Question

1.)Discuss the audit issue in each case and its impact on the type of audit opinion provided(use relevant standards and legislations to support answer.

a.) Company A uses the last-in first-out inventory valuation method for its closing inventory, which is a significant item found in its statement of financial position. The difference between first-in first-out and last-in-first-out has a material effect on the closing inventory balance.

b.) Company A is a parent company owning different subsidiaries. One of these is subsidiaries is Company X, a self-sustaining foreign subsidiary with manufacturing and distribution facilities throughout the World. While the Company A Group prepared its financials for the year ended 30 June 2017 the accounts included all the subsidiaries except for Company X which was attached separately. The Financials included a note stating that the senior executives believe it would be misleading to consolidate Company X due to its unique and different operations from all other subsidiaries within the vision group. The note also shows details of the intra-group transactions.

c.) Company A has the following audit problems:

• The company did not update the listing for the changes in shareholding of the company

• The director’s minutes were not prepared for the current year • No annual general meeting (AGM) was held last year

• There was no written consent from the directors to act

• The company did not even justify the reason for not keeping proper records and holding the AGM

Answer 1

a) There is significant importance of method of valuation of inventory according to nature of business.

for example if there is fast moving goods industry then it is suitable to adopt last in first out method becouse inventory of last in has more valuable than first in this is totaly depending on nature of business so if company A uses last in first out method which is not suitable then Auditor shall issue Qualified audit report accordingly.

b) Company A cannot exclude Company X financial if it is integral part of company A irrespective of the fact that it is of unique and different nature of company X and stated in notes of account. Company A shall have to include financial of company X if company A cant do so then auditor shall have to issue adverce or qualified opinion accordingly.

c) If company A not update its list of shareholding then auditor opinion shall modify accordingly.

> If director's minute not prepared for current years then in such a case auditor shall have to issue a modified opinion accordingly.

> No AGM was held las year so in such a case there is modication of audit opinion from the side of auditor.

> There should a writeen concent of Directo to act if not then auditor should issue Modified opinion accordingly.

> Whether company has justified or not for not keeping proper records and not holding AGM then in such a case auditor shall issue modified opinion accordingly.