Question

Question 6 – Audit opinions For each of the following four independent scenarios, indicate: • the type of audit opinion you would express in your audit report; • the reason(s) supporting your choice of opinion; and • which ASA (number is sufficient) most influences your choice. (a) Slocum Limited has changed its method of valuing closing inventory for the current financial reporting period from first-in-first out to weighted average. Inventory is a material proportion of Total Assets for Slocum Limited and the effect of the change has been a material increase in the year-end value of inventory. Those charged with governance have signed-off the change and disclosed the reason as a truer reflection of net income (profit) by better matching revenue and costs. As an auditor you have had extended discussions on the issue with the audit committee and are satisfied with the disclosures. Type of opinion: Reason(s): Supporting ASA number: (b) Joshua Pty. Ltd. is a long-time large proprietary company client of your practice, operating a charter fleet of houseboats. For the current financial reporting period, a new financial director has convinced the Board, to change the method of determining the useful lives of the company’s fleet of houseboats – the most material asset on their balance sheet. The effect has been a material reduction of the depreciation expense and consequent impact on the net income (profit) for the period. In your professional opinion the change is not justified, however, you have been unable to convince Those Charged with Governance. The change has been adequately disclosed in accordance with AASB 108. Type of opinion: Reason(s): Supporting ASA number: (c) Helping Hand is a not-for-profit providing support for the disadvantaged in your local region. As part of your professional firm’s corporate social responsibility obligations, they provide pro-bono audit services to Helping Hand. Your audit documentation shows sufficient and appropriate audit evidence has been obtained for material financial statement items with the exception of a portion of the revenue account. Approximately 40% of Helping Hand’s revenue is raised by soliciting door-to-door cash contributions by volunteers, several times during the year. Your evidence supports the effective operation of internal controls over cash once it is received at headquarters. Type of opinion: Reason(s): Supporting ASA number: (d) Pillager Limited is a retail audit client. A global pandemic has seen a dramatic decline in their trading activity for the current financial reporting period. They have been fortunate to be able to mitigate the impact to some extent by adopting some trading activity to their currently developing online platform and taking advantage of government support programs. The resulting cash flow difficulties have required successful renegotiation of an already fully drawn borrowing facility with their bank. Those charged with governance are adamant company remains viable and have also drawn up contingency plans for capital expenditure cutbacks, additional off-balance sheet finance options & further options for re-scheduling current borrowing obligations. All these details have been disclosed in a going concern note included with Significant Accounting Policies in their annual financial report. Your review of this key audit matter led you to conclude the going concern assumptions of management are sound. Type of opinion: Reason(s): Supporting ASA number:

Answer 1

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