Question

You are auditing Duong Ltd for the year ended 30th June 2019. Duong is a supplier of technology equipment, and you have identified a material misstatement in the inventory account. Duong has not written a now obsolete product range down to the lower of cost and net realisable value as required by Australian Accounting standards. Furthermore, in the Chairman’s Report it state’s the company has experienced a 5 per cent growth in market share over the past 12 months. This is inconsistent with your understanding of the business, and when you request a change be made to the Chairman’s Report, management disagrees. Required: Using the Framework for Audit Opinions studied in this unit, explain the most appropriate auditor’s opinion for Duong for the year ended 30th June 2019. Justify all aspects of your response.

Answer 1

ANS:

1) AS per ISA 700 -

Material Mistatement identified in Inventory Account is an Factual mistatement f not adjusted then audit opinion would be qualified opinion because issue is material but not adverse. if not material then unqualified opinion is issued .

Qualified opinion:

Stating that " except for these matters ( inventory ) Described in "Basis for qualified opinion " the financial statements are fairly stated

Basis for qualified opinion

The Para describe and quantify the financial effects of the misstatement .

2) As per ISA 720 -

This inconsistency identified in the chairman report need to be communicated with the management to rectify, if management fails to rectify then auditor

- Need to withdraw from the engagement if the issue is material or

- Auditor should disclose material inconsistency of 5% in audit report through seperate section called "other Information Paragraph". other information Para is not a modification of audit opinion .