In: Accounting
You are the audit manager at Deloitte and you are
finalising the audits for 30 June 2021. The following
independent and material matters have come to your attention:
1. WorldCom.Social Ltd provides social housing to approximately
1500 tenants at below normal market
rents. WorldCom.Social is a reporting entity under the Corporations
Act. During the year, there has been
a review of the basis for calculating the lives of the houses owned
by the organisation. Previously, these
houses were assessed to have a useful life of 30 years, but this
has now been changed to 50 years.
During your audit work, you reviewed the WorldCom.Social Ltd asset
management policy which only
plans for maintaining and upgrading properties up to 30 years old.
You also found that, during the year,
WorldCom.Social Ltd demolished a house that it built in 1989.
2. Enron Ltd is a holding company with a few wholly owned
subsidiaries. One of these, Kingsemi Co.,
Ltd, is a self-sustaining foreign subsidiary with manufacturing and
distribution facilities throughout South-
East Asia. The group accounts of Enron and its subsidiaries consist
of the consolidated statements of
Enron and its subsidiaries and exclude those of Kingsemi Co., which
are attached separately. The
consolidated statements include a note stating that the directors
believe it is misleading to consolidate
Kingsemi Co. because its operations are very different from those
of the rest of the group and are
carried out under significantly different conditions. The note
includes details of intercompany balances
and transactions.
3. Newmont Goldcorp Pty Ltd, is a family run business, operating a
small goldmine. The board is
represented by Mr. Cristiano Ronaldo and his brother, Mr. Hugo
Ronaldo, who are also the predominant
shareholders. In the final audit meeting, Mr. Hugo has told you he
suspects that the vein they are
presently mining will last 13 months at the least to 17 months at
the most. He has also noted that after
they extract the gold, they will close the business, let the
license expire and retire to Madeira. Mr. Hugo
then showed you a land-surveyor’s report confirming his statement
regarding the amount of gold in the
vein. This information has not been disclosed in the financial
report.
4. CARE Australia is a non-for-profit organisation and a
non-reporting entity. In the last three years, you
have been performing their audits in accordance with its
constitution. The financial reports are prepared
by another accounting firm on behalf of CARE Australia’s board of
directors, because CARE Australia
does not have internal accounting expert to perform this function.
During your review of the internal
control structure, you acknowledged that CARE Australia did not
have adequate controls over the
collection of income to enable you to be satisfied that all income
received was recorded. However, you
have been satisfied that the organisation has accurately accounted
for all income recorded.
You are required to:
A) Identify the type of auditor’s report to be issued for each of
the above situations.
B) Justify your answer by discussing the relevant audit issues you
have considered in forming your
opinion.
(A) Type of Auditor's report
1)Adverse opinion
2)Disclaimer of opinion
3) Unqualified opinion
4) Qualified opinion
(B) Justification
1) Adverse opinion is given . As firm financial records do not confirm GAAP . The company has tried to mislead the material information as it has changed the useful lives of houses from 30 to 50 years even there is no change in the management policy which will definately be done on account of fraud .
2) Disclaimer of opinion is given. Since, there is some missing information that they have not provide the complete information about its subsidiary Kingsemi co., it doesnot matter that it's operations are same or not but they have to provide complete information. Due to which auditor is unable to complete accurate audit report.
3)Unqualified opinion is given . because there is no material misstatement is found in the financial statement and all the inforation provided is true and fair.
4) Qualified opinion is given .Because the company has not maintained financial records in accordance with GAAP but no misrepresentation are identified . As , company doesnot maintain proper income statement .However, we are satisfied that co. has provided all income statements.
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