Question

a. Hilmi and Partner has been engaged to perform an audit for Asian Bin Bhd for the year ended 31 December 2018. While finalizing the audit, you noted that the net profit is MYR 450,000 in the directors’ report compared with MYR 500, 000 in the Statement of Comprehensive Income. Based on your discussion with the management, you find out that the difference is due to an adjustment to inventory adjustment, you have made the necessary adjustment. However, the directors refuse to amend the financial statements to reflect the adjustment.

Required:

i. Discuss the type of audit opinion and draft and auditor’s report to accompany the above situation. [15 Marks]

ii. In some circumstances the unqualified audit report may be modified by adding an emphasis of matter paragraph. Explain the purpose of adding an emphasis paragraph to an audit report, and discuss the circumstances that may cause the auditor to include an emphasis of matter paragraph in audit report [10 Marks]

Answer 1

i)Adverse opinion- In case where suffucient and appropriate audit evidences are obtained by the auditor that financial statements are materialy misstated and such misstatement is material and pervasive in nature in such a case auditor shall express adverse opinion.

In a given case auditor has obtained that sufficient audit evidences that net profit is misstated in financial statement and managment refuses to amend financial statements.

Basis for adverse opinio-

In our opinion because of significance of matter specified above,when reporting in accordance with fair presentation framework the accompanying financial statements do not show true and fair view.

ii) auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial report that, in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of the financial report, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided the auditor has obtained sufficient appropriate audit evidence that the matter is not materially misstated in the financial report. Such a paragraph shall refer only to information presented or disclosed in the financial report

When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:

(a)                 Include it immediately after the Opinion paragraph in the auditor’s report;

(b)                 Use the heading “Emphasis of Matter,” or other appropriate heading;

(c)                 Include in the paragraph a clear reference to the matter being emphasised and to where relevant disclosures that fully describe the matter can be found in the financial report; and

(d)                 Indicate that the auditor’s opinion is not modified in respect of the matter emphasised