Question

Consider the following independent material scenarios. Assume that all entities involved have a year end of 30 June 2020.

1. You are the auditor of the Strong Group. Although you did not act as auditor of Delicate Pty Ltd, Sturdy Pty Ltd and Hardy Trading Pty Ltd (all entities owned by Strong Group), you were able to obtain copies of their unqualified auditor’s report. However, despite having received a copy of the audited (and unqualified) financial report for Delicate Pty Ltd, you don’t believe that this financial report is suitable for consolidation with the other entities in the group. This is because Delicate Pty Ltd operates in Egypt, which has a vastly different accounting framework from that used in Australia. You have been able to quantify the financial effects of the required adjustments on the Strong Group’s financial report. However, management has refused to make these adjustments, and instead has consolidated the existing versions of the four entities’ financial reports.
2. PM Ltd is a listed company. The finance director of PM Ltd refuses to adopt AASB 124 Related Party Disclosures on the grounds that it requires confidential information to be disclosed to the public that should remain known only to the parties concerned. You are satisfied that the current financial report is materially correct in all other respects.

3. You have completed the audit of Big Dreams Limited (BDL). During the finalisation of your subsequent event review, you come across a letter from the major bank just prior to signing the audit report. It states that the bank is withdrawing its loan to BDL due to some recent (after the year-end) breaches of their loan contract. The loan contract states that the loan is payable within 28 days of receiving the letter from bank. The loan represents 80% of BDL’s long-term liabilities and, 65% of total liabilities.

4. You are the auditor of KKK Limited. Management of KKK Limited has decided not to disclose directors’ fees in the accounts as they are not material. You cannot convince management to change its decision. However, you do agree that the amounts are not material.

5. You have just completed the audit of Dreamer Limited. You experienced a number of difficulties during the audit, including significant disagreements over the valuation of Dreamer’s investment property holdings. The audit partner had suggested that the property value was overstated by $8 million, a figure which was twice the level of materiality of $4 million set for the audit. As a result of discussions with the audit committee, the CEO of Dreamer agreed to revise the valuations downward by $5 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement in the financial report of $3 million.

Required:

For each of the above situations (a-e), determine the appropriate audit opinion to be issued. Give reasons.                                                                                                                                              

Answer 1

ANSWER A :

Qualified opinion is the opinion issued by auditor in case when accounting information in financial statements are not satisfactory or say not as per GAAP but no misrepresentations were found.

in present case, auditor must issue qualified report as comapny is not maintating its fianacial statements as per the guidelines and principals of GAAP.

Answer B :

  Disclaimer of Opinion is issued in case of absesnce of proper financial statements of entity . In such cases auditor issued disclaimer of opinion stating the he is unable to give his opnion on firms financial statements status.

In given case, operational information and other information are missing so in this case auditor will issue diaclaimer of opinion in his report.

Answer c :

In this given case, auditor will issue disclaimer of opinion as company is lacking information regarding its transactions and investors.

Answer d:

In this given case , because of disagreement with the management on the disclosure of directors fees a auditor will issue disclaimer of opinion report.

Answer e:

Adverse opinion is issued in case when financial statements doesn't comply with GAAP standards and guidelines.Financial statements are highly misrepresented because of any error or fraud.

In given case, auditor will issue adverse opinion as he found many irregularities and error whie auditing financial statements regarding valuation of investement property with $3 million.