial loss relating to the band’s tour was predicted. The management of Grand Event tried unsuccessfully to renegotiate the band’s contract and has been unable to obtain finance to cover the expected shortfall. Grand Event has now cancelled the tour and expects a substantial claim from Eclipse. It is clear to you, as the auditor, that Grand Event does not have the income, cash or other assets to sustain such a loss. (2.5 marks) Required: Assuming no amendments have been made, identify and explain the type of auditor’s opinion required for each issue outlined above. (10 marks, maximum 300 words) Issues Audit Opinion (1 mark) Explanation (1.5 marks) (a)(/(b)/ Write 1 line about issue Unqualified or Qualified or Adverse or Disclaimer Audit Opinion or Unqualified Audit opinion with emphasis of matter or Unqualified Audit Opinion with other matter paragraph Here you will mention about why you have chosen this audit opinion and reason details

Answer 1

Human Help Ltd - In this case, we can see that the entity has recorded expenses for which we can find no supporting evidences. We can see that 55% of the expenses are of those category which donot have vouchers or any other supporting bills. As an auditor, he is responsible to obtain audit evidence as apart od auidt procedure to form an audiy opinion. Here the auditor is supposed to perform additional audit procedures to see whether he can obtain any other evidence to substantiate the transactions taken in the entity. if the auditor fails to obtain the evidences to support the transactions, he can modify his opinion. He can consider those transactions to be fictitious transactions which were made only with a view to reduce the profit of the entitiy. Hence the auditor has to provide qualified opinion or adverse opinion considering the materiality of the amount involved.

JJ Kings - As an Auditor, first we need to analyse the situation. It is said that the JJ kings has undervalued the apportionment of cost and indirect overvaluation of unsold stock. It is said that the directors of the company do not agree with auditors contention of the same. In this case an auditor is supposed to appoint some registered valuer to value the unsold stock, if auditioris not sure of its value. Reducing the cost results in boostif profit of the company. and overvaluation of house also results in the same. Auditor has to obtain evidence regarsing the same, Auditor has to question the check the managements intention of doing so. This is a case where managements judgement comes into the question. Auditor has to qualify his opinion if the management is not ready to rectify the same else withdraw his engagement if management doesnot allow him to work in independence.

Grand Resort Ltd - See in this case, as an auditor its his duty to make use of his professional hudgement right now. In this case, Grand Resort ltd, has overvalued its Goad coast properties by16& million. It can have tremendous effect in the Financial information. It can result in manipulation of Financial statement. However it is said that Auditor has informed this matter to the ,management and they have agreed on the same and reduce the value by 10$ million. Here the next step as an auditor is to check the materiality. we kanoe the Gold coast is still over valued by 6million $. Hence auditor has to check whether it can have serious effect on the decision making capacity of the users of Financial information. If auditor is on opinion that it is material and if not rectified can seriously effect the decion making of users, he has to request the managemnet to reconsider the matter again. If management agrees to reconsider, he has to perform additional audit procedires to check whether actions has been taken from the managements side and if the management disgrees to reconsider, auditor has to compute its effect on the financila statement and should report in the audit report in the empahsis of matters paragraph if it is on key importance and he can modify the opinion accordingly.

Grand event ltd - It is evident from the situation that a huge loss is confronting the entity beause of its misjudgement.Grand event is facing acute shortage of income as a result of which chances off shutting down is more. As an auditor , now it time to a]have a look on the going concern of the entity.We all know that the finanacial statemembt of an entity is prepared keeping in view of the going concern entity. And it is the respknsibility of the auditor to check the degree of uncertainity on the transaction and events of the entity. Auditos judgement is obtain Sufficient appropriate audit evidence regarding the managements intention of going concern. Auditor has to check whether managmemnt has made particular disclosure reagrding the same and has to check whether any action has been taken by director to tackle the situation. if aiditor is on opinion that the companys going concern is in question he has to mention the same in his audit report. Auditor has to express the qualified opinion and also to bring the matter in to the users attention can mention the same in Key audit matters paragraph.