(a) Discuss the three basic types of modifications that can be made to the auditor’s opinion, and outline the circumstances under which each might be issued.

(b) You are the audit partner at Andrew and Partners, a mid-tier audit firm. You are responsible for the audits of the following four independent entities for the year ended 30 June 2020:

(i) Boutique Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, Boutique also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. Boutique King then sells these on its own account. Your analysis strongly suggests that the apportionment of costs to houses and units sold has been kept low to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and hold to their view that the stock of properties is correctly valued.

(ii) You have completed the audit of Adina Homes Ltd for the year ended 30 June 2020. The audit partner suggested that the value of properties on the Nusa Point were overstated by $32 million, a figure which was twice the level of materiality set for the audit. As a result of discussions with the audit committee, the CEO of Adina Homes agreed to revise the valuations downward by $20 million. All other issues were resolved to the satisfaction of the audit partner, resulting in an overall misstatement of the financial report of $9 million. The audit partner is now considering the effect of the misstatement on the auditor’s report.

Required:

Assuming no amendments have been made, identify and explain the type of auditor’s opinion required for each issue outlined above.

Answer rating: 100% (QA)

Three basic types of modification are QUALIFIED OPINION ADVERSE OPINION DISCLAIMER OF OPINION Materi... View the full answer