Question

You have been appointed as a team leader to a group of auditors assigned to assess RMZ Trading, a
big retail store selling mobile phones in Nizwa. The store has been operating in Nizwa for the past
five years and has been doing well. It has many customers and income is coming in. Because of this,
the store is usually keeping a large stock of its inventory of mobile phones, in varying brands and
models. While analyzing the inventory of mobile phones, you noticed that old models of mobile
phones (3 years and older) were sold for just OMR 2 each phone. You were confused and at the same
time suspicious, so you made your team do more investigation. They discovered this practice: the
manager is reducing the cost of old model mobile phones in the computer system into zero then he will sell them to the customers for the real price. The store will get OMR 2 for each mobile phone
sold and the rest of the money will be deposited to the manager’s own personal account. Other sales
staff was not aware of this practice. Moreover, the accountant was not able to find out because report
on mobile phone inventory was just given to her by the manager every month. The amount lost from
RMZ Trading because of this practice is estimated to be OMR 10,000 and is considered significant.
Total assets of RMZ Trading is OMR OMR 50,000.
Required: Explain your answer to the following questions:
1. Based on the given situation, write your reasons if the auditor can form his opinion on the financial
statements? Formulate your answer based on ISA 200 and ISA 700 concepts.
2. What are the key decision points that could be obtained by the auditor from the case in forming his
opinion? Determine the appropriate auditor’s opinion to be included in the auditor’s report whether
Unmodified Opinion or Modified Opinion. Justify your decision.

Answer 1