Consider the following two situations:
1. The auditor discovers during the audit that the auditee company has entered a complex legal contract that involves transferring assets to another company if that company performs certain future services by obtaining supplies from a foreign country. The auditor is unable to establish whether the contract imposes any financial liability or has any other financial impact on the auditee company.
2. The auditor learns that the auditee company is required to comply with environmental standards requiring it to monitor various emissions using complex scientific techniques. The amounts of the financial penalties that can be imposed by the government are determined by the nature and extent of noncompliance with these scientific standards.
Contrast these two situations in terms of the auditor’s responsibility to perform audit procedures and issue a report. Include a recommendation on which form of report would be issued in each case, based on your analysis.