Question

identify the Auditor’s opinion for each of the following independent cases. a-Explain and Justify your answer. b- bring all the alternative scenarios when answer. c- mention the appropriate auditor responses for each scenario. 1- Management refuses to permit the auditor to obtain confirmations about balances of certain vendors due judicial dispute between the client and vendors. - The auditor discovers serious deficiency of the client’s internal control. 3- The auditor discovers client’s tax evasion. 4- The auditor discovers a fraudulent act committed by a senior employee of the client. 5- The client asks the auditor to change the engagement from audit to review.

Answer 1

Auditor's Opinion:  

Sr. No.	Scenario	Audit Opinion
1	Management refuses to permit the auditor to obtain confirmations about balances of certain vendors due judicial dispute between the client and vendors.	Auditor can ask the management to provide alternate evidences to support the vendor balances. Auditor can veify the legal documents to assess if the vendor balance as per books of accounts are true and correct. If the auditor forms an opinion on based on such altenate evidence provided that the vendor balances of whom confirmations could not be obtained are true and correct he can issue clean report. However, if he feels that such alternate evidence provides insuffucient evidence or further raises doubt of mateial misstatement he can always give a disclaimer of opinion stating that balance confirmations could not be obtained. If the impact of these balance is not material and auditor is othewise satisfied with a financial disclosures and internal controls he can give a qualified audit report stating that the financials show a true and fair view subject to the matter stating that the balance confirmations of vendor balances aggregating to $_______ (value) could not be obtained.
2	The auditor discovers serious deficiency of the client’s internal control.	Auditor needs to assess and quantify the impact of deficiency observed in the client's internal control on financial reports of current financial report and also impact that it will have on future financial reports. Accordingly, auditor can issue a qualified report stating the deficiency observed and the impact that it had on the financials. If the auditor is of the opinion that the impact is so much that the financial reports do not show true and fair view of the financial position of the entity he can issue a report with adverse opinion.
3	The auditor discovers client’s tax evasion.	If the auditor is otherwise satisfied with the account balances stated in the financial reports, he can issue a qualified opinion stating that the financial position shows a true and fair view subject to an amount $________ w.r.t. tax liability due to tax evasion under _______ law.
4	The auditor discovers a fraudulent act committed by a senior employee of the client.	It is important that users of financial statement are aware of frauds if any detected in the system. Hence, auditor needs to assess the impact of the fraud to assess its materiality and also substantiate this with additional investigation into the probe. If auditor is of the opinion that secluding this fraud the internal control system is in place and the financials otherwise show a true and fair view, he can issue a qualified opinion with qualifications w.r.t. the fraud that was cited and imapct of the same on financials. Auditor can ask the client to respond on the auditor's report with 'actions taken' especially on this matter with necessary additions to internal control and verify if same have been implementated in subsequent audits.
5	The client asks the auditor to change the engagement from audit to review.	If such change has been w.r.t. a statutory audit it would require that the necessary procedures (for example, N.O.C. from old auditor) as statutorily required are carried out for such cancellation of an auditor's engagement. Otherwise this would mean non co-operation with auditor for audit and the audit can thus issue a disclaimer of opinion.