6. Described below are situations which have arisen in four unrelated external audit clients of your...
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6. Described below are situations which have arisen in four unrelated external audit clients of your firm. The year-end in each case is 30 April 20X2. Amber Ltd (Amber) Amber has not made allowance for an irrecoverable debt of £150,000 in respect of a customer which went into administration on 5 May 20X2. The profit before tax disclosed in Amber's draft financial statements for the year is £2,000,000. Beryl Ltd (Beryl) Your company has been the auditor of Beryl for many years and inventory has never been found to be misstated. In the draft financial statements Beryl's total assets are £10 million, including £500,000 of inventory. Unfortunately, this year the entire audit team caught covid just before 30 April and so no audit staff were able to attend the year-end inventory count at Beryl. There are no satisfactory alternative audit procedures which can be performed regarding this balance. Coral Ltd (Coral) Coral Ltd has neglected to include a cashflow statement within their financial statements. Diamond Plc (Diamond) Diamond operates in a highly regulated industry. They are currently being investigated by their regulator and as result of this investigation may be forced to pay a significant fine. The directors of Diamond have disclosed a contingent liability relating to this within the financial statements. The audit engagement partner agrees with this treatment and disclosure. Required: a) For each of the four circumstances above describe how the auditor should modify their report. Justify your answer. You should include the type and presentation of the audit opinion in each case. The marks will be allocated as follows: • Amber (5 marks) • Beryl (5 marks) • Coral (3 marks) Diamond (5 marks) • (Total for part a) 18 marks) b) Explain the purpose of the key audit matter section of in an auditor's report. (2 marks) 6. Described below are situations which have arisen in four unrelated external audit clients of your firm. The year-end in each case is 30 April 20X2. Amber Ltd (Amber) Amber has not made allowance for an irrecoverable debt of £150,000 in respect of a customer which went into administration on 5 May 20X2. The profit before tax disclosed in Amber's draft financial statements for the year is £2,000,000. Beryl Ltd (Beryl) Your company has been the auditor of Beryl for many years and inventory has never been found to be misstated. In the draft financial statements Beryl's total assets are £10 million, including £500,000 of inventory. Unfortunately, this year the entire audit team caught covid just before 30 April and so no audit staff were able to attend the year-end inventory count at Beryl. There are no satisfactory alternative audit procedures which can be performed regarding this balance. Coral Ltd (Coral) Coral Ltd has neglected to include a cashflow statement within their financial statements. Diamond Plc (Diamond) Diamond operates in a highly regulated industry. They are currently being investigated by their regulator and as result of this investigation may be forced to pay a significant fine. The directors of Diamond have disclosed a contingent liability relating to this within the financial statements. The audit engagement partner agrees with this treatment and disclosure. Required: a) For each of the four circumstances above describe how the auditor should modify their report. Justify your answer. You should include the type and presentation of the audit opinion in each case. The marks will be allocated as follows: • Amber (5 marks) • Beryl (5 marks) • Coral (3 marks) Diamond (5 marks) • (Total for part a) 18 marks) b) Explain the purpose of the key audit matter section of in an auditor's report. (2 marks)
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Answer rating: 100% (QA)
Answer a Amber Ltd The auditor should modify their report to include an emphasis of matter paragraph regarding the irrecoverable debt of 150000 The auditor should express a qualified opinion in the re... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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