Supposed that you are the auditor of Mike Pty Ltd for the year ended 20/06/2020. Mike...

Supposed that you are the auditor of Mike Pty Ltd for the year ended 20/06/2020. Mike Ltd has followed AASB (Australian Accounting standard) in preparation of financial reports. However, a note to the financial report indicates the early application of an accounting standard that has a pervasive effect on the financial report. The note details the reasons for this view. You, as the auditor, concur that this additional note disclosure is necessary to give a true and fair value. What type of opinion should you issue? Explain the reason for your answer.

Solutions

Expert Solution

An unmodified opinion with an Emphasis of Matter.

Unmodified opinion is expressed to the financial statements that prepared in all material respect and complying with the applicable framework because Mike Ltd has followed AASB (Australian Accounting standard) in preparation of financial reports.

This opinion is issued once auditors obtain sufficient and appropriate audit evidence to the financial statements as the result of their testing.

Here, a note to the financial report indicates the early application of an accounting standard that has a pervasive effect on the financial report. So it must be noted that, here the auditor is not providing absolute assurance on the financial statements that is why it uses words “in all material respect” in unmodified opinion.

All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial misstatement.

It is okay to have immaterial misstatement (pervasive effect) in the financial statements as it is not lead users of FS to make the wrong decision.

Please mention your doubt in the comment box if any. Thanks.

ekkarill92 answered 1 year ago

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