Question

You are the audit partner at Preston & Associates, a mid-tier audit firm. You are responsible for the audits of the following three independent entities for the year ended 30 June 2018:

1. Helping Hand Ltd is a non-profit entity. You have discovered that it has not kept substantiating vouchers or receipts for more than 65 per cent of its expenses, excluding salaries and allowances.

2. Skyscraper Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, Skyscraper also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. Skyscraper 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 in order 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.

3. Big Event Ltd arranges for popular overseas entertainment artists to perform in Australia. The band Eclipse was booked by Big Event to play in major cities across the country. Big 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 Big Event tried unsuccessfully to renegotiate the band’s contract and has been unable to obtain finance to cover the expected shortfall. Big Event has now cancelled the tour and expects a substantial claim from Eclipse. It is clear to you, as the auditor, that Big Event does not have the income, cash or other assets to sustain such a loss.

REQUIRED

Assuming that all amounts involved are material, identify and discuss the most likely auditor’s opinion that you would issue on each financial report for the year ending 30 June 2018.

Answer 1